FHA Announces Updated COVID-19 Relief Guidelines

July 13, 2022

Because of the global COVID-19 pandemic, many Americans had a job loss or a drop in income over coronavirus-related employment gaps. Those employment gaps can make it harder for a loan officer to approve a mortgage.

And it can be harder to get a loan under such circumstances if you are self-employed.  There have been many offers of relief during the pandemic but for some parts of the population, more consideration may be needed. To that end, the FHA has announced updated COVID-19 credit qualifying guidelines for borrowers trying to buy a home with an FHA mortgage. 

In early July 2022, the FHA released these new guidelines so participating FHA lenders could begin planning how to change their approaches before the implementation deadline for these new measures... The updated FHA loan guidelines give lenders added flexibility when qualifying a borrower who may have income or employment gaps because of the pandemic.

According to a press release on the FHA official site “salaried and hourly wage-earners, as well as self-employed individuals” who were affected by the pandemic but can now show income stability may have a better shot at loan approval.

“The changes we are announcing today further our efforts to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic,” according to Federal Housing Commissioner Julia Gordon, who was quoted in the press release. 

Gordon adds, “The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale.” Gordon says the idea of not addressing these effects is “contrary to this Administration’s goals and FHA’s mission.”

HUD 4000.1, the FHA Lenders Handbook, has been updated to include specific instructions to lenders who need to verify a borrower’s income. For example, under the original rules, a borrower who earns an hourly wage is typically required to provide the lender with two years' worth of income information. If the borrower had a pay raise, the lender can use the most recent 12-month pay average. 

The Lender’s Handbook has been updated to include an exception for a “COVID-19 Related Economic Event” and now says; the lender is permitted to use “the current hourly rate” instead. 

And what about situations where the borrower earns a steady wage but does not have the same hours every week? In these cases, the new rules require the lender to use either the average income earned since the COVID-19-related event or the average of income earned over a year to two years leading up to the economic event. The lower amount will be the one used by the lender.

What is a COVID-19-related economic event? The FHA official site describes it as a “temporary loss of employment, temporary reduction of income or temporary reduction of hours worked during the Presidentially Declared COVID-19 National Emergency.” 

The new policies may be used by participating lenders now, but must be implemented no later than September 5, 2022.

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