Articles and news about FHA loans and HUD requirements. FHA loans are great for first-time homebuyers.

Monthly Archives: January 2011

FHA Loans: Submitting a Written Offer to the Seller

Buying a home with an FHA mortgage is very similar to purchasing a home with a conventional loan in many ways. Once the loan application itself has been approved and it’s time to make an offer, buyer and seller interact with one another the same as with any other real estate purchase. First time home buyers with an FHA insured home loan may not know what to expect or what’s expected of them at this stage in the process, but the steps are very simple.

When the buyer decides that a property is the one for them, they may make an offer to the seller. As long as the offer is not submitted in writing as a binding agreement, there’s plenty of room to negotiate but it’s important for FHA borrowers to know that once they commit in writing to specific terms, they have legally bound themselves to those terms.

That’s why it’s very important to read over the entire text of an offer before you sign and submit to make sure it includes specifics that protect both buyer and seller. Those specifics should include the purchase price of the home, any allowable concessions on the FHA mortgage such as the closing costs, conveyances or personal property included in the sale of the home, discount points, and other details. One of the most important details to include in a written offer is that the offer is contingent on a home inspection by a qualified inspector.

The offer should state what areas the seller agrees to fix in the event the inspection uncovers issues with the property, how much the seller agrees to reduce the asking price should the buyer agree to do the repairs instead, and other important details relating to the home inspection and its outcome.

If the buyer and seller agree on the written offer, it becomes a binding contract. It’s not necessarily binding just because the buyer has submitted it, but if the seller agrees to those terms, it does become a contract. That’s one reason why the inspection clause is so important, as well as a clause in the proposal stating how long the seller has to consider the offer before it is no longer binding.

There are other items in the offer the buyer should be sure to include once it becomes a contract, we’ll cover those in another blog post.

FHA Loans: Buying Land

There are several reasons why a house hunter looking for a home to purchase with a VA mortgage might want to buy a piece of land. In times when the housing market is favorably inclined towards new construction loans, some buyers might want a government insured loan for a proposed construction or new construction purchase; others might want to buy a piece of land for a manufactured home or mobile home.

As with many other parts of the FHA loan process, there are some do’s and don’ts to be mindful of when buying land as part of an FHA mortgage. There are plenty of pro-consumer laws enacted to protect buyers who want to own land, but there are also some good, common sense things buyers can do to protect themselves regardless of those laws. Some buyers purchase land from out-of-state, which makes the first rule of buying property more challenging.

Even so, it’s never a good idea to purchase land without having inspected it first. Buyers should treat a land purchase the same as they would the home itself–who would buy a house without having a look at it first? The same principle should guide a land purchase.

The FHA recommends doing some homework on the developer of the land–what is the developer’s reputation in the local area? Can someone there recommend them? What does your lender or real estate agent say about them. Applying for an FHA mortgage loan means you’ll be meeting plenty of people who might know who is reputable and who isn’t. Ask for an opinion.

Never give in to high-pressure sales tactics, especially those conducted over the telephone. Always insist on reading all contracts

New FHA Proposal Tightens Anti-Discrimination Regulations

The FHA and HUD have strict rules prohibiting discriminatory practices when it comes to FHA home loans, but new rules proposed by the Department of Housing and Urban Development would provide much more guidance to lenders and sellers. HUD Secretary Shaun Donovan announced a proposal that would codify equal access to housing rights for all FHA applicants regardless of orientation or gender identity.

At a time when “Don’t Ask, Don’t Tell” regulations have been repealed for U.S. military members, the announcement by HUD is part of a larger movement to insure equal access for a segment of the American public long under-represented by previous incarnations of the nation’s equal access laws.

How Can I Tell If I Can Afford an FHA Home Loan?

Many people dream of home ownership, but the prospect of committing to a monthly mortgage payment is daunting for some. How can you tell if an FHA mortgage is right for you? Fortunately there are many tools online that can help a potential borrower determine whether they’re ready to take the plunge…or if their finances need a bit of work first.

One of the criteria for a successful FHA loan application is having the right debt-to-income ratio. An FHA borrower must have a debt-to-income ratio that totals no more than 41% in most cases. What does that mean in simple terms? Simply that the borrower’s total amount of debt–including a calculated mortgage payment–divided by the borrower’s gross monthly income, can’t be more than 41% of that income.

Fortunately there are online tools, like the one at GinnieMae.com, that can help you make these calculations quickly and easily. You’ll need to do a bit of homework first to collect the amounts of your car payment, credit card bills, and any other monthly obligations you have. Don’t forget to include your cell phone bill, any student loans, or other obligations (including any alimony or child support payments you make) in your figures for the most accurate results.

When using an online calculator, it’s important to factor in any additional income that may count in your favor when actually applying for an FHA home loan. For example, if you have a co-borrower or a spouse who will sign with you on the loan, be sure to include the relevant financial details from the other person’s contribution to the purchase. This will give you more accurate results, especially with calculators like the one at Ginnie Mae site where you can get a projected loan amount and other details based on the information you provide.

These online calculators are only for making estimates and don’t guarantee you anything from the FHA or a particular lender; they’re just a tool to help a potential borrower understand where they stand financially. They’re great for planning ahead, making budgets and creating strategies to lower your debt to income ratio should you need to in order to qualify for an FHA mortgage loan.

FHA ARM Loan Options

First time home buyers interested in FHA loans are often directed to the HUD official page where they can explore options on FHA loans. Some of the FHA’s “for more information” links point to the FDIC official site, which has information on interest-only mortgage loans and option-payment adjustable rate mortgages.

The FHA still insures ARM loans, which some borrowers choose because the FHA version of an ARM loan is more tightly controlled than a conventional version or a convention sub-prime loan. Those who want to purchase a home but may still wrestle with budget issues in the early years of home ownership often look to ARM loans and/or interest only mortgages as an alternative.

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How FHA Loan Limits Work

If you’re a first-time home buyer looking to buy a home with an FHA loan, there are quite a few new terms and phrases to get familiar with. Anyone who has priced a home probably knows a lot more about the ups and downs of the housing market when it comes to the value of a particular home in a specific neighborhood…but newcomers to the FHA loan process may wonder if the homes they are viewing are worth the asking price and whether or not they can qualify for an FHA guaranteed loan to meet that asking price.

There are several factors that go into the final amount of an FHA home loan. One of those factors is the appraised value of the property–how much the FHA deems the property is actually worth on the market as opposed to how much the seller wants the home for. That information is determined once a buyer is serious enough about the property to pay for an FHA appraisal. But an equally important factor in this equation is how much the FHA will guaranty the loan for at a maximum for that property.

The maximum FHA loan amount has nothing to do with the actual price of the home. Instead, maximum FHA loan amounts–the FHA loan limit–is determined by market factors in that part of the country, usually broken down by state and county. Many parts of the country have the same FHA loan limit, but there are high-cost areas that feature different loan limits. FHA mortgage loan limits are searchable by state and county at the FHA official site https://entp.hud.gov/idapp/html/hicostlook.cfm.

The maximum loan amount often doesn’t correspond with the asking price of the home. In cases where the asking price is too high, the borrower should either negotiate or prepare to pay the difference out of pocket as an up-front expense. The same goes for situations where the FHA determines the fair market value of the home to be lower than the asking price. The FHA won’t guaranty a loan for more than the fair market value plus allowable add-ons to the loan like energy-efficient improvements and other extras, regardless of what the asking price may be.

In cases where the maximum loan limit is higher than the asking price of the home, the FHA will guaranty a loan for the lower amount. The buyer isn’t allowed to profit on an FHA mortgage by getting more loan than is required to buy the home. The asking price and the fair market value of the property may be the same, or the asking price may actually be lower than the value of the property, but in any case the FHA loan amount will be for the lowest applicable amount.

FHA Loans and Foreclosure: a Timeline

With home foreclosures still in the news even several years after the housing crisis of 2008, we’ve written a fair amount on topics related to foreclosure on FHA home loans. Default and foreclosure are often preventable if the buyer takes action early; in some cases a simple bit of additional information is the only thing a borrower needs to take the right action to save the home.

Missing one FHA mortgage loan payment isn’t good, but it is not the end of the world if the buyer contacts the loan officer and the FHA to discuss next steps.

FHA Loans: How Many Payments Can Be Missed Before Foreclosure Starts?

When FHA borrowers get into financial trouble, the best thing to do is to get in touch with the FHA and the lender immediately to start damage control. This helps avoid the borrower going into default or foreclosure on the FHA loan. Some borrowers mistakenly think that they are in foreclosure territory after missing one or two payments–but many more wrongly believe they have much more time even after missing two or more payments before the foreclosure proceedings start.

The truth is that the foreclosure often varies depending on the state and the lender. How much time does a borrower have before going into default and foreclosure in general?

In a previous blog post we discussed the earliest stages of financial trouble–the area where FHA borrowers are likely to be just before missing an FHA mortgage payment for the first time. The intermediate stage is where the borrower is not only having trouble paying all their bills in the same month, but are also experience trouble finding enough money to pay their credit card bills and other obligations AND their FHA loan payment.

The process is sometimes gradual–it becomes harder and harder to make that monthly payment until finally the borrower feels they must use that money for some other important need. Soon, the home loan payment is missed and the lender will put the borrower on notice that payment is required.

Missing the first payment doesn’t automatically put the borrower into foreclosure mode, but the lender will get in touch by phone or by mail to discuss the situation. This is the stage where a smart borrower is proactive, contacting the bank and the FHA to discuss the situation.

The best thing to do is to make the call before the payment is missed, to help the FHA borrower minimize service charges or penalties for a missed payment. The lender can help work out a plan to get the borrower through the financial crisis, often with normal payments resuming once the buyer is on solid financial ground once more.

The buyer should call the lender first, then call (800) 569-4287 to get assistance from HUD including a housing counselor. If the lender seems unwilling to work with a buyer, FHA counselors may have advice that can help. Dealing with the danger of an FHA foreclosure in this stage of financial difficulty is best. In another blog post we’ll look at what happens when the buyer misses two payments or more.

FHA Loans, Foreclosure, and the Redemption Period

When an FHA borrower gets in trouble on an FHA mortgage loan, there is a specific set of steps that take place. From the time the first FHA loan payment is missed to the cut-off date to avoid foreclosure after multiple payments have been missed, there are places along the way where foreclosure could be avoided in many cases. But some borrowers wind up in foreclosure regardless, and the loss of the home can be devastating.

But is there a second chance for a borrower to get their home back once it goes into foreclosure proceedings? According to the FHA, in some cases the answer is yes thanks to something known as the redemption period.

Redemption is a transaction where the original owner of the foreclosed home is allowed to reclaim the home by paying the outstanding balances due plus any costs generated by the foreclosure process on the home. But redemption is not guaranteed in all cases, and the rules covering it vary depending on state law where the foreclosure occurred. Each state has its own foreclosure laws. Some may provide a redemption period, some may not.

In states where redemption is possible, “…the redemption period and availability is often determined by whether the foreclosure is judicial or non-judicial. And, timelines and procedures can vary greatly from state to state.” That is according to the HUD official site, which also displays this link to state laws on foreclosure.

Reclaiming a home in the redemption period is a last-chance measure. Buyers should not rely on a possible redemption period to try to save the home–there will be additional expenses and it’s much easier and affordable to turn to other options including loan forbearance, refinancing, loan modification or other programs designed to prevent foreclosure in the first place.

The moment an FHA borrower gets into financial trouble it’s important to contact the lender and the FHA to see what options can prevent the loan from going into default. For those who find themselves in need of the redemption period, it is definitely an option if allowed in your state…but it should be viewed as the last resort.

FHA Loans and Foreclosure: Are You In Danger?

The FHA has many programs to help home buyers find and purchase a home. But FHA help doesn’t end there–the government has a vested interest in helping people keep their homes even in times of financial difficulty.

When borrowers get into trouble with their FHA mortgage loans, the first line of defense is to address money problems as early as possible. That’s why the FHA offers their toll-free number (1-800-569-4287) to put home owners in touch with a housing counselor.

It’s also why there are FHA foreclosure avoidance programs and other homeowner bailout assistance plans like Making Home Affordable; nobody wins when a home goes into default and foreclosure. But how can you tell if your FHA mortgage is in trouble?

As the FHA official page points out, foreclosure does not happen overnight. The warning signs begin with a few simple indicators, often starting with a change in financial stability because of hospital bills, divorce, job loss or even higher taxes. In these cases the warning signs include credit card bills that get out of control, or begin to become unmanageable because the homeowner is using credit for basic “survival needs” like gas and groceries.

In this, the earliest stage of financial trouble, the homeowner may find it difficult to pay all monthly bills, letting one or two of them go in favor of others in a given month. This is the point where the FHA urges borrowers to call for help. The next stages often lead to missed FHA mortgage payments–where the real trouble begins on the slippery downhill slope toward foreclosure.

Fortunately help is available. If you find yourself in the beginning stages of a financial crisis, call HUD at 1-800-569-4287 to get advice and assistance. In our next blog post we’ll look at the intermediate and advanced stages of a financial crisis that can threaten home ownership…and how even in the advanced stages it may be possible to save the home with some help from the FHA and/or your lender.