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

Monthly Archives: November 2011

FHA Loan Loan Limits and Non-Occupying Co-Borrowers

If you’re buying a single-family home with an FHA insured mortgage, FHA loan rules require you to certify the property will be your primary residence. But FHA loans do permit a loan with co-borrowers who do not plan to occupy the property.

Chapter Three of FHA Handbook 4155.1 states, “A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence.” This in mind, borrowers should know that there is a different FHA maximum mortgage permitted for a non-occupying borrower transaction in many circumstances.

“When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).” However, the rules do provide an exception to the 75% LTV rule for family members.

Chapter Three of FHA Handbook 4155.1 lists the exceptions for family members noting that in some cases the “family” does not have to include blood relatives as long as a family type relationship exists. “…maximum financing, as described in HUD 4155.1 2.A.2, is available for borrowers related by blood, marriage, or law, such as:

spouses
parents-children
siblings
stepchildren
aunts-uncles, and
nieces-nephews

or unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction.”

There is one important clause in these rules. In situations where a parent is selling property to a child (who is purchasing said property with an FHA insured mortgage), the parent can only co-borrow with the child if the LTV is 75% or less.

FHA Help Available For Those At Risk of Foreclosure

The FHA encourages borrowers worried about going into default or foreclosure on their FHA mortgages to seek help as soon as possible. The earlier a borrower acts, the better chance he or she has of saving the home and preventing damage to credit and other issues.

One of the most important thing a borrower can do is to get Foreclosure Avoidance Counseling as early as possible The FHA and the Department of Housing and Urban Development offer help in this area; the FHA official site says, “HUD-approved housing counseling agencies are available to provide you with the information and assistance you need to avoid foreclosure. As part of President Obama’s comprehensive Homeowner Affordability and Stability Plan (HASP), you may be eligible for a special Making Home Affordable loan modification or refinance, to reduce your monthly payments and help you keep your home.”

These programs are not always easy for a frustrated homeowner to understand, especially when trying to avoid losing a home. That’s why the FHA and HUD offer search tools for you to find HUD-approved housing counseling near you. At http://www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm you’ll find an index of housing counseling agencies searchable by state.

The official site says, “If you need help understanding the Making Home Affordable programs, you can use this search tool to find a counseling agency in your area that will provide you with free foreclosure prevention services. If you are eligible for the loan modification or refinance program, the counselor will work with you to compile an intake package for your servicer.”

It’s very important to note there is no fee associated with foreclosure avoidance counseling. There is no need whatsoever to pay a third party or private company to get advice on how to save your home and avoid foreclosure on your FHA insured mortgage. “Foreclosure prevention counseling services are provided free of charge by nonprofit housing counseling agencies working in partnership with the Federal Government. These agencies are funded, in part, by HUD and NeighborWorks

FHA/HUD Disaster Relief for New Mexico Storm Victims

Believe it or not, 2011 storm relief is still needed this late in the year–though the relief announced by the Department of Housing and Urban Development is for weather-related problems in New Mexico that happened during the month of August, not for natural disaster issues in the current month.

According to the press release HUD No. 11-276, “U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of New Mexico and provide support to homeowners and low-income renters forced from their homes following flooding in August.”

Some readers will likely wonder why the assistance is only now being announced. According the press release, areas of New Mexico have recently been named as Federal Disaster Areas, allowing the FHA and HUD to offer help.

“Last week, President Obama issued a disaster declaration for Cibola and Sandoval Counties as well as the Acoma Pueblo and Santa Clara Pueblo Indian Reservations. The President

FHA Rules For Credit Reports and Tax Returns

Part of the FHA loan application process includes the lender running a credit check on the applicant. Depending on the type of loan and other factors, the lender may also need to contact current and/or former employers, landlords and other people who can verify income and employment data given on the FHA loan application form.

Some borrowers, including those who are self-employed, freelance or small business owners may be required to furnish additional data including tax returns, business statements and other information which can help the lender establish a history of income, credit, and employment. Some of this information is provided by the FHA borrower, some is provided by third parties (such as employment and income details) and some must come from official sources.

For example, tax returns must be obtained directly through the Internal Revenue Service by the lender. The borrower cannot supply the returns–they must come from the IRS. This insures transparency in the lending process, and insures there is no temptation or opportunity to provide documentation that has been altered or is otherwise misleading when it comes to taxes, income verification, etc.

When tax paperwork from the IRS is required, it comes in addition to any supporting documentation the borrower may be required to provide, such as W2s from previous employers or profit and loss statements for a small business.

The same is true when it comes to providing credit reporting information. While it’s up to the borrower to list all current open lines of credit and other information, this data is not complete without a credit report from each of the three major credit reporting agencies. An FHA loan applicant is not permitted to furnish these credit reports–the data must come from the three credit reporting agencies directly.

Tax documents may be required for the past two years, credit reports and other paperwork may contain details dating farther back, but when it comes to on-time payments and other information, your lender will be most concerned with the patterns established over the last two years or so. 12 months of on-time payments is the minimum in the minds of many, but the longer your favorable credit history is, the better.

HUD Rules Proposed To Refine Fair Housing Laws

Those applying for FHA home loans for the first time soon learn about the wide range of federal laws enacted to insure fair treatment in the lending and housing markets. But according to Department of Housing and Urban Development Secretary Shaun Donovan, those laws need to be modified to be more inclusive.

In Donovan’s official HUD blog, he writes, “…I

FHA Title I Loans: The Basics

Many FHA borrowers are interested in home improvement loans or rehab loans. In addition to the FHA 203(k) Rehabilitation Loan program, the FHA and HUD offer something called the Title I loan.

According to FHA.gov, “The Title I program insures loans to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property.

This program may be used to insure such loans for up to 20 years on either single- or multifamily properties. The maximum loan amount is $25,000 for improving a single-family home or for improving or building a nonresidential structure.”

For multi-family unit, there is also an FHA Title I loan, with a maximum of $12,000 per family unit, “not to exceed a total of $60,000 for the structure.”

FHA Title I loans are fixed-rate loans, with interest rates set at typical market rates. The interest rates are not subsidized by the Department of Housing and Urban Development, but the FHA official site says, “some communities participate in local housing rehabilitation programs that provide reduced-rate property improvement loans through Title I lenders.”

Like other FHA home loans, only FHA/HUD approved lenders can offer a Title I loan. Borrowers must be eligible for the Title I program which means you must be either “the owner of the property to be improved, the person leasing the property (provided that the lease will extend at least 6 months beyond the date when the loan must be repaid), or someone purchasing the property under a land installment contract”.

The FHA has a list of “eligible activities” for Title I loans, which include financing “permanent property improvements,” as well as any renovations that “improve the basic livability or utility of the property–including manufactured homes, single-family and multifamily homes, nonresidential structures, and the preservation of historic homes.” The FHA also permits Title I loans to be used for fire safety equipment.

FHA Loans, Escrow Accounts, and the Real Estate Settlement Procedures Act

If you’re new to the home buying process, chances are good you’re learning plenty of new things about banking, the loan process, and escrow accounts. An escrow account is often required by lenders as part of an FHA home loan in order to pay property taxes, home insurance and other required expenses. But what are the rules governing escrow and what should the borrower know?

To begin, the Real Estate Settlement Procedures Act or RESPA states that escrow is NOT mandatory as a condition of applying for an FHA home loan. That said, the lender is free to require an escrow account–but the FHA does not insist upon one. When a lender does require money to be held in escrow, the financial institution is limited by RESPA–there’s a maximum calculation for the amount required for taxes, insurance and other expenses.

Some lenders require a “cushion” in the escrow account. RESPA laws do not require this, but a cushion is permitted as long as it does not exceed “one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments. If state law or mortgage documents allow for a lesser amount, the lesser amount prevails” according to the FHA official site.

Lenders who claim RESPA laws force them to require an escrow account, or that RESPA laws require a cushion in those accounts are, intentionally or mistakenly, misleading their customers. While it may seem like speculation to assert that some lenders do mislead FHA borrowers on this issue, apparently there was enough of a problem at one time for the FHA official site to address the practice directly:

“…many lenders have recently increased the escrow account cushion to the maximum allowed by law...” The FHA adds, “…Unfortunately, to avoid customer disapproval, some lenders may be giving their customers the impression that the HUD regulations require them to make this increase. This is a false impression. The lender, not HUD, has chosen to increase the cushion.”

Higher FHA Loan Limits For High-Cost Counties Reinstated By Congress

In August of 2011, the FHA and HUD issued a press release announcing changes to the FHA loan limits for high-cost counties across the nation.

According to press release HUD No. 11-170, “On October 1, 2011, the Federal Housing Administration (FHA) will implement new single-family loan limits as specified by the Housing and Economic Recovery Act of 2008 (HERA).

FHA Home Loans: Is There a Minimum Square Footage Requirement?

Some of the most frequently asked questions about FHA home loans involve the FHA’s minimum property requirements–the standards homes must be built or modified to in order to meet FHA approval.

FHA minimum property requirements address basic issues such as safety–the property can’t be located near a high voltage easement, for example. But FHA minimum property requirements also address habitability concerns. All mechanical systems on the property must be in working order and be at the proper capacity to serve the home they are installed in.

The FHA rules do not permit heating or central air conditioning systems that are too small to properly heat or cool the home, and electrical systems must be powerful enough to serve the entire building adequately. Areas of standing water in the basement are areas of concern for FHA appraisers, as are leaky roofs and other habitability issues.

FHA rules also include guidelines on how the property is designed–did you know a home is not eligible for an FHA loan unless it has adequate, dedicated areas for sleeping and cooking?

Some FHA loan applicants may wonder if there’s a minimum square footage requirement for a property to be eligible for an FHA home loan. In fact, this query is apparently so common that it’s included in the FHA official site’s list of frequently asked questions. But the FHA does not require homes to have a minimum size per se–according to the FHA FAQ list, “FHA only requires that a home be marketable in the area and have adequate space necessary to assure suitable living, sleeping, cooking and dining accommodations and sanitary facilities.”

There’s one exception to the “no minimum square footage” issue–the FHA does require all manufactured homes to have a “minimum size of 400 square feet to qualify for FHA financing.”

HUD Clarifies Disaster Relief Rules To Avoid Duplication of Benefits

Earlier this year, we posted on the assistance available to FHA borrowers in the wake of natural disasters in order to avoid FHA loan default, begin the repair and recovery process and deal with insurance claims.

On November 17, the FHA and HUD have issued new clarification guidance for disaster recovery benefits. According to HUD press release No. 11-271, the new rules are designed to “ease the burden of complying with federal law prohibiting so-called