Monthly Archives: March 2012
One frequently asked question about FHA home loans involves the credit check. Many borrowers want to know what credit score the lender is looking for, (many lenders require a minimum score of 620) but many more also want to know what kind of credit reporting data the loan officer needs to approve or deny an FHA home loan application.
There are many areas the lender must review as part of the FHA loan application. A typical credit check includes a review of all credit inquiries over the last three months–one reason why many lending experts recommend not applying for new credit cards or other lines of credit before or during a home loan application.
The lender must also review credit information from the last seven years of the applicant’s credit history. That would include bankruptcy filings, any judgments or lawsuit cases, or tax liens. In the case of bankruptcy or foreclosure the lender must check to insure the minimum waiting period (two to three years in most cases) has passed and that the lender is eligible to apply for new credit once more.
For each line of credit or borrower debt listed on the credit report, the lender must check the date the account was started, the credit limit, required payment amounts, payment history and any remaining unpaid balance.
The lender is required to get all this information directly from the credit reporting agency. It cannot come from outside sources including the borrower. The credit report itself must be an original and cannot have hand-corrections, erasures, or other alterations.
In cases where a borrower has non-traditional credit information that might not show up on a credit report, the lender is required to pull information from other sources to supplement the data. These sources can include references from utility companies, landlords, and insurance providers.
A Department of Housing and Urban Development press release announces disaster relief for homeowners and FHA borrowers affected by recent storms, flooding, and landslides in West Virginia.
According to press release HUDNo.12-062, “President Obama issued a disaster declaration for Lincoln, Logan, and Mingo Counties. The President
Potential home buyers at the very start of their FHA home loan journey should take advantage of three free online resources that can help prepare the borrower.
The first of these resources is the online mortgage calculator. These are offered by private agencies such as FHA.com, and by official government websites such as Ginnie Mae. The online mortgage calculator can help you plan and budget for an FHA home loan by showing you whether your current income is enough to qualify based on your monthly debts and other factors.
Another important resource is the Department of Housing and Urban Development’s online Homebuyer’s Kit, which offers everything from a cost analysis of buying versus renting to learning about home buyer’s assistance programs in your state.
This kit is fairly comprehensive and even includes information about how to avoid predatory loans and what to do if you encounter discrimination on the house hunt. It’s a valuable resource all potential FHA loan applicants should read at length.
The third resource is the Department of Housing and Urban Development’s housing counseling referral service. This web page gives you information on how to find an FHA/HUD approved housing counselor in your area, a search tool to locate housing counseling offices near you, and explanation of the possible fees involved and who may be eligible for free counseling services.
It’s very important to comparison shop for an FHA home loan, compare services and rates, and do your best to get the best rates and terms available to you. Starting with these online resources will help you make informed choices as a new house hunter, or refresh your memory if you’re returning to the housing market to find a new home.
A reader asks, “Is there a limit to how much premium the lender can make on a loan? In other words is there a cap on the interest rate increase.
A reader asks, “When applying for an FHA loan, do I have to get pre-qualified before i get pre-approved or could I just get pre-approved? What does your credit score have to be in order to get a FHA 203k loan? Is it hard to get approved for a FHA 203k loan?”
An FHA 203K loan is described at the FHA official site as a program “for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.”
FHA 203K loans require the same underwriting as other loans–the borrower must meet minimum credit score requirements. Many lenders look for a credit score minimum of 620 or higher; a qualified borrower could get pre-approved for an FHA home loan but must still fill out detailed paperwork and get a credit check, employment verification and the rest of the underwriting required for any mortgage.
FHA 203K rehab loans are more complex than new purchase FHA mortgages and there are different requirements for this type of loan. For example, FHA.gov lists this rule for 203K loans; “The maximum mortgage amount
The Department of Housing and Urban Development has issued a press release advising consumers that a company called
According to the FHA official site, streamline refinancing for FHA home loans has been offered since the 1980s. While “streamline refinancing” refers to the amount of paperwork involved with processing the new home loan, it is not meant to imply there are no costs involved with the refinancing loan.
FHA streamline refinancing loans for borrowers with existing FHA mortgages must result in either a lower interest rate, a lower monthly payment, or both. Exceptions are made when the borrower is refinancing into an FHA streamline mortgage from an Adjustable Rate Mortgage, also known as an ARM loan.
Unlike FHA cash-out refinancing, no money is permitted to go to the borrower as part of the streamline loan. That means no “debt consolidation” or other purposes are permitted with FHA streamline loans–these loans are only meant to reduce interest rate and/or interest payments.
While there are costs associated with FHA Streamline loans, some lenders may offer a “no cost” option, which simply means the costs are included in the loan amount. The phrase “no cost” means no out-of-pocket expenses are charged–they are all rolled into the FHA refinancing loan amount.
This can be done by raising the interest rate–the sort of premium that would not be levied if the borrower had paid cash for those expenses. In such cases, the FHA official site says “From this premium, the lender pays any closing costs that are incurred on the transaction. FHA does not allow lenders to include closing costs in the new mortgage amount of a streamline refinance.”
The Department of Housing and Urban Development (HUD) has announced $42 million in housing counseling grants to 468 national, regional and local organizations. These grants are intended to help families find housing and avoid foreclosure.
According to the press release HUDno.12-055, “Housing counseling grants will assist families in becoming homeowners, many for the first time, and remaining homeowners after their purchase. They also provide assistance to renters and the homeless, and offer financial literacy training to individuals and families.”
These grants are awarded to local and regional housing counseling agencies, which in turn offer counseling services to those looking to find or keep their homes.
“The HUD-approved counseling agencies this funding supports are crucial in helping struggling families on a one-to-one basis to manage their money, navigate the homebuying process, and secure their financial futures,” according to HUD Secretary Shaun Donovan, who adds, “We fought hard to persuade Congress to restore funding for housing counseling in HUD’s budget and now we’re working to make these important resources available as quickly as possible.”
Those interested in reverse mortgages may also benefit from this funding. According to the press release, “Counseling agencies will also receive $4 million to help assist senior citizens seeking reverse mortgages or Home Equity Conversion Mortgages (HECM). These agencies will provide counseling for the rapidly growing number of elderly homeowners who seek to convert equity in their homes into income that can be used to pay for home improvements, medical costs, and other living expenses.”
You can learn more about this funding, including a list of all agencies slated to receive the grants at the HUD official site at this link: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2012/HUDNo.12-055. These grants are made to counseling agencies to offset the costs of counseling services. The federal money is not provided to private individuals.
A reader asks, “I am separated from my husband…and want to buy me a home. We do not have any children together and I do not want alimony, he can have the house we once shared. He has agreed. I am using a down payment from my 401k from my job. What do you know about these situations?”
While this question is far too general to answer specifically, we can talk about some of the basic issues a borrower in this situation might face.
The big question in this situation is whether the reader is obligated on the first home. FHA home loan applications are reviewed for three basic things–credit rating, debt-to-income ratio, and verifiable income. There are other issues, but for this reader question these are “the big three”.
If the borrower is already obligated on the first mortgage, the lender must include that obligation when considering the debt-to-income ratio unless the FHA loan applicant has something official stating he or she no longer has an obligation to the first loan. The requirement for this may vary–a court order or divorce decree stating such in writing may be sufficient in most cases, but check with your lender and the FHA directly to be sure.
A non-binding agreement, a verbal agreement between ex-spouses or other informal arrangements may not be enough to keep the former obligation from being considered by the lender for purposes of calculating the debt-to-income ratio.
This is a situation that could potentially hurt a borrower’s chances for a new FHA home loan because the lender is obligated to calculate the amount of monthly financial obligations (including the new home loan, if approved) against the borrower’s income. Does the old loan obligation PLUS the new home loan mortgage payment push the borrower’s debt-to-income above the maximum allowable limit?
Borrowers can and do bring “compensating factors” to the table that can help even out the debt-to-income ratio including larger down payments, substantial cash reserves, or other things acceptable to the lender. It’s important to ask the lender what compensating factors could help the borrower in situations like this, and what to do in the event that the original home loan still counts against the FHA loan applicant’s debt to income calculation.
Of course, if the FHA loan applicant is not obligated on the first home loan, none of this is an issue. The usual credit, employment, and income factors are considered by the lender regardless of marital or family status according to Fair Housing Act laws.
A reader asks, “I am in the process of buying a home and trying to get an FHA loan. The mortgage company said we could no longer use gift money for down payment that we had to have the money in our bank account for 60 days. We got a gift of $30,000 to put on our house. What are the rules for FHA?”
The FHA has specific rules covering gift funds for down payments. According to the HUD Homeownership Center Reference Guide, Chapter Two, Mortgage Credit Guidelines, the rules are clear:
“HUD does not approve down payment assistance programs in the form of gifts administered by charitable organizations. (HUD defines charitable organization as “an organization who has