Monthly Archives: April 2012
One commonly asked question about FHA home loans involves the process of determining how much a borrower could pay on a monthly basis on the FHA guaranteed loan.
For this purpose, the FHA official site refers potential borrowers to a loan calculator provided by GinnieMae.gov, which is designed to help borrowers get a general idea of what the costs might be per month based on user-provided details including the sale price of the home, the housing market that home is in, etc.
Specifically, the loan calculator asks for the sale price of the property, the state and county where that property is, the term of the loan plus interest rate, and the amount of down payment. Once these fields are filled in, the GinnieMae.gov calculator returns the results with plenty of details, as you’ll see in this sample (provided for general information purposes only, which does not represent any actual costs for a real-world FHA home loan):
Obviously the Ginnie Mae loan calculator, which is available here at GinnieMae.gov, requires a borrower to have a sale price, interest rate, and other factors in order to use it properly.
But if you have a basic idea of what typical interest rates for your housing market might be, plus the price range of the home you want to buy plus a proposed down payment amount, you can get a decent idea of what the loan might cost you in general.
These calculations naturally don’t include options–for example, if you finance interest rate discount points, certain closing costs or add energy efficient improvements to the loan amount. Discuss such options with your lender for more details on what typical costs might be for such added expenses.
The official White House You Tube channel posted a video on April 18th, 2012, detailing the President’s plan for refinancing for borrowers.
According to the YouTube post, “Brian Deese, Deputy Director of the National Economic Council, explains how President Obama’s plan would make it much easier for millions of American homeowners to refinance their mortgage and save hundreds of dollars every month.”
This plan has been proposed, but has not been passed by Congress. As described in the video (see below at the end of this blog post), there are many advantages to refinancing, and the Obama plan would, if passed, offer more options for borrowers who need lower monthly payments and lower interest rates.
But in the meantime, many FHA borrowers need refinancing and can’t afford to wait to see what Congress might do. The FHA official site lists refinancing options, which include, “streamline refinances of existing FHA-insured mortgages made with or without appraisals, no cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions, and cash out refinances.”
A borrower who needs FHA refinancing can apply through any participating FHA lender. If you’re considering an FHA refinancing loan, you should know that FHA rules state the “maximum term of any refinance with an appraisal is 30 years. The maximum term of a streamline refinance without an appraisal is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or 30 years.”
When an appraisal is done on a property to be refinanced, it’s valid for six months, but according to FHA loan rules, “appraisals cannot be reused during the six month validity period once the mortgage for which the appraisal was ordered has closed, or for a subsequent refinance, even if six months have not passed. A new appraisal is required for each refinance transaction requiring an appraisal.”
HUD 4155.1 includes the rules for FHA refinancing loans. Those rules include specific instructions to lenders on refinancing situations where there may be a loan delinquency or skipped payment.
According to FHA requirements for Streamline and Cash-Out refinancing loans, “The borrower must be current on the loan being refinanced for the month due prior to the month in which he/she closes the refinancing, and for the month in which he/she closes.”
“Example: If the borrower is closing on April 8, he/she must have made the March payment within the month of March, and the April payment by closing. The April payment may be included in the payoff amount at closing. Lenders are not permitted to allow borrowers to
A reader asks, “If we have to wait till June 11, 2012 to refinance, can we lock in an interest rate now? Our loan was done Feb 2008, our insurance will be lowered but will the interest be at the now, low rate (below 4%)?”
One important part of negotiating an FHA home loan with a specific lender is knowing how the FHA mortgage process works. According to the rules, the Federal Housing Administration does not set the interest rates on FHA mortgages; that’s up to the borrower and the lender to work out together.
Borrowers are encouraged to shop competitively between lenders to find the best interest rate. From the FHA official site:
“First, devise a checklist for the information from each lending institution. You should include the company’s name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed. Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.”
Once you find a lender and begin the application process, there are a variety of things that can affect the interest rate on your home loan. One is credit score and repayment history–if you have good credit you’ll be eligible for rates and terms that are more advantageous and affordable.
When it comes to refinancing loans, borrowers should never assume they can’t comparison shop for FHA refinancing the same way; borrowers are not limited to the original lender for FHA refinancing loans.
To specifically address the reader’s question about interest rate lock-ins, the answer is fairly simple. It depends on what the lender is willing to offer. Typical interest rate lock-in periods can be 30 days, 60 days, or 90 days depending on the type of loan, what the lender is willing or permitted to offer, and what you agree upon in writing. Again, these terms are negotiated between borrower and lender. They are not set by the FHA.
The FHA and Department of Housing and Urban Development offer plenty of programs to help potential FHA borrowers learn about the process of finding a suitable property, understand the FHA loan application process, and much more.
But what about resources for those who haven’t gotten to the planning stages for an actual FHA home loan? What does the FHA offer to people who simply want to do research about FHA mortgage loans, buying a home, and becoming a home owner?
There are a wide variety of resources available, but the FHA and HUD have offered some newer ones designed for people on the go, who want to learn more about the process without doing hours of research. There are some excellent introductory videos produces by FHA/HUD available on the official HUD YouTube channel (HUDChannel) that give an overview of many aspects of house hunting, applying for a home loan and much more.
One of these, Shopping For A Home, is an excellent way to begin an education about home buying, working with a real estate agent, finding a home you can afford, and more.
This video is one of a series that includes topics like closing the deal, and home inspections. This video is made available from the FHA/HUD via YouTube and there are plenty of other titles to see in their collection, all linked to from the official site.
Do you have questions about the FHA loan process? Ask us in the comments section.
When an FHA assigned appraiser submits his or her report and the fair market value of a given property is established, sometimes the buyer or seller may disagree with that determination of value. Can the FHA appraisal be appealed?
There are some circumstances where a reconsideration of value may be warranted.
According to the FHA, “A reconsideration of value is a request to the FHA Roster appraiser to reconsider the analysis and conclusions of his or her appraisal based on information that was not presented on the appraisal report, but was relevant to the appraisal and available to the appraiser in the normal course of business as of the effective date of the appraisal.”
However, FHA rules also add that only “the lender
A reader asks, “If the buyer of a home built before 1978 is using an FHA mortgage to purchase, can I assume the appraisal is required to include a note if any chipping or peeling paint was observed both inside and outside of the home? Is there any written verbiage that states what the Appraisal shall include as required by Federal/HUD rules?”
FHA loan rules governing appraisals do include rules governing chipping and peeling paint on properties built prior to 1978. According to FHA loan rules found on the FHA official site,
There’s a common theme among many of our most frequently asked questions about FHA guaranteed home loans; “Why do the FHA rules say one thing, while my lender says another?” In many cases this question has to do with FHA rules covering appraisals, minimum property requirements, or even the minimum waiting period required after foreclosure before the borrower can try applying for a new FHA home loan.
For example, the FHA loan rules about streamline refinancing loans state that an appraisal may not be required under the right circumstances. From the FHA official site: ” Streamline refinances can be insured with or without an appraisal. When an appraisal is completed FHA does not require the repairs (except for lead based paint repairs) to be completed, however the lender may require completion of repairs as a condition of the appraisal.”
The first line of that statement says the streamline can be done with or without an appraisal. But notice the second line–the FHA standards say one thing, but a lender’s own standards may require another. That also applies for the appraisal itself–the lender is free to require one even if the FHA does not. There could be many reasons why the lender chooses to require the appraisal–and the lender may be bound by state or federal law in some cases.
The same is true of down payments–the FHA minimum is 3.5%, but the lender may require more depending on the borrower’s credit or other factors applicable to that particular loan application.
All of these situations are unique. The FHA rules cover a certain set of parameters, but also allow flexibility on the lender’s part for a variety of reasons. If you read an FHA rule that states a minimum requirement, it’s important to know that it’s simply that–a minimum. The lender is free to set a higher standard as long as that standard is legal, applied equally to all according to Fair Housing Act rules, etc.
It’s also important to know that some FHA guidelines are designed to cover a general set of circumstances, giving deference to state or local laws for the specifics. This is true for many aspects of the appraisal process, where local building codes must be met. The FHA cannot and does not keep a list of all local codes or ordinances. It simply defers to them when required.
It’s important to recognize the difference between a higher standard and a different standard. If a lender does not abide by FHA loan rules, as opposed to meeting and exceeding the standards, that institution should be reported to the FHA. This is especially true when a potential borrower suspects discrimination, predatory lending practices, or other violations. Borrowers who aren’t sure whether the borrower has simply set higher standards or if a violation of FHA guidelines is happening should contact the FHA directly. The toll-free number 1-800-CALL FHA is there for you to get help and advice in such cases.
Do you have a question about FHA home loans? Ask us in the comments section.
The FHA and HUD have announced disaster assistance for victims of recent storms in Hawaii.
According to a press release issued by the Department of Housing and Urban Development, the department will “speed federal disaster assistance to the State of Hawaii and provide support to homeowners and low-income renters forced from their homes following severe storms, flooding and landslides” during the month of March.
The announcement comes after a presidential disaster declaration for Hawaii’s Kauai County. According to the press release, “The President
The official FHA/HUD blog, The HUDdle, published a recent collection of links to housing news that included a radio report from the Boise, Idaho Public Radio station KBSX about a scientific study on the advantages of adding energy efficient improvements to buildings.
The study, conducted by
From time to time, we report news of housing scams that can affect FHA borrowers. It’s a way of raising the awareness that such scams exist, a reminder of the necessity of being careful in the loan process.
The latest news from the FHA and HUD includes a report of three loan officers and a title agent who have been barred from doing business with the FHA/HUD following their convictions on fraud charges.
The action was announced in a press release at HUD.gov, HUDNo.12-069:
“The U.S. Department of Housing and Urban Development (HUD) today announced the indefinite debarment of three South Florida mortgage loan officers and a Pittsburgh title agent following their criminal convictions on charges they defrauded elderly borrowers, mortgage lenders and the Federal Housing Administration (FHA). Marcos Echevarria, Louis Gendason, John Incandela and Kimberly Mackey pled guilty to charges of conspiracy to commit wire fraud for their part in a $2.5 million nation-wide reverse mortgage scam. All four individuals are currently serving prison terms.”
What does “debarment” mean? According to the press release, the action “effectively bans these individuals from conducting business with the federal government in the future.” HUD Secretary Shaun Donovan is quoted in the release, stating, “HUD will not tolerate those who abuse the mortgage system and target elderly borrowers for their personal gain,” said HUD Secretary Shaun Donovan. “Reverse mortgages can help senior citizens on fixed incomes plan for the future, but it is shameful to bilk the elderly out of their life savings.”
The press release also describes the scam operation–details borrowers considering an FHA Home Equity Conversion Loan should pay close attention to–according to the press release, “the three used their positions to identify financially vulnerable elderly borrowers and pressured them to refinance their existing mortgages into an FHA-insured reverse mortgage or Home Equity Conversion Mortgage (HECM).”
Other details in the scam include falsified HUD-1 settlement statements filled out to indicate paid off mortgages when no such payoff ever took place. There were also fraudulent appraisal reports, and falsified short sales, “defrauding the lenders holding the borrowers’ first mortgages” according to HUD.
This scam took place in seven different states and ran for over a year. According to the Department of Housing and Urban Development, the case was investigated by HUD, the Internal Revenue Service, the United States Post Office, and the FBI.
When it comes to reverse mortgages, also known as Home Equity Conversion Mortgages or HECM loans, borrowers should beware of high-pressure sales tactics. It should also be known that FHA HECM loans require the borrower to go through mandatory HECM loan counseling so as to properly understand the nature of these loans and the financial responsibilities that can accompany them if the terms of the loan aren’t met.
Contact the FHA directly to learn more about HECM loans or how to complain about fraud, discrimination or violations of the Fair Housing Act.