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

Monthly Archives: May 2012

FHA Loans and Student Loan Deferments

A reader asks, “If applying for FHA and student loans are in deferment until after the closing date, does it have to show a year after the first payment is due? For example, if the payment is due July 1, 2012 does it have to show July 15, 2012 or later?”

This question is addressed in the FHA loan rules spelled out in HUD 4155.1, Chapter 4 Section C. It’s covered in the section titled, “Borrower Liabilities: Projected Obligations and Obligations Not Considered Debt” and includes a list of things the FHA does not consider debt for the purposes of calculating a borrower’s debt-to-income ratio for an FHA home loan.

Student loans are specifically addressed in this section, which states, “Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.”

But the rules also add, “Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.”

If a borrower has a student loan which has been deferred, it may or may not qualify to be excluded from the debt to income ratio calculation based on when it becomes due according to FHA policy. Will the lender’s individual policy vary from this? Could a lender require the debt to be included anyway based on the due date? It’s possible–but your experiences may vary depending on which lender you are working with.

FHA loan rules also have a list of other financial obligations and circumstances which do not have to be included in the debt to income ratio. The FHA lists them in the rule book as follows:

“Obligations not considered debt, and therefore not subtracted from gross income, include

HUD Reaches Settlement with Puerto Rico Condo Association Over Alleged Fair Housing Act Violations

A press release from the Department of Housing and Urban Development announced recently that HUD has “reached an agreement valued at $1 million with Condominium Association Isleta Marina in Puerto Real, Puerto Rico, settling allegations that the property

Up Front Mortgage Insurance Payments For FHA Home Loans

A reader asks, “Can I roll my upfront MIP on to my loan above the county loan limits? The limit in San Diego is $697500, can I roll the upfront MIP on to the loan or do I have to pay cash?”

Up front mortgage insurance payments, or UFMIP, have clearly defined rules as spelled out in HUD 4155.2. According to the rules, “The UFMIP remittance period begins on the date of loan settlement or the date of disbursement of the mortgage proceeds, whichever is later. UFMIP must be paid to FHA in a lump sum within 10 calendar days after the loan is closed.”

That lump sum can be paid in cash or rolled into the loan amount, but the borrower cannot split the two options and pay a portion in cash and finance the rest. FHA rules state, “The UFMIP must be either

FHA Loan Reader Questions: Unsettled Credit Report Details

A reader asks, “There are two old debts from 2003 that I have not been able to verify on my credit report. The total of this is $520, the underwriter on the mortgage has been relentless about this debt. I will not pay for something that do not know what it is for. Does this affect my FHA loan?”

Reader questions like these come in quite often. Some of them seem to be asking whether the FHA has a rule that gets around a lender’s insistence on a specific issue connected with the FHA loan; a requirement such as a minimum waiting period following a bankruptcy proceeding or the example cited in the reader’s question here. Do FHA loan rules trump the financial institution’s policies in such cases? Can the FHA require a lender to ignore negative credit information or observe the FHA minimum seasoning period in cases like bankruptcy or foreclosure?

The short and simple answer is no. The FHA cannot force the lender to issue credit to someone not deemed a good credit risk, nor can the FHA require a bank to observe shorter seasoning periods following foreclosure, bankruptcy, etc.

The FHA can and does require its participating lenders to comply with certain standards and practices. The lender must comply with all federal, state and local laws, and must not violate the Fair Housing Act or Equal Credit Opportunity Act in its policies or procedures. But when it comes for standards such as credit history, seasoning periods, etc. the FHA minimums must be observed, but the lender is free to require stricter standards.

The short answer to the reader’s question? The lender’s issue must be addressed if the borrower wishes to move forward with the FHA loan. The lender can require the borrower to address the credit issue mentioned in the question; in such cases the bank is within its legal rights to require action on unresolved credit report issues as a condition of loan approval, assuming lender compliance with all federal/state/local laws regarding the matter. There is no FHA rule that would force the bank to overlook negative credit information to move forward with the loan.

Borrowers who need to contest such credit data because of erroneous information, identity theft, or other problems should contact the credit reporting agencies to start the process. Contesting a credit report can be a time-consuming process, but it’s well worth the trouble.

This is one reason why a borrower should start preparing for an FHA home loan at least one year in advance, pulling copies of his or her credit reports to look for issues such as these. The sooner you begin to work on any issues or problems, the easier time you’ll have when ready to commit to the purchase of your new home.

Do you have questions about the FHA home loan process? Ask us in our comments section.

Saying Thanks To Our Veterans on Memorial Day

Memorial Day is traditionally a time to remember the sacrifices made by men and women in uniform. As Joseph Campbell once said, “A hero is someone who has given his or her life to something bigger than oneself.”

But for many of us, Memorial Day remembrances always lead to thoughts of those currently serving–the sacrifices of today insure the freedoms of tomorrow. Our veterans, past and present, have sacrificed plenty, and it’s only fitting to pause and give thanks whether silently in private or in a public event.

As we all know, Memorial Day is so much more than back yard barbecues, department store sales and a day off work. The reason we’re able to enjoy all these things is thanks in no small part to what our people in uniform have done and continue to do.

To all our troops, past and present…thank you!

FHA Rules For Streamline Refinancing With or Without a Credit Check

FHA Streamline Refinancing loans–which are issued for those with existing FHA mortgages–are available in two ways.

One is a non-credit qualifying streamline loan which is available to qualified borrowers, the other is the “with credit check” or “credit qualifying” streamline refinance. When is a borrower eligible for a no-credit check FHA streamline loan?

Part of the answer requires a look at the FHA definition of the streamline loan. According to the FHA official site, “Streamline refinances are designed to lower the monthly principal and interest payments on a current FHA-insured mortgage, and must involve no cash back to the borrower, except for minor adjustments at closing that are not to exceed $500.”

The FHA permits streamline refinancing loans with no credit check with the borrower has owned the property for at least six months. Specifically, HUD 4155.1 Chapter 6 Section C states:

“..the borrower must have made at least six payments on the FHA-insured mortgage being refinanced… at least six full months must have passed since the first payment due date of the refinanced mortgage, and at least 210 days must have passed from the closing date of the mortgage being refinanced.”

In situations including (but not limited to) refinancing loans where the principal or interest rates actually increase rather than decrease, the FHA rules do allow the loan to proceed, but the borrower must submit to a credit check.

“A credit qualifying streamline refinance must be considered

  • when a change in the mortgage term will result in an increase in the mortgage payment of more than 20%

FHA Loans, Your Application, and Credit Reports

When you apply for an FHA home loan, there are several pieces of required information you need to complete the application. One is your work and residence history, another is the nature of your income, and still another is your credit data–what lines of credit you currently have and how much you owe.

When the lender receives your application, all this information is verified according to standard procedures as described in the rules for FHA home loans. The loan officer must request your credit report, in the form of something called the Three Repository Merged Credit Report or TRMCR. What many FHA loan applicants don’t know is what the lender is looking for from this report.

According to HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance on One-to Four-Unit Mortgage Loans, the lender needs data on “all inquiries made within the last 90 days” for a start. That means the lender can see any pending credit card applications or other requests for credit.

The rules also state the lender must review “all credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA), including information for the last seven years regarding bankruptcies, judgments, lawsuits foreclosures, and tax liens, and for each borrower debt listed, the date the account was opened high credit amount, required payment amount unpaid balance, and payment history.”

Some borrowers don’t realize that their application will be cross-referenced in this way. There is sometimes a temptation to leave information off a loan application in the hopes that it might be overlooked somehow during the loan approval process, but it’s the lender’s job to insure all information available and pertinent to the loan application is checked.

But information left off the FHA mortgage loan application is only one of the issues a lender may have to deal with–FHA loan requirements also state the lender must verify information included on a loan application that’s not found on the credit report. According to HUD 4155.1, “A corrected credit report must supplement the TRMCR if the report does not verify legal actions such as bankruptcies, judgments, lawsuits, foreclosures, and tax liens.”

Additionally, “For any open debt listed on the loan application, but not referenced on the TRMCR, the lender must develop credit information separately.”

If your credit report hasn’t quite caught up with your current status, the lender will verify that information separately as required by the FHA loan rules mentioned above

If you’re considering a new home loan, start off by thinking like a banker–all FHA loan applicants should pull their own credit reports to insure there is accurate–and up to date–information. Any disputes, lack of updates, or inaccuracies on a credit report should be handled as early as possible to avoid having them complicate the loan approval process. If you’re uncertain about your credit rating, whether an old collection or debt has fallen off your report yet, or want to insure you haven’t been the victim of identity theft, consider checking your credit reports at least one year prior to starting the loan process.

If you do have unsatisfactory information on your credit report, start working on establishing a history of reliable payments–at least one year’s worth prior to applying for the FHA home loan, and try to put as much time between your new credit habits and your past mistakes as possible.

Do you have a question about how FHA home loans work? Ask us in the comments section.

More on FHA Loan Pre-Purchase Counseling

Recently we reported on a study conducted by FHA/HUD that examined the effects of pre-purchase counseling for house hunters. According to a May press release, HUD No. 12-085, the Pre-Purchase Counseling Outcome Study, “enrolled 573 individuals seeking pre-purchase counseling services in fall 2009 from 15 HUD-funded counseling agencies across the country.”

“The objectives of the study were to examine the characteristics of pre-purchase counseling clients, the types of services they received, and whether and under what circumstances they purchased housing in the 18 months after starting counseling.”

The results of this study have been published by the FHA and HUD, and for those on the fence about whether or not to take advantage of such counseling services, the data is quite convincing. Potential FHA borrowers who find themselves in the situations mentioned below should seriously consider taking advantage of FHA/HUD approved pre-purchase housing counseling services.

According to the FHA/HUD official site, “Most study participants were planning to purchase a home within one year (74 percent) and were motivated to seek counseling to identify homebuyer assistance programs (58 percent) or to obtain down payment or closing cost assistance or to qualify for a specific loan program (58 percent).” Are you within a year of purchasing a home or applying for pre-approval for an FHA insured home loan?

“Most study participants started pre-purchase counseling early in the home buying process (only 15 percent had a signed purchase agreement), had not received any kind of housing counseling or financial education within the past 3 years (66 percent) and received education on topics related to homeownership readiness, help with budgeting and improving their credit, financing a home, and shopping for a home.” This study seems to suggest it’s a good idea to get your pre-purchase housing counseling as soon as you can once you’ve committed to buying a home. But why?

Part of the reason is because of what FHA loan applicants learn about the preparations required to be fully ready to apply for a home loan. FHA mortgages require a minimum down payment, plus closing costs and other expenses. Knowing what these expenses are and how to budget for them can make a huge difference when it comes time to make an offer on a home. Don’t forget that to be the best-prepared loan applicant, you’ll need to pull your credit reports and look into lowering your debt-to-income ratio. This takes time, and the earlier you start preparing, the better off you’ll be.

Other findings from the study include the following: “About one third (35 percent) of the study participants had become homeowners 18 months after seeking pre-purchase counseling. Those participants who had become homeowners had higher average incomes, more money in savings, and higher credit scores and were more likely to be employed full-time and have a college degree than non-purchasers.”

The study also found, “Most purchasers had a FICO score of 620 or higher (71 percent), had a signed purchase agreement (31 percent), were reported as having completed counseling by their housing counselor (72 percent), and were assessed as

Could FHA Condo Loans Become Easier to Get?

The Department of Housing and Urban Development official blog, The HUDdle, recently linked to an article on HousingWire.com that details possible changes to the way FHA condo loans are approved. Those changes could make it easier for some borrowers to get condo loans on projects that were previously ineligible for FHA home loans.

According to the May 22, 2012 HousingWire.com article, FHA may relax condo rules soon, a HUD spokesperson was quoted saying the agency is “evaluating potential changes to our condo requirements and expect to announce some of those soon” but stressed that no comment would be available on specific requirements. But some who watch these issues closely anticipate changes which may include alterations to FHA rules covering the approval process for condo developments.

From the HousingWire.com article:

“…the FHA put rules in place barring new loans on developments with more than 15% of the units more than 30 delinquent on condo association dues. Also, at least half of the units must be owner-occupied for projects built longer than a year ago, and one investor can own no more than 10% of the units.” Could FHA changes include a modification of these guidelines?

HousingWire.com writer Jon Prior seems to think so. In his article, he quotes an agency called Community Associations Institute, which in a letter to association members stated, “Community Associations Institute anticipates FHA will modify its standard on assessment delinquencies to allow flexibility for associations. CAI has argued the existing standard that no more than 15 percent of units may be 30 days past due on assessments is too strict. Many condominiums are immediately disqualified from FHA approval by the current standard…”

At the time of this writing, no official word is available from the FHA or HUD regarding these potential changes, but as developments occur we will report them here.

Got a question on FHA home loans? Ask us in the comments section.

FHA Approved Housing Counseling Resources

Recently we posted about an FHA/HUD study that showed important benefits associated with housing counseling. According to HUD press release HUDNo.12-085,