Monthly Archives: August 2012
A reader asks, “Me and my husband lost our home due to a house fire. We are currently in a Chapter 13 bankruptcy and have been since January of this year. Is there any way we can buy a new home in this situation? We both have jobs also.”
FHA loan rules specifically address the circumstances a borrower who has a Chapter 13 on his or her record can get an FHA home loan. According to HUD 4155.1 Chapter Four Section C;
“A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
A reader asks, “Once an offer has been made on a home, how long should it take a lender who has prequalified but not preapproved a loan to close on the home?”
There are many variables at work with an FHA home loan, so there is no set time period. Many lenders may use a stock answer of between 30 and 45 days, but you should not expect an FHA loan to close within a week to ten days of the mortgage application.
It is very important to point out that pre-qualifying for an FHA loan is not the same as having the lender process the loan application data, verify income and employment, and pull your credit reports.
That process definitely takes time, which is why the 30-45 day window is often cited. Pre-qualification FHA loan procedures don’t involve the verifications, so your lender needs to time not only to request the credit reports AND have have the credit agencies respond and send out the credit data.
If you have a lengthy employment history over the last 24 months (frequent job changes or seasonal/freelance income that must be followed up upon) your application may take a bit longer.
While you wait to close on the loan, it’s very important to be mindful of your financial activities. Beware of opening or using new lines of credit, applying for other loans, or making major job changes. All these activities can be considered a major life change and could affect your application. The lender can cancel an FHA loan transaction if your debt-to-income ratio changes enough or your employment situation changes before the loan closes.
Do you have questions about FHA home loans? Ask us in the comments section.
When a buyer looking for a home to purchase with an FHA mortgage finds a home, before the loan can be approved there must be an FHA appraisal.
This appraisal will determine the FHA loan amount which is based on the fair market value of the home, not the asking price set by the seller.
In situations where the appraisal comes back with a fair market value lower than the asking price of the property, some buyers struggle with a decision to walk away from the loan. In some cases it’s best to walk away, in others it may be a good idea to re-negotiate the sale price.
But some borrowers still walk away from the property, not liking the terms or the price. The first question many of these house hunters want to ask after choosing not to purchase the property is whether the FHA appraisal fee can be refunded.
It’s not surprising that a buyer would ask; when appraisals in some markets can cost nearly $500, who wouldn’t want the money back? Unfortunately, appraisal fees are non-refundable for one very good reason. They are payments for a service rendered, the same as for any other type of service.
The appraiser is paid to do the appraisal work–the outcome is not part of the payment agreement. Otherwise, the appraisal system would not be fair or accurate–it would simply reflect that the borrower paid to be given the “right” appraisal results. The work is performed and the fee must be paid. The appraiser is not responsible for whether the results of the work match the sales price or the desires of buyer or seller.
Do you have questions about the FHA home loan process? Ask us in the comments section.
A reader asks, “Once an offer has been made on a home. How long should it take a lender who has pre-qualified but not pre-approved a loan to close on the home?”
This type of FHA loan question is best answered by the lender; it’s impossible to predict what factors could affect a home loan once the process is set in motion.
The financial institution’s work load, the amount of time it takes the appraisal report to be completed and sent back and other factors all depend greatly on the housing market.
It’s also important to point out that pre-qualification is not a guarantee of FHA home loan approval; if a borrower did not fully disclose information on the application form that comes to light at another time, that could affect the FHA loan, as could any number of other circumstances including appraisal issues.
Pre-qualification is a very good idea, however, as it gives a borrower a good sense of how much home he or she can afford. If you’re considering pre-qualifying for an FHA loan, your best chances come when all of the following apply to you:
- Your credit report is solid, with less than two thirty day late payments in the past 24 months.
- If you have a bankruptcy, it is at least two years old with good credit for the two years following.
- If you have a foreclosure on your record, it is at least three years old with good credit activity for the past three years.
- Your new potential mortgage payment is approximately 30 percent of your total monthly gross income.
For questions about FHA loan processing times, closing dates and other variables, contact your lender directly for more information.
Do you have questions about how the FHA home loan process works? Ask us in the comments section.
In the month of August, 2012, the FHA/HUD official site reported no fewer than four cases investigated by the Department of Housing and Urban Development related to housing discrimination.
In one case, the owners of an Alabama mobile home park were charged with discriminating against an African-American family; another case that reached the settlement stage in Alabama involved discrimination against Hispanic residents. Two more cases, one in West Virginia and another in Minnesota, involved racial bias and discrimination due to a medical condition.
FHA loan rules, state laws and federal statutes forbid discrimination of any kind in the housing process. Whether you are applying for a home loan, looking for rental housing, or trying to renew leases or refinance, it is illegal to deny housing for reasons of race, creed, national origin, sexual orientation, gender identity, family status, or any other non-financial reasons commonly understood (and spelled out by the law) as discriminatory.
When you search for a home, apply for an FHA, conventional or VA home loan, seek pre-purchase counseling or any other part of the process of finding a new place to live, the Fair Housing Act and many other laws protect you from discrimination. That does not mean you’ll never encounter it, but the most important thing any FHA loan applicant can do when experiencing discrimination is to report it immediately.
From the FHA official site:
The Federal Housing Administration has issued new guidance to lenders regarding the use of Social Security Income to qualify for FHA home loans.
FHA/HUD Mortgagee Letter 12-15, “Documentation Requirements for Income from the Social Security Administration” lists the new rules for documenting and verifying SSI as income for the purposes of getting an FHA insured mortgage loan.
The mortgagee letter states, “The following guidance replaces HUD Handbook 4155.1, 4.D.2.k, in its entirety.”
“All income from the Social Security Administration (SSA) including, but not limited to, Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Social Security Income, can be used to qualify the borrower if the income has been verified, and is likely to continue for at least a three year period from the date of mortgage application.”
That’s good news for borrowers who would depend on this income in order to qualify for an FHA mortgage. The new guidelines include instructions to the lender on how to properly verify this income;
“The lender must verify income by obtaining from the borrower any one of the following documents:
–Federal tax returns;
–the most recent bank statement evidencing receipt of income from the SSA;
–a Proof of Income Letter, also known as a
With all the natural disasters in the news lately, plus areas with federal natural disaster declarations in Wisconsin, Maryland, and Montana counties, it seemed like a good time to discuss the FHA 203(h) loan program for disaster victims. The FHA/HUD official site summarizes the FHA 203(h) program as follows;
“The Section 203(h) program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.”
Not everyone can apply for this particular FHA home loan program. According to FHA.gov, “Individuals are eligible for this program if their homes are located in an area that was designated by the President as a disaster area and if their homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary.”
The FHA 203(h) program is different than ordinary FHA home loans because at the time of this writing, the loan rules for FHA 203(h) mortgages include no down payment requirement. “No downpayment is required. The borrower is eligible for 100 percent financing. Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a 6 percent limitation on seller concessions.”
These terms are more generous than typical FHA loans because this loan program is designed to assist those recovering from a natural disaster. It’s understood that coming up with the FHA’s normally required 3.5% down payment would be a struggle for any home owner trying to rebuild after a storm, forest fire, mudslide or flood.
One of the most important features of the FHA 203(h) loan program is the time limit. FHA rules state, “The borrower’s application for mortgage insurance must be submitted to the lender within one year of the President’s declaration of the disaster.”
Don’t delay when applying for disaster-related assistance, whether it be an FHA 203(h) loan, FEMA assistance or any other related help. Your ability to claim such benefits may be more time-sensitive than you realize.
Do you have questions about the FHA home loan process? Ask us in the comments section.
A reader asks, “We paid $6755.53 cash up-front-fee included in our mortgage in 2008.
FHA loan rules specify a list of required documents and paperwork needed to process an FHA home loan properly. In addition to your application data, the lender needs a list of things in order to perform the “mortgage credit analysis”.
Not all of these documents are supplied by the applicant, but some of the lender-generated paperwork requires the borrower’s permission in writing, such as the approval to pull credit reports from the three major credit reporting agencies Equifax, TransUnion, and Experian.
The list of required documentation also includes “evidence of a Social Security number” which is usually your Social Security card or other documents the lender may accept as proof of your number. The lender must complete a verification of employment, which means following up on the data you provided in your application for the FHA home loan or refinancing loan.
For borrowers with non-traditional jobs or seasonal work, there may be alternative employment documentation required. Your lender will tell you what additional information might be needed if that’s the case.
The FHA also requires federal income tax returns, especially when it comes to processing FHA mortgage loan applications from self-employed and small business owners. Tax returns are an important part of income verification, so borrowers should expect to be asked for returns and have at least two years of tax data available if and when needed.
The rules also specify how old these items may be. According to the FHA loan rulebook, HUD 4155.1 Chapter One, “Lenders must obtain the most recent documents required to perform the mortgage credit analysis.
A reader asks, “I have good credit but my wife had a delinquent student loan. It is now up to date for the past two months. We only have two car payments, never been late. We also have (a) home in another part of the state since my job transferred me to a different city. What are the chances of us getting a loan?”
Questions like this are hard to answer for several reasons–one of which is the reader doesn’t provide any credit score information. FHA home loans require the borrower to have a minimum credit score.
In general, borrowers should not expect an FHA loan unless their credit score is at least 580 or better, and many lenders won’t approve a loan for borrowers with credit scores lower than 620.
The lender’s minimum credit score requirement may be higher than the FHA’s, which is permitted under FHA loan rules.
For that reason, a borrower who wants to know about his or her chances for an FHA loan should start by requesting copies of credit reports and viewing the credit score currently listed. There’s no way to tell what your chances are for an FHA loan otherwise–without the credit score data, it’s all speculation.
The other circumstances mentioned in this reader question include possible debt-to-income ratio issues. Does the borrower still owe house payments on another home? Those expenses will be factored in when the lender is calculating whether or not the borrower can afford the new loan.
Finally, FHA home loans for single-family new purchase transactions require the borrower to certify that the new home is to be the primary residence–that’s a factor that must be taken into consideration when the borrower already owns property elsewhere. The residency requirement is a condition of loan approval–borrowers can’t opt out of using the home as their main address.
Do you have questions about how the FHA loan process works? Ask us in the comments section.