Monthly Archives: September 2012
Aside from getting the FHA home loan itself, one of the most important benefits to having an FHA mortgage is the availability of free foreclosure avoidance counseling for home owners who need it.
FHA.gov reminds borrowers that it is not necessary to pay fees to third-party foreclosure avoidance agencies. Plenty of free counseling and assistance is available from the FHA and HUD. On the FHA official site, under the page titled “Consumer Fees For Housing Counseling” you’ll find the following:
“Foreclosure prevention counseling and homeless counseling services are available free of charge through HUD’s Housing Counseling Program. Housing Counseling agencies participating in HUD’s Housing Counseling Program are not permitted to charge consumers for these specific housing counseling services. (Emphasis ours.) Counseling recipients should not pay for these services.”
That’s not to say there are no fee-based housing counseling services approved of or referred by FHA; it’s just that foreclosure avoidance is an issue too important to exclude some borrowers on the possible basis that they cannot afford such counseling to help save their homes.
What does the FHA say about fee-based counseling outside foreclosure avoidance and homelessness prevention? “…housing counseling agencies are permitted to charge reasonable and customary fees for other forms of housing counseling and education services, including pre-purchase, reverse mortgage, rental, and non-delinquency post-purchase counseling services, provided certain conditions are met:
- Agencies must provide counseling without charge to persons who demonstrate they cannot afford the fees;
- Agencies must inform clients of the fee structure in advance of providing services;
- Fees must be commensurate with the level of services provided.”
It’s important to take note of the first item in that list–even in the case of fee-based, FHA-referred housing counseling, any borrower who demonstrates an inability to afford housing counseling fees must be given counseling free of charge. This applies to FHA-referred housing counseling. To get a referral, contact the FHA/HUD via an interactive referral phone system at (800) 569-4287.
Contact your local HUD office if you encounter housing counseling agencies that you believe are not complying with the requirements mentioned here.
Do you have a question about the FHA home loan process? Ask us in the comments section.
The FHA has issued a reminder to lenders to “quickly release hazard insurance payments” to affected borrowers trying to recover from Hurricane Isaac. According to an FHA press release, HUDNo.12-156, the FHA wants to “reinforce its existing policy requiring lenders to release insurance payouts to homeowners eager to rebuild their damaged homes following disaster.”
The release states, “In the past, the U.S. Department of Housing and Urban Development (HUD) noticed some lenders would instead use these insurance funds to pay off the outstanding mortgage balance, leaving many homeowners without the resources they need to rebuild their homes.”
Carol Galante, FHA
A recent reader question about FHA loan requirements for occupancy begs the question; what does the FHA consider a “principal residence” or “primary residence” and will the FHA approve of a second FHA mortgage for those who purchase single-family, owner-occupied property?
According to the FHA loan rules, found in HUD 4155.1, in the section titled “FHA-Insured Mortgages on Principal Residences and
Investment Properties” you’ll find the following:
“To prevent circumvention of the restrictions on making FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower.”
If you want to buy a home, this means the FHA expects you to use it AS a home. Additionally, “FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance.”
That basically defines the letter and spirit of the law when it comes to FHA home loans. In light of those rules, it’s easy to see why the FHA goes a step further;
“Any person individually or jointly owning a home covered by an FHA- insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations as described in HUD 4155.1 4.B.2.d.”
Consult with the FHA directly for information on circumstances that might be considered eligible for an exception to these FHA loan rules.
Do you have questions about the FHA loan process? Ask us in the comments section.
A reader asks, “I purchased a home in 2006 with an FHA loan. At the time, I remember a stipulation that I was required to reside in the house, for three years (I believe), which I did.”
“I have since moved and rented out the property, and just received a letter from my mortgage company that they had received word that my mailing address had changed, and that per the terms of my FHA loan, I was required to occupy the house until the mortgage was paid off, and that I may be facing tax penalties.”
“They have asked me to sign a form verifying that I still occupy the house and will do so until the mortgage is paid in full. Are there any types of first time homeowners loans that would require an individual to reside in the house until full pay off of the mortgage? How can I find out what type of FHA loan I have?”
FHA loan rules, as printed in HUD 4155.1, state the following:
“Except as otherwise stated in this handbook, FHA
The FHA has a wide variety of home loan programs available from the standard new-purchase mortgage to fixer-upper loans.
It’s easy to start preparing for a new home loan, consider your options, and start FHA mortgage loan application paperwork without ever thinking about resources that might be available in your home state or local community that could help qualified borrowers in the first-time home buyer category.
The FHA has a page on its official site with links to all fifty states, including resources for state and local programs. The Local Homebuying programs page is full of valuable information for all sorts of house hunters and FHA loan applicants.
The page for Texas is a good example; here you can find a link to information about housing counseling agencies that are FHA-approved. You can also click on the link to the official page of the Texas Attorney General educating borrowers on predatory lending practices.
One of the most valuable links for Texas residents on this page is the Homeownership Assistance: Texas page. It features links to the Texas Land Board and the Texas State Affordable Housing Corporation.
We only use the state of Texas as an example–there are pages for all 50 states with a variety of similar links, resources and help for house hunters. If you’re thinking of applying for an FHA home loan, it’s a very good idea to have a look at the homeowner resource pages for your state. You could learn a great deal about programs in your local area.
Do you have questions about FHA home loans? Ask us in the comments section.
We’ve reported many new changes to the FHA condo approval process that allows a condominium project to be considered for an FHA loan for individual units. Condo projects must be FHA approved before a borrower can apply for an FHA guaranteed mortgage on a unit in that condo project; that means a project’s compliance with FHA loan rules is very important.
For example, a condo project may not be approved for an FHA mortgage loan if there are restrictions on the borrower’s ability to freely sell the property. The FHA has gone back and forth on an issue related to “the right of first refusal” which limits a borrower’s ability to sell.
Condo loan applicants have reported problems with the right of first refusal clause, getting turned down for FHA and other government-backed loans because of such clauses sometimes found in condo association bylaws or agreements. This is just one example of how an issue with condo owner association bylaws or membership issues can affect an FHA home loan.
FHA condo approval guidelines have been modified to address various issues related to condo owner associations. One of the most recent is the updated policy guidance found below:
“This requirement must be reviewed as part of the analysis for project approval and must also be verified as part of the loan level requirements. No more than 15 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (does not include late fees or other administrative expenses). The 15 percent includes all units (occupied, investor, bank owned and vacant). There will be no exception requests granted.”
That requirement is something the FHA loan applicant has no control over, but any situation as described above would affect the borrower’s chances of getting an FHA condo loan in that particular project. Sometimes a borrower finds a condo they want to buy in a project that is not currently FHA approved.
This means an approval process must take place before the loan could be considered. These types of procedures can and do happen–it’s not unusual for a condo project to be considered for approval because the borrower wants to purchase there. But if the project does not meet FHA guidelines, it can miss out on being added to the FHA approved list.
From time to time, we publish information about the FHA and HUD efforts to combat discrimination in housing. We don’t have new cases to report at this time, but some borrowers often wonder how FHA loan rules are designed to help prevent discrimination in a procedural way.
It’s one thing to rely on existing or newly passed federal laws that forbid discriminatory practices in lending, housing, or home sales. It’s quite another to create rules and regulations that specifically work to prevent such illegal practices in the procedures of lending money.
In some cases these anti-discrimination rules are more or less labeled and described as such; in others there are layers of subtlety involved, but it’s easy to see how they could be interpreted as an anti-bias requirement.
A good example of the latter can be found in Chapter One, Section A of the rulebook for FHA lenders, HUD 4155.1. Under the heading, “Required Notifications for Rejected Borrowers”, you’ll find the following:
“When a loan is rejected, the lender must immediately complete
A reader asks, “I filed for bankruptcy over 3 years ago. My home was included because I did not sign a reaffirmation agreement. However the bank did not require me to move out because I was not in arrears with the mortgage and never missed a payment.”
“About 18 months ago I was forced to move to be closer to my job due to vision problems. My doctor told me to not drive. I had to move out of the blue and the bank foreclosed a year ago. I was told that foreclosures was necessary to get my name off property but I was not legally responsible for the debt due to bankruptcy. Will the foreclosures prevent me from qualifying for an FHA home loan?”
This is a complex situation and the borrower should definitely get in touch directly with the FHA and/or the lender for more specific guidance regarding the options in this specific case. However, in general:
Borrowers should not expect approval for an FHA home loan for three years after the foreclosure action–the foreclosure must occur before the required waiting period starts counting down.
That said, FHA loan rules as described in HUD 4155.1 Chapter 4, Section C do show an exception
The FHA recently updated its condo project approval rules to include changes in pre-sale requirements. FHA loan rules permit loans on condo units as long as the condo project is FHA approved.
Part of the process of getting condo approval includes meeting FHA guidelines on critical areas such as pre-sale requirements. The new FHA loan rules for pre-sales are now updated.
According to FHA Mortgagee Letter 2012-18, “The requirements of Section 3.4 of the Guide are replaced by the following updated policy guidance.” That guidance includes:
“At least 30 percent of the total units must be sold prior to endorsement of a mortgage on any unit.
The FHA and HUD recently updated condo project approval guidelines in the Mortgagee Letter 2012-18.
The mortgagee letter states, “It was determined that certain policy adjustments were needed to address current housing market conditions”.
The letter adds, “This ML is effective for all condominium project approvals,recertifications, annexations or reconsiderations submitted for review as of the date of this directive unless otherwise specified in a particular information block. This approval process will apply until August 31, 2014, unless further extended by FHA.”
Part of the revised guidelines for condo project approval? Investor ownership rules. Under the section title, “Investor Ownership Section 2.1.4” you’ll find the following:
“The requirements of Section 2.1.4, Investor Ownership are replaced by the following updated policy guidance.
A unit that is occupied as a principal residence is not considered as an investment property. When calculating the investor owned percentage, this unit will not be included in the calculation.”
FHA loan rules, as of this mortgagee letter, now state that for all existing or non-gut rehab condo projects, “any investor/entity (single or multiple owner entities) may own up to 50 percent of the total units at the time of project approval if at least 50 percent of the total units in the project have been conveyed or are under a bona fide contract for purchase to owner-occupant principal residence purchasers.”
Additionally, “Unoccupied and unsold units owned by a builder/developer are not considered as investor owned and subject to the requirements unless the unit is currently rented or has previously been occupied.”
There are also guidelines for non-profits and non-government housing programs in this area. “Eligible non-profit and/or eligible governmental housing programs are subject to the same investor and owner-occupied percentage requirements stated above. An eligible governmental or non-profit program means a program designed to assist the purchase of low-or-moderate-income housing including rental housing that is operated pursuant to a program established by Federal law, operated by a State or local government, or operated by an eligible non-profit organization as defined by the Department?s current guidelines.”
For more information, see the FHA Mortgagee Letter 2012-18 on the FHA official site.
Got questions on FHA home loans? Ask us in the comments section.