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

Monthly Archives: October 2012

FHA Energy Efficient Mortgages: Is Escrow Required?

When learning abo0ut FHA home loans, escrow is one issue some borrowers have questions about. The FHA frequently asked questions pages include the following about escrow, which is governed by something called the Real Estate Settlement Procedures Act or RESPA:

Does RESPA require borrowers to maintain an escrow account?

NO. It is the lender’s decision whether the borrower must maintain an escrow account for the purpose of paying taxes and other items. The HUD regulations only limit the maximum amount that a lender can require a borrower to maintain in an account.”

That Q&A from the FHA official site seems to indicate that the FHA does not require escrow; indeed, it is the lender’s choice to require escrow or not. But are there situations where an escrow account may actually be a requirement as a condition of the FHA loan?

According to a reading of HUD 4155.1

FHA Assistance to Hurricane Sandy Victims in New York and New Jersey

The FHA and HUD have issued a press release announcing FHA loan assistance to victims of Hurricane Sandy in New York and New Jersey.

According to press releases HUDNo.12-166 and

FHA Warning On Scams Related to the National Mortgage Settlement

In early 2012, a landmark mortgage settlement between five major lenders and the U.S. government was reached after complaints were filed regarding home loan abuses and foreclosure abuses.

According to a Department of Justice press release dated March 12, 2012, “The Justice Department, the Department of Housing and Urban Development (HUD) and 49 state attorneys general announced today the filing of their landmark $25 billion agreement with the nation

Hurricane Sandy and FHA Advice on Natural Disasters and FHA Loans

Hurricane Sandy has been dominating the headlines; it’s a good time to review FHA loan policy for those who might be affected by a natural disaster such as a hurricane, flood or other weather-related issue.

Much of the FHA loan policies are directed towards those who have had properties damaged by a disaster, but some borrowers have employment issues after a weather-related incident and may have difficulties making their next FHA loan payment. FHA loan rules do address that situation as well as cases where the borrower is trying to recover from storm damage or other problems.

From the FHA official site:

“Was your home or your ability to make your mortgage payments harmed by an event that the President declared a disaster? You may qualify for relief to help you keep your home. Much of the mortgage industry and The United States Department of Housing and Urban Development is committed to assisting borrowers whose lives and livelihoods are thrown into turmoil by a disaster.”

The FHA official site says your lender may be willing to “stop or delay” foreclosure proceedings for up to 90 days after a natural disaster. The FHA adds, “Lenders may also waive late fees for borrowers who may become delinquent on their loans. Just follow the four steps below to see if help may be available to you. You are strongly encouraged to contact your lender for further information, and to see if you are eligible for relief.”

To see if you qualify for such assistance, the FHA official site says you should ask four basic questions:

  1. Did my expenses rise or income fall?
  2. Were these changes in my finances caused directly or substantially by the disaster?
  3. Have I missed any mortgage payments?
  4. Am I without other resources, such as insurance settlements, to catch up?

According to the FHA, “If you answered “yes” to all of these questions, and you have a conventional or VA mortgage, contact your lender. If you have an FHA-insured mortgage, please continue reading.

The next step is to determine if you are one of the affected borrowers the FHA official site says it can help. “You must be in one of three basic groups in order to qualify for a moratorium on foreclosure:”

  1. You or your family live within the geographic boundaries of a Presidentially declared disaster area, you are automatically covered by a 90-day foreclosure moratorium.
  2. You are a household member of someone who is deceased, missing or injured directly due to the disaster, you qualify for a moratorium.
  3. Your financial ability to pay your mortgage debt was directly or substantially affected by a disaster, you qualify for a moratorium.

The FHA rules add that borrowers who may be having trouble making their FHA mortgage payments in the wake of a natural disaster should heed the following; “if your inability to pay your loan resulted from the disaster, your lender may waive any late fees normally charged and let you know about other options. Also, if you foresee ongoing problems in making your mortgage payments resulting from changes in your financial status, you should contact your lender immediately.”

Do you have additional questions about these policies? Ask the FHA by calling 1-800 CALL FHA.

 

Are You Eligible For an FHA Mortgage?

FHA loans are sometimes misunderstood–some people think FHA mortgages are only for low-income families, others wrongly assume only first-time home buyers can qualify for an FHA loan.

The FHA does provide a list of guidelines that list who is eligible–and who is not–to apply for an FHA mortgage or refinance. The FHA loan rules include guidelines on credit scores and minimum age–which we discuss below.

The rulebook that describes these things is called HUD 4155.1. In this guideline you’ll find the following:

“FHA insures mortgages made to individuals with valid Social Security numbers (SSN), and under the conditions described in this section, to state and local government agencies, and approved nonprofit organizations. Note: Employees of the World Bank, foreign embassies, etc., may not be required to have an SSN. Conclusive evidence of this exception must be provided.”

FHA rules also specifically address a common question about age limits. “There is no maximum age limit for a borrower. The minimum age is the age for which a mortgage note can be legally enforced in the state, or other jurisdiction, where the property is located.”

Another section of the rulebook, titled, ” Determination of Credit Worthiness and Minimum Credit Score Requirements” lists the requirements for borrowers, co-borrowers, and co-signers. It instructs the lender, “When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their

  • income
  • assets
  • liabilities, and
  • credit histories.”

FHA Loan minimum credit scores are described in this table taken from HUD 4155.1:

The FHA minimum credit requirements are a very important part of the loan approval process. If you are concerned about your credit score and are considering an FHA mortgage loan, call the FHA at 1-800 CALL FHA and ask for a referral to a housing counselor who can help explain what needs to be done to prepare for a loan application including credit issues and how to request copies of your credit report.

Do you have questions about FHA home loans? Ask us in the comments section.

FHA Loan Reader Question: What Does “Endorsed” Mean?

A reader asks, “Can you please explain what “endorsed” means? I started my FHA streamline refi process March 11, 2009 through Countrywide. In the meantime BoA purchased Countrywide and the refi wasn’t finalized until June 29, 2009. Its not my fault the process took so long, and I sincerely hope I am not losing out on a refi or decrease PMI because of their delays!”

This reader question most likely refers to FHA mortgagee letter HUDNo.12-045, which includes the following information about FHA Streamline Refinancing:

“…Acting Federal Housing (FHA) Commissioner Carol Galante announced significant price cuts to FHA

FHA Loan Eligibility

When a borrower applies for an FHA guaranteed mortgage, the lender is required to determine whether the borrower is a good risk by examining credit rating, the applicant’s debt-to-income ratio, and employment. But the lender also has some other checking to do.

FHA loan rules state, “To determine whether a borrower is eligible to participate in an FHA mortgage loan transaction or must be rejected, the lender must:

examine HUD’s LDP list, the GSA List and CAIVRS, and document the reviews on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.”

What do all those abbreviations mean? “LDP” stands for “Limited Denial of Participation”. GSA is short for “U.S. General Services Administration List of Parties Excluded from Federal Procurement or Non-procurement Programs”. The acronym “CAVIRS” refers to “HUD’s Credit Alert Interactive Voice Response System”.

What is the purpose of checking all of those things? According to the FHA official site, “A borrower is not eligible to participate in FHA-insured mortgage transactions if he/she is suspended, debarred, or otherwise excluded from participating in HUD programs.

A lender must reject a borrower from participation if the borrower is on the

HUD Limited Denial of Participation (LDP) list
U.S. General Services Administration (GSA) List of Parties Excluded from Federal Procurement or Non-procurement Programs,

and/or

HUD’s Credit Alert Interactive Voice Response System (CAIVRS), unless an exception exists.”

FHA loan rules for eligibility add, “A borrower must also be rejected if he/she is presently delinquent on any Federal debt or has a lien placed against his/her property for a debt owed to the United States Government.”

These are important facts to know when applying for an FHA guaranteed home loan; borrowers with federal debt must take steps to address that debt prior to applying for an FHA home loan. For those who appear on the lists mentioned above, the best course of action is to call the FHA directly to see what may be done to be removed from those lists or the waiting periods required to be removed from them if possible.

Do you have questions about FHA mortgages? Ask us in the comments section.

FHA Loans and Escrow Accounts: What You Should Know

Many home loan applicants find themselves opening escrow accounts at the request of their lender for such things as property taxes and other expenses related to owning a home purchased with an FHA mortgage. While the FHA loan program does not require an escrow account, the lender may.

The FHA official site reminds borrowers and lenders alike that it’s misleading for any lender to imply that FHA loan rules issued by the Federal Housing Administration require escrow; this is not true but the lender is free to do so.

The FHA official site says of escrow, “Section 10 of the Real Estate Settlement Procedures Act (RESPA) limits the amount of money a lender may require the borrower to hold in an escrow account for payment of taxes, insurance, etc. RESPA also requires the lender to provide initial and annual escrow account statements. The additional escrow account regulations became effective in October 1997.”

This means there is accountability and transparency required as part of the process of opening and maintaining an escrow account.

The Escrow Cushion

According to one FHA frequently asked questions list, “The RESPA statute and regulations do not require the lender to maintain a cushion. However, since 1976 the RESPA statute has allowed lenders to maintain a cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments. If state law or mortgage documents allow for a lesser amount, the lesser amount prevails.”

Additionally, “The accounting method generally requires borrowers to maintain lesser amount in the account than the single-item method predominately used by lenders. However, many lenders have recently increased the escrow account cushion to the maximum allowed by law.” Your lender is not required to pay you interest on the money deposited in escrow for FHA loan purposes.

Other important details about escrow you need to know–the lender’s required disbursement date for paying things like property taxes from your escrow account. “The disbursement date means the date on which the lender actually pays an escrow item from the escrow account.”

“However, the lender must pay the items in a timely manner, that is, on or before the deadline to avoid a penalty. This is required as long as the borrower’s payment is not more than 30 days overdue.” The FHA advises all borrowers to annual escrow statements, “to make certain the lender did not make late payments and charge any penalties to the borrower’s account.”

Do you have questions about FHA home loans? Ask us in the comments section.

FHA Loan Reader Questions: Bankruptcy and Foreclosure

A reader asks, “My bankruptcy has been discharged for 3 years but the house has not been foreclosed on yet. Can I get an FHA loan?”

There are several unanswered questions here that don’t allow a definitive answer. The nature of the bankruptcy (Chapter 7 or Chapter 14) plays a part in the answer. Is the house in foreclosure now? More information is needed to provide a clear answer.

In general, FHA loan rules do require a “seasoning period” for bankruptcy and foreclosure. A home that is currently in foreclosure will likely interfere with a borrower’s attempts to get a new home loan of any kind.

A home purchased with a government-backed loan that has been foreclosed upon may result in the borrower being indebted to the government. VA loans, for example, may hold the borrower responsible for the debt and refuse to allow a borrower to apply for a new VA loan until that indebtedness is resolved to the satisfaction of the government. If a borrower’s home has been foreclosed upon and the mortgage was a Fannie Mae or Freddie Mac, the borrower would be required to meet the requirements of those programs if a debt is involved as a result of the foreclosure.

In any case, before a borrower can apply for a new loan, the FHA minimum waiting time for a foreclosure or bankruptcy (or both, in this case) is not the only factor. Any lender will have specific requirements in this area that may exceed FHA minimums.

This is permitted under FHA loan rules. The bottom line–borrowers who experience bankruptcy and foreclosure should not expect to get into a new home loan soon after those proceedings.

Do you have questions about FHA home loans? Ask us in the comments section.

FHA Loan Reader Questions: Appraisals

A reader asks, “We had an appraisal 3 years ago when we purchased our house. It came in at $122000. At the beginning of the year, we had a contract with an FHA buyer and the appraisal came in at $117000, this made the deal fall through.”

“Our house has been on the market over a year, now we have a contract with another FHA buyer and since it