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

Monthly Archives: July 2014

FHA Loan Rules For Cosigners: A Reader Question

108A reader asks, “How can a person sign a mortgage note but not have liability to repay the obligation?”

FHA loan rules mention cosigners as a non-occupying parties who must sign the mortgage note but are not obligated when it comes to financial liability. According to HUD 4155.1, the lender must perform due diligence with the cosigner the same as with the borrower:

“When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their
• income
• assets
• liabilities, and
• credit histories.”

How does the FHA define the cosigner? Let’s start by looking at the FHA definition of the borrower and co-borrower:

“Both occupying and non-occupying borrowers and coborrowers
• take title to the property at settlement
• are obligated on the mortgage note, and • must sign all security instruments.”

But cosigners are viewed differently according to HUD 4155.1 Chapter Four Section A:

“Cosigners

• do not hold ownership interest in a property
• are obligated on the mortgage note and have no liability for repaying the obligation, and
• must complete and sign all loan documents except the security instruments.”

There is no further elaboration in HUD 4155.1 on the subject of cosigners. Borrowers with questions above and beyond the information shown here should discuss their needs with the loan officer. Rules for cosigners may vary from one financial institution to another.

FHA Credit Score Minimums: A Reader Question

014A reader asks, “My credit score is 583 on Quizzle and 604 on Credit Sesame, what is the criteria for credit scores? Would I have a chance of getting approved for a refinance cash out?”

The first issue we’ll address here is credit reporting–your participating FHA lender will check your credit scores as reported by the three major credit reporting agencies. Those agencies are Equifax, TransUnion, and Experian. It may be best to contact these agencies directly to request your credit scores as that is what your lender will use.

FHA loan rules state that, technically speaking, borrowers with credit scores above 500 qualify for the FHA loan program. That said, FHA loan FICO standards are MINIMUM standards, and the lender is free to require a higher minimum FICO score. Chances are good that the lender WILL require a higher FICO score and so borrowers should anticipate being held to a higher standard than the FHA minimums.

Borrowers with marginal credit or who are concerned that their credit scores are not high enough to qualify should contact the FHA directly to request a referral to an FHA/HUD approved housing counselor who can help with pre-purchase issues including preparing your credit, how to check your scores, and what might be needed to legitimately fix credit issues without having to pay a third party.

There is a bit of advice for borrowers who want to apply for major lines of credit including cash-out refinancing; start preparing at least one year ahead of time in order to give yourself the best possible chance for loan approval. Borrowers who pull their credit scores early have a better chance of getting ready because working on credit issues where needed can take time.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

FHA Loans, Tax Liens, and Other Credit Issues: A Reader Question

055A reader asks, “I’m trying to get my credit re established after a BK in 2011…3.5 years thus far. I’ve had a 12 month secured loan at my credit union, and I’ve had a non secured card for just over 1 yr now, with 2 credit line increases to 2 k in 1 year of payments.”

“Also trying to pay off, and get a federal tax lien withdrawn of 9 k to help better score in the meantime. The back tax will be paid in full by Dec 31 -2014…and I’m currently in the direct debit acct, so in 3 months they will withdrawn the lien automatically…After all this projected prep,…what else do I need to get in order by early 2016? to smooth sail for the FHA?”

Depending on circumstances, a borrower who has experienced a bankruptcy should expect to wait three years before applying for a new home loan. In some cases a lender may be willing to work with a borrower in less time than that, but much depends on individual circumstances. In some cases, depending on the bankruptcy, the borrower may need the court’s permission to apply for new credit.

One of the important issues raised by this reader question is whether having a federal tax lien against the borrower can hurt the chances of FHA loan approval. According to HUD 4155.1, we learn the following on that issue:

“The Internal Revenue Service (IRS) routinely takes a second lien position without the need for independent documentation. For this reason, eligibility for FHA mortgage insurance is not jeopardized by outstanding IRS tax liens remaining on the property, unless the lender has information that the IRS has demanded a first-lien position. Tax liens may remain unpaid if the lien holder subordinates the tax lien to the FHA-insured mortgage. Note: If any regular payments are to be made, they must be included in the qualifying ratios.”

There’s also the issue of borrowers who have unpaid federal debt, which may or may not include taxes. HUD 4155.1 instructs the lender:

“If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until

• the delinquent account is brought current, paid, or otherwise satisfied, or
• a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.

Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”

For more information on these rules as they pertain to a borrower’s specific circumstances it will be necessary to speak to a lender.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

FHA Streamline Refinancing Loans and Delinquent FHA Mortgages

110In our last blog post we examined FHA loan rules for skipped payments and delinquent mortgages with regard to an FHA refinance loan. HUD 4155.1 Chapter Three addresses these issues in general, stating the FHA requirement that, “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.”

But what does the FHA loan rulebook specifically say about delinquent payments on mortgages to be refinanced with an FHA Streamline Refinance loan? HUD 4155.1 Chapter Six Section C states, “A delinquent mortgage is not eligible for streamline refinancing until the loan is brought current.”

That means that skipped payments are not allowed, and the delinquency issue must be addressed as a condition of loan approval.

There’s also a “seasoning requirement” for FHA Streamline Refinancing. In addition to being current on the mortgage, HUD 4155.1 Chapter Six Section C also requires the loan to be at least six months old prior to the refinance loan application. Specifically, the loan must be six months old or more when the FHA case number has been assigned:

“On the date of FHA case number assignment,

• 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.”

Borrowers should keep both the skipped payments rule and the seasoning period rule in mind when planning an FHA Streamline Refinance loan–especially those who purchased homes with adjustable rate mortgages and who are approaching the end of the introductory rate period. If you are trying to refinance to avoid getting a higher rate once that period ends, don’t forget to factor in the FHA Streamline Loan seasoning period into your plans.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

Missing Payments On FHA Loans Prior To Refinancing

052One common question about FHA refinance loans involves skipping payments. The ability to skip a payment prior to getting a refinance loan seems like an attractive option to many borrowers, and for those who have become delinquent on home loans. But does the FHA allow skipping payments? How do FHA loan rules address delinquent accounts that are being refinanced?

HUD 4155.1 Chapter Three addresses these issues in general, stating:

“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.”

To clarify, Chapter Three, Section A of HUD 4155.1 provides the following example for us to review:

“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 “skip” payments when refinancing. When the new mortgage amount is calculated, FHA does not permit any mortgage payments “skipped” by the borrower to be included in the new mortgage amount.

The borrower must either
• make the payment when it is due, or
• bring the monthly mortgage payment check to settlement.”

That seems fairly straightforward. But what about delinquent loans and refinancing? For FHA Cash-Out Refinancing, we learn the following from HUD 4155.1 Chapter Three Section B:

“Borrowers who are delinquent, in arrears, or who have suffered any mortgage delinquencies within the most recent 12 month period under the terms and conditions of their mortgages are not eligible for cash out refinances. If a property is encumbered by a mortgage, the refinancing lender must document that the borrower has an acceptable payment history.

The payment history is acceptable if the borrower

• is current, and
• has made all payments on the mortgage being refinanced within the month due for the previous 12 months.

For mortgages with more than six months and fewer than 12 months of payment history, the borrower must have made all payments when due. Mortgages with fewer than six months of payment history are not eligible for cash out refinances.”

We’ll examine the FHA loan rules for Streamline Refinancing with regard to missed payments in our next blog post.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

FHA Loan Rules For Refinancing and Reverse Mortgages: A Reader Question

109A reader asks, “We were told to get a reverse mortgage, while applying for a reverse mortgage my husband was under the impress that we did not have to make a mortgage payment. He did not make 2 payments. We have never misses a payment including the 28 years we owned our first home. The person who recommend the reverse mortgage did not explain. explain the process to us, once the paper work was competed he told us that we had to pay 85 thousand dollars in order to get a reverse mortgage, which came as a shock to us and since we could not afford it we dropped out of the program.”

“Now we need to defiance as our mortgage is $1250. a month and our condo fee is $861 a month. I lost my job in 09 and my husband who is self employed lost accounts due to the economy. Our current mortgage rate is 6%. We are. Struggling too meet our mortgage etc. Any help would be appreciated.”

It’s not entirely clear what the reader’s question is, but there are some important issues raised here that are worth addressing.

FHA loan rules do not allow skipped payments in any case–when refinancing the loan must be brought up to date one way or anotheliner. That can mean the borrower pays any missed mortgage payments before loan closing, or in some cases it may mean including the missed payments into the loan amount.

The bottom line is that the loan must be current at the time the loan closes.

Another issue raised here involves the FHA HECM loan program, sometimes called a reverse mortgage. It’s true that FHA Home Equity Conversion Mortgages don’t require a mortgage payment, but this is only effective under the terms of the new loan, once the loan has closed.

Additionally, FHA HECM loans are for mortgages that are either paid in full or close to being paid in full. They would not be available to borrowers who aren’t close to having the original loan paid in full.

HECM loans require counseling as a condition of loan approval, and all borrowers must be informed as to their rights and responsibilities under the FHA HECM program. HECM loans can be declared due in full if the terms of the program (including occupancy and staying current on all property taxes) are violated.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

 

 

FHA, HUD Announce Settlement In Housing Discrimination Case

FHA DISCRIMINATION SETTLEMENTThe FHA and HUD have announced a settlement in a New Hampshire housing discrimination case. According to HUDNo.14-089, a tenant filed two housing discrimination complaints against TKB Properties and the New England Family Housing Management Organization. Those complaints were settled and the settlement announced in the HUD/FHA press release.

“The U.S. Department of Housing and Urban Development (HUD) announced today agreements with the owners and managers of two Berlin, New Hampshire properties, settling allegations that they engaged in housing discrimination when they refused to rent to a woman who was a victim of domestic violence. The Fair Housing Act makes it unlawful to discriminate in the sale or rental of housing because of race, color, national origin, religion, sex, disability, or familial status.”

“No woman should be denied housing based on her status as a domestic violence survivor,” said Gustavo Velasquez, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity.  “HUD remains committed to ensuring and promoting fair housing opportunities for women and men alike.” Velaquez was quoted in the press release, which adds the following:

“The agreement is the result of two complaints filed by a woman with HUD in December 2013.  In the first complaint, the woman alleged that TKB Properties and the New England Family Housing Management Organization refused to renew her lease because of police visits responding to her domestic violence-related 911 calls.  The second complaint arose when the woman was searching for another home after her lease was not renewed, alleging that landlord Michael Warren refused to rent her an apartment based on the previous domestic violence-related police visits.”

The settlement includes a payment to the woman who filed the complaints. Additionally, “The landlords have agreed to participate in fair housing training and undergo monitoring by HUD.  TKB Properties and New England Family Housing also will revise their policies and leases for all HUD-subsidized properties to comply with the Violence Against Women Act and HUD’s regulations providing protection for victims of domestic violence in public and federally-funded housing.”

What does all this have to do with purchasing a home with an FHA home loan or refinancing a mortgage with an FHA loan?

Housing discrimination comes in all different types–this is just one example. The common thread in nearly all of these discrimination cases is that the injured party, the person or persons discriminated against, had to file complaints in order to stop the illegal discrimination and get their rights administered under the Fair Housing Act. It’s true that housing discrimination cases related to FHA loans have been settled in the past; borrowers who feel they have experienced such discrimination should contact the FHA and HUD immediately to address the issue.

Call HUD’s Office of Fair Housing and Equal Opportunity at (800) 669-9777 to file a complaint or to get advice.

FHA Loan Income Requirements: A Reader Question

078A reader asks, “My spouse is waiting an immigration process. Is there any way we can count all or partial income? My credit is at $800 and we have no other debts.”

This is a difficult question to answer without knowing more. The big question is whether the spouse income is verifiable or not–FHA loan rules require all income to be used in the debt to income ratio calculation (which is an important part of the loan approval process) to be verifiable.

What does this mean?

Verifiable income is defined as earnings that are stable, reliable, and likely to continue. Verifiable income is not always “taxable income”–veteran benefits, for example, may be counted as income even though they are tax-exempt. But some types of income can’t be used.

Non-verifiable income would include many types of earnings that may fit some of the three requirements, but not all three. Stable, reliable, and likely to continue wouldn’t apply to things like selling goods on eBay, for example, though this may be handled on a case-by-case basis depending on the nature of that income. Determining what income is verifiable and what is not is the responsibility of the loan officer, so we couldn’t comment on a certain type of income except in a general way, or in cases where FHA loans specifically address it, such as commissions or bonuses.

The fact that the reader’s potential co-borrower or c0-applicant is in an immigration process does not necessarily affect the loan application. Lawful resident aliens, non-resident aliens and others with legal status may apply for an FHA mortgage, though some additional documentation may be required. Potential FHA borrowers who legally reside in the United States should not feel their status will count against them at application time. FHA loan rules have been designed to help such applicants as well as U.S. citizens.

Borrowers who find themselves in the circumstances mentioned in the reader question should discuss their needs with a loan officer or contact the FHA directly for advice and assistance.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

FHA Loans And Escrow Requirements: A Reader Question

108A reader asks, “I am trying to cancel my escrow acct. with (my lender) due to them selling my Mortgage loan to an undesirable finance company called (name deleted). I was informed that all FHA loans are required to have an Escrow account. Please inform me of my rights.”

FHA loan rules do not require an escrow account in every case, but your lender might. According to the FHA/HUD official site, we find the following on the page titled HUD RESPA FAQs. The Real Estate Settlement Procedures Act, also known as RESPA, governs escrow accounts for home loans.

Under RESPA there is no requirement for escrow. From the HUD official site:

“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.”

However, under FHA loan rules there are circumstances where the lender is REQUIRED to establish an escrow account. Regardless of the fact that escrow is not required in all cases by FHA loan rules, the lender’s standards may require it.

The reader question doesn’t specify whether the lender was trying to imply FHA loan rules require escrow (which may be true depending on circumstances) or if the lender’s own standards dictate the use of escrow.

In cases where there’s a dispute about escrow, borrowers are encouraged to call the FHA directly at 1-800 CALL FHA to get clarification on FHA rules. Keep in mind that lender standards will apply if they are applied in accordance with federal law. Just because the FHA does not require escrow doesn’t mean the lender is forbidden from doing so.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.

 

FHA Loan Rules For Credit, Short Sales, Foreclosures: A Reader Question

017A reader asks, “My husband and I are looking to potentially buy a manufactured home already on some land. The home itself appears to meet the requirements stated above. The mortgage loan officer is stating that we do not qualify for a loan for a manufactured home due to my husband having a foreclosure seven years ago and I have a short sale three years ago. Is this correct, that due to our prior home financing circumstances, we are ineligible for an FHA loan for a manufactured home?”

The important thing to keep in mind with regard to questions like this is that FHA loan rules aren’t the only ones that govern the FHA loan transaction–lender standards also play a part.

FHA loan requirements for credit and other financial qualifications are the baseline–lenders are free to require higher standards and often do. The borrower asks, “is it true” that the circumstances mentioned may disqualify an application–the answer is essentially that, for this particular financial institution the answer is yes.

But not all financial institutions have the same rules, requirements, or basic minimum standards. You may well find another lender willing to work with a borrower’s circumstances based on current financial qualifications.

In all cases where a borrower has had a bankruptcy, foreclosure, short sale, etc. it’s important to work on building up a new credit history that would be acceptable to a lender–that includes making a minimum of 12 months worth of on-time payments for all financial obligations.

We don’t say this to imply the reader did NOT do this, but rather as a general rule of thumb all potential FHA borrowers should keep in mind when considering a new loan under such conditions.

Borrowers are encouraged to shop around for a lender to find the most advantageous terms and conditions, and in some cases, to find a lender willing to work with the borrower’s circumstances.

Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.