Monthly Archives: August 2014
FHA loan applicants often want to know how much they can borrow with an FHA mortgage. There’s no set answer to that question since the FHA loan amount depends on the appraised value of the home and other factors. Borrowers will need the amount of the sale price of a home before a loan amount can be properly calculated.
Some borrowers want to know if they can apply for more than the sale price of the home with the intent of taking the excess funds for other purposes. This is not permitted for FHA home loans, so borrower who ask “how much can I borrow?” with that idea in mind should know it’s not a possibility.
But the FHA loan basics for maximum loan amounts are spelled out for the lender in the FHA loan rulebook, HUD 4155.1. Chapter One, Section A explains the basics starting with the following:
“FHA’s single family mortgage limits are set by county and are tied to increases in the loan limits established by the Federal Home Loan Mortgage Corporation (Freddie Mac) in accordance with Section 203(b)(2)(A) of the National Housing Act, as amended by 12 U.S.C.17091.
Under Section 203(b), the nationwide basic mortgage limits (the floor) may not
• exceed 150 percent of the Freddie Mac national loan limit, or
• be less than 65 percent of the dollar amount limitation of Freddie Mac.”
As you can see, FHA mortgage limits aren’t the same nationwide. In fact, there are some additional instructions for participating FHA lenders for high-cost housing markets:
“Section 203(b)(2)(A) of the National Housing Act states that mortgage limits in high cost areas (the ceiling) may increase to 150 percent of the dollar amount limitation as described under Section 305(a)(2) of Freddie Mac for a residence of applicable size. In these high cost areas, the loan limit is equal to the lesser of
• 115 percent of the area median house price, or
• the statutory ceiling for the high cost areas.
Section 214 of the NHA provides that mortgage limits for Alaska, Hawaii, Guam, and the Virgin Islands may be adjusted up to 150 percent of the new FHA ceilings.”
Borrowers should discuss their needs with a loan officer and consider getting pre-qualified for a loan to determine what FHA loan limit may be available in a given housing market. FHA loans are limited to the amount remaining (plus any allowable add-ons to the loan amount such as discount points or other costs) after the borrower has made the required 3.5% down payment.
Do you have questions about FHA home loans? Ask us in the comments section.
FHA mortgage loan rates have been lower this week in small increments, and while many borrowers could see the difference in rates reflected in their closing costs rather than the actual rate number itself, the move lower does benefit the borrower. Mortgage loan rates in general have approached their lowest levels of the year (best execution), and we’ve seen movement both upward and downward this summer only in a narrow range.
The causes of this summer’s rate changes are varied, including breaking financial news from Europe. Add to that investor reaction to the Ukraine crisis, plus the situation in Gaza. At home, bond auctions, economic data releases such as the GDP and Employment Situation Report and other financial information have also influenced rates within the narrow range we’ve seen all summer long.
Conventional mortgage loan rates are currently hovering above the four percent range (best execution) at or near 4.125%. Currently the best execution rate (the mortgage loan interest rate offered to the most qualified borrowers with outstanding FICO scores and other financial qualifications) stayed near 4.125% (or higher depending on the lender…your experience may vary.) with lower rate moves being reflected in closing costs for qualified borrowers.
FHA mortgage loan interest rates are still finding a best execution rate below the four percent range (depending on the lender). Qualified applicantsÂ with outstanding FICO scores may be offered FHA mortgage loan rates at 3.75% or higher depending on the lender. FHA mortgage loan rates tend to vary more among lenders than their 30-year fixed rate conventional loan counterparts–something to keep in mind when shopping for the best rates
Rates this week have moved lower, but some borrowers may wonder why the actual best execution number stays the same–in cases where the rates improve in smaller increments there may be a lower closing cost rather than an actual change in the mortgage loan rate.
Mortgage rates this week-FHA, VA, and conventional loans–were reported at the numbers below or higher, depending on the lender. The numbers you see here are best execution rates and assume ideal conditions including outstanding FICO scores, loan repayment history, etc. Your experience may vary depending on the lender, the market, and your financial qualifications. These rates are not available to all borrowers or from all lenders.
- 30-year Fixed Rate Mortgages: 4.25% or higher depending on the lender
- FHA Mortgage Rates: 3.75% or higher
- VA Mortgage Rates: 3.75% or higher
- 15-year Fixed Rate Mortgages: 3.375% or higher
- Five-year Adjustable Rate Mortgages: Between 3.0% and 3.50% depending on the lender
A lengthy reader question came in recently, which we have edited for space and brevity’s sake. The reader asks, “I am a first time homebuyer & the originator of my FHA loan was (lender name deleted). In qualifying, it was clear my max affordable payment, including principle & interest, escrow, MIP, & interest was $1500 per month.”
“During the underwriting process I kept in touch with the broker to ensure no substantial increase in my monthly payment. On the day of closing my payment came in over $400 higher than originally quoted due to an increase in escrow estimation. My broker acted like he was surprised, then told me he later his primary concern was getting my loan closed within 90 days to prevent a new credit report being pulled due to a change in my credit score, therefore he overlooked this. I was also told the higher payment would only be for 4 months then would go back down once my escrow acct was satisfied & that it would be over therefore I would get a refund in September 2014 and my payment would then drop to the original amount estimated to me.”
It was not disclosed to me that the builder had not applied for the 5 year tax abatement, therefore I owe taxes 9/1/14 & my escrow amount doubled when my loan was bought by (Second lender name deleted) with my being notified, and the extra was taken from my principle therefore causing me to build less equity towards the loan.”
“My payment cannot be dropped unless I refinance, so the originator lied to me & did not disclose information to me that he should of. Now my debt to income is much higher, I do not have extra money to improve the home so I can sell it, I did not have the additional $400+ per month in my budget & am struggling while also having to give up extra things in life such as vacations, extracurricular activities, buying another motorcycle, etc.. When I asked about backing out (although I would of been homeless because I gave my place up) I was told it was too late since it was closing day, that I would lose all down payment money and could be sued by the builder for loss of sale. There is much more to this than I am able to put into this message so it would be great if someone could contact me and let me know what my rights are.”
We debated whether or not to include a reader question like this because of the complexity and level of detail involved, but one thing seems clear from the reader’s comments–it’s very important to address issues like these for one very important reason–borrowers need to be as well-informed and literate about the FHA loan process as possible.
Committing to an FHA home loan is a very important step–it’s a major financial undertaking and as such borrowers should take at least one year prior to the loan application not only to save money and budget for the expenses related to buying and owning a home, but also to research the loan process, learn what the borrower’s rights and responsibilities are, etc.
At any stage of the FHA loan process when a borrower has questions that need answering, it’s important to have detailed discussions with the lender and contact the FHA where necessary to get answers. (You can contact the FHA directly by calling 1-800 CALL FHA).
In cases like these, calling the FHA to request a referral to an FHA/HUD approved housing counselor may be the best move. A housing counselor can help answer questions and make plans to get a borrower better prepared for an FHA home loan.
Knowing your rights and responsibilities as early in the FHA loan process as possible is the best way to approach a home loan–borrowers shouldn’t wait to start learning how FHA loans work. You can request a referral to an FHA/HUD approved housing counselor early in the preparation stages to get you on the right track for your FHA mortgage. You can also learn more from the FHA official site under the section titled, Buying A Home
Do you have questions about FHA home loans? Ask us in the comments section.
According to the press release HUDNo.14-104, titled, “FHA To Eliminate “Post Payment” Interest Charges, “borrowers who prepay their FHA-insured mortgages will not have to make interest payments beyond the date their mortgage is paid in full.”
A new FHA rule known as “Handling Prepayments: Eliminating Post-Payment Interest Charges”, will apply for FHA mortgages closed on or after January 21, 2015. According to the press release, the new rule, “explicitly prohibits lenders from charging borrowers post settlement interest, which is broadly defined as a ‘prepayment penalty’ by the Consumer Financial Protection Bureau (CFPB), for all FHA Single Family mortgage products and programs.”
This is an important development for borrowers trying to calculate the long-term cost of their FHA home loan–the elimination of post-payment interest charges can help borrowers save money. And when it comes to looking at the long-term costs and financial obligations associated with borrowing, the FHA has also announced a new rule designed to help borrowers get “early access to information when making decisions about their FHA mortgages.”
The press release states, “Effective for FHA-insured Adjustable Rate Mortgages (ARMs) originated on or after January 10, 2015, this rule makes two revisions to FHA’s ARM Program. It requires lenders:
–To provide borrowers of FHA-insured ARMs with at least a 60-day but no more than 120-day advance notice of an adjustment to their monthly payment. FHA currently requires a 25-day advance notice.
–To base an interest rate adjustment that results in a corresponding change to the borrower’s monthly payment on the most recent index value available 45 days before the date of the rate adjustment (commonly referred to as a ‘look back period’). FHA currently requires a 30-day look-back period.”
For more information or to read the entire press release on these new changes, visit the FHA official site: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2014/HUDNo_14-104
A reader asks, “I currently have an FHA loan that I have had for 5 years and would like to streamline,but the maximum loan amount has changed since I got the loan and the new limit is less than what I owe. Does the new limit apply to streamline loans as well as new loans?”
The FHA and HUD issued some guidance back in 2013 to clarify the rules for maximum loan amounts for FHA Streamline Refinancing. According to Mortgagee Letter 2013-29, the following clarification affects how the maximum amount is calculated, and what can be included in the loan amount when calculating that maximum.
“Mortgagees are reminded that when processing an FHA-insured streamline refinance mortgage, the new maximum mortgage amount must always be calculated starting with the outstanding principal balance on the existing mortgage, not with the payoff amount for the existing mortgage.”
FHA also added, “Mortgagees are permitted to include up to two months of Annual MIP payments in the mortgage amount for all FHA-insured streamline refinance transactions, including streamline refinances without an appraisal.”
When considering your FHA loan options, it’s critical to understand the difference between the payoff amount of your new purchase home loan and the outstanding principal balance. We wrote about this subject back in 2013 in a blog post titled, “FHA Loan Rules Updated: Maximum Loan Amounts For Streamline Refinancing” which includes the following:
“Borrowers should know the difference between the outstanding balance and the payoff amount. According to the Consumer Financial Protection Bureau (CFPB) official site, ‘Your payoff amount is how much you will actually have to pay to satisfy the terms of your mortgage loan and pay off your debt.'”
Our 2013 blog post also included the following reminder from the CFPB, “Your payoff amount is different from your current balance, which is the amount you owe as of the date of your statement. Your payoff amount also includes the payment of any interest you owe through the day you intend to pay off your loan, and it may include other fees you have incurred and not paid.”
For more information on your specific payoff balance or outstanding mortgage loan amount, contact your loan officer.
Do you have questions on FHA loans or FHA refinance loans? Ask us in the comments section.
It’s not entirely clear what the reader is getting at in this question, but in general, FHA loan requirements include a minimum down payment of 3.5% which must be paid on or before the loan’s closing date. This is known as the “minimum cash investment” and is non-negotiable. It must be paid up front.
Some lenders may, depending on circumstances, require a larger down payment as a condition of loan approval. This may be due to credit issues which require the loan to have “compensating factors” which can include a down payment of more than 3.5%.
What the reader seems to be suggesting–that a new purchase home loan be managed in such a way to avoid the down payment–is not possible for FHA loans.
FHA refinance loans may be offered as no-cash-out-of-pocket transactions, which means the lender has either increased the interest rate or added costs to the loan to offset the fees normally paid up front by the borrower.
If you are interested in an option such as this discuss it with your lender to see what may be possible depending on lender rules and current FHA loan guidelines. FHA loan rules do change from time to time and what may be an option for an FHA home loan today could be modified tomorrow by changes in the law, the FHA loan program or other factors.
Do you have questions about FHA home loans? Ask us in the comments section.
If you are looking for an FHA home loan, chances are good you are paying attention to the rise and fall of FHA mortgage rates. There are many reason why these rates can change day to day or week to week. One factor—economic data releases that suggests weakness in the economy. This data can influence rates and push them lower, or, conversely, when economic/jobs data indicates improvement, rates can and sometimes do move higher as a result. But other factors can push rates higher or lower, too. We found a good example of that recently–mortgage rates moving lower based on investor reaction to world headlines.
Last Friday, mortgage rates hit their lowest levels in the last eight weeks or so. That drop in rates was attributed to how investors reacted following news of developments in the Russia/Ukraine situation. Depending on circumstances with these types of global events, investors may move away from stocks and into bonds as a temporary measure to protect investment dollars–behavior that influences mortgage rates.
All during the past week, we saw mortgage rates moving higher after that sudden drop over world headlines. That is a common factor in such rate changes; the global headlines that push rates lower one day suddenly are no longer a factor for investors the next. The gains can vanish as quickly as they appear.
This week, global headlines reporting a de-escalation in the Ukraine situation seemed to influence an upward trend in mortgage loan rates, but Russia/Ukraine was not the only factor that influenced mortgage rates–the Fed released its minutes from its most recent meeting; the contents of those minutes indicate a more optimistic tone at the agency, which seems to have translated into more upward pressure on mortgage rates. In general, if there’s good news for the economy, there can potentially be bad news for mortgage rates.
Some watching lender’s rate sheets for “best execution” FHA mortgage loan rates will notice that FHA and VA loan rates, while varying more from lender to lender, do manage to stay within a certain range as of late. The average “ideal” mortgage loan rate for well qualified borrowers tended to hover in the 3.75% range this week in spite of all the headlines, the changes, and the upward pressure. FHA loan rates tend to hold out, at least in recent times, in a “comfort zone” that can change when the movement of rates is significant enough to push the best execution rate into new territory.
Mortgage rates this week did move up and down, but managed to stay, in general, in the ranges listed below. Please note that the numbers reported here are listed as “best execution” mortgage loan rates and assume ideal conditions including excellent FICO scores, loan repayment history and other financial qualifications. These rates are not available to all borrowers or from all lenders. Your experience may vary.
30-Year Fixed Rate Conventional Mortgage Loans: Between 4.125% and 4.3%
VA Mortgage Rates: 3.75% or higher depending on the financial institution
FHA Mortgage Rates: 3.75% or higher, depending on the financial institution
15-Year Fixed Rate Mortgages: 3.25% or higher
5-Year Adjustable Rate Mortgages: 3.0% or higher
The FHA/HUD official site has issued a press release announcing a major settlement in an FHA loan fraud case brought by the Obama administration. According to the press release titled, “Obama Administration Settlement With Bank of America Will Strengthen FHA Fund, Provide Billions in Consumer Relief”, a global settlement of about $17 million was reached.
According to the press release, “$1 billion of the total settlement amount resolves claims arising from allegations of fraud involving certain Federal Housing Administration (FHA)-insured single-family mortgage loans and a failure to perform under its servicing contract with the Government National Mortgage Association (Ginnie Mae). Under the terms of the settlement, Bank of America will pay $800 million to resolve the claims relating to FHA and $200 million to Ginnie Mae.”
The press release says the remaining approximately $16 billion of the settlement, “resolves fraud claims involving the pooling of residential mortgage backed securities, collateralized debt obligations, and other claims by the United States, along with the States of California, Delaware, Illinois, Maryland, New York, and the Commonwealth of Kentucky, and includes $7 billion in consumer relief with a focus on borrowers that were in the hardest-hit areas during the housing crisis.”
HUD Secretary Julian Castro is quoted in the press release, saying “”Today’s settlement with Bank of America is another important step in the Obama Administration’s efforts to provide relief to American homeowners who were hurt during the housing crisis,”
Castro adds, “This global settlement will strengthen the FHA fund and Ginnie Mae, and it will provide $7 billion in consumer relief with a focus on helping borrowers in areas that were the hardest hit during the crisis. HUD will continue working with the Department of Justice, state attorneys general, and other partners to take appropriate action to hold financial institutions accountable for their misconduct and provide consumers with the relief they need to stay in their homes. HUD remains committed to solidifying the housing recovery and creating more opportunities for Americans to succeed.”
The Department of Justice worked with the HUD Office of General Counsel, Office of Housing, and Office of the Inspector General on a fraud investigation “involving FHA-insured single-family mortgage loans that were underwritten by Bank of America during the period from May 1, 2009, to April 1, 2011. HUD also provided assistance with respect to a breach of contract claim involving Bank of America’s role as one of two master subservicers for Ginnie Mae’s portfolio of defaulted single-family mortgages.”
You can read the entire press release at http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2014/HUDNo_14-101.
Do you have questions about FHA loans? Ask us in the comments section.
When applying for an FHA loan, many borrowers want to know if certain types of income will count towards their debt to income ratio. The debt to income ratio is calculated by the lender using income that qualifies according to the loan rules spelled out in HUD 4155.1.
Not all income can be used–some types of income are not verifiable because the income isn’t considered stable, reliable, or likely to continue. But what does the FHA loan rulebook say about retirement pay and Social Security income?
When it comes to retirement pay, the lender is required to document the income and its source. There’s also a consideration as to how long that pay might continue according to HUD 4155.1 Chapter Four Section D, which states:
“Retirement income must be verified from the former employer, or from Federal tax returns. If any retirement income, such as employer pensions or 401(k) distributions, will cease within the first full three years of the mortgage loan, the income may only be considered as a compensating factor.”
That’s an important factor to keep in mind when budgeting for your loan and trying to figure out whether your debt to income ratio is high or low at the time of the application.
For Social Security Income (SSI), Chapter Four has this to say:
“Social Security income must be verified by the Social Security Administration (SSA) or from Federal tax returns. If any benefits expire within the first full three years of the loan, the income may only be considered as a compensating factor.”
Notice that the same rules apply for SSI as for retirement income–if the money is due to stop coming in within the first 36 months of the loan, that income is only to be counted as a compensating factor rather. Chapter Four also adds, “The lender must obtain a complete copy of the current awards letter. Not all Social Security income is for retirement-aged recipients; therefore, documented continuation is required. Some portion of Social Security income may be “grossed-up” if deemed nontaxable by the IRS.”
To learn more about the lender’s requirements for documentation in these two areas, speak to a loan officer.
Do you have questions about FHA home loans or FHA refinance loans? Ask us in the comments section.
“They just put in a UV Water system and replaced the septic tank, but I am concerned that we will not get approval with an FHA loan. Any advice or suggestions would be greatly appreciated. I have already contacted our county property surveyor and health inspector and there is no information with the county on the property because in NY only new properties get surveyed.”
Questions like this are very difficult to answer for one simple reason–FHA minimum property standards aren’t the only rules at work when it comes to appraisals. State and local building code also applies and and FHA home loan would be conditional on any repairs or corrections recommended by the FHA appraiser based on state/local code requirements.
It is true that FHA appraisal rules have some specific information regarding certain conditions in and around the home, but the state and local code compliance issues are just as important.
Do the upgrades and improvements mentioned in the reader question meet state or local building code? Does the existence of a well–even one not in use–require additional consideration, corrections, or other action in order to be compliant?
These are important questions that can only be answered by the local or state building code authority. Borrowers in this situation should discuss their situation with the local authority for further information. You may be able to get some general answers by asking a real estate agent experienced in these issues, but checking state/local laws is definitely a good idea.
Potential borrowers may also be able to get some answers from a professional building inspector who knows the laws in that area for compliance.
Do you have questions about FHA home loans? Ask us in the comments section.