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

Monthly Archives: September 2014

FHA Mortgage Insurance: A Reader Question

097A reader asks, “Mortgage companies have kept sending letters/emails, saying ‘You no longer pay MIP because FHA MIP policy has been changed since May 2014. You have paid unnecessary MIP payments because since you has refinanced for your home 2012.'”

“I refinanced my home mortgage through FHA in Mar.2012 and since then I have paid MIP until principal reach less than 78%. It will be by 2019 according to my mortgage company. Can you clarify ‘Revision of Federal Housing Administration (FHA) policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP’? Dose cancellation of MIP mean ” home buyers who apply finance through FHA do not need to pay MIP? Should I stay with my current mortgage or refinance?”

This reader question refers to FHA Mortgagee Letter 2013-04, which announced changes to the FHA Mortgage Insurance policy.

The FHA is NOT cancelling its mortgage insurance requirement as suggested in the reader question.

The FHA Mortgagee letter, titled “Revision of Federal Housing Administration (FHA) policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP” includes the following information from the FHA regarding how long FHA borrowers will pay MIP depending on the nature of their loan:

“For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP for the maximum duration permitted under statute.

For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.”

For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.”

Borrowers who are unsure how this applies to them should discuss their concerns with a loan officer to get further clarification. As for the borrower’s final question, refinancing is an important personal decision that’s best left to the borrower to research and choose accordingly.

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

FHA Loan Terms and Payment Plans: A Reader Question

082A reader asks, “I am trying to relocate to a new home with my three small children and would like to use an FHA loan to purchase it. I was told about a 40 yr note with yearly payments? Is there such a program? I am currently enrolled in school, working towards my bachelor’s degree in nursing. I have access to some funding for a down payment, approx $30,000. I have also located a home that I want to purchase. 3 bed, 3 bath on 25 acres, approx value of $89,900. Can someone please help me find the right loan to purchase this home? 

FHA loans have specific rules about the term of the loan. According to HUD 4155.1, under the section titled Maximum Loan Limits, Mortgage Amounts and Mortgage Terms, we learn the following:

“The maximum mortgage term may not exceed 30 years from the date that amortization begins. In the case of adjustable rate mortgages (ARMs), the term must be for 30 years. FHA does not require that loan terms be in five year multiples.

Note: Some programs require a shorter term, including certain streamline refinances made without appraisals.”

That information is found in HUD 4155.1 Chapter One Section A. A review of the FHA loan rules turns up nothing that addresses the “yearly payment” option mentioned in the reader question but it seems highly unlikely that a lender would agree to such terms. Mortgage loan payments are normally arranged on a monthly basis.

The answer to that portion of the reader question would depend greatly on lender standards.

Borrowers who bring a large down payment to the FHA loan transaction (as mentioned in the reader question) may find that certain loan terms are more favorable–this being due to the “compensating factor” of a large down payment.

It may be best to speak directly with a loan officer in such cases to see what flexibility might be available in loan terms with a larger than usual down payment.

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

FHA Mortgage Rate News For The Week of September 22 2014

079September has been a rough month for FHA mortgage loan rates–there’s been an upward trend fueled at least in part by the recent Fed policy statement, which many anticipated as a possible indicator of where rates might be headed (predicting investor reaction to an announcement that indicated a stronger or weaker economy).

But this week, we saw rates moving lower–the best execution numbers haven’t really changed, but the downward trend is a welcome one. In many cases borrowers will see the lower moves reflected in closing costs rather than in actual lower interest rates, but if the downward movement continues we may well see FHA rates shift out of their current range of numbers and back into the lower best execution rate of 3.75%.

The downward trend we saw this week began last Friday, and this week we saw rates fall to two-week lows. But on Wednesday that improvement hit a snag–market watchers aren’t sure what happens next, but 30-year fixed rate conventional mortgages were close to falling back to their earlier best execution rate of 4.125%.

That number–along with the FHA 3.75% best execution rate–persisted for much of the summer, but while rates are falling as gradually as they began rising, it’s not really certain whether the current trend is just a pause in the upward movement of rates or if there’s a real correction against that upward trend.

We’ve seen rates move in a very narrow range for an extended period of time. What will it take to get a better number? What market forces could push rates higher than we’ve seen in the last several months?

Advice on floating or locking is mixed, but there’s always a risk involved either way. If you “float” in current conditions you risk a higher rate should conditions put upward pressure on rates. Lock now and you could miss out on lower rates if things trend lower, but there’s less risk overall with floating since rates are still at comparatively low levels when viewed against years past.

Here are the mortgage loan rate averages for the week of September 22 2014. The rates listed here are best execution rates–your access to them depends on your FICO scores, loan repayment history and other factors. These rates are not available from all lenders or to all borrowers. Your experience may vary.

  • 30-year Fixed Rate Mortgages: 4.25% or higher
  • FHA Mortgage Rates: Between 3.75%-4.0% (or higher depending on the lender)
  • 15-year Fixed Rate Mortgages: 3.375% to 3.5% or higher
  • Five-year Adjustable Rate Mortgages: Between 3.0% and 3.50% depending on the lender

FHA Mortgage Insurance Premiums: A Reader Question

014A reader asks, “I am purchasing a second home using a FHA loan. Why is it necessary to pay for FHA insurance for the length of the loan it is a 30 year fixed mortgage?”

While we can’t speculate what the FHA/HUD motivation for changing the FHA MIP requirement for 30 mortgages, we can reiterate FHA loan policy on the matter, which changed back in January 2013.

In a Mortgagee Letter (FHA ML 2013-04) FHA loan policy for mortgage insurance premiums changed to require MIP payments for the duration of a 30-year FHA loan. According to the FHA official site:

“For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP for the maximum duration permitted under statute. See 12 U.S.C. § 1709(c)(2)(B).”

“For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.”

Furthermore, the FHA mortgagee letter adds that for any FHA mortgage principal with a loan-to-value greater than 90%, “FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.” That 90% LTV calculation omits the amount of any financed Up Front Mortgage Insurance Premium.

The FHA official site adds, “FHA calculates LTV as a percentage by dividing the loan amount (prior to the financing of any UFMIP) by the lesser of the purchase price (if applicable) or the appraised value of the home. For streamline refinances without appraisals, FHA uses the original appraised value of the property to calculate the LTV.”

The FHA Mortgagee Letter also announced increased MIP premiums for all FHA forward mortgages as previously announced, “except single family forward streamline refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009; the rate for those streamline transactions remains at the level announced in ML 2012-4.”

Borrowers with questions on the FHA mortgage insurance payment requirement, including whether or not their FHA loan is affected, should discuss their specific situation with the lender or contact the FHA directly by calling 1-800 CALL FHA.

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

FHA Loan Occupancy Requirements: A Reader Question

077A reader asks, “I currently have a 3 year old VA mortgage on my home. Will this disqualify me for a FHA loan on a second home?”

FHA loan rules state that the borrower must certify he or she will occupy the home to be purchased with an FHA mortgage as the primary residence. A borrower who purchased a home with a VA mortgage loan is also required to certify in such a manner, but if the applicant closes the deal on the VA loan, moves into the house and uses it as the primary residence, the occupancy requirement is considered fulfilled in the eyes of the VA.

The means that if the borrower is financially qualified for the FHA mortgage and can certify the new home will be the primary residence, the loan can proceed. Borrowers who have an existing home and wish to apply for an FHA mortgage will need to occupy the home purchased with an FHA loan as the primary residence because FHA single-family mortgage loans are not available for investment properties.

Borrowers may wish to consider how the first mortgage could affect the debt-to-income ratio calculation on the new loan. If you have other large lines of credit such as a car payment or other bills, you may need to plan on how to reduce your debt to income ratio.

Some borrowers may find pre-purchase counseling can be a big help in such areas. You can call the FHA to get a referral to an FHA/HUD approved housing counselor near you–contact the FHA directly at 1-800 CALL FHA.

Pre-purchase counseling can help borrowers with budgeting and credit strategies as well as getting an idea of what the FHA will expect from a loan applicant in order to get loan approval.

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

 

FHA Appraisals and Loan Approval: A Reader Question

047A reader asks, “In our contract, we agree and stated the sale was as is. The price had been adjusted for this. We listed that the a/c needed repair on the disclosure. I did not want to spend the money to repair it because I live alone and put in window units, plus my buyer said she planned on replacing it anyway.”

“This was noted on our contract. 3 months later the lender says the a/c has to be in working order, even though the window units work fine and the central heat did work. I had it fixed, $825.00 for a circuit board! What a waste of money. I would rather have given it to my buyer to replace the whole thing! Since they knew about this upfront, should they have notified us?”

This reader question isn’t entirely clear, but it does raise important issues an FHA borrower should be aware of. One such issue involves FHA appraisal requirements and what happens when a home doesn’t pass the FHA appraisal without required corrections or repairs.

Central systems in the home are required to be in good working order as a general rule when it comes to FHA appraisals. The FHA appraiser may note the condition of a non-functioning central air conditioning unit and require it to be repaired as a condition of loan approval.

While lender standards may play a role in some types of home loan issues, state and local building code as well as FHA minimum property standards also have a say. The results of the appraisal may not be immediately available–appraisals take time to process and send back to the lender–so when the results do come out, the lender, seller and borrower find out what must be done if any action is required. The timing of that information varies depending on a variety of factors.

Even if the seller and the buyer agree on an issue such as a non-functioning air conditioning system, that system must still meet FHA standards as well as state/local building code. That is the bottom line when it comes to home loan–buyer and seller can agree on an issue but that may not be the final word on the matter.

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

FHA Loan FICO Score Requirements: A Reader Question

087A reader asks, “I have a plan to pay off my student loan this year which is 18,000.00. My credit score is 565. This will leave me with 0 debt. Will it also improve my credit score and chances of getting a home loan?”

These types of questions are difficult to answer because credit reporting agencies have their own criteria for evaluating credit, and apply their own standards for factors that might affect scores pushing them higher or lower.

You may find that your FICO score reported by one agency are not the same as reported by another. That’s why FHA lenders look for a FICO score average to determine eligiblity.

Having no debt is certainly a plus for an FHA loan application, but a borrower’s credit activity in the last 12 months is a big factor–whether or not this reader has 12 months of consecutive, on-time payments would be a very important factor whatever the FICO score.

That said, FICO scores are important for one reason–FHA minimum standards are lower than those of many lenders. You may find a specific lender’s FICO score standards to be more stringent than FHA program minimums. Lenders may require a credit score of 620 or better.

Borrowers who are concerned about their credit scores should contact the FHA directly by calling 1-800 CALL FHA and request an appointment with an FHA/HUD approved housing counselor in the local area. Borrowers can get excellent pre-purchase advice about FHA loans, credit issues and more.

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

Fair Housing Act Violations: A Reader Question

056A reader asks, “I am trying to sell my manufactured home and the land it sets on to a couple that are not married from California, the lienholder refuses to do this because they are not married, isn’t this a violation of Federal Law?”

The Fair Housing Act makes it illegal to discriminate against a house hunter–a buyer or renter–based on family status. That includes being married, not married, a single parent, etc. The Department of Housing and Urban Development official site (which is also home to the FHA official site) states the following basic information on the Fair Housing Act:

“The Fair Housing Act covers most housing. In some circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker, and housing operated by organizations and private clubs that limit occupancy to members.”

Additionally, “No one may take any of the following actions based on race, color, national origin, religion, sex, familial status or handicap:

  • Refuse to rent or sell housing
  • Refuse to negotiate for housing
  • Make housing unavailable
  • Deny a dwelling
  • Set different terms, conditions or privileges for sale or rental of a dwelling
  • Provide different housing services or facilities
  • Falsely deny that housing is available for inspection, sale, or rental
  • For profit, persuade owners to sell or rent (blockbusting) or
  • Deny anyone access to or membership in a facility or service (such as a multiple listing service) related to the sale or rental of housing.”

There are also rules specific to mortgage lending. Under the Fair Housing Act, no party to the housing transaction may take any of the following actions “based on race, color, national origin, religion, sex, familial status or handicap” according to the HUD official site:

  • Refuse to make a mortgage loan
  • Refuse to provide information regarding loans
  • Impose different terms or conditions on a loan, such as different interest rates, points, or fees
  • Discriminate in appraising property
  • Refuse to purchase a loan or
  • Set different terms or conditions for purchasing a loan.

FHA borrowers or anyone involved in a housing transaction that needs to file a discrimination complaint should call (800)669-9777. For the hearing impaired, please call TTY (800)927-9275.

HUD Announces Settlement In North Dakota Housing Discrimination Case

001We post news stories about settlements in housing discrimination cases for several reasons, but one of the most important is to remind borrowers that FHA loan applications aren’t immune from problems such as these. The first line of defense against continued violations of the Fair Housing Act usually comes in the form of complaints filed against companies that violate federal law.

With that in mind, we bring news of a recent settlement between HUD and a North Dakota company over housing discrimination complaints. According to press release HUDNo.14-106, ” The U.S. Department of Housing and Urban Development (HUD) announced today that it has reached an agreement with U.S. Bank National Association, U.S. Bank subsidiary Red Sky Risk Services, LLC (formerly known as USB Lending Support Services, LLC), and one of U.S. Bank’s loan officers, resolving allegations that they refused to refinance the mortgage of a Native American couple in Belcourt, North Dakota, because their property is located on a reservation.”

The press release from HUD reminds, “The Fair Housing Act prohibits lenders from discriminating in making mortgages available or in the terms or conditions of a mortgage transaction based on race, color, national origin, religion, sex, family status, or disability.” The alleged discrimination in this case, based on race and national origin, are illegal under Fair Housing laws, but might not have come to light without a formal complaint lodged with the federal government.

“A person’s race and national origin have no effect on their credit worthiness,” said Gustavo Velasquez, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity. “HUD will continue to work to give all families an equal opportunity at homeownership by ensuring that lenders meet their obligation to comply with the Fair Housing Act.”

The press release states that the agreement, “settles a complaint that was filed by a Native American couple alleging that U.S. Bank, the bank’s appraiser Red Sky Risk Services, and one of the bank’s loan officers discriminated against the couple when they attempted to refinance their home loan.”

The HUD release says that by turning down the couple’s loan application, “U.S. Bank allegedly determined that the ‘value or type of collateral was not sufficient.’  The loan officer allegedly told the couple that, because their property is located on a Native American reservation, U.S. Bank was not able to make the loan and that Red Sky Risk Services was not able to appraise the property.”

The property is held in “fee simple,” which HUD says indicates that the couple holds the title to the property, without restriction, in the same way that land is generally held throughout the United States, as mentioned in the press release.

In cases where a borrower suspects illegal discrimination, contact the Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY). Housing discrimination complaints can also be filed electronically: visit www.hud.gov/fairhousing to learn more.

FHA Minimum Property Requirements: Central Air

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A reader asks, “I am trying to purchase a home with an FHA loan. The central air in the house I’m trying to purchase is not working, however, the owner has window units in each room. They all work and cool the house very nicely. I was planning on replacing the central air after purchasing the home. I’ve been told the house will not qualify because the central air is not working. Won’t the window units suffice as meeting the minimum standards of living?”

One interpretation of the FHA minimum property standards in this situation would be that it’s not the presence of the window units in the home that would be the issue, but rather than an installed appliance/system in the home is not functioning properly.

The home may well be livable, but that isn’t always the reason why a certain condition might be unacceptable to the appraiser or the local authority.

A non-functioning central air system may be viewed by the FHA appraiser as a defective condition. State or local building code may have input on the central air system in the home so it’s not a simple case of what’s covered by FHA minimum property requirements. That is an important factor to keep in mind here-FHA minimums are just that, the minimum standard required.

Other regulations outside FHA loan rules can and often do apply.

That’s something we encounter a great deal with certain types of reader questions here–some mistakenly assume that if a situation isn’t addressed by FHA loan program rules, there are no other laws or guidelines that may apply. “I don’t see anything in the FHA loan rules that addresses situation ABC, so why am I being told XYZ?”

The fact is, Federal, State, or local laws can and do have a say in home loan transactions and FHA loan rules are not the only ones at work–borrowers may need to discuss a situation like the one mentioned in the reader question with a local authority such as a real estate agent, home inspector or compliance inspector.

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