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

Monthly Archives: January 2015

FHA Loan Rules On Appraisals and Required Corrections: A Reader Question

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A reader asks, “Is the seller responsible to pay for all repairs before closing?”

Assuming that this reader question is in reference to required corrections or alterations to a home listed by the FHA appraiser, much depends on the type of repairs or corrections required. If repairs or corrections are required to fix hazardous conditions, those fixes must happen and a compliance inspection (where required) must occur before the loan can be approved.

Let’s see what HUD 4155.1 Chapter Four says about the appraisal process and required corrections:

“In the performance of an FHA appraisal, the appraiser must

• denote any deficiency in the appropriate section(s) of the appraisal report (site issues in the site section, improvement issues in the improvements
section, and so on), and

• note those repairs necessary to make the property comply with FHA’s MPR, or MPS, together with the estimated cost to cure. The lender determines which repairs for existing properties must be made for the property to be eligible for FHA-insured financing”.

Additionally, “A property with defective conditions is unacceptable for FHA insurance until the conditions have been remedied and the probability of further damage has been eliminated. Defective conditions include

• defective construction, and
• other readily observable conditions that impair the safety, security, or structural soundness of the dwelling”.

And finally, FHA loan rules in this area on Chapter Four state:

“Repair requirements outstanding on the appraisal report must be satisfied before the mortgage is submitted for endorsement. Satisfaction of repair requirements can be submitted by providing

• a Compliance Inspection Report (HUD-92051), as described in HUD 4155.2 4.6.b
• Part B of Fannie Mae Form 1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report
• the Mortgagee’s Assurance of Completion (HUD-92300) of escrowed repairs, as described in HUD 4155.2 4.6.c, or
• a certification from a “qualified” professional on their company form or letterhead.”

It may be necessary to discuss these issues with the lender depending on the nature of the repairs or corrections.

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

FHA Mortgage Loan Rules For The New Mortgage Insurance Premium Cuts

094A great deal of reader questions have come in about the FHA’s recent move to cut the annual mortgage insurance premium on FHA loans with case numbers assigned on or after January 26 2015. We thought it was a good time to remind our readers and clarify what the FHA has announced with respect to mortgage loans affected by this new rule.

Which mortgage loans are affected by the FHA MIP cuts? According to the FHA mortgagee letter (ML) announcing the cuts, “This ML reduces the rate for annual MIP for all Title II forward mortgages, with terms greater than 15 years, except;

–single family forward streamline refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009;

–Section 247 mortgages (Hawaiian Homelands)

Borrowers should know that FHA loans affected by the MIP cuts are those with FHA Case Numbers assigned on or after January 26, 2015. Some borrowers may have applied for loans in the middle of the change to the new lower MIP requirements. For borrowers who have FHA loans that HAVE NOT YET CLOSED, your lender may be able to cancel your existing FHA case number and have a new one assigned.

Talk to your lender about this option–and don’t delay, this is ONLY possible for 30 days beyond the original announcement of the case number cancellation issue which was dated January 9 2015.

If you have further questions about whether your loan might be eligible for the lower MIP, talk to your loan officer, but remember that the new lower MIP is not available to you if your loan has already closed prior to January 26 2015.

Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.

 

FHA Loans and Non-Existent Credit After Bankruptcy: A Reader Question

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A reader asks, “My wife and I filed chapter 7 and lost our homes to foreclosure in 2009 after having lost our mortgage company in the crash of 2008. We haven’t needed credit and haven’t borrowed any money since. Our bank pulled our credit and found we have “no score” because of not having borrowed in the last 5.5 years. What would we have to do to get an FHA mortgage?”

According to a Frequently Asked Questions section of the FHA official site, borrowers who have a Chapter 7 Bankruptcy in their credit history should know the following information:

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations.”

So far, so good for the purposes of this reader’s question, but the FHA official site also tells us, “The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner.”

FHA loan rules also state that the the lender, “must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.”

So much depends on three factors here–the borrower’s handling of his or her financial affairs since the bankruptcy, the lender’s willingness to work with a borrower who has chosen not to use credit again since the time of the Chapter Seven, and whether the lender can determine that the circumstances that led to the bankruptcy are not likely to occur again.

Borrowers should know that cases such as these are handled on an individual basis, so the borrower should try to work with the lender or find a lender willing to work with the circumstances described here.

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

FHA Refinance Loans: Another Chapter 13 Question

082We have gotten a large volume of reader questions about refinancing a home while in Chapter 13 bankruptcy. Here’s the latest:

“We have current mortgage, never behind on payment. We like to refinance our home mortgage, but we are discharge from Chapter 13 before couple months! How long we have to wait and are we are qualified? Thank you in advance!”

Let’s examine what the FHA official site has to say about FHA loans and bankruptcy. It’s important to note that all situations vary including the rules at one financial institution compared to another.

Some lenders may be willing to work with certain borrowers in circumstances that others would not–just because the FHA loan rulebook has provisions for borrowers to apply for loans while the applicant is dealing with a bankruptcy or the discharge of a bankruptcy does not guarantee that a lender is willing to extend credit.

Here is what the FHA official site has to say:

A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.”

This is information we have shared time and again–borrowers who need further clarification on this issue may wish to contact the FHA directly by calling them on their toll-free hotline: 1-800 CALL FHA.

For those who want specific rules and regulations covering this issue, read what Chapter Four, Section C of HUD 4155.1 states:

“A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that

–one year of the pay-out period under the bankruptcy has elapsed
–the borrower’s payment performance has been satisfactory and all required payments have been made on time, and

–the borrower has received written permission from bankruptcy court to enter into the mortgage transaction.

Lender documentation must show two years from the discharge date of a Chapter 13 bankruptcy. If the Chapter 13 bankruptcy has not been discharged for a minimum period of two years, the loan must be downgraded to a Refer and evaluated by a Direct Endorsement (DE) underwriter.”

That is the entire section of the Chapter 13 Bankruptcy rules found in HUD 4155.1 Chapter Four, Guidelines For Credit Report Review.

As always, we encourage borrowers in these situations to discuss their needs directly with a loan officer–these types of loan transactions are handled on a case-by-case basis and what may work for one borrower and lender may not work in another situation depending on circumstances.

Do you have questions about FHA refinance loans? Ask us in the comments section. All questions and comments are held for moderation.

 

Lower MIP On FHA Loans: A Reader Question

108A reader asks, “What’s the lead time on case cancellation requests? With new case number requests?”

The reader is asking about FHA loan case number cancellation requests made possible for a limited time to help qualified FHA borrowers take advantage of the new, lower annual Mortgage Insurance Premiums announced earlier this month by the FHA and HUD.

We wrote about this in a blog post titled, FHA Mortgage Premium Cuts Begin Today. That article includes the following information:

“On Thursday, January 8, 2014, the FHA and HUD issued a press release announcing a cut to the FHA’s required annual mortgage insurance premiums, also known as MIP.

According to the press release, “As the nation’s housing market continues to improve, U.S. Housing and Urban Development Secretary Julián Castro today announced the Federal Housing Administration (FHA) will reduce the annual premiums new borrowers will pay by half of a percent.  This action is projected to save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.”

In order to help home owners who might have been caught between the announcement, their loan approval, and their mortgage loan closing date, the FHA has temporarily approved a procedure where lenders can cancel an existing FHA case number for a loan that has not closed yet, and apply to have a new FHA loan case number applied.

The new lower FHA MIP took effect on January 26, so all FHA loans with case numbers assigned on or after that date would have the new lower MIP, saving a typical borrower as much as $900 a year.

Borrowers who have not yet closed their FHA mortgages could ask the lender to apply to have the FHA case number cancelled and a new FHA loan case number assigned–however this practice is only possible for 30 days starting from January 9 2015 when the original FHA Mortgagee Letter about the policy was issued.

Borrowers who have already closed their loans are not eligible for this case number cancellation and re-assignment.

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

 

FHA Mortgage Loan Trends

093FHA mortgage loan rates kicked off the week more or less unchanged, best execution-wise–the previous two business days had some improvements in rates following a “consolidation” ahead of a highly anticipated announcement from the European Central Bank that had great potential to affect mortgage loan rates depending on investor reaction to the contents of that announcement.

With the ECB announcement come and gone, and rates improving after another highly watched announcement by the Fed here at home, we find rates moving back to lows some sources report going down to 2013 levels.

That’s great news for those looking for 30-year fixed rate conventional mortgage loans as the best execution rate for those loans has moved to about 3.625% depending on the lender. That rate is not available to all borrowers or from all lenders. A variety of factors would play a role in your access to that interest rate.

For FHA home loans, the same story we’ve been telling for weeks now still applies–FHA rates are holding steady in a best execution comfort zone at or near 3.25% depending on the lender.

The same best execution notions apply here too–best execution rates are not available to all borrowers or from all lenders. Your FICO scores and other financial qualifications will help determine the FHA loan interest rate available to you.

There’s mixed advice from industry professionals about locking in a mortgage loan interest rate now or floating until things seem more advantageous. Floating always carries a degree of risk; some pros think more improvement might be coming, others feel the risk of volatility makes floating riskier than it might seem right now.

The choice is up to you–some believe markets may be getting more cautious after a lot of recent gains–could this affect whether you lock or float? It depends on how low you think rates might–or might not–go.

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

 

FHA Loans, Co-Signing, and Student Loan Debt: A Reader Question

097A reader asks, “I co signed for a student loan for my daughter who has 2 1/2 years left of schooling. This puts her at around 3 years out before needing to start making payments on this debt. i’m looking to get pre approved for a mortgage in the next 6 months. Does the loan, being 3 years out before repayment begins act negatively towards a FHA loan approval?”

FHA loan rules do include scrutiny of any debt the borrower may be liable to repay as a co-signer, but individual lender standards may vary. However, the timing of the student loan debt in this case may play a positive role.

Let’s look at what HUD 4155.1 says about student loan debt in general in connection with an FHA loan application.

“If a debt payment, such as a student loan, is scheduled to begin within twelve months of the mortgage loan closing, the lender must include the anticipated monthly obligation in the underwriting analysis, unless the borrower provides written evidence that the debt will be deferred to a period outside this timeframe. Similarly, balloon notes that come due within one year of loan closing must be considered in the underwriting analysis.”

Borrowers who need more information should look up HUD 4155.1 Chapter Four Section C where these rules are located.

In this case the student loan issue might not even be a problem if lender standards permit. No two lenders have identical standards so it’s not possible to speculate what may or may not be possible, but as far as the FHA loan rules go, this reader may have a better chance at loan approval due to the timing of the student loan repayment.

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

 

Chapter 13 Bankruptcy and FHA Refinance Loans: A Reader Question

FHA DISCRIMINATION SETTLEMENTA reader asks, “Is It possible to refinance while in chapter 13 for a lower rate. We Don’t qualify for the government HARP program.”

FHA loan rules for getting new loans when it comes to bankruptcy allow the lender to exercise some discretion depending on circumstances, but depending on the type of bankruptcy a borrower may also need the court’s permission to apply.

Borrowers in Chapter 13 bankruptcy have some options according to HUD 4155.1 Chapter Four Section C which states:

“A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that

–one year of the pay-out period under the bankruptcy has elapsed
–the borrower’s payment performance has been satisfactory and all required payments have been made on time, and
–the borrower has received written permission from bankruptcy court to enter into the mortgage transaction.”

The reader didn’t provide any additional information as part of the question so it’s difficult to ascertain whether the circumstances he or she is in currently would allow a refinance loan to go through. The most important thing for a reader to do in situations like these is to find a participating FHA lender willing to work with someone in a Chapter 13 and discuss the options.

As mentioned above, written permission is required for borrowers who meet the other criteria, so a potential borrower may wish to work on that detail in the early stages of researching the new loan.

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

FHA Loans, Seasoning Requirements and Legal Assistance: A Reader Question

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A reader asks, “Have a question on issue of a legal settlement made on property ,, money to settle suit was borrowed on a promossory note and given to attorneys… few months later owner gave a lien to individual in case of untimely death , deed clearly states that it was NOT a home equity loan and title company agrees that the property is not subject to home equity rules etc,,

A reverse mortgage lender tells me that it has to be seasoned as a home equity loan which kills the loan My attorney has shown lender that money borrowed from individual went to settlement funds and small attorney fee and was not an equity loan! There was no HUD or closing,, the lender gave me a clear deed! Surly there is some kind of exception for legal settlements to any seasoning requirements?
Please respond ASAP to email (email address deleted).”

We don’t give legal advice here and cannot do anything aside from recommend that borrowers or potential borrowers in these circumstances contact a legal expert well versed in real estate law and state laws that may affect transactions like these.

Borrowers should know that an important factor in cases like these where the lender makes a determination (see the second paragraph of the reader question), that lender’s standards apply–the FHA cannot force a lender to make a home loan.

As long as lender standards are applied according to federal law and the Fair Housing Act, the determination made is based on lender discretion if it is not already covered by FHA loan rules that are key to the program’s existence.

FHA minimums and standards never override state or local laws, and lender standards may be higher than FHA loan minimums.

What is permissible with one lender or financial institution may not be permitted at another. The borrower’s best course of action in addition to getting more legal help may be to shop around for a lender willing to work with the circumstances, if possible.

Do you have questions about FHA home loans or refinance loans? Ask us in the comments section. All questions and comments are held for review.

FHA MIP Cuts: Who Is Affected? A Reader Question

106A reader asks, “I am a homeowner with a FHA loan. I bought the house last year, I wanted to know if this will also benefit me or is just for you new perspective home owners? Thanks…”

This reader question is in reference to the FHA mortgage insurance premium cut that took effect on Monday January 26, 2015.

According to an FHA press release, “the Federal Housing Administration (FHA) will reduce the annual premiums new borrowers will pay by half of a percent.  This action is projected to save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.”

We wrote about this recently when the cuts took effect. But who is affected by these cuts and who can take advantage of them? Basically anyone who has an FHA “forward mortgage” greater than 15 years (with certain exceptions you’ll need to discuss with your lender) and who has an FHA loan case number assigned on or after January 26 2015 may be eligible.

Additionally the FHA has allowed a limited-time practice of lenders cancelling existing FHA loan case numbers and having them reassigned so that borrowers can get the benefit of the new FHA MIP cuts.

But only those who have existing FHA loan case numbers and have NOT closed their loans yet are eligible for this.

So the short answer is basically that if you have already closed your FHA loan you will pay the MIP that you agreed to in the mortgage loan agreement.

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