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

Monthly Archives: February 2015

FHA Loans and Co-Signers: A Reader Question

091A reader asks, “My husband and I are trying to assume this fha loan. My debt to income ratio is too high. My mother in law will gladly co sign for us.”

“My husband will not be on the loan, just me. Is it possible for my mother in law to co sign with just me on the loan? I’ve called (LENDER NAME DELETED) (whom own the loan) I have gotten two different answers. One lady said yes and now the other today is saying no. I’m waiting on (LENDER NAME DELETED) to call back. I thought as long as it was blood, marriage, or law related they could “

Co-signers and non-occupying co-borrowers are permitted on FHA loans. Depending on the circumstances a non-occupying co-borrower or co-signer situation may require a higher down payment. But the main issue that affects how this question gets answered is whether or not the borrower lives in a community property state where certain laws would affect how the loan is processed.

Community property laws concern how a legally married couple share and enter into their debts. The reader asks if she can apply for the the loan with a co-signer without the spouse. This would be determined by any applicable community property laws in that state.

Not every state has community property laws, and the states that do have them don’t have identical laws–they vary from state to state and the borrower would need to check to see what might apply in this particular case.

Again, FHA loans do technically permit co-borrowers and co-signers. However, each loan circumstance is different and there are some instances where a higher down payment would be required, and some where no additional downpayment would be needed. Lender standards as well as FHA loan rules may be applicable, so the borrower would need to discuss these needs with the lender–it may be that other contributing factors affect the outcome of this loan application.

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

 

FHA Loan Questions: Will The Government Grant Me A Mortgage?

110A reader asks, “My question is about getting a mortgage. I have paid off my Chapter 13 BK just recently. As part of that I did short sales on 3 properties back in 2010 & 2011. My credit score is at 690 at this point and we are in good financial shape.”

“We have $90,000 in our savings account, $380,000 in liquid assets like 401K, owned property, etc. Our monthly income is over $6000, and my wife makes over $66,000 yearly. Will the government or anyone grant us a mortgage?”

In general terms, this reader’s situation sounds like he or she would not have difficulty finding a lender willing to at least consider the circumstances and review FHA home loan options.

Getting a new FHA mortgage loan after a serious financial event like a Chapter 13 bankruptcy depends on how the borrower handles financial affairs in the wake of the bankruptcy.

Building a new, reliable pattern of loan repayment and improving credit scores are both key parts in getting a lender to consider you for a new loan in these cases.

One thing the reader question implies that should be cleared up here–the FHA and/or the government are not responsible for issuing loans or credit. A participating FHA lender would handle that part of the transaction including the negotiation of interest rates, term of the loan, associated fees and expenses, etc.

The government guarantees a portion of the loan amount, making the transaction less risky for the lender. But the government won’t lend money or deal with the borrower in that way–that’s up to the lender.

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

 

FHA Loan Debt To Income Ratios

108A reader asks, “Hi. My wife and I are planning to buy a house. My wife has a stable job for six years as registered nurse and I is currently a homemaker. Both of us has credit score of 720+ and we never missed a single payment in our credit cards and personal loans. What is our chance to be approved if our debt to income ratio is 49%? Can we qualify for a ďno-conforming loanĒ? (Loan amount is $225,000, please note that mortgage interest, principal, taxes, insurance, HOA fee are already included in the DTI.”

According to the FHA official site, many FHA loans are underwritten via an automated system. Here’s a quote from an FHA mortgagee letter from 2013 which announced changes to when and how a lender may be required to manually underwrite the loan instead:

Currently, most FHA-insured loans are underwritten through automated underwriting systems that score applications using FHAís TOTAL (Technology Open to Approved Lenders) Mortgage Scorecard. The TOTAL Mortgage Scorecard evaluates borrowers based on credit scores and other loan factors.”

“When TOTAL delivers a Refer scoring recommendation or when borrowers were not scored because they do not have credit scores, lenders are required to manually underwrite the borrower. Specific policy revisions included in this regulation are reserve requirements for all manually underwritten borrowers, establishing maximum qualifying ratios based on credit score and compensating factors; and providing a revised list of acceptable compensating factors with objective documentation requirements for assessing these factors.”

A lender may be required to manually underwrite a loan when a borrower’s debt to income (DTI) ratio is too high. In this reader’s case that is likely to occur. The DTI may or may not be too high for loan approval depending on lender standards and other factors.

Here’s what FHA loan rules in HUD 4155.1 say about this:

“The relationship of total obligations to income is considered acceptable if the total mortgage payment and all recurring monthly obligations do not exceed 43% of the gross effective income. A ratio exceeding 43% may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded on Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.”

A borrower who is on the fringes of what’s considered acceptable for DTI or FICO score may be able to get a loan approved with what the FHA terms “compensating factors” which may include a higher down payment, substantial cash reserves or other things that can work in the loan applicant’s favor. The only way to know for certain what may be possible is to discuss the situation with a lender and see what standards may or may not apply.

FHA loans have certain standards, but every borrower’s situation is different. It’s best to approach a loan officer with specific details and see what might be acceptable in situations like these.

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

FHA Appraisals: A Reader Question

084A reader asks, “I am working with a home that was built in 1946. The crawl space clearance under the home is suppose to be by FHA standards 18 inches. This home only has 12 to 15 inches. It is not possible to get the dirt out from under this house to meet the requirement. Is there a chance they would waiver this requirement and if so who would I need to contact?”

A HUD publication for single family home appraisers mentions the following in relation to the reader’s question:

“A minimum distance of 18 inches from the ground to bottom of the joists is highly recommended but not mandated.Ē The appraiser will enter the crawl space (at a minimum entry of the head and shoulders) to observe conditions except when access is obstructed, when entry could damage the property, or when dangerous and adverse situations are suspected.”

“In any event, the crawl space size and accessibility dictates the level of entry. However, the appraiser will visually examine the crawl space for inadequacies (see HUD HB 4150.2 Chapter 3-6 A. 11 and Protocol for VC-8).”

That would seem to indicate some discretion is possible on the appraiser’s part, however, state and local building code may also play a role in whether the appraiser can overlook the conditions mentioned in the reader question.

Therefore, the reader should research state/local building code to see if the conditions of the home are in violation or not–that would likely be one of the most important aspects of this issue, assuming the appraiser is otherwise able to overlook the condition of the crawlspace.

An appraiser may be able to overlook a condition of the home in such cases where FHA minimum property standards are flexible as in the above example, but any violation of applicable building codes noted by the appraiser may require corrections as a condition of loan approval.

Borrowers can always contact the FHA directly for advice by calling 1-800 CALL FHA for assistance.

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

 

FHA Loan Rules For FICO Scores: A Reader Question

014A reader asks, “I have an existing FHA insured house in Dallas TX. Two years ago i moved to GA for Job an rented sonce. I am moving again to Houston TX And looking forward to buy a house. I am a professional Engineer and make a Decent salary. But unfortunately have 570 credit score. My wife has a score of 650 but she has no job. Please advise what is the best option to get approved”

Let’s see what the FHA loan rulebook says about this situation. According to HUD 4155.1 Chapter Four Section A, all co-borrowers, co-signers and other parties named on the loan would have both income and credit histories examined by the lender:

“When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their income assets liabilities, and credit histories”. Notice that the first word mentioned in that list is “income”.

In community property states, a spouse may be required to be included in certain parts of the FHA loan application process even if not technically obligated on the loan as a co-borrower or co-signer. From Chapter Four:

“If required by state law in order to perfect a valid and enforceable first lien, a non-purchasing spouse may be required to sign either the security instrument or documentation indicating that he/she is relinquishing all rights to the property. When the security instrument is executed for this reason, the non-purchasing spouse is not considered a borrower, and not required to sign the loan application. Note: Non-applicant individuals can have an ownership interest in the property at the time of settlement without executing the mortgage note and security instrument, regardless of whether the transaction is a purchase or a refinance.”

So a portion of the answer to the reader question depends on the laws of the state he resides in. The FICO score issue may require a larger down payment than the FHA minimum 3.5%. The fact that the borrower already has an FHA loan is a potential problem as the FHA normally does not approve second FHA mortgages for a borrower unless that applicant meets a specific set of circumstances.

The borrower would need to discuss the loan with a loan officer to see what might be possible in such instances.

Do you have questions about FHA loans? Ask us in the comments section. All questions/comments are held for review before appearing on the site.

 

 

FHA Mortgage Rate News: Improvements As Rates Recover

093FHA mortgage loan rates had been pushed earlier out of a comfort zone that, best execution, had them at or near 3.25% depending on the lender. After February 14, it seems that mortgage rates in general had entered a time of upward pressure, and FHA loans moved out of their long-held comfort zone and into range of best execution rates between 3.25% and 3.5%.

In the last couple of days, mortgage rates have taken a stronger move for the better, with 30-year fixed rate mortgages creeping back from the best execution cliff of 4.0%–rates didn’t actually climb quite that high for 30-year conventional fixed loans, but they approached 3.875% bests execution, which is as close to the 4.0% zone as we’ve seen in some time.

But with mortgage rates in what seems to be a recovery mode now after Fed testimony from Fed Chair Janet Yellen helping to create an environment favorable to rates heading lower, we see 30-year fixed rates coming back down, best execution, to 3.75%. Naturally, best execution rates are not available from all lenders or to all borrowers–your financial qualifications would play a big role in your access to those rates.

What about FHA mortgage loan rates? Have they moved out of the range of best execution numbers we’ve seen them hold steady in since they hit the range of numbers? Not yet–but if rate improvements continue overall, we might see the elimination of that range at some point in favor of a single best execution number.

Some market watchers feel confident that we could be in for a new round of lower rates in the short term–however incrementally small the numbers might move from day to day. There may yet be some volatility, especially if Greek bailout headlines or other EU-related economic news makes the scene to influence rates in the meantime. Treasury markets also have an influence, so you can expect a variety of factors to come into play to influence the rates. But lower numbers are definitely a welcome sign–we’re keeping watch to see how FHA mortgage loan rates might be affected from here.

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

 

FHA Loan Rules: Income Limits, Loan Limits

076A reader asks, “Can a 68 year old retired person qualify for an fha loan and what is the dollar limit?”

FHA loan rules do not specify an age limit or an income limit. FHA home loans are for any qualified borrower who meets the FHA loan program minimum FICO score standards as well as (possibly higher) lender FICO score standards.

There’s no minimum or maximum income requirement–instead, the borrower’s debt-to-income ratio is examined to see if she or he can afford the new loan.

This means that a borrower who seems to have a low income but can afford both existing monthly payments and the proposed new FHA home loan may be eligible for loan approval as long as they otherwise qualify with FICO scores, good loan repayment history, etc.

It’s assumed the reader question about the”dollar limit” for FHA home loans refers to FHA maximum loan guaranty amounts.

The amount of your FHA home loan is basically determined by the appraised value or sale price of the home, whichever is lower. Other factors could affect the loan amount including any add-ons, discount points or other expenses that are permitted to be included in your loan amount.

Borrowers are required to make a minimum 3.5% down payment on the FHA loan–this can also affect the final amount of your loan. Speak to a loan officer to learn more about these issues and how they might affect your loan amount.

Do you have questions about FHA home loans? Ask us in the comments section. Be aware that all questions and comments are held for review prior to appearing on the site.

 

FHA Loans For Mobile Home Lots? A Reader Question

052A reader asks, “I never tried to get a loan for my mobile home, Iím currently $250 away from owning it. I went into a land contract with the lady who owns it now, well she didnít tell me that the people who own the land want all 3 trailers moved off their land by summer, no specific date. Now the I moved into this trailer 04/2014, Iíve dealt with nothing but repairs out of my pocket…Iím a low income, unable to work 30 year old mother, I own a vehicle straight out, and my credit score is 580, is there a type of loan to help me pay to move my trailer, and buy land?”

Let’s see what the FHA official site, FHA.gov, has to say about this reader question:

“Under the Title I program, FHA approved lenders make loans from their own funds to eligible borrowers to finance the purchase or refinance of a manufactured home and/or lot. FHA insures the lender against loss if the borrower defaults. Credit is granted based upon the applicant’s credit history and ability to repay the loan in regular monthly installments.”

So the basic answer to part of this reader question is yes–those who qualify financially may be eligible for an FHA home loan to purchase a mobile home, a lot, or both. Here’s more from the same part of the FHA official site, titled HUD Financing Manufactured Homes:

“A Title I loan may be used for the purchase or refinancing of a manufactured home, a developed lot on which to place a manufactured home, or a manufactured home and lot in combination. The home must be used as the principal residence of the borrower.

Maximum Loan Amount

  • Manufactured home only – $69,678
  • Manufactured home lot – $23,226
  • Manufactured home & lot – $92,904

The maximum dollar limits for lot loans and combination loans may be increased up to 85 percent in designated high-cost areas. For further information on high-cost area limits, contact (800) CALL-FHA.”

The site adds some important information on what the borrower must do when approved for these types of loans:

Eligible Borrowers Must

  • Have sufficient funds to make the minimum required downpayment.
  • Be able to demonstrate that they have adequate income to make the payments on the loan and meet their other expenses.
  • Intend to occupy the manufactured home as their principal residence.
  • Have a suitable site on which to place the manufactured home. The home may be placed on a rental site in manufactured home park, provided the park and lease agreement meet FHA guidelines. The home may be situated on an individual homesite owned or leased by the borrower.”

The site says nothing about loan funds for relocating the mobile home, so we can’t comment on that part of the reader question, however it’s important to note that lender standards regarding FICO scores may vary, so the reader will need to check with a specific lender to see if the FICO scores mentioned in the question are sufficient for that lender.

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

FHA/HUD Issues More Guidance On Equal Access Rules

001We’ve seen a number of headlines recently on the FHA and HUD’s position on Equal Access laws. Now there is additional guidance coming on the heels of what’s already been released. On Monday, February 23 2015 the FHA and HUD issued a new press release announcing further clarification of its Equal Access rules which prohibit discrimination based on sexual identity, gender identity and related factors.

According to HUDNo.15-023, “The U.S. Department of Housing and Urban Development (HUD) issued guidance to better serve LGBT Americans seeking to obtain a home loan and transgender individuals seeking access to homeless shelters. These two sets of guidance will help clarify the Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity Rule (Equal Access Rule), which was published in 2012. The Equal Access Rule ensures that housing across HUD programs is open to all eligible individuals regardless of actual or perceived sexual orientation, gender identity or marital status.”

Furthermore, “HUDís guidance on program eligibility for HUD assisted and insured housing programs includes an equal access provision making clear that housing that is financed or insured by HUD must be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.”

That’s an important step forward in the cause of civil rights, but the FHA and HUD don’t stop there. The guidance issued by the FHA/HUD also forbids “owners and operators of HUD-funded housing, or housing whose financing was insured by HUD, from inquiring about an applicantís sexual orientation or gender identity or denying housing on that basis. In addition, the guidance also makes clear that sexual orientation and gender identity should not and cannot be part of any lending decision when it comes to getting an FHA-insured mortgage.”

The idea that non-financially related qualifications should not be used to determine eligibility for an FHA loan or for housing in general has long been upheld by the FHA and HUD, but these new clarifications to the Equal Access rules make it harder to discriminate.

Where FHA home loans are specifically concerned, the FHA and HUD instruct lenders, “No owner or administrator of HUD-assisted or HUD-insured housing, approved lender in an FHA mortgage insurance program, or any other recipient or sub-recipient of HUD funds may inquire about the sexual orientation or gender identity of an applicant for, or occupant of, HUD-assisted or HUD-insured housing for purposes of determining eligibility or otherwise making such housing available. However, permissible inquiries into sex are permissible for temporary, emergency shelter with shared sleeping areas or bathrooms, or to determine the number of bedrooms to which a household may be entitled.”

Borrowers or applicants who are unsure how the new guidance affects them can learn more from this PDF document made available via the FHA official site.

FHA Loan Qualifications: A Reader Question

088A reader asks, “What are the qualifications and the process to start a FhA loan?”

We get questions like these quite often. Some people ask because the assume that an FHA loan is for a first time home buyer, or an economically disadvantaged house hunter only. But this is not true–any qualified FHA loan applicant could be approved for an FHA mortgage regardless of whether he or she has purchased a home before or any notions of being at an economic disadvantage.

There is no minimum or maximum income level for FHA loans–instead, the lender will measure a borrower’s debt-to-income ratio, review credit scores and other financial qualifications. A borrower with a 580 or better FICO score is technically eligible for maximum FHA loan financing, though a lender may have a higher standard.

The process to get started on an FHA loan is similar to any other type of home loan, except in this case the borrower will need to find a lender who participates in the FHA program in order to apply for the FHA loan.

The borrower would find a home, make an offer, apply for the loan and go through all the other usual steps to getting a home loan. Borrowers who need help preparing or understanding the home loan process can call the FHA directly at 1-800 CALL FHA to request a referral to an FHA/HUD approved housing counselor for advice and assistance.

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