Monthly Archives: May 2015
FHA loan myths are hard to dispel–no matter how many times you try to set the record straight, there will always be people who simply don’t know the truth about FHA loans and how they can help the typical house hunter.
For example, some people mistakenly believe that FHA loans are only for the economically disadvantaged. Others believe something similar along these lines–that it is possible to “earn too much” to qualify for an FHA mortgage. These things are not true.
Another myth about FHA home loans is that a borrower’s eligibility is solely dependent on what the FHA loan rules say about FICO scores, credit history, etc. But this is also not the reality behind the FHA home loan process. For example, FHA mortgages do have a minimum FICO credit score requirement, but many lenders place their own FICO score minimums higher than the FHA.
Does that mean the lender is doing something wrong?
Not at all–the FHA loan rulebook establishes minimum standards, but the lender is free to require higher minimums.
Another misconception about FHA home loans is that a borrower might have access to a zero-downpayment home loan. That may be true of a similar program for veterans (the VA home loan program) but FHA loans do require a minimum 3.5% minimum downpayment, which must come from approved sources.
Your closing costs, appraisal fees, and other costs cannot be considered a part of your downpayment–this expense is entirely separate from those costs. Speak to your lender to find out how your closing costs and down payment requirements work for that financial institution.
Do you have questions about FHA home loans? Ask us in the comments section.
The month of May has seen basically what amounts to a new and higher range in mortgage loan rates overall–though still loan in comparison to previous years–and we’re seeing 30-year fixed rate conventional mortgage rates hovering at or near the 4.0% mark, best execution. Friday’s trends brought the 30-year fixed conventional mortgage loan rates in some best execution instances below 4.0%. Remember, “best execution” means rates offered extremely well-qualified borrowers. Your experience with these rates may vary.
FHA mortgage rates have found a comfort zone of 3.75%, not as good as the previously held 3.5% (or thereabouts) best execution. The numbers, while slightly higher, are still subject to change due to volatility in the markets based on overseas financial headlines (including Greek debt, which rears its head again in the news among many other issues) and stateside economic data releases.
The prevailing advice from many industry professionals seems to be “lock in the short term” unless those willing to float–to avoid committing to a mortgage loan interest rate lock in hopes of more borrower-friendly developments in the following day or days–have a high “tolerance for risk” meaning the borrower isn’t quite as worried if rates creep higher rather than lower.
Float or lock, it makes sense to get some expert advice and make the most informed decision you can. It never hurts to ask your loan officer what he or she thinks on the issue.
The Greek debt issue could continue to bring headlines into early June when there’s a day of reckoning, so to speak, over repayment of that debt. Keep your eyes on those headlines as well as domestic employment data due a week from today (Friday May 29, 2015) which could have an influence on rates depending on investor reaction to that data. We’re in for some interesting times–there’s no telling which way things might head from here until some of the above developments have played out.
Do you have questions about FHA home loans? Ask us in the comments section. All questions and comments are reviewed before being posted on the site.
With headlines about Texas flooding, FHA borrowers there and in other areas in danger of being affected by natural disasters this spring may wonder what options are open to them in the wake of a flood, a hurricane, tornado or other weather event.
The FHA and HUD do have options for qualified borrowers affected by a natural disaster. At the FHA/HUD official site, you’ll find the following:
“Was your home or your ability to make your mortgage payments harmed by an event that the President declared a disaster? You may qualify for relief to help you keep your home. Much of the mortgage industry and The United States Department of Housing and Urban Development are committed to assisting borrowers whose lives and livelihoods are thrown into turmoil by a disaster.
If you can’t pay your mortgage because of the disaster, your lender may be able to help you. If you are at risk of losing your home because of the disaster, your lender may stop or delay initiation of foreclosure for 90 days. Lenders may also waive late fees for borrowers who may become delinquent on their loans as a result of the disaster.”
How does FHA disaster relief work? According to the page at www.FHA.gov titled, “Disaster Relief Options For FHA Homeowners”, participating FHA lenders have been instructed by the FHA to use “reasonable judgment” to determine which borrowers are affected by the disaster. “Lenders are required to reevaluate each delinquent loan until reinstatement or foreclosure and to identify the cause of default. Contact your lender to let them know about your situation. Some of the actions that your lender may take are:
–During the term of a moratorium, your loan may not be referred to foreclosure if you were affected by a disaster.
–Your lender will evaluate you for any available loss mitigation assistance to help you retain your home.
–Your lender may enter into a forbearance plan, or execute a loan modification or a partial claim, if these actions will help retain and pay for your home.
–If saving your home is not feasible, lenders have some flexibility in using the pre-foreclosure sales program or may offer to accept a deed-in-lieu of foreclosure.”
A foreclosure moratorium is available only for borrowers who were delinquent before the natural disaster. “If you are current on your loan payments, then you should continue to make them. FHA lenders will automatically stop all foreclosure actions against families with delinquent loans on homes within the boundaries of a Presidentially-declared disaster area.”
For borrowers who were current on their mortgages before the disaster hit, the FHA advises, “you should continue to make your mortgage payment whenever possible. If, however, you are unable to pay your loan as a result of the disaster, your lender may waive any late fees normally charged and let you know about other options. Also, if you foresee ongoing problems in making your mortgage payments resulting from changes in your financial status, you should contact your lender immediately”.
FHA says it is confident that a participating lender will attempt to help an affected FHA borrower, but for those who “are not satisfied after discussing possible relief actions with your lender, please call a HUD-approved counseling agency toll free at (800) 569-4287”.
Do you need answers to FHA home loan questions? Ask us in the comments section. All comments are held for review.
The FHA and HUD have been making a number of revisions to the FHA Home Equity Conversion Mortgage program (FHA HECM) including changing the nature of payouts based on the type of HECM loan (adjustable rate or fixed rate) and many other alterations.
One of the most recent changes is how the FHA expects participating lenders to deal with unpaid property taxes on an FHA HECM, which technically can result in the loan being declared due and payable. Some lenders and borrowers go into a HECM loan with an arrangement to have a set-aside account created specifically for the purpose of paying property taxes to avoid problems later down the line.
But what happens if a HECM borrower lets that set-aside account lapse? When the property taxes begin to go unpaid, FHA loan rules now have a specific course of actions participating lenders must take in these cases:
“For HECM loans with set-aside accounts for the purpose of paying property charges, the mortgage will be considered in default if:
–The set-aside account has been exhausted of available funds to make property charge payments; and
–The mortgagor, after being notified of their outstanding property charge obligation, fails to remit the property charge payment in full within 30 days as required; and
–The Principal Limit has been exhausted, requiring the mortgagee to make the property charge payment using corporate funds.”
FHA loan rules add, “Except during a Deferral Period, mortgagees must submit to HUD a Due and Payable Request, within 30 days, whenever a mortgage becomes eligible to be called due and payable because an obligation of the mortgage is not met.”
This information is found in FHA/HUD Mortgagee Letter 2015-11. Unpaid property taxes aren’t the only thing that can bring a HECM loan due and payable–borrowers who stop using the property as their primary residence or who otherwise violate the terms of the HECM loan agreement may also find themselves at risk of receiving a due and payable notice. What happens when this occurs? According to the mortgagee letter:
“Mortgagees must inform mortgagors in writing that they have thirty (30) days to respond to a Due and Payable Notice. All Due and Payable Notices sent to mortgagors must reference available loss mitigation options, if any, and inform the mortgagor of his/her ability to sell his/her property or execute a Deed-in-Lieu of foreclosure.”
Do you have questions about FHA refinance loans? Ask us in the comments section.
One question that comes up frequently when talking FHA loans involves whether or not a borrower’s credit scores are affected by applying for pre-approval for an FHA mortgage loan. While we aren’t experts in credit reporting, and the FHA loan rules found in HUD 4155.1 do not address this issue, a bit of research into this issue turns up some interesting facts.
According to the Kiplinger Magazine’s, “Could Mortgage Preapproval Hurt Our Credit?”, any kind of loan application has the potential to “ding” your credit rating. That, Kiplinger reports, is according to Barry Paperno, consumer operations manager for Fair Isaac (the company that created the FICO score system).
“Typically, you would see a drop of five points or less,” says Paperno in the Kiplinger piece, which adds, “…when lenders request a copy of your credit report as part of the loan-application process, their requests are considered hard inquiries, as opposed to the soft inquiries that occur when you or existing creditors check your report. A hard inquiry stays on your credit report for two years and affects your FICO score for a year.”
Borrowers who are worried that such a drop may affect their eligibility for an FHA mortgage loan may wish to contact the FHA directly by calling 1-800 CALL FHA. Ask for a referral to a local HUD-approved housing counselor who can help with pre-purchase issues including FICO score information.
If a five point FICO score drop is enough to put your loan in jeopardy, the pre-purchase counseling option could be a quite valuable one.
It is always best to go into an FHA loan application armed with as much information as possible. Pre-purchase counseling can not only help you prepare for the application process, but it may also inform the timing of your application–those who come to the FHA loan process with 12 months or more of on-time payments, for example, are much more likely to get a loan approved than those who do not.
Do you have questions about FHA home loans? Ask us in the comments section.
Redlining, the act of discriminating against a group of people in the mortgage loan servicing process, is prohibited by the Fair Housing Act. Redlining often goes undetected as long as those being discriminated against don’t file a complaint with the government. When such complaints are reported to the FHA and HUD, they are taken seriously and investigated to insure violations of the Fair Housing Act don’t continue.
This week HUD announced a historic settlement in a redlining case in HUDNo.15-064. “The U.S. Department of Housing and Urban Development (HUD) today announced an agreement with Associated Bank, N.A. (Associated) to resolve a disparate treatment redlining case, one of the largest redlining complaints brought by the federal government against a mortgage lender. At approximately $200 million, it is the largest settlement of this kind HUD has ever reached.”
The settlement comes at the end of a HUD investigation to a Fair Housing act complaint, “alleging that from 2008-2010, the Wisconsin-based bank engaged in discriminatory lending practices regarding the denial of mortgage loans to African-American and Hispanic applicants and the provision of loan services in neighborhoods with significant African-American or Hispanic populations” according to the HUD press release.
“This settlement sends a strong message that HUD does not tolerate practices that unfairly restrict an equal and open housing market,” said HUD Secretary Julin Castro, as quoted in the press release. “Discriminatory lending practices have too often cut off too many credit-worthy families from the opportunities they need to thrive. This agreement will ensure that more Americans can fulfill their hopes and aspirations.”
In the coming 36 months, Associated has agreed to pay nearly $10 million, “in the form of lower interest rate home mortgages and down payment/closing cost assistance to qualified borrowers in majority-minority census tracts in the housing market areas of Chicago; Milwaukee; Minneapolis-St. Paul; Racine, Wisconsin; Kenosha, Wisconsin; and Lake County, Illinois.” As you can see, the payout covers a great deal of territory. According to HUDNo.15-064:
“HUD’s analysis of Associated Bank’s mortgage lending activity indicated that, compared to other mortgage lenders, Associated made few loans in majority-minority census tracts in five metropolitan areas in Illinois, Wisconsin, and Minnesota, but did make loans in nearby predominantly white tracts.”
The Fair Housing Act prohibits such discrimination. Borrowers who feel they have experienced such discriminatory practices should file a complaint with the HUD Office of Fair Housing and Equal Opportunity at (800) 669-9777(voice) or (800) 927-9275(TTY).
The FHA/HUD official site adds, “Housing discrimination complaints may also be filed at www.hud.gov/fairhousing or by downloadingHUD’s free housing discrimination mobile application, whichcan be accessed through Apple devices, such as the iPhone, iPad, and iPod Touch.”
Do you have questions about FHA home loans? Ask us in our comments section. All comments are held for moderation before they appear on the website.
One thing that’s important for house hunters to do when looking for a home? Comparison shop. But that’s not just a good idea when it comes to measuring the price tag on a home; it’s also a very good idea to shop around for a lender in the same way you do looking for just the right home to buy with an FHA loan.
A recent blog post on the HUD official site via The HUDdle discusses recent housing trends and developments in the home loan industry. One thing writer Ted Tozer notes, is that there has been a set of important developments in the industry as some major financial institutions dial back their participating in the mortgage lending market.
Tozer writes, “As major banks have reduced their participation in mortgage lending and servicing, nonbanking institutions have stepped in to fill the void, providing needed credit access. Thanks to the flexibility in Ginnie Maes single security platform, nonbanks functioned in the market and disruptions were minimal. However, the evolution from traditional to non-depository institutions has created a challenging environment.”
Tozer, who is the President of Ginnie Mae, also notes that, “While most lenders and servicers are up to the challenge, there are a number of eventsfrom a shortage of refinance or home purchase volume to a failure to hedge mortgage-servicing rightsthat could trigger a cash crunch and make it difficult for them to fund their operations, let alone pay off investors. Since Ginnie Mae expects nonbank lenders to account for approximately 60 percent of our business this year, additional resources are needed to handle the complexities of these institutions, particularly in the measurement of risk.”
Are you as a borrower comfortable using what Tozer describes as a “nonbanking institution” to handle your FHA mortgage? The idea may seem daunting at first, but many borrowers are coming around to the idea.
But whether you’re comfortable or not, the most important thing as a new loan applicant is to make the most informed choice you can about who and how you get your FHA mortgage loan. Doing some research into not just your home options but also your home loan options can be one of the best moves you’ll make as a loan applicant. Some may choose a traditional lender, others may choose the “nonbank” lender; whichever you decide is best, know what the differences and similarities between the two are and how your loan may be affected based on your decisions.
You can contact the FHA directly for a referral to an FHA/HUD approved pre-purchase counselor in your local area who may be able to help with advice and information–contact the FHA directly at their toll-free number: 1-800 CALL FHA.
Do you have questions about FHA home loans?Ask us in the comments section.
As major banks have reduced their participation in mortgage lending and servicing, nonbanking institutions have stepped in to fill the void, providing needed credit access. Thanks to the flexibility in Ginnie Maes single security platform, nonbanks functioned in the market and disruptions were minimal.
However, the evolution from traditional to non-depository institutions has created a challenging environment.
– See more at: http://blog.hud.gov/index.php/2015/05/21/housing-finance-current-state-future-trends/#sthash.W1ObqIO9.dpuf
There have been many changes to the FHA HECM (Home Equity Conversion Mortgage) program in recent months. If you are a qualified HECM loan applicant exploring your options now after having researched them a year or two ago, it’s likely you will need to re-familiarize yourself with the FHA HECM rules and regulations as many have had important changes made.
HECM loans still feature the usual conditions–failing to use the home as the primary residence, for example, can still result in the HECM loan being declared due in full. That hasn’t changed, but some other conditions that trigger a due-in-full demand have.
One such change involves when a HECM loan can be declared due in full because of failure to meet HECM loan “property charge” requirements. Did you know that a failure to pay property taxes can and sometimes does cause a HECM loan to be declared due in full?
FHA mortgagee letter 2015-11 has details on this, especially where certain arrangements are made between borrower and lender on how those property charges are to be paid. “Mortgagees are permitted to make property charge payments on behalf of mortgagors, who are borrowers on the HECM note, from the mortgagors funds, available under the HECM. If the mortgagor has insufficient funds available under the HECM to satisfy these unpaid property charges, the mortgagor is in default, the mortgage is eligible to be called due and payable, and the mortgagee must submit a due and payable request.”
HECM borrowers have 30 days to respond to such notifications and “Due and Payable” notices as mentioned above must include loss mitigation options as instructed by FHA guidelines.
Additionally, “During a Deferral Period, a mortgagee may not make property charge payments using HECM proceeds as no further disbursements are available under the HECM. If a property charge payment is missed during a Deferral Period, the mortgagee must notify any Eligible Non-Borrowing Spouse that an obligation of the mortgage was not satisfied and that the Deferral Period is ending unless the default is cured within 30 days.”
These are important changes to the program borrowers should know. FHA loan rules also state that if the above condition (curing the default within 30 days) is not met, foreclosure actions may be taken.
There are also rules for HECM borrowers who have set-aside accounts for paying property taxes. We’ll cover that in a future blog post.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.
A reader asks, “Is the tax credit still available to 1st time new home buyers? If not, are there any other credits available that can help new home buyers? Will I be considered a new home buyer if I purchased a home just over 5 (2010) years and attempt to purchase a new one in 2015?”
We can’t give out tax advice, as we aren’t tax professionals, so it would be necessary to contact the IRS directly to learn about any homebuyer-related tax credits that might be available for a given tax year. Tax law changes quite frequently and what was legal last year may not be allowed this year due to legislation, expiration of government programs, or other changes.
That said, we can report that it appears that, based on a search of the IRS official site, that the tax credit mentioned in the reader’s question is no longer available. This program was open to qualifying borrowers who purchased a home between certain dates from 2008 to 2010.
There were restrictions on the program including an occupancy requirement, and borrowers generally had to repay the tax credit at a later time, making the program essentially a no-interest loan for those who choose to take advantage of it.
Borrowers who are looking for state or local first time home buyer credit programs would need to check with their local agencies to see what options might be open to them, and you can also have a look at the FHA official site State Information page to see if any programs are linked to from there. You can also call the FHA directly at their toll-free number (1-800 CALL FHA) for assistance in getting referred to a local housing counselor who may know if any such programs exist near you.
Do you have questions about FHA loans? Ask us in the comments section. All comments are held for review.
A reader asks, “I filed a chapter 7 in 2009 and listed my home in the bankruptcy as it tuned out I tried to short sale but the bank told me no. so I filed and it discharged in 2009. The bank did nothing for 7 years. I moved out of the home in 2009 and it remained empty for 7 years. I purchased another home (hard money loan) in 2012. I improved my credit rating and I want to refi my home. The bank finally let me short sale the home in 2014 it sold. What is going on the lenders are telling me that there going by the short sale date not the bk date. Can you help?”
There are two issues at work in these situations–FHA loan rules and lender standards. A borrower may technically be within FHA loan requirements but still have to meet the lender’s standards, so a great deal would depend on what the rules at a given financial institution are.
That said, FHA loan rules for purchase following a short sale state:
“A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to
–take advantage of declining market conditions, and
–purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value”.
Furthermore, FHA loan rules say, “A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
–mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
–installment debt payments for the same time period were also made within the month due.
A borrower in default on his/her mortgage at the time of the short sale (or pre- foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Note : A borrower who sold his/her property under FHAs pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.”
FHA loan rules do provide certain exceptions to the above if a borrower’s mortgage loan default was because of circumstances beyond the control of the borrower, “such as death of primary wage earner or long-term uninsured illness”. In such cases the lender is required to review the borrower’s credit report and make a determination as to whether or not the exception is justified. Speak to your loan officer to learn more about what may be possible in your circumstances.
Do you have questions about FHA loan rules? Ask us in the comments section. All comments are held for moderation before appearing on the website.