Monthly Archives: June 2015
The appraisal portion of the FHA home loan process is often misunderstood. What exactly IS an FHA appraisal and what is it designed to do? The answers are very important, especially for first-time home buyers.
The FHA appraisal process is designed to do two basic things–one is to establish the fair market value of the home you want to purchase with an FHA loan. This is accomplished when an FHA appraiser–who is NOT considered a home INSPECTOR–reviews the home to make sure it meets minimum standards for safety and habitability. The review of the home is also designed so that the appraiser can compare the property to others like it on the market.
The appraiser does the review, writes an appraisal report, and submits it to the lender. At no time does the FHA appraiser “approve” the home with an FHA seal of approval or guarantee that the property is free of defects. The appraiser simply verifies that yes, the home meets FHA minimum requirements and state/local building code insofar as the appraiser can tell. Or, the appraiser will note defects, problems, or hazards on the report.
In some cases those issues can be fixed. A roof can be repaired, a leak might be able to be fixed. In such cases, the appraiser would require the corrections as a condition of loan approval. A second visit known as a compliance inspection would be required to insure those things are taken care of. In each case–the appraisal and any required compliance inspection–the borrower is responsible for paying for the services rendered no matter what the outcome of each visit might be.
In other cases, the problems cannot be repaired or corrected and the home is deemed unsuitable for an FHA loan. Such conditions include, but are not limited to, location within certain high pressure gas pipeline easements, special flood zones, high noise areas, etc.
No matter what the outcome of the FHA appraisal process, what the borrower does NOT have at the end of the day is a promise or guarantee that the home is free from defects. All home buyers should pay for a home inspection (which is NOT part of the FHA appraisal process and must be paid for separately) to determine the exact condition of the home.
Make no mistake, the appraisal process is important, but that process alone is not enough to determine the condition of the home you want to buy.
Do you have questions about FHA loans? Ask us in the comments section. All comments are held for review.
If you are in the planning stages before purchasing a new home with an FHA mortgage loan, it’s a very good idea–strongly recommended, in fact–to pull your credit reports from the three major credit reporting agencies.
It’s best to request copies of your credit reports as early as possible in the process so that you have abundant time to dispute any outdated information, investigate evidence of identity theft, etc.
Many people in this stage go to the official sites for the three major agencies–Equifax, Experian, and TransUnion. But did you know that federal law permits borrowers to get a free credit report from these three agencies once every 12 months?
According to the Federal Trade Commission official site (https://www.ftc.gov/), anyone who wants the free reports can order them from annualcreditreport.com, which the FTC official site describes as, “the only authorized website for free credit reports”.
Borrowers can order online or by phone at 1-877-322-8228. The FTC reminds borrowers they will need to provide their full name, address, social security number, and date of birth in order to get the free credit reports.
The process of investigating your own credit history can seem daunting at first, but thanks to the FTC the process is made much simpler and you can get on the road toward home ownership more efficiently once you know what your FICO scores and credit history will look like when the lender pulls them.
You can learn more about getting your free credit reports with this helpful article on the Federal Trade Commission official site.
Assuming that we’re discussing what happens once you have found a suitable home, as opposed to the planning stages for a loan (budgeting, researching, etc) the FHA loan rules in HUD 4155.2 actually have a list of steps that happen at each stage of the loan application process.
These steps are found in Chapter One, Section A of HUD 4155.2. The process begins with the borrower getting in touch with the participating FHA lender and the lender determining if the borrower’s loan needs are eligible for FHA mortgage loan insurance.
Step Two is described as, “The borrower, along with the lenders representative, completes the loan application. The loan officer collects all supporting documentation from the borrower and submits the application and documentation to the lender.”
Assuming the borrower is qualified, the lender’s next step is to apply for an FHA loan case number from the FHA. Then, an appraiser is assigned, “to perform a property appraisal, to determine
the value of the property that is to be security for the mortgage loan” and then the lender completes the appraisal logging.
This, according to HUD 4155.2 Chapter One, is the place where the lender processes the credit review, “to determine the borrowers ability and willingness to repay the mortgage debt”.
It’s clear that there are many steps before the credit review occurs, so borrowers should be prepared to wait out the above steps before the lender determines loan approval. Once the loan has been approved the lender and borrower can work together to establish a closing date for the home loan.
All of these steps happen after the borrower has found a suitable home and made an offer, but it’s important to know that a borrower is permitted to approach a participating FHA lender in order to get pre-qualified for a mortgage loan amount. Doing so can save time as you’ll have a basic idea of what you may be qualified to borrow based on your price range, house sale prices in the area, and other factors.
Do you have questions about FHA loans or refinance loans? Ask us in the comments section.
There has rightfully been a great deal of attention on last Friday’s ruling by the Supreme Court on marriage equality. But last week’s Supreme Court actions also included other important decisions, one of which affects those seeking a place to live and the right to do so under the Fair Housing Act.
On Thursday, June 25 2015, the FHA and HUD official site was updated to include a press statement from HUD about the court’s decision in a Texas housing discrimination case:
“Today, the U.S. Supreme Court reaffirmed an important legal principle in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. The Justices found that the Fair Housing Act not only prohibits intentional acts of discrimination, but also housing practices that have an unjustified discriminatory effect.”
Furthermore, the press release states, “In preserving the discriminatory effects standard also known as ‘disparate impact’ the Court today upheld four decades of judicial precedent from 11 appellate courts across the country.”
HUD Secretary Julian Castro issued astatement in response to the ruling by the Supreme Court, saying the decision is an important affirmation of many decades worth of lower court actions. “Today is another important step in the long march toward fulfilling one of our nations founding ideals: equal opportunity for all Americans.”
He adds, “The Supreme Court has made it clear that HUD can continue to use this critical tool to eliminate the unfair barriers that have deferred and derailed too many dreams. Working with our partners on the ground, we will continue to do all we can to build a housing market that treats all Americans with basic dignity and respect.”
There have been decisive efforts by the government to codify what is considered discriminatory practices. Two years ago, the press release states, “HUD formalized the discriminatory effects standard through a rule-making process. Since the 1970s, courts have consistently recognized that policies and practices that unnecessarily limit housing opportunities or otherwise perpetuate segregation because of race, color, national origin, religion, sex, disability, or familial status violate the Fair Housing Act.”
HUD aggressively investigates housing discrimination cases. If you feel your Fair Housing Act rights have been violated, contact the FHA/HUD as soon as possible by calling (800)669-9777.
Do you have questions about FHA home loans? Ask us in the comments section.
Borrowers who have filed for bankruptcy, or who have had other financial difficulties resulting in negative credit, may have questions about the timing of their next home loan application.
We get many reader questions about this–some ask “When can I apply for a new loan?” or, “How long should I wait until I apply?” Others want to know if their credit scores are good enough, writing that they have scores within a certain range and whether those scores are enough to qualify.
Bankruptcy, foreclosure, and other negative-credit actions may require specific waiting periods before you can apply again. Some of these are dependent on circumstances, lender standards and other factors–there often is no one set answer for borrowers who meet certain parameters.
If you have these types of questions, one of the best things you can do is to call the FHA directly at their toll-free number: 1-800 CALL FHA. Ask to be referred to a HUD-approved housing counselor in your local area.
Housing counseling is basically “pre-purchase counseling” and can help answer important questions like these. More importantly, the timing of this counseling can be of huge importance. It can take well over 12 months in some cases to get ready for a new home loan. There are closing costs and a down payment to save up for, credit reports to review, and many other steps in the planning process that you will need to give adequate time to.
A housing counselor can help borrowers anticipate all of these things, and much more. Knowing what to expect in the home buying process really is half the battle for many people–if you don’t know what kind of FICO scores your lender might be looking for, or if you aren’t sure how much money in general you might need to close, a housing counselor will be able to help you look at some of these big-picture home buying issues in an objective way.
FHA home loans, like their conventional counterparts, require careful planning and research. You may not start out your house hunting journey as an expert in the process of buying a home, but with the help of a housing counselor you can learn enough to feel much more confident about the choices you’ll need to make.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.
Some borrowers get in touch with us with questions about FHA loan occupancy rules. One of the most common questions about FHA loan occupancy requirements involves those who must travel for business, or who find themselves having to relocate to another state because of job issues.
Are borrowers who spend less time at home than a typical home owner considered in violation of FHA mortgage loan occupancy rules? For example, the homeowner who now works and lives in another state but commutes home for the weekend?
FHA loan rules require a borrower to take ownership of the home at closing time and use the home as the primary residence for at least one year after the closing date. The borrower can’t vacate the home and rent it out during this period of time as that would be in violation of the FHA loan occupancy requirements. The borrower also can’t “intend to establish a principal residence elsewhere” at the time of the FHA loan.
Borrowers who find themselves in a work situation where they become commuter occupants may be tempted to explore their FHA loan options for another home in the new location. While FHA loans are technically possible in such cases, the borrower will need to work with the lender and there are qualifying circumstances for “second” FHA loans–the justification needed would include a change in family size, change in job, etc.
Occupancy is an important issue when it comes to new FHA loans–the primary reason FHA loan rules include an occupancy requirement is to prevent single family FHA mortgages from being used by investors rather than house hunters.
Do you have questions about FHA loans? Ask us in the comments section.
When you examine your streamline refinance options, it’s easy to get confused over the difference between lender requirements and FHA refinance loan standards. FHA Streamline Refinance Loans are intended for borrowers with existing FHA mortgages and can be done on any type of existing FHA loan–fixed rate, adjustable rate, graduated payment mortgage, etc.
Some borrowers want to know if there is a new credit check or appraisal required. There is no short answer to this because while FHA loan rules do not demand a new appraisal, the lender may require one. The credit check issue also depends on a variety of circumstances including the type of refinance transaction (fixed rate to adjustable rate, for example) and how long the borrower has owned the property.
FHA loan rule spell out some of the circumstances under which a credit-qualifying streamline refinance would be required. They include:
A credit qualifying streamline refinance must be considered
–when a change in the mortgage term will result in an increase in the mortgage payment of more than 20%
–when deletion of a borrower or borrowers will trigger the due-on-sale clause
–following the assumption of a mortgage that occurred less than six months previously, and does not contain restrictions (i.e. due-on-sale clause) limiting assumption only to a creditworthy borrower, or
–following the assumption of a mortgage that occurred less than six months previously, and did not trigger the transferability restriction (that is, the due-on-sale clause), such as in a property transfer resulting from a divorce decree or by devise or descent”.
Lenders are free to require a new appraisal and/or credit check where that financial institution’s standards require it above and beyond the FHA loan minimums. FHA loan requirements for Streamline Refinancing include the following:
“On the date of FHA case number assignment,
–the borrower must have made at least six payments on the FHA-insured mortgage being refinanced
–at least six full months must have passed since the first payment due date of the refinanced mortgage, and
–at least 210 days must have passed from the closing date of the mortgage being refinanced”.
Do you have questions about FHA home loans or refinancing loans? Ask us in the comments section.
After small-but-steady improvement recently, rates opened the week with a jump higher that wiped out the previous improvements, and by Wednesday mortgage loan rates have been wavering back and forth, more or less holding the same position when all is said and done. 30-year fixed rate conventional mortgages are up for 4.125% best execution, and we’re still seeing FHA mortgage loan rates holding a best execution comfort zone of 3.75%.
As we always point out, best execution rates are offered to those applicants with the most ideal financial qualifications. Your own experience will depend greatly on FICO scores, your credit history and other factors. FHA mortgage loan rates can vary more among participating lenders than their 30-year fixed rate conventional counterparts.
FHA rates have been in the 3.75% best execution comfort zone for some time, but if there is significant added upward movement to mortgage rates in general, we may see FHA rates break into a range of numbers with the current rate on the low end. That’s based on past observation of FHA rates, but that is no guarantee of future results.
What’s ahead for FHA mortgage rates? The Greek debt crisis is still generating headlines which may or may not affect rates here, and the overall rate environment is fairly volatile by all accounts. There seems to be a trend among the advice of industry professionals–locking your rates rather than floating in hopes of a better deal seems to be the advice du jour. We are in a phase now where market watchers are not shy about saying the words “upward trend”…
Thursday market results aren’t in at the time of this writing and we still have Friday to get through, but next week could be another sideways one ahead of the holiday weekend unless headlines or investor activity influences things otherwise. It’s best to keep an eye on European economic headlines and ask a lot of advice if you are considering “floating” in the short term.
Next week may not be the best one if you’re hoping for dramatic improvement, but those who can afford the risk may be tempted to see which way the wind blows come Monday afternoon in spite of the advice from those who have seen this behavior before. The choice is up to you, but make the most informed “float” or “lock” decision you can.
Do you have questions about FHA home loans? Ask us in the comments section.
We get lots of questions about the specifics of FHA home loans. Some of those questions involve areas that may not be covered specifically by FHA loan rules. Among the questions we got recently, there were some about the loan rules that cover a borrower’s employment status. “I got laid off from my contractor job and rehired elsewhere. The lender is asking for another paystub from the current employer in order to move forward with the loan. Is this true?”
FHA loan rules may or may not have a say in such cases, but when the lender informs the borrower that X, Y, or Z might be required in order to move forward with the loan, your loan officer may be referring to the lender’s standards and not necessarily FHA loan rules. The FHA isn’t the only agency that has a say in how the loan transaction is carried out.
You may find that in addition to FHA loan standards, the lender’s requirements, or state law, or even federal law may also be involved in how the transaction is handled.
This is true in a variety of circumstances but especially when loans involving married couples, domestic partners, or sometimes even business partners are involved. Do you know whether your state is a community property state? That can be one of the biggest non-FHA considerations for some types of FHA loan transactions between legally married couples.
Have you been involved in a bankruptcy proceeding? Depending on the type of bankruptcy and other factors you may need to get the court’s permission to enter into a new loan agreement. As you can see, there are many instances where FHA loan rules won’t be the only ones to affect your new home purchase. When it comes to appraisals of a new home, there may be building code that needs to be satisfied in order for the home to pass the appraisal. FHA minimum standards in that area are also supplemented by state/local ordinances.
When in doubt regarding these situations, it’s never a bad thing to ask the lender which set of rules is in play–does the lender require new pay stub information because of the bank’s requirements? FHA loan rules? State law? It never hurts to ask.
Do you have questions about FHA loans? Ask us in the comments section.
Are you concerned about your debt to income ratio going into the FHA loan application process? Do you wonder how your chosen FHA lender will view your existing debts and whether debts that are scheduled to be paid off at some point in the near future might affect your FHA loan application?
It helps to know what the FHA loan rulebook says about a borrower’s overall credit worthiness. At the time of this writing, the FHA and HUD are preparing to transition to a new FHA loan rulebook, but the previous references still apply until then. On the FHA official site you will find HUD 4155.1, which includes a section in Chapter Four about how the lender is to analyze the borrower’s credit. That section says in part:
“When analyzing a borrowers credit history, the underwriter must examine the overall pattern of credit behavior, not just isolated occurrences of unsatisfactory or slow payments.”
So the lender is theoretically examining your “big picture” financial record. There are two areas the lender may pay special attention to, depending on circumstances. One is recent debts prior to the FHA loan application. On this subject, FHA loan rules state:
“Lenders must determine the purpose of any recent debts, as the borrower may have incurred the indebtedness to obtain the required cash investment.” FHA loan rules do not allow the borrower to use certain types of credit for the down payment–any payday loan or non-secured loan funds would not be allowed.
The lender is also required to examine the nature of debt such as student loans or other types of lending that may start requiring payments shortly after the loan closes, if not before. If such a debt can be deferred, the lender might have the option of not counting it toward the borrower’s debt to income ratio. But what about debts that could be paid off shortly after the loan closes?
FHA loan rules say, “Debts lasting less than ten months must be included if the amount of the debt will affect the borrowers ability to pay the mortgage during the months immediately after loan closing, especially if the borrower will have limited or no cash assets after loan closing.
Note: Monthly payments on revolving or open-ended accounts, regardless of their balances, are counted as liabilities for qualifying purposes even if the
accounts appear likely to be paid off within ten months or less.”
As you can see from the above, it’s important to know where you stand with such debt–before, during, and after it has been paid off. Borrowers who are deemed to have sufficient resources to pay their mortgage along with the existing debts at application time may have a much better chance at FHA loan approval.
Do you have questions about FHA loan applications? Ask us in the comments section.