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

Monthly Archives: September 2015

FHA Loans For Rental Properties?

2015-19A reader asked us a question recently about purchasing rental property with an FHA mortgage:

“I’m considering cosigning on a rental property for my son so he can move in with friends. He has no credit established yet. My husband and i are also in the process of looking to move. How will cosigning affect us if we want to buy in the next 2-6 months and go with an FHA loan?”

Is the reader question referring to a situation where the parent wishes to co-borrow with the child to purchase a residence for the child to occupy? Or does it refer to co-signing on a lease to help the child, with the parents later applying for an FHA loan for themselves?

In the case of an FHA borrower who has a “contingent liability” by co-signing a lease or other financial instrument prior to applying for an FHA mortgage, HUD 4000.1 is clear:

“The Mortgagee must include monthly payments on contingent liabilities in the calculation of the Borrowers monthly obligations unless the Mortgagee verifies and documents that there is no possibility that the debt holder will pursue debt collection against the Borrower should the other party default or the other legally obligated party has made 12 months of timely payments.”

For the second possibility–where the parent wants to co-borrow with a son or daughter, let’s examine the FHA loan rules that govern the use of FHA single family mortgage loans for investment properties–which is not allowed under the terms of FHA Single Family Home Loan policy. According to HUD 4000.1:

“An Investment Property refers to a Property that is not occupied by the Borrower as a Principal or Secondary Residence.”

So depending on circumstances, an FHA loan may or may not be possible. Is the rental property being purchased for use as a primary residence and not a rental/investment property? The answer to that question may help determine the outcome of the loan application.

Then there is the question of credit qualifying. In this case one borrower has no credit established yet as per the reader question. FHA loan rules in HUD 4000.1 state:

“The qualifying ratios for Borrowers with no credit score are computed using income only from Borrowers occupying the Property and obligated on the Mortgage. Non-occupant co-Borrower income may not be included.” So the details there are also important. FHA loan rules add:

“The underwriter must determine the creditworthiness of the Borrower, which includes analyzing the Borrowers overall pattern of credit behavior and the credit report…The lack of traditional credit history or the Borrowers decision to not use credit may not be used as the sole basis for rejecting the mortgage application. Compensating factors cannot be used to compensate for any derogatory credit.”

The lender would be required to handle circumstances like these on a case-by-case basis, so circumstances would play a bit role in determining what might be possible. The reader in this case should have a discussion with a loan officer to see what options are available based on the borrower/co-borrower’s financial qualifications and income.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

 

FHA Single Family Home Loan Policies: Credit Qualifying Under HUD 4000.1

2015-06With the publication of HUD 4000.1 in its entirety, FHA single family home loans have a new policy handbook. It contains existing policy, revised or amended loan rules, and other changes that are relevant when it comes to applying for a single family home loan or refinance loan.

With the new rule book, we’re examining the contents of those rules in a variety of areas to show the current state of FHA loan rules, credit requirements, appraisal rules and other important topics. Let’s examine some basics of qualifying for an FHA mortgage under the new rulebook.

In general, HUD 4000.1 instructs the lender, referred to here as “the mortgagee”, as follows:

“The Mortgagee must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts. The Mortgagee must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject Property is located in a community property state.”

What does HUD 4000.1 require of the credit report, especially when it comes to non-borrowing spouses? “The credit report must indicate the non-borrowing spouses SSN, where an SSN exists, was matched with the SSA, or the Mortgagee must either provide separate documentation indicating that the SSN was matched with the SSA or provide a statement that the non-borrowing spouse does not have an SSN. Where an SSN does not exist for a non-borrowing spouse, the credit report must contain, at a minimum, the non-borrowing spouses full name, date of birth, and previous addresses for the last two years.”

Remember that FHA loan rules require all applicants to have a valid Social Security Number, so the inclusion of a non-borrowing spouse’s SSN is a logical step where required.

Regardless of past policies found in the old HUD 4155.1 manual, FHA loan rules about credit reports in HUD 4000.1 are quite specific when it comes to traditional credit reports versus non-traditional credit reports. HUD 4000.1 states clearly:

“The Mortgagee must use a traditional credit report. If a traditional credit report is not available or the traditional credit report is insufficient, the Feedback Certificate will show a Refer recommendation, and the Mortgagee must manually underwrite the Mortgage.”

That’s very important to keep in mind when applying for an FHA mortgage. Later in HUD 4000.1, however, the following information is also listed:

“For Borrowers without a credit score, the Mortgagee must either obtain a Non- Traditional Mortgage Credit Report (NTMCR) from a credit reporting company or independently develop the Borrowers credit history using the requirements…”

Additionally, the contents of the credit report have specific requirements in HUD 4000.1:

“Credit reports must contain all information from at least two credit repositories pertaining to credit, residence history, and public records information; be in an easy to read and understandable format; and not require code translations.”

We will cover more credit report issues in another blog post.

Changes To Home Loans Coming In October

2015-18aThe Consumer Financial Protection Bureau (CFPB) is a government agency designed to help consumers and protect their interests against fraud and unfair practices. CFPB issued a statement recently about new federal guidelines that will affect the mortgage lending process, making it easier for borrowers to understand the transaction.

The agency has announced that starting October 3, 2015, those who apply for “most mortgages” on or after that date, “the stress of shopping for a mortgage will be reduced, as our new mortgage disclosure rule takes effect. The new rule and disclosures ease the process of taking out a mortgage, helping you save money, and ensuring you know before you owe.”

What are the changes you should be aware of? According to ConsumerFinance.gov:

  • Four overlapping disclosure forms will be streamlined into two forms, the Loan Estimate and the Closing Disclosure.
  • Youll have more time to review your closing documents. Currently, lenders must give you your HUD-1 Settlement Statement disclosure 24 hours in advance, if you request it; after October 3, youll receive your Closing Disclosure three business days before you sign the forms and accept the terms of your mortgage, no request needed.

The official site also explains how these changes affect the mortgage lending process:

  • The new forms will make it easier to understand complicated mortgage terms.
  • The Loan Estimate makes it easier to shop around and compare loan offers from multiple lenders. Consider applying for loans from at least three lenders before choosing a mortgage so you can find the best deal for you.
  • The three days required between getting your Closing Disclosure and signing on the dotted line allow you to make sure there arent major changes from the deal you were offered on your Loan Estimate. It also gives you time to ask your lender all the questions you might have about the terms of your mortgage and consult with a lawyer or housing counselor.

If you are applying for an FHA home loan and are interested in speaking to a housing counselor as mentioned above, you can call the FHA directly at 1-800 CALL FHA to request a referral to a local, HUD-approved housing counseling agency.

As the CFPB official site says, being an informed borrower is very important. “You have the right to compare offers and understand the terms before you sign on the dotted line. And the information you use should be clear and easy to understand. After four years of work, these new forms and tools will help you shop for the best deal and avoid costly surprises when you sign on the dotted line. ”

Do you work in residential real estate? You should know about the free tool offered by FHA.com, designed especially for real estate websites. It’s a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

FHA Loan FICO Scores And Payment History

2015-32When the FHA loan rule book (HUD 4000.1) lists its minimum FICO score requirements, some people forget that these requirements are minimums and that participating lenders are free to require higher FICO scores, and often do.

We get plenty of reader questions about FHA FICO score requirements–here’s a recent example:

“I have my 3 FICO scores they are 633,601, and TransUnion is 565…I have credit but some late payments the last being December 2014…My question is do you think I could get a FICO loan for the mortgage or would I need to bring my FICO up?”

The answer to the reader’s question is complex for two reasons–lender standards apply and while based on what’s listed here the reader technically qualifies for an FHA mortgage loan, the lender’s FICO score requirements may start, as they are known to do depending on the lender, at 620 or better. Marginal FICO scores (in the eyes of the lender) would require compensating factors.

Compensating factors may include a higher down payment or other financial considerations. But the late payments issue could render any compensating factors a moot point. If a borrower comes to the FHA loan process with anything less than 12 months of on-time payments for all financial obligations, it could jeopardize the FHA loan application.

Naturally there are some home loan and refinance loan programs designed to help borrowers catch up on missed mortgage payments, but outside of such program requirements, the “12-month rule” should definitely be respected as it is a very important factor in how your lender determines your creditworthiness.

Borrowers who need assistance evaluating their ability to get an FHA mortgage loan because of such issues should contact the FHA directly and request a referral to a HUD-approved housing counselor who may be able to help. Call the FHA at their toll-free number, 1-800 CALL FHA.

Do you work in residential real estate? You should know about the free tool offered by FHA.com, designed especially for real estate websites. It’s a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

FHA HECM Loans and Death Of The Primary Borrower

077We get many questions about FHA HECM loan rules. Some of those questions have to do with the legal rights and/or obligations associated with HECM loans for primary borrowers and what happens to the non-borrowing occupant if the borrower dies (in terms of ownership and occupancy of the property).

Here’s a recent question that showed up in the comments section:

“Several years ago my father and I took out a Reverse Mortgage on our home. He had to be the primary borrower because of his age and I was and still am not 62. I am a co-owner of the house and my name is on the deed. I had to go through the counseling and I had to sign all papers that he signed. My question is when something happens to him will I still be able to live in the house under the same terms?”

Unfortunately this is a question we can’t answer for a simple reason–we don’t know the terms of the loan agreement. And on top of that, there may be different implications for spouses under HECM loans than for other borrowers, so the fact that the reader is a relative but not a spouse may also need additional legal consideration.

In cases where a co-borrower or co-owner has a question about rights, responsibilities, and the disposition of the property should the primary borrower die or become incapacitated, the first step should be to review the terms of the loan agreement.

Next, it’s good to have a discussion with the lender to clear up any questions or misunderstandings about the nature of the HECM loan.

Borrowers who still aren’t sure what the terms of their contract imply for them or co-occupants could also consider getting help from legal counsel with experience in real estate law, especially as it pertains to HECM loans/reverse mortgages.

Terms of the loan agreement, state law, and even changes in federal law (or existing federal guidelines) may all affect a HECM loan. You may also be subject to certain rules and regulations that were designed to take effect after a certain date or for FHA loan case numbers assigned after a certain date.

Do you work in residential real estate? You should know about the free tool offered by FHA.com, designed especially for real estate websites. It’s a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

Mortgage Rate Trends: Slightly Higher But Holding Within The Range

093On Friday, mortgage loan rates were generally found within the range of rates reported previously (see below). There was some upward movement on rates but in general 30-year fixed rate conventional mortgage loan interest rates are, best execution, between 3.875% and 4.0%.

As of Friday FHA mortgage rates were in their best execution comfort zone of 3.75% and as always borrowers may notice more variation among participating lenders than with conventional counterparts.

Best execution assumes ideal conditions such as outstanding FICO scores and other financial qualifications. The numbers reported here are not available to all borrowers or from all lenders. Your experience may vary.

There are some scheduled economic data releases due this week, so it’s possible we could see some alteration of rates within the range, but Friday’s employment data could be the real event to watch–it’s described by some industry professionals as the most important scheduled economic data release of the month, especially where wage inflation numbers are concerned.

Industry professionals seem to agree (based on our sources) that locking now if you are within 30 days of closing is something to seriously consider. As always, it’s best to get some advice from your lender and make the most informed choice possible. Floating is never without risk, though at times that risk may be decreased due to certain market forces or conditions.

Do you work in residential real estate? You should know about the free tool offered by FHA.com, designed especially for real estate websites. It’s a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

FHA Loan Rules In HUD 4000.1 And Past Mortgagee Letters From FHA/HUD

014When the new FHA single-family home loan policy hand book (HUD 4000.1) took effect, it became the official go-to reference for FHA single family new purchase loans and refinance loans.

That means that the old FHA loan rule books for single family transactions, including HUD 4155.1 and HUD 4155.2, became inactive as of the launch date for HUD 4000.1.

It also means that a large amount of previous FHA/HUD correspondence also became inactive. The FHA/HUD official site has an archive of all FHA mortgagee letters (ML for short, which feature policy changes, updates, modifications, etc.) but there are many of those that are now inactive, superseded by HUD 40001.

There is no way to list all the mortgagee letters, handbooks, and other items that have been made inactive, but the FHA official site has a handy page that features links to all the inactive documents.

You can find this page at:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/sfhsuperseded/mltrs_full

Unless specifically mentioned otherwise, all the items on that page are superseded in their entirety. Borrowers and lenders should refer to HUD 4000.1 for policy information for all single-family FHA mortgage loan transactions, and cross reference any new or still-active mortgagee letters that may be in effect.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

 

HUD 4000.1 Questions: FHA Loans For Homes In Flood Zones, Flood Insurance

2015-31With the publication of HUD 4000.1, the new Single Family Home Loan handbook, there have been plenty of changes, alterations, restatements of policy and other issues borrowers and lenders alike should be aware of.

We’re examining some of the most frequently asked questions about policies found in HUD 4000.1 to help borrowers and lenders know what current policy, as found in the new handbook, is on specific issues.

One of those issues has to do with flood insurance and flood zone determination. FHA loan rules have standards for new construction and existing construction homes; let’s examine what the rules in HUD 4000.1 say about flood insurance for existing construction.

According to the FHA official site, rules for flood insurance include the following requirement of the lender:

“The lender must determine if a property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The lender must obtain flood zone determination services, independent of any assessment made by the appraiser to cover the Life of the Loan Flood Certification. The Life of Loan Flood Certification must be obtained for all properties.”

Flood zone determination is the first step. FHA rules add:

“A property is not eligible for FHA insurance if:

–a residential building and related improvements to the property are located within SFHA Zone A, a Special Flood Zone Area , or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community;

or

–the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS).”

So having flood insurance is a moot point in those cases. But there’s more:

“When any portion of the residential improvements is determined to be located within an SFHA, flood insurance must be maintained for the life of the mortgage in an amount at least equal to the lesser of:

–the appraisers estimated replacement cost, less the appraisers estimated site value;
–the outstanding balance of the mortgage; or
–the maximum amount of the NFIP insurance available with respect to the property improvements”

We will cover similar requirements for new construction properties in another blog post.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.

It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today at http://www.fha.com/fha_loan_limits_widget

FHA Loan Applications and Repayment Issues

2015-18aWe get many questions from readers about FHA loans in our comments section. Some of those questions refer to specific credit issues such as the one that came in recently asking:

“My loan is currently processing. There is a problem with being 30 days late on my rent last year. Will this totally effect my changes of being approved???”

The answer to this question isn’t as simple as quoting a passage from the new FHA loan rulebook, HUD 4000.1. The answer depends greatly on the borrower’s other financial qualifications. FHA loan rules state that a one-time lapse is not necessarily enough to dismiss the applicant as a bad credit risk.

The lender will be looking for patterns that indicate whether the borrower has a reliable payment history on financial obligations. FICO scores and other qualifications will be examined to see what kind of overall pattern has been established by the borrower.

That said, most agree that it is highly recommended to come to the FHA loan process with no fewer than 12 months of on-time payments for all financial obligations. Anything less can hurt a borrower’s chances for loan approval, but compensating factors may be taken into account.

A borrower who doesn’t necessarily meet the ideal standards for a home loan may be able to offset his or her shortcomings with a larger down payment, substantial cash reserves or other factors the lender can take into account.

As you can see, the answer to this type of frequently asked question depends greatly on circumstances–it’s best to discuss your situation with a loan officer to see what may be possible in your situation.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.

It is quick and easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget

 

FHA Refinance Loan Rules: HUD 4000.1

2015-26The FHA Single Family Home Loan policy handbook, HUD 4000.1, contains a variety of changes, updates and other alterations to FHA loan policy. In many cases, FHA loan rules for new purchase loans and refinance loans may have stayed the same, in other cases there are slight (or more substantial) revisions to FHA policy.

One set of frequently asked questions about this new handbook and revised policy centers around FHA refinance loans. For example, one section of the new handbook that governs refinance loan transactions discusses what policy FHA has when the borrower’s name is on the title of the property but not listed on the mortgage secured by that property. Does the borrower qualify for an FHA refinance loan in such cases?

According to a Frequently Asked Questions list found on the FHA/HUD official site has the answer:

“FHA policy requires that at least one Borrower on the refinancing Mortgage must hold title to the Property being refinanced prior to case number assignment.”

“The borrower must meet the eligibility and occupancy requirements, and the property must meet the property eligibility requirements, and all other program specific requirements for the refinance type requested. Program specific refinance requirements can be located in 4000.1 II.A.8.d.”

One area where the new rule book is “silent” on the issue of whether a non-occupant co-borrower can be added to an FHA cash-out refinance loan transaction. In the frequently asked questions list, “Is this intentional?” comes up with regard to that issue as it appears to be a change from previous policy statements. FHA/HUD reply:

“The change is intentional. A non-occupant co-borrower may be added to a cash-out refinance; however Income from a non-occupant co-Borrower may not be used to qualify for a cash-out refinance.”

We’ll examine other questions from this and other sections of the FHA/HUD FAQ about the new rule book in future blog posts.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.

It is easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:http://www.fha.com/fha_loan_limits_widget