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

Monthly Archives: October 2015

HUD 4000.1 On FHA New Construction Loans

2015-23When you review your options for an FHA home loan, you’ll run across loan information about FHA mortgages for “existing construction” loans and “new construction” or “under construction” loans.

The requirements for new construction versus existing construction may differ due to a variety of reasons including the fact that the borrower can’t always take possession of a new or under construction home right away once the loan has closed. FHA loan rules for existing construction include appraisal requirements that may differ (procedurally) from new construction loans.

For these reasons, the FHA has specifically defined what constitutes a new, proposed, or under construction property versus one that is “existing construction”.

Existing construction is more or less a home that has already had an owner and has been in existence for a year or more. “Under construction” seems fairly obvious, but “new construction” properties are not so obvious.

Here is the FHA definition of “new construction” homes as found in HUD 4000.1:

“New Construction refers to Properties that are Proposed, Under Construction, or werecompleted within one year as defined below:

–Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing and placement of rebar is not considered permanent.

–Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.

–Existing for Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.”

As you can see, these are fairly specific definitions and the FHA loan rules (including appraisal requirements) appropriate for new construction would apply to the properties as described above.

New construction or proposed construction loans may not always be available from all lenders. It pays to shop around for the right type of FHA loan for your needs–talk to a loan officer to learn what options you might have for a new construction or under construction type FHA mortgage loan.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. Designed especially for real estate websites, this is a widget that displays FHA loan limits for the counties serviced by those websites. You will find iteasy 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

Preparing For An FHA Mortgage Loan

2015-08Applying for an FHA home loan doesn’t happen overnight–it takes time to plan, budget, examine your credit, and save money for the fees and expenses associated with an FHA mortgage.

If you’re new to the home buying process and don’t know where to start, a very good way to begin to to get an idea of how much home you can afford with your present income, debts and financial obligations. Do you want to know how much you can borrow, how much your payments might be? You can use an online calculator to estimate these dollar amounts.

Remember that the amount of the loan you might qualify for and the amount of mortgage payment you can actually afford may be two different things altogether, which is why many web-based tools include multiple calculators for specific purposes.

How much is your monthly mortgage payment? That depends on a variety of factors including your down payment, interest rates, the term of your loan and other factors. Using the online calculator is a very good way to see, in a general way, what to expect.

Another step in preparing for an FHA home loan is to anticipate fees and expenses associated with the home buying process. You may be required to pay for appraisals as well as compliance inspections should the appraisal turn up things that need to be corrected or repaired as a condition of the loan.

There may also be pest inspections, hazard insurance and other expenses to budget for, and borrowers should definitely set aside money for a separate home inspection, which is quite different than an appraisal.

The FHA loan down payment is another area borrowers will need to prepare for–the down payment is mandatory (a minimum of 3.5%) and other fees and expenses may not be used toward the down payment. Saving up for this expense is quite important, and all borrowers are required to document the sources of their down payment funds–you can’t use cash advances from credit cards, payday loans, or other “non-collateralized” types of loans to make your down payment.

Knowing these things in advance can be a big help in the planning process. Borrowers should expect to take at least 12 months to get ready for an FHA loan–any less and you might not be ready to apply.

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 sites. Its 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 Home Loans: How Mortgage Payments Are Calculated

2015-10aThe FHA loan rulebook for single-family home loans has a section instructing the lender, “For all transactions, except non-credit qualifying Streamline Refinances, the underwriter must calculate the Borrowers Total Mortgage Payment to Effective Income Ratio (PTI) and the Total Fixed Payment to Effective Income ratio, or DTI…”

This is required to help the lender determine whether the borrower can afford the new loan or not. And borrowers should know how the mortgage payment is calculated for the same reason. It’s easy to assume that your monthly mortgage payment will be the amount of your home loan divided but the term of the loan (plus any interest), but as you’ll see, it’s not quite that simple.

FHA loan rules in HUD 4000.1 spell out a list of things that must be included as part of the monthly mortgage loan payment calculation:

According to the rules, the total Mortgage Payment includes:

–principal and interest;
–real estate taxes;
–hazard insurance;
–flood insurance as applicable;
–mortgage Insurance Premium;
–HOA or condominium association fees or expenses;
–any applicable ground Rent;
–applicable special assessments;
—payments for any acceptable secondary financing; and
–any other escrow payments.

The insurance payments can be an important part of the calculation, especially if the borrower is applying for a home loan in a flood zone or other area that has a known hazard that requires additional insurance.

FHA loan rules add, “The Mortgagee may deduct the amount of the Mortgage Credit Certificate or Section 8 Homeownership Voucher if it is paid directly to the servicer.”

If you aren’t sure if some of the above apply to your home purchase, discuss the situation with your lender to get a better idea of what the bottom line might be when it comes to your actual monthly mortgage loan payment.

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 sites.

It is 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: Moving Higher Post-Fed

093The Fed announcement on Wednesday did not include a statement that interest rates would be raised, but mortgage loan rates pushed a bit higher yesterday regardless. There were indications from the Fed that December’s statement could include more specific information about a rate hike, and that served to put upward pressure on mortgage loan rates as investors reacted to those indications.

Not everything the Fed says and does is clear cut–sometimes the tone of the announcements can be enough when it comes to whether or not a rate hike might happen–when the Fed is down on the economy in general, that’s a good sign that a hike in rates is not forthcoming.

But when the Fed makes more positive statements, it can be interpreted as the foreshadowing of actions to come.

So with that in mind, 30-year fixed rate conventional mortgages moved out of their previously reported best-execution range of interest rates (3.75%-3.875%) and FHA mortgage rates remain in a comfort zone (for now) at 3.5%, best execution. If upward pressure persists next week, we could see FHA rates move into a range of best execution numbers with the current 3.5% at the low end.

Best execution rates are reported here, which means ideal conditions such as a borrower’s FICO scores and loan repayment history are assumed. Best execution rates are not available to all borrowers or from all lenders; your experience may vary and the availability of a participating lender willing to offer such rates may play an added role in your access to these interest rates.

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 sites. 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 Mortgage Loans: Second Appraisals

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FHA loan rules specifically prohibit ordering a second appraisal just because one party or the other is hoping for a different valuation of the home. HUD 4000.1 states the lender is, “prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required.” (FHA loan rules also add that the lender is permitted to order a second appraisal, “for Mortgages that are in accordance with requirements on Property Flipping”.)

But when is a second appraisal permitted?

HUD 4000.1 says that the original mortgagee or lender is allowed to order a second appraisal, “if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency.”

The lender would be required to fully document the deficiency and status of the appraisal, and it’s the lender’s responsibility to pay for the new appraisal, not the borrower.

What’s considered a deficiency? According to FHA loan rules:

“Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability. Material deficiencies include, but are not limited to:

–failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;

–reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and

–fraudulent statements or conclusions when the Appraiser had reason to know or should have known that such statements or conclusions compromise the integrity, accuracy and/or thoroughness of the appraisal submitted to the client.”

A second appraisal may also be ordered by a second mortgagee. In such cases, the following applies from HUD 4000.1 Section II Part A:

A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:

–the first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;

–the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or

–the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.”

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 sites.

It is 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: Sideways to Slightly Better Pre-Fed

093Wednesday is potentially a big day for mortgage rates–there’s an FOMC announcement today that could influence mortgage loan rates depending on the contents of that announcement and investor reaction to it.

The Fed has been debating a hike in interest rates once the economy is deemed in the right position to accept the hike. Any talk of raising rates has in the earlier times put investors in a mood to react in ways that put upward pressure on mortgage rates.

That said, some feel there’s no rate hike coming–at least not today. According to a Marketwatch.com piece this morning by columnist Frank Gold, “Almost no one is looking for the Federal Open Market Committee (FOMC) to raise short-term interest rates when it ends its October meeting on Wednesday.And few expect the Federal Reserves rate-setting board to hike at its December meeting, either.”

The advice for borrowers looking to lock or float on mortgage loan interest rates has been mixed–some industry pros are urging borrowers to lock ahead of the Fed announcement, saying the potential for increased rates is high enough even though there’s no real expectation of a raised rates announcements. Sometimes volatility happens no matter what the Fed says, and breaking news or other events can also influence rates apart from such scheduled economic data releases.

Floating is never without a degree of risk, so borrowers should keep that in mind–always ask advice of your loan officer and make the most informed decision you can whether to lock or float.

30-year fixed rate conventional mortgages were reported yesterday at the rates we’ve been seeing–between 3.75% and 3.875% best execution, with FHA mortgage loan rates also holding at 3.5% best execution. The rates here are “best execution” and your FICO scores and loan repayment history (as well as other financial qualifications) will determine your access to these rates. These best execution rates are not available from all lenders or to all loan applicants–your experience may vary.

Do you work in residential real estate? You should know about the free tool offered by FHA.com. Its 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

 

FHA Mortgage Loans: Late Charges

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What happens if a borrower misses the deadline for his or her FHA mortgage loan payments? While it’s true that no borrower goes into a home loan planning to have missed or late payments, knowing what happens when the payment is late or missed can be a big help–taking the mystery out of these issues is important, especially for new borrowers.

FHA loan rules for late payments are found in HUD 4000.1 Part Three Section A. There, you’ll find a section titled “Late Charges” which begins by defining what the FHA views as a late payment:

“Late Charges are charges assessed if a Mortgage Payment is received more than 15 Daysafter the due date.”

Furthermore, FHA loan rules in this section state, “The Mortgagee may consider a Borrowers payment late if the payment is received by the Mortgagee more than 15 Days after the due date.”

The lender is permitted to begin assessing late charges on the 17th day of the month of the late payment. However, the timing of your loan may play an important part in late charge amounts:

“For Mortgages assigned a case number on or after March 14, 2016, the Mortgagee may assess a Late Charge, not to exceed 4 percent of the overdue payment of Principal and Interest (P&I) and in accordance with applicable law.”

“For Mortgages assigned a case number before March 14, 2016, the Mortgagee may assess a Late Charge calculated based on overdue PITI if permitted under the terms of the mortgage Note and under applicable law.”

What is the lender’s responsibility when it comes to notifying the borrower? Before collecting a late, fee the lender is obliged by FHA loan rules to notify the borrower with “advance written notice” of the late fee:

“The Mortgagee must include in the advance notice the following information:

–the due date of the payment;
–the amount of the regular monthly payment;
–the date on which the Late Charge will be imposed; and
–the amount of the Late Charge (or the full amount now due which consists of the regular monthly payment plus the Late Charge amount).”

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 is 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 Mandatory Counseling

 

2015-27FHA HECM loans–home equity conversion mortgages, sometimes known as “reverse mortgages”–come with a requirement for all borrowers to be obligated on the FHA HECM to go through HECM loan counseling.

This is not a requirement for other types of FHA mortgages, which leads some to wonder why FHA HECMs have this feature. Why do the borrowers have to complete FHA required counseling sessions as a condition of the loan?

There are many reasons. Since HECM loans feature no monthly payments, cash back to the borrower, and specific requirements for that cash back, counseling is necessary for the applicants to know exactly what they can and cannot get with their HECM loans.

This FHA loan program has changed a great deal in the last two years, and the terms and conditions vary depending on whether the borrower has opted for a fixed interest rate HECM loan or an adjustable rate HECM.

But there’s another extremely important aspect of the required counseling–the borrower’s responsibilities under the loan to prevent it from becoming due and payable because of violations of those terms.

HECM borrowers have an occupancy requirement, for example. Violating the occupancy rules could bring the loan due in full. Failure to use the home as the primary residence may be considered such a violation, and borrowers are expected to know the specific terms of occupancy for their HECM loan.

Failure to stay current on property taxes is another way a HECM loan could be declared due in full–borrowers must stay current on all such financial obligations in order to remain in good standing with their HECM loans.

These are just some of the examples of the things a HECM loan applicant will learn through the required counseling, but definitely not all of what will be explained. Speak to a loan officer to learn more about this mandatory counseling and how FHA HECM loans are unique compared to other loan products.

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 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 Loan Rules For Appraisals Under HUD 4000.1

2015-17When the FHA and HUD published the new single family home loan rules found in HUD 4000.1, the agencies did not provide a list of every single rule or portion of the rules affected by changes in HUD 4000.1. HUD specifically stated at publication time that it’s the lender’s responsibility to be familiar with the rules as they are today.

We’ve been discussing the new rules with that notion in mind. One important area of the new rulebook that’s important to be familiar with? FHA appraisal requirements, which go beyond minimum property standards and other rules. FHA loan rules spell out what is expected of the lender during the appraisal process, starting with this statement found in Section II Part A under “Loan Origination and Processing”:

“The Mortgagee must order a new appraisal for each Mortgage or refinance case number assignment and may not reuse an appraisal that was performed under another case number, even if the prior appraisal is not yet more than 120 Days old.”

Furthermore, the lender is held responsible for, “identifying any problems or potential problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes.”

How does the lender select the appraiser? According to HUD 4000.1, “The Mortgagee must order an appraisal from an Appraiser who is listed on the FHA Appraiser Roster and is qualified and knowledgeable in the specific market area in which the Property is located. The Mortgagee must evaluate the Appraisers education, training and actual field experience to determine whether the Appraiser has sufficient qualifications to perform the appraisal before assignment.”

The lender is permitted to use a third party such as an appraisal management company, but is required to maintain certain standards and observe rules such as the following:

“The Mortgagee may not pay the AMC and other third-party contractors fees in excess of what is customary and reasonable for such services in the market area where the Property being appraised is located. Any management fees must be for actual services related to the ordering process, or review of appraisal for FHA financing.”

What’s more, FHA loan rules require the lender to insure that, “it does not compromise the Appraisers independence.”

“The Mortgagee may not allow the Appraiser to be selected, retained, managed, or compensated by a mortgage broker or any member of a Mortgagees staff who is compensated on a commission basis tied to the successful completion of a Mortgage or who is not independent of the Mortgagees mortgage production staff or processes.”

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 sites.

It is 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: Lower, Then Slightly Higher

093On Thursday, mortgage loan rates went to lows we haven’t seen in several months, but Friday brought with it slightly higher rates. Even so, best execution rates for 30-year fixed rate mortgages is still being reported in a range between 3.75% and 3.875.

FHA mortgage rates are being reported, best execution, at their previously mentioned 3.5%. These “best execution” rates are not available to all borrowers or from all lenders. Your access to these rates depends on your FICO scores, loan payment history and other financial qualifications. Your experience may vary.

The end of the week saw some market volatility, and there are questions going into the new week about the Fed and global economic issues. Many industry professionals are using the word “lock” when discussion mortgage rate commitments–some believe holding off on a commitment to a mortgage rate agreement with a lender in the short term (known as “floating”) could be riskier at the moment than it has been in weeks past.

Floating and locking are choices the borrower should make with an informed opinion–it’s best to ask advice of your lender before choosing to float. Floating is never risk-free, but some situations may carry a reduced amount of risk.

Some industry pros feel that rates are good enough now that locking is a good idea–especially in light of the volatility possible at present. Floating may or may not pay off in the short term, but only the borrower can make that call.

Some feel there is equal potential for rates to move higher or lower, so if you are within 15-30 days of loan closing and still don’t have a rate lock, that’s something to ponder.

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 is 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