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

Monthly Archives: December 2015

Apply For An FHA Loan In 2016

2015-11aIf you are considering any type of home loan in 2016, be sure to explore your options with FHA mortgages, refinancing, or reverse mortgages. FHA loans offer a variety of advantages over conventional mortgages including lower interest rates (based on your financial qualifications), built-in protections for the buyer, and more.

FHA New Purchase Loans

There are many options with an FHA mortgage for single-family homes. New purchase loans include the option to add extra funds to the loan for energy-efficient upgrades or improvements. You can also consider purchasing a fixer-upper using an FHA rehab loan where funds are made available to repair/upgrade the property to FHA minimum standards.

The loans mentioned above are intended for owner-occupied residences and would be not be available for investment properties. An FHA new purchase loan or rehab loan has an occupancy requirement of one year minimum.

FHA Refinance Loans

Some borrowers have existing mortgages they’d like to refinance. The FHA single family loan program has refinance options that include cash-out/no-cash-out for non-FHA and existing FHA loans alike. For those who have existing FHA mortgages, there is also a Streamline Refinance option that features no FHA-required appraisal or credit check. (The lender may require one anyway, but the FHA does not insist.)

These refinance loans also allow the borrower to apply for extra funds for energy efficient upgrades/improvements. This add-on is known as an FHA Energy Efficient Mortgage option.

FHA Reverse Mortgages

Borrowers who own their homes outright (or are very close to doing so), are aged 62 or older, and are financially qualified may apply for an FHA reverse mortgage, known as a Home Equity Conversion Mortgage. Reverse mortgages feature no monthly payment, and a cash disbursement to the borrower (the amount of which depends on the type of HECM you apply for, the interest rate, and other factors).

FHA HECM loans require mandatory counseling for all applicants to be obligated on the loan–there are unique conditions and requirements for HECM loans all borrowers should fully understand before signing paperwork.

For example, there is an occupancy requirement, all property taxes must be paid on time as a condition of the loan, and the home must be maintained in good condition. Your lender will discuss these counseling requirements with you in the application process.

FHA home loans offer many options for borrowers looking to buy or refinance. Explore your options in the new year and get started on the journey toward your new loan.

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
 

FHA Loan Rules In HUD 4000.1 On Closing Costs, Discount Points

2015-27FHA loan rules in HUD 4000.1 include some instructions to the lender about closing costs, discount points, down payment funds, and much more.

Can a borrower use closing costs as part of his or her down payment? What does the FHA rulebook say about interest rate lock-in fees? There are many rules and regulations–borrowers and lenders alike should be familiar with the guidelines.

For example, when it comes to the down payment question, FHA loan rules are clear that the down payment money is a separate and distinct thing from closing costs. Specifically, HUD 4000.1 states:

“The Mortgagee is not permitted to use closing costs to help the Borrower meet the Minimum Required Investment (MRI).”

So that means an FHA borrower will need to budget for both closing costs and the down payment. Certain fees and expenses–those charged for services rendered–may not be inflated in the closing cost calculations. Only the specific expense for the service (such as appraisal fees, credit report fees, etc.) may be charged to the borrower:

“The Mortgagee may charge the Borrower reasonable and customary fees that do not exceed the actual cost of the service provided. The Mortgagee must ensure that the aggregate charges do not violate FHAs Tiered Pricing rules.”

FHA loan rules do permit the lender to charge an “origination fee”, a fee for discount points, and a fee to lock in a mortgage loan interest rate. There is a rule for lenders associated with the interest rate lock:

“The Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing.”

Discount point fees, mortgage rate lock-ins and other expenses may vary from lender to lender, and depending on the transaction, from loan to loan. Your expenses on one mortgage loan product may differ from a newer transaction. FHA loan rules don’t put dollar amount caps on origination fees, appraisal fees, etc. Nor does the FHA set or regulate these expenses—your experience may vary.

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

FHA Loans and Escrow Accounts

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In cases where an FHA home loan transaction requires an escrow account, HUD 4000.1 has a specific list of rules and regulations that govern them.

There are times where there may be no FHA-required escrow but the lender’s standards do require it. Other times FHA loan rules may demand an escrow account due to the nature of the loan transaction, such as rehab loans where the borrower is accomplishing the labor of the repairs or improvements.

What does HUD 4000.1 say about escrow accounts?

In general when escrow is used, we learn the following: “The Mortgagee must collect a monthly amount from the Borrower that will enable it to pay all escrow obligations in accordance with 24 CFR 203.23. The escrow account must be sufficient to meet the following obligations when they become due:

–hazard insurance premiums;
–real estate taxes;
–Mortgage Insurance Premiums (MIP);
–special assessments;
–flood insurance premiums if applicable;
–Ground Rents if applicable;
–any item that would create liens on the Property positioned ahead of the FHA-insured Mortgage, other than condominium or Homeowners Association (HOA) fees.”

For repair completion, escrow rules include these guidelines:

“The Mortgagee may establish a repair escrow for incomplete construction, or for alterations and repairs that cannot be completed prior to loan closing, provided the housing is habitable and safe for occupancy at the time of loan closing. Repair escrow funds must be sufficient to cover the cost of the repairs or improvements. The cost for Borrower labor may not be included in the repair escrow account.”

The lender is required to use form HUD-92300, the “Mortgagees Assurance of Completion”, to document that the repair escrow has been set up. Once the work is complete, the lender must use another form, HUD-92051, “Compliance Inspection Report”, to record that incomplete construction, alterations and repairs are finished.

There are also rules for setting up escrow for temporary interest rate buydowns. HUD 4000.1 says:

“The escrow agreement must not:
–permit reversion of undistributed escrow funds to the provider if the Property is sold or the Mortgage is prepaid in full;

–nor allow unexpended escrow funds to be provided to the Borrower in cash, unless the Borrower funds were used to establish the escrow account.”

Payments must be made by the escrow agent, “to the Mortgagee or servicing agent” according to HUD 4000.1, which adds, “If escrow payments are not received for any reason, the Borrower is responsible for making the total payment as described in the mortgage Note.”

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

FHA Appraisal Fees, Appraiser Integrity Rules In HUD 4000.1

085The FHA appraisal process is very important–it helps establish the fair market value of the home and insures that the home meets minimum standards. Just because a home passes the FHA appraisal process does not mean it is defect-free. It’s the borrower’s responsibility is to hire an independent home inspector for verification of the home’s condition in a more complete way than the appraisal.

FHA loan rules published in HUD 4000.1 establish some guidelines and ground rules for appraisals, lenders, and others who might be in the home loan “food chain”. Did you know that the FHA does NOT set appraisal fees? That’s just one important aspect of the rules for this process found in HUD 4000.1.

“The Appraiser and the Mortgagee or Mortgagee-designated third party will negotiate the appraisal fees and due date. FHA does not establish appraisal fees or due dates.”

When it comes to appraiser integrity, FHA loan rules have certain requirements to keep the lender (or other interested parties) and appraiser from running into conflicts of interest. From HUD 4000.1:

“An FHA Roster Appraiser must avoid conflicts of interest and the appearance of conflicts of interest. To avoid conflicts or the appearance of conflicts:

–no member of a Mortgagees loan production staff or any person who is compensated on a commission based upon the successful completion of a loan; or

–anyone who reports ultimately to any officer of the Mortgagee not independent of the loan production staff and process;

shall have substantive communications with an Appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.”

Furthermore, HUD 4000.1 adds that the FHA appraiser is bound by “…the confidentiality provisions of the USPAP and may not discuss the value or conclusions of the appraisal with anyone other than the Direct Endorsement (DE) underwriter or FHA staff or their representatives.”

FHA rules add that an FHA Appraiser may discuss components of the appraisal, “that influence its quality and value with the DE underwriter who has responsibility for underwriting the case” and that the FHA appraiser is permitted to have contact with “…real estate agents and others, during the normal course of business, to provide property access, information and other market data.”

In cases where an appraiser feels that there’s an attempt to unduly influence his or her work, FHA loan rules make a provision for reporting such activities. “The Appraiser must report attempts to influence independence to answers@hud.gov or by calling1-800-Call FHA.”

“…In addition, the appraiser must report the attempts to HUD OIG Hotline. Mortgagees, Appraisal Management Companies (AMC) and third parties are prohibited from influencing the independence of the Appraiser” or the valuation process. Some of the prohibited activities mentioned in HUD 4000.1 that could unduly influence the appraisal process include but are not limited to:

–withholding or threatening to withhold timely payment or partial payment for an appraisal report;
–withholding or threatening to withhold future business from an Appraiser, or demoting, terminating or threatening to demote or terminate an Appraiser;
–making expressed or implied promises of future business, promotions or increased compensation for an Appraiser

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

FHA Appraisals And The Cost Of Appraiser-Directed Repairs

099When it’s time for the FHA appraisal to happen, a borrower may be understandably nervous about the outcome of the appraisal. What happens if the appraiser finds areas that must be corrected or repaired?

In many cases those corrections or repairs are directed as a condition of loan approval. In some instances (which would be handled on a case-by-case basis) the repairs may also require a compliance inspection which the borrower would have to pay for.

When repairs or corrections are required, can the borrower request that the cost of making those repairs be added to the home loan?

According to HUD 4000.1, “A Mortgagee may add repair costs to the sales price before calculating the mortgage amount if:

–the repairs are required by the Appraiser to meet HUDs Minimum Property Requirements;
–the repairs are paid for by the Borrower; and
–the sales contract or addendum identifies the Borrower as the party responsible for payment and completion of the repairs.”

Furthermore, FHA loan rules establish a procedure for calculating these expenses and adding them to the loan amount where appropriate:

“The maximum amount of repair costs that may be added to the sales price is the lesser of:

–the amount by which the value of the Property exceeds the sales price;
–the Appraisers estimate of repairs; or
–the amount of the contractors bid.”

Adding these expenses to your home loan amount can change the amount of your monthly mortgage payments in some cases, depending on the expense involved. It is always best to have a conversation with your lender about such increases to the loan amount to see how they might affect your payments.

The same thing is true of FHA Energy Efficient Mortgage loan increases–if you use this add-on to your FHA home loan or refinance loan the amount of your mortgage payment will be affected. It’s always best to do the math either at home or with your lender to see how your payments could change and whether that’s an increase you’re willing to accept.

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: Holiday Calm

093Mortgage loan rates are being reported in “holiday mode” at present, so while there was some very minor adjustments for the better in rates, we’re not likely to see much in the way of dramatic movement this week barring some form of breaking news that causes a significant investor reaction.

As we move from one short week to another before the new year, there is lighter activity in the financial sector, things slow down, and investor behavior tends to reflect this winding-down time, so it’s no surprise that the word “float” is being used a lot when it comes to advising borrowers on getting a mortgage rate lock or not this week.

Many industry pros feel floating carries a smaller degree of risk than it did previously due to the holiday season’s slower pace–floating is never risk-free, but right now there does not seem to be as much danger as there was only a couple of weeks ago before the Fed announcement about interest rates.

At the time of this writing, 30-year fixed rate conventional mortgages were reported at between 4.0% and 4.25% best execution. FHA mortgage rates are still in a best execution comfort zone of 3.75% though you may find greater variation among lenders.

These are the best execution rates published at the end of the trading day on Monday, but we’re not likely to see much change until the start of the new year when scheduled economic data releases and other factors resume.

As mentioned above, breaking news is always possible but without that “x-factor” borrowers may feel more confident to float this week. Always ask the advice of your lender before committing to a lock or float, and make the most informed choice possible.

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

 

Planning For An FHA Refinance In 2016?

2015-34Are you considering refinancing your home in 2016? There are several things you’ll want to consider planning, budgeting, or saving for in the new year. Having plans to examine these important issues connected to an FHA refinance loan can help you get organized and stay organized in the new year. Those issues include deciding on the type of loan, purchasing discount points, and the possibility of applying for extra funds to make energy efficient improvements in the home.

For starters, it’s good to consider the type of refinancing you are interested in. Do you want lower payments and/or interest rates? Consider a Streamline FHA Refinance loan. Streamline refinances don’t have an FHA-required credit check or appraisal (though your lender is free to require one or both).

For non-credit qualifying and/or no-appraisal FHA Streamlines, the borrower won’t have to budget for the appraisal or credit check unless the lender’s policies require them. Streamline refinances allow the lender to use the same credit qualifying data submitted with your original mortgage loan.

One thing borrowers should keep in mind about FHA Streamline loans–this refi option is only for borrowers with existing FHA mortgages, so if you have a conventional loan or any other type of non-FHA mortgage, you’ll need to consider FHA cash-out or no-cash-out refinancing instead.

And what about those borrowers who aren’t currently paying on FHA mortgages? Did you know that you can refinance out of your conventional, VA or other non-FHA mortgage into an FHA home loan?

These types of refinance loans require a credit check and a new appraisal so you will need to prepare for both. FHA refinancing for cash and non-cash out loans permit the borrower to purchase discount points that can lower your interest rate based on the agreement you make with the lender. Talk to your loan officer about discount points and how they work.

Refinance loans that require an appraisal can include rehab mortgages such as the FHA 203(k). In these cases, an appraisal may require the repairs or corrections to be implemented with the rehab loan to be inspected for compliance with FHA minimum standards and/or state or local building code. Any compliance inspections would be paid for by the borrower, so it’s good to have a discussion with your loan officer about how this process works and what might be typical in terms of costs for the inspection.

A refinance loan for rehab could require you to supply additional information if you are making repairs-especially if you are doing the work yourself. Be ready to have a conversation with your lender about any additional paperwork or documentation that may be needed in such cases.

Most FHA refinance loans may be eligible to add extra funds to make energy efficient improvements or upgrades in the home, even if the refinance loan isn’t technically a rehab loan. Talk to your lender about the FHA Energy Efficient Mortgage program and how it may apply to the refinance loan you seek.

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

 

HUD Announces Settlement With Real Estate Agency Charged With Fair Housing Act Violations

001Often when a violation of the Fair Housing Act occurs, it’s up to the victim to report the incident in order for the situation to be fixed. Those who fail to report such violations may not only cheat themselves out of a fair deal, but also allow such violations to continue to occur.

Consider a recent settlement by HUD, which recently approved a pair of “Conciliation Agreements” with Delap Realty, LLC, of Northampton, Massachusetts, resolving allegations mentioned in an FHA/HUD press release that, “…the company and its agents violated the Fair Housing Act by discouraging families with children from renting over concerns the units might contain lead-based paint hazards.”

Under the Fair Housing Act, it is illegal to deny or limit housing because a family has children. It’s also not legal to, in the words of the press release, “make statements that discriminate against families with children. Housing may exclude children only if it meets the Fair Housing Acts exemption for housing for older persons” says HUDNo15-160, a press release issued just before the December holiday break.

Families with children have a right to the same housing choices as other families, said Gustavo Velasquez, HUDs Assistant Secretary for Fair Housing and Equal Opportunity. We are pleased that these agreements will help more families to be informed about the Fair Housing Act and their right to live in a healthy home.

The press release says the recent settlement agreements are, “the result of complaints filed with the Department by the Housing Discrimination Project, Inc., a HUD Fair Housing Initiatives Program agency, alleging that when prospective renters responded to online ads placed by Delap, its agents discouraged families with children from applying.”

In this particular case, a watchdog agency was able to report the illegal conduct and get it stopped. But that’s not possible in every case–sometimes the victim of the discrimination is the only one capable of revealing it and getting a review started. As the press release states, anyone who feels they have been discriminated against in the housing process should contact the HUD Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY).

You can also file housing discrimination complaints online: www.hud.gov/fairhousing.

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

Happy Holidays!

091No matter what tradition you celebrate, or if you choose not to celebrate at all, we hope today is a safe, fun December 25th for everyone. We pause our usual coverage of FHA home loan issues, answering reader questions, and observing mortgage loan trends to spend time with family and friends. Our usual posting schedule resumes on Monday.

Happy holidays!

FHA Appraisal Standards: “Ordinary” Home Purchases Versus Fixer-Uppers

095One good question that comes our way in the comments section from time to time involves the difference between an ordinary new home purchase loan or FHA mortgage and the purchase of a fixer-upper with an FHA rehab loan. If appraisal standards for FHA loans include minimum property requirements, how can a fixer-upper be purchased with an FHA mortgage?

After all, the nature of a fixer-upper loan is that you take a property that is in need of rehab or repairs and bring it up to standards. How can a fixer upper pass an FHA appraisal?

Fortunately, this issue is addressed in HUD 4000.1, which includes the following:

“As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes HUDs Minimum Property Requirements (MPR) and Minimum Property Standards (MPS). Minimum Property Requirements refer to general requirements that all homes insured by FHA be safe, sound, and secure.”

Furthermore, “When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUDs Property Acceptability Criteria, together with the estimated cost to cure.”

If the FHA Appraiser is unable to determine, “that a Property meets HUDs MPR or MPS, the Mortgagee may obtain an inspection from a qualified Entity to make the determination. Mortgagees must use professional judgment in determining when inspections are necessary to determine that a property meets MPR or MPS.”

But when it comes to property purchased or refinanced with a HUD 203(k) rehab loan, FHA loan rules have the following provision:

“If the Mortgage is to be insured under the 203(k) program, the Mortgagee must confirm that the Property will comply with the…eligibility criteria upon completion of repairs and improvements.”

So the borrower would not be required to have said repairs completed before loan closing time, but will be required to work with the lender to establish a completion date and insure the property meets FHA loan minimum standards at that time.

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