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

Monthly Archives: January 2016

FHA Mortgage Loan Limits For New Purchase Loans And Refinance Loans

2015-14We’ve gotten some questions recently about FHA mortgage loan amounts, so it seemed like a good time to post the FHA loan rules found in HUD 4000.1 about how maximum loan amounts are calculated.

There are FHA loan guaranty limits and FHA mortgage loan amounts–the two shouldn’t be confused as FHA mortgage loan guaranty limits refer to the amount of money the FHA will guarantee for the loan, whereas the maximum loan amount is the highest amount for a specific transaction that the lender/FHA loan rules will allow. FHA loan rules say the maximum can be affected by the type of transaction.

You can find the FHA maximum guaranty amounts for your housing market at the FHA official site: https://entp.hud.gov/idapp/html/hicostlook.cfm.

HUD 4000.1 says of maximum loan amounts:

“A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios vary depending upon the type of Borrower, type of transaction (purchase or refinance), program type, and stage of construction. Under most programs, the maximum Mortgage is the lesser of the Nationwide Mortgage Limit for the area, or a percentage of the Adjusted Value.”

For new purchase loans the adjusted value is defined by the lesser amount of:
–purchase price less any inducements to purchase; or
–the Property Value.

For refinance loans the adjusted value is the lesser amount of the following based on the nature of the transaction:

For Properties acquired by the Borrower within 12 months of the case number assignment date, the Adjusted Value is the lesser of:
–the Borrowers purchase price, plus any documented improvements made subsequent to the purchase; or
–the Property Value.

Properties acquired by the Borrower within 12 months of case number assignment by inheritance or through a gift from a Family Member may utilize the calculation of Adjusted Value for properties purchased 12 months or greater.

For properties acquired by the Borrower greater than or equal to 12 months prior to the case number assignment date, the Adjusted Value is the Property Value.

These loan amounts can be affected by add-ons to the loan such as the FHA Energy Efficient Mortgage, financing of discount points, etc.

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 Announces New Insurance Rate Cuts For Multi-Family Loans

2015-33The FHA has issued a press release announcing an insurance rate cut for FHA insured multi-family home loans. According to HUDNo.16-008, “In an effort to help preserve and increase the amount of affordable, quality rental housing across the country, the Federal Housing Administration (FHA) today announced a multifamily insurance rate reduction designed to encourage capital financing of affordable and energy-efficient apartments.”

The rate reductions announced in the press release are scheduled to take effect on April 1, 2016, and according to the FHA officials site, “directly impact FHAs Multifamily Housing Programs and properties housing low- and moderate-income families and/or developments installing energy-efficient systems or building within federal energy guidelines.”

The press release also adds, “U.S. Housing and Urban Development (HUD) Secretary Julin Castro made the announcement today during a visit to an affordable housing complex in Columbus, Ohio.” According to the press release, multifamily insurance rate reductions could lead to or at least encourage the rehabilitation of an additional 12,000 units of affordable housing per year nationally.

Families across the country are struggling through an affordable housing crisis, said Secretary Castro, who was quoted in the press release. He adds, By reducing our rates, this Administration is taking a significant step to encourage the preservation and development of affordable and energy efficient housing in communities large and small. This way, hard-working families wont have to make the false choice between quality or affordable housing.

The usual scope of this blog is to discuss FHA single-family home loans, but this press release is important for two reasons; one is the encouragement of the FHA for more affordable housing across the U.S. but the other is that it’s important to make the distinction between single-family home loans and multi-family loans. The information in the press release quoted here does NOT affect FHA single-family mortgages.

Borrowers who hear of a mortgage insurance rate reduction should ask whether that reduction pertains to single-family loans or multi-family FHA home loans, which are quite different than the kind of loan a typical house hunter needs to purchase a single-family residence. Should FHA make a similar announcement for single-family home loans, we will report it here.

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 Questions: Maximum FHA Loan Amounts For Building A Home

052A reader asked us a question recently in the comments section about FHA new construction loans: “My husband and I will be building a home, we have land that we are interested in, what is the max for a construction loan and build that FHA gives?”

To be clear, the FHA itself does not issue loans–the borrower must find a participating FHA lender willing to offer a new construction loan. When it comes time to determine the maximum loan amount for new construction mortgages, the FHA loan rulebook has specific instructions for the loan officer.

How does the FHA instruct lenders to determine the maximum mortgage amount in these cases? According to HUD 4000.1:

“The maximum mortgage amount is calculated using the appropriate purchase Loan-to- Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.” The LTV percentage means that the borrower is responsible for making a minimum down payment of 3.5%–that amount could be higher depending on the borrower’s credit score and/or other factors.

What does the documented Acquisition Cost include? According to HUD 4000.1:

“The documented Acquisition Cost of the Property includes:
–the builders price to build;
–Borrower-paid extras over and above the contract specifications and/or out-of-pocket expenses not included in the builders price to build;
–cost of the land if already owned, or with an acceptable gift documentation, the appraised value of the land may be used instead of the cost; and
–closing costs associated with any interim financing of the land.”

Furthermore, “If the land is being purchased from the builder, the cost must be included in the builders price to build. If the Property being constructed is Manufactured Housing, the builders price to build shall include the sum of the cost of the unit(s) and all on-site installation costs.”

As with any other FHA mortgage loan, the lender is required to fully document and approve all sources of down payment funds for a new construction loan. An escrow account may be required and there are other factors that may apply for a new construction loan that other types of FHA mortgage loans don’t require. Speak to your loan officer about the details of a new construction loan and that financial institution’s rules for this type of home 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

Mortgage Rate Trends: Holding Firm After Fed

2015-02Wednesday was a potentially big day for mortgage loan rates–the Fed issued a scheduled announcement that had plenty of eyes on it even though it would seem unlikely for any major news to come from that direction since the Fed announced a hike in mortgage rates at the end of last year.

But investor reaction is a funny thing, so there was plenty of attention on the Fed, seemingly “just in case”. Rates were trending a bit higher in the morning according to our sources, but after the Fed announcement we saw rates headed right back to yesterday’s territory.

That means 30-year fixed rate conventional mortgages ended the day, best execution, at a range between 3.75% and 3.875%. FHA mortgage loan rates remain in the best execution comfort zone of 3.5%. Best execution rates are not available to all borrowers or from all lenders–your experience may vary depending on your financial qualifications, FICO scores, etc.

Lock/float advice at this point in time? Advice on locking seems to be sound–some industry professionals say there’s nothing wrong with committing to a mortgage rate when rates are at lows we haven’t seen in some time–with conventional rates below four percent, holding out for an even better rate seems to be quite optimistic in a time where volatility could be a factor that pushes rates higher unexpectedly depending on breaking news, world events, etc.

Floating is never without a degree of risk–if you choose to hold out for a better rate in the short term, be sure to discuss that decision with your lender to see what he or she might say based on the benefit of experience with the ups and downs of the market.

Global market woes, oil prices, and the investor reaction to news about those issues can and may play a role in which direction rates head…and there’s always domestic economic data to push things one way or the other also. Discuss locking or floating with your lender to see which option makes more sense at present.

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 Condo Loans: Finding a Condo Project On The Approved List

2015-24

FHA mortgage loans aren’t just for suburban homes. You can use an FHA mortgage to buy a manufactured home, a townhouse, or a condominium unit. When it comes to FHA condo loans, there are some additional rules and requirements in place to protect the borrower and to insure the condo units purchased with FHA mortgages don’t place restrictions on the borrower in terms of occupying or selling the property.

That is one reason why the FHA requires all loans for condos to be for units found in projects on an FHA approval list. If a condo project is on the list already, the sale can go through just like any other type of FHA mortgage. But if the condo project is not on the FHA approved list, it must be reviewed and added–if appropriate–to that list by the lender.

Some borrowers will look for a condo unit to buy and then see if the project is on the approved list. Others may not wish to take the time to look at units in projects not yet added to the approved list.

Is there a way for potential buyers to search a central database of FHA approved condo projects and look only at those currently approved?

Yes–there is a page on the FHA/HUD official site that allows you to search the FHA database of approved projects. You can search by city, state, zip code, condo project name or even the condo project ID number if you have it.

You can find this search tool athttps://entp.hud.gov/idapp/html/condlook.cfm.

The fine print on the FHA website states that the condo units/projects you find by using this search tool are NOT for sale by the FHA itself–these are simply the projects that are on the approved list.

If you need further assistance with determining whether a local condo project is approved or not, you may need to speak with a loan officer to discuss your needs or whether the project you are interested in is still on the list depending on circumstances.

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 203(k) Rehab Loans: A Reader Question

2015-23Recently a reader asked us a question in the comments section about using FHA loans to purchase property to be converted into a residence. “There is an old church for sale near us that we would love to buy and make into a home. Can this be done using an FHA loan? We plan on only using it for residential use. Its been hard to find a home that we love and that falls into FHA standards.”

The answer to this question depends greatly on whether or not the property to be purchased is, in the eyes of the FHA, a one-to-four unit property. FHA loans include something known as a 203(k) Rehabilitation loan, which can be used to rehab, refurbish or repair an existing property.

According to HUD 4000.1, the purpose of an FHA 203(k) loan is as follows:

“The Section 203(k) Rehabilitation Mortgage Insurance is used to:

–rehabilitate an existing one- to four-unit Structure, which will be used primarily for residential purposes;
–rehabilitate such a Structure and refinance the outstanding indebtedness on the Structure and the Real Property on which the Structure is located; or
–purchase and rehabilitate the Structure and purchase the Real Property on which the Structure is located.”

Should the property in question be approved for an FHA 203(k) Rehab loan, there are two basic options available to the borrower. According to HUD 4000.1 there is a “Standard” 203(k):

“The Standard 203(k) Mortgage may be used for remodeling and repairs. There is a minimum repair cost of $5,000 and the use of a 203(k) Consultant is required.”

This is also a “Limited” 203(k):

“The Limited 203(k) may only be used for minor remodeling and non-structural repairs. The Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant may be used. The total rehabilitation cost must not exceed $35,000. There is no minimum rehabilitation cost.”

With respect to the readers specific question about the type of property that could be purchased/rehabbed with this type of loan, HUD 4000.1 does have a list of eligible property types which includes, but is not limited to, the following:

–a one- to four-unit Single Family Structure;

–an individual condominium unit, meeting the following requirements:

*the unit must be located in an FHA-approved Condominium Project and must comply with all other requirements for condominiums;
*rehabilitation or improvements are limited to the interior of the unit, except for the installation of firewalls in the attic for the unit;
*no more than five units per condominium association, or 25 percent of the total number of units, whichever is less, can undergo rehabilitation at any time; and
*after rehabilitation is complete, the unit is located in a Structure containing no more than four units. For townhouse style condominiums, each townhouse is considered as one Structure, provided each unit is separated by a one and one- half hour firewall from foundation to roof;

a Site Condominium unit;

Manufactured Housing where the rehabilitation does not affect the structural components of the Structure that were designed and constructed in conformance with the Federal Manufactured Home Construction and Safety Standards and must comply with all other requirements for Manufactured Housing;

a Mixed Use Property with one- to four-residential units, provided 51 percent of the Gross Building Area (GBA) is for residential use; and commercial use will not affect the health and safety of the occupants of the residential property.

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 Condo Loans: Basics You Need To Know

2015-32 FHA loans for condo projects are possible according to the FHA official site, but the condo unit you want to purchase must be on, or added to, the FHA approved condo project list.

There’s a very good reason why FHA requires a condo project to be approved–some condo projects have restrictions that are not permitted under FHA rules–such as any agreement that restricts the borrower’s ability to occupy the property once purchased, or freely dispose or sell the property as the borrower sees fit.

What does the FHA official site have to say about condo loans in general?

“Section 203 (b) of the National Housing Act provides authority to insure any mortgage covering a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project.”

As mentioned above, FHA condo loans are only available for eligible condo projects. What are those projects? The FHA official site has a set of criteria which includes the following basics:

“Eligible projects are those that have been declared and exist in full compliance with applicable state law requirements of the jurisdiction in which the condominium project is located, including good standing with the state, and with all other applicable laws and regulations.”

A condo project that is not currently on the FHA approved list can be added to that list by your lender pending a review of condo association documents and other required paperwork. Any condo owner’s association agreement that contains a “right of first refusal” would be ineligible for an FHA loan as it restricts the borrower’s ability to sell the property. Additionally, any condo project that is essentially a hotel or “condohotel” would not be eligible. Nor are several other kinds of properties such as time shares or vacation residences.

For projects that are approved, what are the terms of an FHA condo loan? According to FHA.gov, “FHA insures condominium single unit loans for up to 30-year terms to purchase or refinance a unit in an FHA-approved condominium project. The condominium project must be primarily residential, contain at least two dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.”

As you can see there is a good degree of flexibility in what the FHA may deem a condo unit or condo project. If you aren’t sure how the property you want to buy might qualify, speak to your loan officer about the specifics of your situation to see what kind of FHA mortgage loan or refinance loan might be right for you.

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: Recovering Friday’s Losses

2015-02Mortgage rates made some gains on Monday, taking back some (but not all) of the losses incurred on Friday. Stock market woes are given credit for some of the gains, but oil prices also played a role.

It’s likely that as long as this up-and-down situation happens between stocks and oil, those two factors will have at least a small influence depending on the day and investor reaction to developments or breaking news in those areas. Some sources believe that as long as oil prices remain low or continue to move lower, there could be good news for mortgage rates in the short term.

30-year fixed rate conventional mortgages are in a best-execution range at the time of this writing between 3.75% and 3.85% though some may find 4.0% still being quoted by some lenders. FHA mortgage rates are settled at 3.5% at the time of this writing–FHA rates tend to find a best execution comfort zone, though you will notice greater variation among participating lenders than with conventional equivalents.

Best execution rates as listed here are not available to all borrowers or from all lenders–your FICO scores and other financial qualifications play an important role in your access to best execution rates. Your experience may vary.

With Wednesday being “Fed Day” some industry professionals are advising borrowers who haven’t done so to lock as Fed meetings and announcements do have potential to move rates depending on investor reaction to the news coming from those scheduled events. Others are not shy about floating, but doing so is never without a degree of risk.

Float only after getting sound advice from your lender and deciding the level of your “risk tolerance”, which is all about deciding how high rates can go before you decide to lock to avoid rates moving higher still.

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 Income Questions: Pay Stubs and W-2s

052A reader got in touch with us recently to ask a question about FHA loan income requirements. We got the following question in the comments section: “My husband works as a mechanic and gets paid cash so he doesnt really have a proof of income or the last 2 yrs or w2 and has an OK credit score and we are trying to get a FHA loan to buy a house..what do we need to do to be able to qualify?”

This is an important issue, especially for self-employed people. The bottom line is that the participating FHA lender is required by FHA loan regulations to obtain proof of income in some way. This proof is needed so the lender can verify the income and insure that it is likely to continue.

Some types of income aren’t counted towards the FHA loan application because it cannot be properly verified, or it cannot be determined that the income is likely to continue. This is often true of online sales such as hobby Ebay accounts or other types of sporadic income.

In the case of this particular reader question, in the absence of pay stubs or other typical paperwork, tax data may be required. You may have to supply the lender with several years of previous income tax returns. Verification of deposit may also be accepted in addition to these forms as a way to further document the amount and regularity of income.

The lender is not only required to verify the amount and frequency of the income, but also to verify at least two years of employment with similar paperwork–that two years doesn’t have to be with the same employer, but some record of employment must be provided (especially for self-employed borrowers).

In cases where this paperwork is not available, the lender may have no way to verify the income, therefore an FHA loan may not be possible. It’s crucial to have some kind of “paper trail” for the lender to prove the borrower has income and is a good credit risk in that respect. A loan applicant that cannot show proof of income is at a serious disadvantage for FHA loan approval.

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: Higher On Friday

2015-02After some good improvements last week, Friday came to undo some of that progress. Earlier in the week mortgage loan rates were solidly in the high three percent zone, but after Friday’s upward turn, we see four percent back in the picture.

30-year fixed rate conventional mortgage loan rates were in a range on Friday between 3.875% and 4.0%, best execution. FHA mortgage rates are still being reported, best execution, at 3.5% but if the upward trend continues this week we could see that number shift into a range of rates with 3.5% at the low end, or we could just see FHA mortgage loan interest rates shift back into the previously long-held 3.75% (best execution).

(As always, it’s important to remember that best execution rates are not available to all borrowers or from all lenders. Your access to the rates listed here depends on your financial qualifications such as FICO scores, loan repayment history, etc. The availability of a participating lender may also be a factor. Your experience may vary.)

There are a number of factors that could influence rates this week including a scheduled Fed meeting on Wednesday, which is also the day a new home sales report will be issued. A Gross Domestic Product report for the final quarter of 2015 is due out on Friday, which (depending on investor reaction to the data) could have an effect on rates.

The GDP is a measure of economic growth, and like so many other types of economic data, what is bad for the economy is often beneficial for mortgage rates. If the GDP report shows negative information it’s possible that rates could benefit.

Locking and floating advice was mixed on Friday–many wanted to see what happens come Monday, and for those who floated through the weekend, it’s true that there’s always a degree of risk. Some might gamble on the idea that Friday was something of a correction and that more gains could be had early in the week. But all that is speculative and borrowers should never assume that floating is “safe” as breaking news or other unexpected events can always change the rate environment.

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