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

Monthly Archives: February 2016

FHA Loan Rules in HUD 4000.1: Gaps In Employment, Temporary Reductions of Income

100HUD 4000.1 is the FHA loan rule book for single family home loans and refinance loans. This rule book includes instructions to the lender on how to process FHA loan applications and how the lender should treat specific circumstances that can affect a borrower’s chances for FHA loan approval. Naturally these rules are FHA loan minimum standards and lenders may have additional requirements, but the basics for FHA loan approval are addressed.

These basics include instructions to the lender on how the FHA views application issues such as having frequent gaps in employment or temporary reductions of income. What do these situations do to a borrower’s chances for FHA loan approval?

HUD 4000.1 addresses the frequent gaps in employment issue directly, stating:

“For Borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the Borrowers current income as Effective Income if it can verify and document that:

–the Borrower has been employed in the current job for at least six months at the time of case number assignment; and
–a two year work history prior to the absence from employment using standard or alternative employment verification.”

Frequent job changes are also addressed:

“If the Borrower has changed jobs more than three times in the previous 12-month period, or has changed lines of work, the Mortgagee must take additional steps to verify and document the stability of the Borrowers Employment Income. The Mortgagee must obtain:

–transcripts of training and education demonstrating qualification for a new position; or
–employment documentation evidencing continual increases in income and/or benefits.”

Some borrowers don’t have these job change issues, but do have to contend with a temporary reduction in pay. This could be the result of taking a temporary leave of absence, or having a short-term disability. In such cases, HUD 4000.1 states:

“For Borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the Mortgagee may consider the Borrowers current income as Effective Income, if it can verify and document that:

–the Borrower intends to return to work;
–the Borrower has the right to return to work; and
–the Borrower qualifies for the Mortgage taking into account any reduction of income due to the circumstance.

For Borrowers returning to work before or at the time of the first Mortgage Payment due date, the Mortgagee may use the Borrowers pre-leave income. For Borrowers returning to work after the first Mortgage Payment due date, the Mortgagee may use the Borrowers current income plus available surplus liquid asset Reserves, above and beyond any required Reserves, as an income supplement up to the amount of the Borrowers pre-leave income.”

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 Friday

2015-02Mortgage rates moved higher on Friday, pushing closing costs up for some, actual rates up for others. At the end of the day many were still offering a best execution 3.625% for 30-year fixed rate conventional mortgage loans. FHA mortgage loan rates are holding in a range between 3.25% and 3.5% depending on the lender and other factors. FHA mortgage loan rates tend to vary more among participating lenders than conventional rates, so your experience may vary.

As always, the rates mentioned here are best execution rates, meaning your FICO scores, loan repayment history and other financial qualifiers will play a big role in your access to rates at or near the ones listed here. Best execution rates are not available to all borrowers or from all lenders.

Even though there has been a move higher, mortgage rates are still very close to long-time lows and many industry professionals say that in general, locking at the moment isn’t a bad idea considering how low rates are.

If you are within 30 days of closing now could be a good time to lock. Discuss this with your loan officer and get some sound advice before proceeding. Floating, which is defined as holding off on getting a mortgage rate lock commitment with the lender in hopes of getting a more competitive interest rate, is never without risk. Your “risk tolerance” should help you decide whether or not now is the right time to lock or float.

And the factors that could affect mortgage loan rates (for better OR worse) this week are plentiful–there is an “Existing Home Sales” report due to come out Tuesday, followed by a “New Home Sales” report on Wednesday. Thursday and Friday are also important days thanks to scheduled economic data releases that could also affect mortgage loan rates depending on investor reaction to the information in those releases.

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 Mortgage Insurance Premium Rules

063When you purchase a home using an FHA mortgage, you’ll be required to pay an Up Front Mortgage Insurance Premium (UFMIP) and and monthly mortgage insurance premium (MIP). The rules governing this mortgage insurance are found in HUD 4000.1 and it’s important to know them before you start budgeting and planning for your new mortgage.

FHA loan rules covering this insurance begin by defining terms. “FHA collects a one-time Upfront Mortgage Insurance Premium (UFMIP) and an annual insurance premium, also referred to as the periodic or monthly MIP, which is collected in monthly installments.”

One thing important for borrowers to know is that the FHA does not consider these payments to be part of the mortgage guaranty limit–this is a fee assessed after those limits are calculated, even though the Up Front Mortgage Insurance Premium can be financed.

“Most FHA mortgage insurance programs require the payment of UFMIP, which may be financed into the Mortgage. The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and LTV limits.”

UFMIP is not a fixed charge or a set dollar amount. It’s calculated based on the loan amount. “The UFMIP charged for all amortization terms is 175 basis points (bps), unless otherwise stated in the applicable Programs and Products or in the MIP chart.” HUD 4000.1 also says that the borrower must choose whether to pay up front (out-of-pocket) or have the UFMIP financed–there’s no in-between. “The UFMIP must be entirely financed into the Mortgage or paid entirely in cash. Any UFMIP amounts paid in cash are added to the total cash settlement requirements.”

Furthermore, “…if the UFMIP is financed into the Mortgage, the entire amount is to be financed except for any amount less than $1.00. The mortgage amount must be rounded down to the nearest whole dollar amount, regardless of whether the UFMIP is financed or paid in cash.”

In some cases a UFMIP refund may be available if the borrower is applying for a refinance loan. “If the Borrower is refinancing their current FHA-insured Mortgage to another FHA- insured Mortgage within 3 years, a refund credit is applied to reduce the amount of the Upfront Mortgage Insurance Premium (UFMIP) paid on the refinanced Mortgage, according to the refund schedule” found in HUD 4000.1

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: Are Military Members Eligible For FHA Mortgages?

075One common question about FHA loans involves whether or not military members are eligible to apply. Some military members may choose FHA mortgage options over VA loan benefits depending on circumstances, what do FHA loan rules tell lenders about veterans and currently serving members of the U.S. military?

HUD 4000.1 contains the rules that apply in these cases. One of the reasons some could mistakenly assume military borrowers might not qualify for FHA mortgages has to do with the FHA’s occupancy rule for new purchase loans and refinances. But FHA loan rules include the following on occupancy for military applicants:

“Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service.”

That’s a very important clause in HUD 4000.1 to keep in mind, but it’s also good to know ahead of your loan application that should this rule apply to you, additional documentation may be needed.

“The Mortgagee must obtain a copy of the Borrowers military orders evidencing the Borrowers Active Duty status and that the duty station is more than 100 miles from the subject Property. The Mortgagee must obtain the Borrowers intent to occupy the subject Property upon discharge from military service, if a Family Member will not occupy the subject Property as their Principal Residence.”

These rules are similar to, but a bit different from, VA loan occupancy rules which essentially say the same thing but have slightly differing terms. FHA loan rules for occupancy say that in general, all borrowers must occupy the home as the primary residence within 60 days of closing and live in the home as the primary residence for at least one year. Naturally, the information provided above would factor in as appropriate.

In general (aside from what’s written here) FHA home loans don’t offer any special terms or conditions for military borrowers, though a particular lender may have something to offer veterans and those currently serving. You would need to discuss your military status with the lender to see what’s available or 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

Mortgage Rate Trends: Sideways To Lower

2015-02Mortgage loan rates this week to date have been either holding their own (Monday) or moving slightly lower (Tuesday and Wednesday). While market activity did see some lenders raising rates, overall best execution levels are still at 3.625% for 30-year fixed rate conventional mortgages. FHA loans are still within a best execution range between 3.25% and 3.5%, some of the most favorable rates seen in quite some time.

“Best execution” refers to rates offered to the most extremely well-qualified borrowers. Your FICO scores, loan repayment history and other financial qualifications will determine your access to these rates. Your experience may vary; the rates you see listed here are not available to all borrowers or from all lenders.

Right now, rates are lower because of negative economic factors (among other things)–it seems like a paradox to those not used to watching mortgage loan rates rise and fall, but bad news for the economy is often good news for mortgage rates. Investor reaction to breaking news (economic and otherwise) can also play a role.

Lock/float advice is a bit mixed, with some industry professionals saying that with rates as low as they’ve been in many months it’s likely the best course of action to commit with a lender on a mortgage rate lock, especially if you are within 30 days of closing. Others who are farther out may be tempted to float, but floating is never risk-free. Conditions can change, breaking news can put upward pressure on rates, and overall trends can reverse based on unexpected information.

If you are tempted to hold out and wait to make an interest rate commitment with the lender, ask for plenty of advice in the meantime and make a well-informed decision. Your loan officer might have some good words of advice for you based on years of experience watching trends like the ones playing out at the moment.

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 Refinance Loan Types

2015-28Do you want to refinance your home loan into an FHA mortgage or refinance an existing FHA mortgage? There are many different types of refinancing options and when HUD 4000.1, the new single family FHA loan rulebook was published in 2015 the entire refinance loan program rules were included in the new volume. That means some policies were updated, some were changed or modified, and some were simply restated.

HUD 4000.1 has a comprehensive list of the different types of FHA refinancing options open to those with single-family mortgages. Let’s examine them:

FHA Cash-Out Refinancing
A Cash-Out Refinance is described in HUD 4000.1 as, “a refinance of any Mortgage or a withdrawal of equity where no Mortgage currently exists, in which the mortgage proceeds are not limited” to specific purposes. The proceeds can be used for any purpose acceptable to the lender.

No Cash-Out
The FHA No Cash-Out Refinance is “a refinance of any Mortgage in which the mortgage proceeds are limited to the purpose of extinguishing the existing debt and costs associated with the transaction.” Participating FHA lenders may offer up to three types of no cash-out refinances including Rate and Term, Simple Refinance, and Streamline Refinancing:

FHA Rate And Term Refinancing

Rate and Term refers to a no cash-out refinance of any Mortgage in which all proceeds are used to pay existing mortgage liens on the subject Property and costs associated with the transaction.

FHA Simple Refinance
Simple Refinancing is basically a no cash-out refinance of an existing FHA-insured Mortgage in which “all proceeds are used to pay the existing FHA-insured mortgage lien on the subject Property” plus costs associated with the transaction.

FHA Streamline Refinancing
Streamline Refinance refers to the refinance of an existing FHA-insured Mortgage requiring limited Borrower credit documentation and underwriting. There are two different streamline options available–one is a credit qualifying FHA Streamline, where the lender is required to “perform a credit and capacity analysis of the Borrower, but no appraisal is required”. The other is non-credit qualifying, where the lender “does not need to perform credit or capacity analysis or obtain an appraisal”.

There are other types of FHA refinancing loans in addition to the ones mentioned above. They include:

FHA Refinance of Borrowers in Negative Equity Positions (FHA Short Refinance)
A Borrower who is current on a non-FHA-insured Mortgage may qualify for an FHA-insured refinance Mortgage provided that the Mortgagee or Investor writes off at least 10 percent of the unpaid principal balance of the existing first lien Mortgage. (See Refinance of Borrowers in Negative Equity Positions Program (Short Refi).

Refinances for the Purpose of Rehabilitation or Repair
Borrowers are allowed to refinance existing debts and obtain additional financing for purposes of rehabilitation and repair. Refer to 203(k) Rehabilitation Mortgage Insurance Program for guidelines for refinances under FHAs Section 203(k) program” according to HUD 4000.1.

Refinancing of an Existing Section 235 Mortgage
An existing Section 235 Mortgage may be refinanced, according to HUD 4000.1, as “any no cash-out refinance”. The new rules add, “In refinancing a Section 235 Mortgage, the Mortgagee is required to repay to FHA any amount of excess subsidy. The outstanding principal balance on a Section 235 is calculated by adding back to the balance any amount of the excess subsidy paid to FHA. If FHA has a junior lien that was part of the original Section 235 financing, FHA will subordinate the junior lien to the Section 203(b) Mortgage that refinances the Section 235 Mortgage.” This type of loan may depend on the availability of a participating lender willing to offer such terms and conditions.

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 Additional Funding For Housing Counseling Grants

073There are many times when, in the course of answering reader questions or discussing issues related to FHA loan prep, that we advise people to contact the FHA directly to request a referral to a HUD approved housing counselor. Housing counseling can be an important help for people–especially first time home buyers–who aren’t sure whether they qualify for an FHA mortgage or how to get started preparing for one.

HUD has announced additional funding for housing counseling. According to a press release issued Friday February 19, 2016, “The U.S. Department of Housing and Urban Development (HUD) today announced it is making $40 million in grants available to support hundreds of housing counseling organizations across the country that assist families, including those buying their first home, struggling to locate affordable rental housing or seeking to avoid foreclosure.”

“It is estimated HUDs housing counseling grants, and the additional funding they leverage, will reach more than 1.5 million households” through a network of approximately 300 national, regional and local organizations, according to the press release.

“We know that housing counseling can make all the difference in purchasing and, most importantly, keeping a home, HUD Secretary Julian Castro, who was quoted in the release. He adds, The grants we offer today will help ensure families and individuals make more informed housing decisions, whether it means buying their first home, avoiding foreclosure, or finding affordable rental housing.”

HUD will offer the $40 million grant funds to help directly support “the housing counseling services provided by national and regional organizations, multi-state organizations, State Housing Finance Agencies (SHFAs) and more than 200 local housing counseling agencies that assist low- and moderate-income families improve their housing conditions. Grant winners use the money to help homebuyers evaluate if they are ready to buy a house, understand their financing and down payment options, and navigate what can be an extremely confusing and difficult process.”

Do you need to be referred to a HUD-approved housing counselor in your area? Start by vewing HUDs website or call (800) 569-4287 for HUD’s interactive telephone directory. The press release urges people to download a free housing counseling iPhone app from the App Store (this applications is not yet available for Android devices).

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 Credit Issues: Charge-Offs and Disputed Accounts

109There are many questions about FHA loan credit requirements. Some credit issues involve lender requirements which may go above and beyond FHA loan program minimums.

Other issues involve FHA loan guidelines themselves-for example, the basic FHA policies toward charge-offs and disputed accounts on a credit report. How is the lender instructed to deal with these issues when processing an FHA loan application insofar as FHA loan minimum standards are concerned?

HUD 4000.1 has the answers–we start with a look at the FHA definition of “charge-offs”, which the rule book defines as, “a Borrowers loan or debt that has been written off by the creditor”. If a lender encounters charge-offs in the borrower’s credit history, he or she must determine if the charge-off(s) happened due to one of the following:

–the Borrowers disregard for financial obligations
–the Borrowers inability to manage debt; or
–extenuating circumstances

What’s more, the lender is responsible for obtaining supporting documentation:

“The Mortgagee must document reasons for approving a Mortgage when the Borrower has any Charge Off Accounts. The Borrower must provide a letter of explanation, which is supported by documentation, for each outstanding Charge Off Account. The explanation and supporting documentation must be consistent with other credit information in the file.”

For disputed accounts, HUD 4000.1 begins with a definition of the term:

“Disputed Derogatory Credit Account refers to disputed Charge Off Accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.”

In cases where a disputed account appears in the borrower’s credit history, the lender is required to “analyze the documentation provided for consistency with other credit information to determine if the derogatory credit account should be considered in the underwriting analysis.”

Some disputed accounts can be excluded from consideration or analysis in these cases, including “disputed medical accounts; and disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use provided the Mortgagee includes a copy of the police report or other documentation from the creditor to support the status of the account in the mortgage file.”

And what does HUD 4000.1 say about required supporting documentation in these situations? “If the credit report indicates that the Borrower is disputing derogatory credit accounts, the Borrower must provide a letter of explanation and documentation supporting the basis of the dispute.”

This section also adds, “If the disputed derogatory credit resulted from identity theft, credit card theft or unauthorized use balances, the Mortgagee must obtain a copy of the police report or other documentation from the creditor to support the status of the accounts.”

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: Ending The Week With A Move Lower

2015-02After three consecutive business days of rates edging higher (hitting 14-day highs at one point), Thursday and Friday saw them moving back down, recovering some of the losses earlier in the week. Some industry pros were anticipating a possible slight move higher today due to bond market activity, but at the end of the trading day that did not pan out.

That puts 30-year fixed rate conventional mortgage rates at a best execution 3.625% (depending on the lender), with FHA mortgage rates remaining in a range between 3.25% and 3.5% best execution. FHA rates will vary among participating lenders so your experience may vary.

Also, best execution rates as seen here aren’t available to all borrowers or from all lenders. Your FICO score and other financial qualifications play a large role in determining your access to best execution rates. In some cases the availability of a participating lender offering these rates may also be a factor.

Advice about locking and floating–committing to a mortgage rate lock with the lender or holding off on that agreement in hopes that an even better rate might become available in the short term–was mixed. Some were advising borrowers to consider the risks of floating through the weekend, while others were a bit more specific, saying anyone due to close in 30 days or less should likely lock with everyone else advised to also consider the risks and contemplate floating.

Floating, even in the best of times, is never without risk. At any moment new developments in financial markets at home or overseas can put upward pressure on mortgage loan rates. Breaking news, investor reaction to it, and other factors (up to and including natural disasters depending on the timing and location) can push rates higher OR lower.

It’s best to make the most informed choice you can. Ask some advice of your lender before “taking the plunge”. Those who choose to float should pay attention to headlines and financial indications over the weekend to get an idea of where things might be headed come Monday.

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: Occupancy Rules

2015-17We get many questions in the comments section about various aspects of FHA loan rules, including the nuances of the FHA loan occupancy requirements.

Here’s one of the latest: “I have a married couple that wants to purchase FHA the Husband is a stay at home Father the wife is the sole bread earner. The home they want to purchase is 3 hours from her employment. But the Husband and Son will be home all during the week and she will come home on weekends. Can that loan be approved? If so I need to show the underwriter because they want to deny the loan.”

In general FHA loans are intended for principal residences. FHA loan rules define a principal residence as, “…a dwelling where the Borrower maintains or will maintain their permanent place of abode, and which the Borrower typically occupies or will occupy for the majority of the calendar year. A person may have only one Principal Residence at any one time.”

The rules in HUD 4000.1 state that at closing time, or soon thereafter, occupancy must be established. “At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year.” The home cannot, in general, be used as a secondary residence unless certain criteria can be met:

“Secondary Residences are only permitted with written approval from the Jurisdictional HOC after a determination that:

–the Borrower has no other Secondary Residence;
–the Secondary Residence will not be a Vacation Home or be otherwise used primarily for recreational purposes;
–the commuting distance to the Borrowers workplace creates an undue hardship on the Borrower and there is no affordable rental housing meeting the Borrowers needs within 100 miles of the Borrowers workplace; and
–the maximum mortgage amount is 85 percent of the lesser of the appraised value or sales price.”

As you can see there are some burdens of proof that would need to be provided to the lender in order for an FHA mortgage loan to be approved in cases like these. The basic occupancy issue here could be solved if the other full-time occupant (the husband) were to act as a co-borrower on the mortgage loan, but the reader question’s details make that seem unlikely.

Commuting distance, rental housing availability and other factors all make this an issue that would have to be handled on a case-by-case basis. Like so many other aspects of FHA home loans, there are many variables and it’s impossible to state definitively whether or not loan approval is possible.

The lender and borrower would need to work out the specifics in these cases to see what may be possible. It may be that a loan could be possible if the home were located closer to the borrower’s place of employment and the part-time residency issue were avoided altogether. Or it may be a matter of providing supporting documentation to try to convince the lender that the loan would meet FHA guidelines.

However, lender standards would also apply, FHA rules aren’t the only ones at work in situations like these–that’s important to remember when considering your options.

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