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

Monthly Archives: April 2016

FHA Loan Questions: Minimum Income?

2015-31aRecently we were asked if FHA home loans have either an income limit, or a minimum amount the borrower must earn per month/year in order to qualify.

FHA loan rules in HUD 4000.1 do not specify a maximum income. FHA loans are designed for those who want to purchase a home and want an alternative to conventional mortgages. FHA home loans are not created for a specific income bracket. Let’s examine the rules for income in HUD 4000.1:

“The Mortgagee must document the Borrowers income and employment history, verify the accuracy of the amounts of income being reported, and determine if the income can be considered as Effective Income…” “…The Mortgagee may only consider income if it is legally derived and, when required, properly reported as income on the Borrowers tax returns. Negative income must be subtracted from the Borrowers gross monthly income, and not treated as a recurring monthly liability unless otherwise noted.”

Nowhere in this section is there mention of an “earnings cap” for FHA mortgages.

The FHA loan program also does not specify a minimum income. Instead, the borrower must qualify for the loan financially by submitting employment and income data to the lender who will calculate the borrower’s debt to income ratio. The borrower must be able to afford the mortgage loan in addition to his or her existing financial obligations.

The debt to income ratio requirements are affected by FICO scores; if you need to know more about how your specific income and debts and how the lender will view them for loan approval, speak to a loan officer. Lender standards may also apply.

The debt to income ratio is basically a standard where the amount of verifiable income is compared to the amount of monthly debt. The borrower’s debts cannot exceed a certain percentage of the income. For example, some lenders may not approve a mortgage loan if the borrower has more than 43% of the monthly income going toward financial obligations (including a projected mortgage payment).

The monthly mortgage payment itself cannot exceed a certain percentage of the borrower’s monthly income. This percentage may vary depending on the lender.

In short while there is no minimum income amount listed for borrowers to qualify for an FHA mortgage loan, the borrower must be able to realistically afford the loan based on the lender’s calculations of verifiable income (not all income is considered verifiable-it must be judged as stable and likely to continue).

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 Charges Massachusetts Landlord With Fair Housing Act Violations

2015-02April is Fair Housing Month, and as the month winds to a close, there are still a variety of government actions involving violations of federal fair housing law-actions taken against landlords, lenders, and others associated with housing.

We report on these issues as press releases are issued from the Department of Housing and Urban Development for several reasons. The most important of those reasons is to raise awareness of Fair Housing laws and to remind our readers that the first line of defense against violations of the Fair Housing Act is often found at the consumer level.

Those who report housing discrimination complaints to HUD help end future discrimination as well as get government action on the case at hand. Fair Housing Act violations affect everyone–borrowers, buyers, renters, lenders, etc. Just because a particular case does not involve a home loan doesn’t mean it’s not relevant to those seeking housing, or selling their homes to those who are.

One of the most recent cases involves HUD charges brought against a landlord for allegedly discriminating against families with children. According to HUDNo.16-058, “The U.S. Department of Housing and Urban Development (HUD) announced today that it is charging the owner of a Springfield, Massachusetts rental property with violating the Fair Housing Act by refusing to rent an apartment to a husband and wife with children. The landlord was also charged with printing discriminatory statements in his lease and retaliating against the family after they complained.”

Federal law in the Fair Housing Act makes it, “unlawful to deny or limit housing because a family has children under the age of 18, to make statements that discriminate against families with children, and to retaliate against any person for exercising rights under the Fair Housing Act” according to the HUD press release.

“No family should be denied the chance to rent the home of their choice or have to live in fear of losing their home simply because they have children,” said Gustavo Velasquez, HUDs Assistant Secretary for Fair Housing and Equal Opportunity, who was quoted in the press release. He adds, “This charge sends a clear message that HUD is committed to protecting the housing rights of families with children.”

HUD began investigating the incident after the parents of a two-year-old child “filed a complaint with HUD claiming that the landlord denied them the opportunity to rent an apartment in the four-unit property because, according to the landlord, the property contained lead hazards and was therefore unsuitable for children under the age of six. The complainants were already residing in an apartment in the building with the wifes mother at the time they attempted to rent their own apartment”.

The press release adds that HUD’s charges include allegations that the landlord “told the family that he would not rent an apartment to them because they had a child under the age of six and were also expecting another baby”.

Renters or buyers who have experienced discrimination such as this should file a complaint with HUD via the Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY).

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 Advice: Preparing For Your Loan Application

108If you are considering the purchase of a home with an FHA mortgage loan, there are some important steps to take long before you fill out an application. Some borrowers don’t realize that there is a planning stage for a home loan that involves all the preparation you need to get to the place where filling out the application is the next logical step.

Borrowers should not consider applying for a home loan until they know three basic things-their FICO scores, how much down payment might be required on the home, and how much loan the borrower can afford.

The FICO score issue is the first one to tackle. Your lender won’t be able to work with you without knowing what kind of credit risk you might be, and if you don’t see your credit information before the lender does you could be in for a surprise that could slow down your quest for a new home.

FICO scores and credit history are important-borrowers need to know that their credit report is up-to-date, that there are no errors on the report, no evidence of identity theft, etc. You should see what the lender will see BEFORE it becomes a make-or-break issue for the mortgage.

Figuring out the amount of your down payment can be a simple as using an online mortgage calculator to estimate how much your new loan could be and taking the required minimum 3.5% down payment from that number.

Calculating the down payment means finding a home or a set of homes in your price range to see what might be acceptable to you, choosing a home and price (for purposes of estimating, not necessarily for purchase at that point) and running the numbers. Once you have an idea of the down payment you need (a rough estimate) you can begin budgeting and saving up for this down payment as well as closing costs, appraisal fees, home inspection fees, etc.

Figuring out how much loan you can afford is a similar process, but there are some variables to consider. You’ll want to use an online mortgage loan calculator for this process, too, but figuring out the estimated loan amount and estimated monthly mortgage payment requires you to come up with some additional information such as a potential interest rate, the amount of property taxes, insurance and other things that are included in the monthly payment.

The online mortgage calculator can be a very helpful and useful tool, but remember that these tools provide estimates only. Your loan officer will give you more details including a Good Faith Estimate of the loan at the appropriate time. Don’t assume that the mortgage calculator gives you the final say in how much the loan might be as you’ll need to work out details with the lender in terms of actual interest rates, closing costs, and extras that may be included in the mortgage 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 For Credit Qualifying: Credit Reports For Each Applicant

2015-06One of the most common questions about FHA home loans involves who gets their credit reports reviewed in the application process. FHA home loans permit co-signers, co-borrowers, and non-occupying co-borrowers, and with so many options open to the applicant(s), it can be confusing when trying to figure out who will need to furnish what information in order to apply.

FHA loan rules in HUD 4000.1 instruct the lender on who is to have credit reporting data pulled. On page 171 we learn:

“The Mortgagee must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts.”

But that’s not the only instruction to the lender. We also learn, “The Mortgagee must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject Property is located in a community property state.”

That is an important issue, as not all states are community property states. Do you know whether your loan is affected by such laws? It’s important for legally married couples to have a conversation with the lender to see whether community property laws will affect the transaction.

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

And what kind of credit reports are required for an FHA home loan? Page 171 addresses this issue, too:

“The Mortgagee must use a traditional credit report. If a traditional credit report is not available or the traditional credit report is insufficient, the Feedback Certificate will show a Refer recommendation, and the Mortgagee must manually underwrite the Mortgage. The Mortgagee must obtain a Tri-Merged Credit Report (TRMCR) from an independent consumer reporting agency.” Credit reports cannot be passed to the lender through the borrower, or through a third party that is not a credit reporting agency.

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 For Now

2015-02We’re writing more this week on mortgage loan interest rate trends due to the upward movement and the potential for this week’s economic data releases (and scheduled Fed statement) to influence those rates. After dropping to year-long (or greater) lows, rates moved higher, but not yet into the four percent range we’ve seen in the past.

At the time of this writing (ahead of the Fed statement due out on Wednesday) 3o-year fixed rate mortgages were holding at a best execution 3.75%, though some holdouts may still be offering rates a bit lower for now. FHA mortgage rates are still in a range between 3.25% and 3.5% best execution.

If the Fed statement has investors reacting in ways that put upward pressure on mortgage loan rates, we could see that range disappear in favor of the 3.5% zone. FHA mortgage rates do vary more among participating lenders than their conventional counterparts so your experience may vary. It pays to shop around for the most competitive rate.

The rates seen here are listed as best execution interest rates and your access to them depends greatly on your FICO scores and other financial qualifications. Your experience may vary, and these rates aren’t available to all borrowers (or from all lenders).

Lock/float advice is mixed, much depends on your “risk tolerance” ahead of the Fed. How high will rates go before you commit to a mortgage rate lock with your lender? If you choose to float that is the most important question, though some industry professionals are telling clients to lock now, especially in the short term. If your closing date is within 60 days, it’s best to discuss the current rate environment with your loan officer and get some sound advice.

The potential for volatility with rates this week is elevated, so it’s important to consider that as you choose to lock or float. Borrowers who don’t have a high degree of risk tolerance for higher rates should discuss that with the lender. As always, breaking news or other developments can always overshadow the scheduled economic data releases and other factors that influence mortgage rates. That’s another important factor to remember when deciding to lock or float.

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 Borrower Debt: Recent Credit Applications

2015-27When applying for an FHA mortgage, like any home loan, a borrower’s debt-to-income ratio will be an important factor in loan approval. The lender needs to know that the borrower can afford both monthly financial obligations as they exist at application time, and those financial commitments plus the amount of the monthly mortgage payment.

For that reason, the lender will examine a borrower’s existing debt and compare it with verifiable income to see what percentage of the applicant’s income is taken up by bill payments each month.

But what about a borrower’s potential future debt?

Lenders have access to the borrower’s credit reports, and that access is used to see what current FICO scores are plus the applicant’s credit history. One thing that shows up on your credit history? Credit inquiries such as those that may occur when you apply for a new credit card, etc.

If a lender sees a recent inquiry for a line of credit that is not yet on the credit report in terms of payments, what is the obligation when processing an FHA loan application? HUD 4000.1 addresses this issue:

“The Mortgagee must review all credit report inquiries to ensure that all debts, including any new debt payments resulting from material inquiries listed on the credit report, are used to calculate the debt ratios. The Mortgagee must also determine that any recent debts were not incurred to obtain any part of the Borrowers required funds to close on the Property being purchased.”

The FHA rules in this section also define what the FHA considers a “material inquiry”:

“Material Inquiries refer to inquires which may potentially result in obligations incurred by the Borrower for other Mortgages, auto loans, leases, or other Installment Loans. Inquiries from department stores, credit bureaus, and insurance companies are not considered material inquiries.”

As you can see from the above, there are multiple reasons why the lender needs to check on these things. Down payment funds cannot, for example, come from a credit card cash advance or any type of “unsecured loan”. So when the lender sees a credit inquiry on the credit report, he or she also has to verify that it’s not the unapproved source of down payment funds as per 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
 

Mortgage Loan Interest Rate Trends: Higher Ahead of Fed Statement

2015-02Last week on Friday, rates moved higher. The week ended with 30-year fixed rate mortgages in a higher range between 3.625% and 3.75%, and FHA rates in their own new range between 3.25% and 3.5%. On Monday, things stayed more or less the same, though market watchers say it could be a difficult week due to a variety of factors including the Fed Statement due to be released on Wednesday. (The Fed meets on Tuesday, but releases a statement the following day.)

That statement has great potential to move rates. According to a report by Marketwatch.com, the Fed is expected to keep the option for a June interest rate hike on the table. In the past any talk of rate hikes is enough to bring knee-jerk reactions by investors over the short term, which could make for a rocky time for rates. The Fed’s statements are sometimes overshadowed by other breaking news or world events, but it’s entirely possible that this week’s statement could have a short-term impact on rates.

At the time of this writing, mortgage rates are more or less where they were on Friday, but 30-year fixed rate conventional mortgages are more solidly in 3.75% territory. FHA mortgage loan rates are still in Friday’s previously reported best execution range.

The rates you see reported here are listed as “best execution” rates, which assume ideal conditions like outstanding FICO scores, and other financial qualifications. The rates listed here are not available from all lenders or to all borrowers. Your experience may vary based on your financial qualifications, the availability of a participating lender offering such rates, etc.

Tuesday, Wednesday, Thursday and Friday all feature some kind of scheduled release of economic data, or in Wednesday’s case, the Fed statement. That means each day this week has some potential for a change in rates depending on investor reaction to the information that comes out each day.

Industry pros are a bit more unified in the “lock versus float” advice this week. It seems far riskier to float in the face of so much economic data coming out this week with potential to move interest rates. Borrowers who are close to closing but have not discussed a mortgage rate lock yet with their lender should likely make the call and get some advice-a well-informed borrower will be far happier with the outcome.

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 Borrower Ownership and Occupancy Requirements

2015-28FHA loan rules for all single-family home loans, reverse mortgages, and refinance loans are found in HUD 4000.1. Those rules include a variety of instructions for the lender on how to process and approve FHA home loans. But there are also some regulations the borrower must follow, too.

For example, FHA single family mortgage loans are intended for owner-occupiers only. HUD 4000.1 states that the borrower must take possession of the property within a reasonable time after closing, usually 60 days or less.

There are also rules for borrower ownership and the nature of the borrower’s obligations under the FHA mortgage loan program. HUD 4000.1, page 128 has the following instructions:

“To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.
In community property states, the Borrowers spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”

Furthermore, co-signers have a paragraph in this section that applies specifically to them. “Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument.”

FHA loans permit a non-occupying co-borrower, but these parties must also observe some rules in HUD 4000.1. “Non-occupying co-Borrowers or Cosigners must either be United States (U.S.) citizens or have a Principal Residence in the U.S.”

Does that make FHA loans unavailable for military personnel, either as a primary borrower or as a co-borrower or co-signer? HUD 4000.1 does provide some exceptions for those in uniform:

“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.”

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 Agreement in Fidelity Bank Discrimination Case

001The Department of Housing and Urban Development has announced a settlement in a case involving Fidelity Bank and allegations of Fair Housing Act violations. According to HUDNo.16-054, “The U.S. Department of Housing and Urban Development (HUD) announced today a $1 million agreement between the Fair Housing Project of North Carolina Legal Aid and North Carolina-based Fidelity Bank to resolve allegations the mortgage lender engaged in unfair lending practices against minority applicants”.

Federal law makes it illegal to “make housing unavailable or to discriminate in the terms, conditions, or privileges of the sale of a dwelling because of race” according to the press release on the FHA/HUD official site. “The Fair Housing Act also makes it unlawful for any person or entity whose business includes residential real estate-related transactions to discriminate in these transactions, or terms or conditions, because of race. Banks and other lenders are prohibited from discriminating with respect to home mortgage loans.”

HUD began investigating the case following a complaint filed by the Fair Housing Project, Legal Aid of North Carolina, Inc. alleging that the lender “denied or made housing and home mortgage loans unavailable because of race” according to the HUD official site.

Under the terms of the agreement between the government and the financial institution, “Fidelity will make investments and community development loans in predominantly minority census tracts where at least 40 percent of these loans will specifically promote affordable housing. For this purpose, the Bank has committed to earmarking at least $500,000 each year for two years, for a total of $1 million.”

Whether intentional or not, stark disparities exist in lending patterns and access to credit along racial and ethnic lines, said HUD Assistant Secretary for Fair Housing and Equal Opportunity Gustavo Velasquez, who was quoted in the press release. He adds, HUD remains committed to not only enforcing the law, but also facilitating productive relationships between lenders and advocacy groups that help make lenders more aware of their obligations under the Fair Housing Act.

Borrowers who feel their rights have been violated should report discriminatory lending or renting practices to the HUD Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY). Housing discrimination complaints may also be filed online at 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

Mortgage Loan Interest Rate Trends: Higher

2015-02Mortgage rates are definitely in an upward trend, short term, which some market watchers blame in part on bond market activity.

The European Central Bank (ECB) meeting this week was also a possible factor; some financial headlines indicate that markets were “mixed” in Europe following the scheduled event. Regardless of how much or how little that may have changed rates here in the the U.S. mortgage loan rates are at the time of this writing being reported at four-week highs.

30-year fixed rate conventional mortgages are at a best execution range between 3.625% and 3.75%. More significantly, FHA rates have broken into a range of rates with the previously held 3.25% now at the bottom end of that range with 3.5% on the top side. FHA rates tend to change more slowly than conventional rates; Thursday’s move indicates a decisive upward trend in the short term.

The best execution rates you see here are not available to all borrowers or from all lenders. Your FICO scores and other financial qualifications will play a large role in determining your access to these rates. Your experience may vary depending on a variety of factors.

There is much advice to “lock” in the face of the current rate trend. Some industry professionals have stated that rates are still low, and that locking if you’re 30 days out makes sense. That’s the opinion of some professionals, while others may be convinced that floating under certain conditions might be worth the risk. Borrowers who aren’t sure what to do here, especially those with 30 or 60 days left until closing time, would do well to ask for some good advice and talk to their loan officer–floating is never risk free.

In the current rate environment it’s entirely possible that we could see a return to the lower levels of last week depending on market conditions, investor activity, etc. But economic data releases, world headlines and other factors could also conspire to keep upward pressure on rates in the short term.

Decide how high you’re willing to watch rates go before you commit with your lender to an interest rate lock. This makes the decision to float into a strategy rather than simple wishful thinking in hopes rates might return to previously held lows.

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