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

Monthly Archives: May 2016

FHA Loan Questions: The Good Neighbor Next Door Program

105A reader asked us a question recently in the comments section about the HUD Good Neighbor Next Door program. “I am a 13 year veteran Corrections Officer of the Maryland’s DCSCS and I wanted to inquire as to whether or not I qualified for the Good Neighbor Next Door Program.”

The HUD Good Neighbor Next Door program is mentioned on the FHA/HUD official site, which states, “Law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD’s Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.”

The program works by directing eligible borrowers to “Single Family homes located in revitalization areas” which are listed “exclusively for sale through the Good Neighbor Next Door Sales program. Properties are available for purchase through the program forseven days.”

Who is permitted to participate in this program? According to the HUD official site:

Law Enforcement

You may participate in the Good Neighbor Next Door program as a law enforcement officer if you are employed full-time by a law enforcement agency of the federal government, a state, a unit of general local government, or an Indian tribal government; and, in carrying out such full-time employment, you are sworn to uphold, and make arrests for violations of, federal, state, tribal, county, township, or municipal laws.

Teachers

You may participate in the Good Neighbor Next Door program as a Teacher if you are employed as a full-time teacher by a state-accredited public school or private school that provides direct services to students in grades pre-kindergarten through 12. In addition, the public or private school where you are employed as a teacher must serve students from the area where the home you are purchasing is located in the normal course of business.

Firefighter/Emergency Medical Technicians

You may participate in the Good Neighbor Next Door program as a Firefighter/Emergency Medical Technician if you are employed full-time as a firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or an Indian tribal government serving the area where the home is located.”

HUD requires borrowers who participate in this program to “sign a second mortgage and note for the discount amount. No interest or payments are required on this ‘silent second’ provided that you fulfill the three-year occupancy requirement.”

What kind of mortgage loans are permitted under this program? FHA, VA, or conventional mortgages, or cash, according to HUD. Additionally, “You must live in the home as your sole residence for a full 36 months. The purpose of the program is to strengthen communities by encouraging employed, professional law enforcement officers, teachers and firefighters/emergency medical technicians to live in the community.”

The HUD official site says borrowers will have up to 180 days to move into the home you purchase, “depending on HUD’s determination of the condition of the home and the level of repairs that may be required, if any. The 30th, 90th or 180th day is the start date for the occupancy period. You are released from all obligations under this program at the end of the 36th month following the start date. HUD views the occupancy obligation seriously and vigorously pursues violators to the fullest extent of the law.”

You can learn more about the HUD Good Neighbor Next Door program at the official site.

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 FICO Score Rules

2015-10aFICO scores play an important part in any home loan application. There is often confusion about FICO scores, with some applicants assuming that only FICO scores determine loan approval, while others wrongly assuming they only have one credit score.

What’s the reality? There are three major credit reporting agencies, (Equifax, TransUnion, Experian) and so a borrower may actually have three different scores. That is one reason why lenders encourage borrowers to check their credit reports as early as possible before applying for an FHA mortgage. One credit report could have discrepancies another one does not reflect, etc. A borrower should always know what the lender is going to see on the report before the application is filled out.

FICO scores are indeed an important part of FHA loan approval, but they aren’t the only factor. Your loan repayment history (and your record of paying all financial obligations in the 12 months leading up to the new loan application) are also just as important as FICO scores.

But FICO scores are crucial in one very important area aside from basic loan approval. Your down payment amount can, and often is, determined by your FICO score.

What does that mean? In simple terms, the FHA single family home loan program has a set of FICO scores that allows a borrower to qualify for FHA maximum financing (which includes a required 3.5% down payment). Applicants with FICO scores of 580 or better technically qualify for maximum financing.

Borrowers with FICO scores below 580, but not lower than 500, are technically qualified for an FHA loan but must provide a minimum of 10% down.

But there’s a caveat to this borrower should know. While the FICO scores mentioned above may qualify according to FHA standards, lender standards may also apply. You may find lenders requiring higher FICO scores (620 to 640 in many cases) for loan approval. Down payment standards may also be affected by lender rules.

So it’s very important to do two things in the planning stages of your FHA home loan application. Find out what your FICO scores are from the three major credit reporting agencies, and also learn what your chosen lender or potential lender will require in terms of FICO scores. Knowing both of these things will help you learn what may be required to happen next.

Borrowers who need to improve FICO scores can take steps to improve their credit. Those who feel a given lender’s standards may or may not be reasonable can continue to shop around for a participating lender.

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 Memorial Day 2016

american flagToday we pause our usual posts about FHA loans and related issues, in honor of Memorial Day. Well resume our regularly scheduled posts and answers to reader questions on Tuesday.

Thanks for reading and be sure to thank the veterans in your life for all the service and sacrifices made in the name of freedom. To our veterans, thank you for serving!

FHA Appraisal Rules For Wells: A Reader Question

052A reader got in touch with us recently to take exception to a blog post we wrote in 2011 about FHA loan appraisal rules for sewer and septic systems. In that post, we state, “Sewer systems are not identical, but as long as the system is functioning properly and lives up to local codes, the FHA does not disqualify the home simply because a sewage or septic system isn’t the same as a typical suburban system in a metropolitan area.”

The reader replies, “No, that is not true. FHA has own guidelines, they do not go by the state and local guidelines. We were set to close on a brand new home, we had a well inspection and water test which all complied with local guidelines and 3 days before closing the FHA said it didnt meet their guidelines so we cant close. We have to try to get a waiver and my only question is, how long will that take?”

It’s important to point out that the reader is talking about well water, where the article in question is NOT discussing wells used to deliver drinking water. The article discusses sewer and septic systems.

These are considered separate systems in the FHA appraisal rules found in HUD 4000.1 and are listed as such, described in places as “water wells” as opposed to “sewer and septic”. There are FHA appraisal rules for both wells and sewer/septic.

The original blog post was written in 2011, but since then FHA loan rules have changed a great deal. The old references that informed the original article have since been replaced by HUD 4000.1 which has changed, updated, restated and otherwise modified a lot of FHA loan rules.

FHA appraisal requirements for wells may vary depending on whether the well is considered a “shared well” which serves more than one property. Another variable may be whether there are existing state or local health code requirements for well water in the area, and yet another variable is whether the property can be hooked up to the local water system or not.

In HUD 4000.1 there are definitely certain standards for wells on “existing construction” properties including minimum distances, property line issues, flow requirements and lead-free piping requirements.There are separate requirements for wells serving “new construction” properties.

But state and local standards also apply. FHA loan rules never override such ordinances. However, if a well does not meet these FHA requirements, it’s entirely possible that even though the well meets local standards corrections could be required to make the home suitable for an FHA mortgage loan.

The reader’s question asking how long a waiver might take is outside the scope of this blog-only the FHA itself can answer that question and the answer may vary depending on a variety of factors including workload, the complexity of the individual case, 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 Refinance Loans: What You Should Know Before Applying

2015-06Not all refinance loans are created equal, and not all FHA refinance loans have the same terms and conditions. Did you know that FHA refinance loans will, depending on the participating lender, allow you to refinance an adjustable rate mortgage (ARM) into a fixed rate but also may permit you to go from one adjustable rate mortgage to a new ARM loan? Qualified borrowers have a variety of refinance options open to them when it comes to rates, loan term, and related concerns.

There are many things to consider when refinancing with an FHA mortgage. For example, you do not have to use your existing lender to refinance. You may shop around for a new lender to refinance your mortgage loan with. You are also not required to have an existing FHA mortgage for certain types of FHA refinance loans.

FHA cash-out or no cash-out refinancing can be for any existing mortgage loan whether conventional, VA, or otherwise non-FHA mortgage in addition to existing FHA loans.

The FHA Streamline Refinancing loan program is for existing FHA mortgages only, so if you have a non-FHA mortgage you’ll nee to explore cash-out or no cash-out FHA refinancing.

The FHA reverse mortgage program is an option for borrowers age 62 or older, but the requirements of this loan include either owning your home or being very close to doing so. However, for those who qualify this is a loan option that can help borrowers take cash back on the refinancing loan and make no monthly mortgage payments. With FHA reverse mortgage loans, the loan is due in full when the borrower dies or sells the property.

Several FHA loans (any refinance loan that features money back to the borrower) will have an occupancy requirement. FHA cash-out refinancing and FHA Reverse Mortgages both have occupancy requirements that are a condition of loan approval. None of the FHA refinance loan options discussed here can be used for investment properties, time shares, vacation homes, or recreational vehicles that aren’t classified as “real property” with a permanent foundation.

FHA refinance loan interest rates may be more favorable to the borrower than the rates of the original home loan. It’s a very good idea to discuss interest rates with a loan officer to see what is available at the time you want to consider refinancing and see what kind of advantage you may have with lower rates, different monthly payments, etc. compared to what you may be dealing with currently.

Never forget that the FHA loan program encourages borrowers to be as fully informed as possible. Always shop around for the best rates, most favorable terms, and a lender that works best 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: Sideways To Slightly Higher

2015-02Ever since the release of the Fed minutes earlier this month there has been upward pressure on mortgage loan rates. The Fed is considering another interest rate hike sooner rather than later, and while a Fed rate hike is not a direct adjustment of mortgage loan rates, investor reaction to the hike and market activity can and often does react accordingly when the Fed acts in this way.

In the last five business days there was only one day of recovery, while the rest of the time we’ve seen either “sideways” movement where rates didn’t change that much (best execution) overall but may have varied more among certain lenders.

Wednesday saw rates moving sideways to slightly higher depending on the lender. 30-year fixed rate conventional mortgages had been operating in a range between 3.625% among some more competitive lenders (best execution) and 3.75% for others. The number of those offering 3.625% has likely shrunk since the five day trends we’re discussing here. Best execution-wise, 3.75% is the more widely available rate at the time of this writing.

FHA mortgage rates are still holding steady in a best execution range between 3.25% and 3.5%. If upward pressure continues we could see that range disappear in favor of either 3.5% or a range with that number at the low end. Much depends on how things go over the next few days. Dramatic shifts in mortgage rates can push FHA rates faster, but more gradual changes often take time to catch up with participating FHA lenders.

Mortgage loan rates tend to vary more among participating FHA lenders, and best execution rates are not available to all borrowers or from all lenders. Your experience may vary and your financial qualifications will play an important part in your ability to access the rates you see here. FICO scores, loan repayment history, and other factors will all figure into the rate you are offered by the lender.

The lock/float question is an important one even in the best of times, but in the current rate environment it’s best to have a conversation with your lender before deciding to hold off on a mortgage loan interest rate lock commitment. Things can change quickly and floating is never free from risk.

Should you be tempted to float, it’s best to decide how high rates might climb before you cut your losses and commit. Those who can afford more risk may be tempted to float a bit longer, but those who can’t should discuss their options with the loan officer.

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 Appraisal Expiration Dates, Update Requirements

2015-18aOne common question about FHA home loan rules involves how long an appraisal is considered valid before it can no longer be used. FHA loan rules for this topic are found in HUD 4000.1 and address both the age of the appraisal as well as the age of other documentation not considered “evergreen” or without an expiration date (such as divorce decrees, military discharge paperwork, etc).

According to HUD 4000.1, in general terms the documents to be used for “…the origination and underwriting of a Mortgage may not be more than 120 Days old at the Disbursement Date. Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 Days old at the Disbursement Date.”

How does a lender calculate exactly how old a given document is? “Day one” of the document’s age is calculated as being “the Day after the effective or issue date of the document, whichever is later”.

How does this rule affect FHA appraisals?

Page 103 of HUD 4000.1 states, “The 120 Day validity period for an appraisal (see Ordering Appraisals) may be extended for 30 Days at the option of the Mortgagee if (1) the Mortgagee approved the Borrower or HUD issued the Firm Commitment before the expiration of the original appraisal; or (2) the Borrower signed a valid sales contract prior to the expiration date of the appraisal”.

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

In situations where a borrower decides not to move forward with the loan with a particular lender but wants to purchase the home with another financial institution, FHA loan rules are clear on what must be done if an appraisal has been performed:

“In cases where a Borrower has switched Mortgagees, the first Mortgagee must, at the Borrowers request, transfer the appraisal to the second Mortgagee within five business days. The Appraiser is not required to provide the appraisal to the new Mortgagee. The client name on the appraisal does not need to reflect the new Mortgagee. If the original Mortgagee has not been reimbursed for the cost of the appraisal, the Mortgagee is not required to transfer the appraisal until it is reimbursed.” Note that this occurs only at the borrower’s request-such a transfer will not happen automatically.

And what about cases where an appraisal update is required? “An appraisal update must be performed before the initial appraisal, with no extension, has expired. Where the initial appraisal is subsequently updated, the updated appraisal is valid for a period of 240 Days after the effective date of the initial appraisal report that is being updated.”

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 Reverse Mortgages: Payout Options

2015-16Recently we wrote about proposed changes to strengthen the FHA Reverse Mortgage loan program and about basics of the FHA Reverse Mortgage program. We left off with a promise to discuss how the reverse mortgage, also known as an FHA Home Equity Conversion Mortgage (HECM), pays out once the loan has closed.

A HECM borrower’s payout (also known as a disbursement) depends on the nature of the HECM loan. The rules for cash back to the borrower differ based on whether the borrower has a fixed interest rate HECM loan or an adjustable rate HECM.

The FHA/HUD official site states that borrowers who have adjustable rate HECM loans are eligible for the following payment options:

Tenure-equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term-equal monthly payments for a fixed period of months selected.
Line of Credit-unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
Modified Tenure-combination of line of credit and scheduled monthly payments for as long as you remain in the home.
Modified Term-combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

For borrowers with a fixed rate HECM or FHA Reverse Mortgage, the payment is a single lump sum disbursement which is paid at mortgage closing time.

Some borrowers make it through the Reverse Mortgage loan process only to decide later they don’t want to proceed with the loan. Under the law, all qualified reverse mortgage or FHA HECM loan applicants have three calendar days to cancel the loan after it closes.

According to the FHA official site, this is known as the three day right of rescission. “The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.”

There is a very important exception to this right of rescission. According to the FHA/HUD official site, “In most cases, the right of rescission will not be applicable to HECM for purchase transactions.”

FHA reverse mortgages are for qualified borrowers age 62 or older who either own their homes outright or are close to owning them. FHA loan requirements for reverse mortgages include mandatory HECM loan counseling that must be completed as a condition of loan approval.

Borrowers must, as a condition of the HECM loan, stay current on all property taxes and related obligations. Failure to do so is grounds for having the loan declared due in full. You can learn more about reverse mortgage program rules at the FHA official site.

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: The Importance of a Home Inspection

085From time to time we handle reader questions asking about defects in homes discovered after purchase. When applying for an FHA home loan, an FHA appraisal is a requirement for loan approval, but a home inspection is an option the borrower is free to use (or not). But this “option” is an investment no borrower should skip, as FHA appraisals are not a guarantee that a property is free from defects or problems.

One of the most common questions we get asked in this area is, “What can be done about (defective condition X) discovered in my home after my loan closed?” Our answer always involves asking whether the borrower paid for the home inspection or simply relied on the FHA appraisal to indicate that the home was potentially “approved” to purchase.

But the FHA official site makes it quite clear that the appraisal process is not a stamp of approval on a property. Nor is it a guarantee that the home is free of defects.

Some borrowers may take issue with the idea of paying “twice” for a look at a property to be purchased with an FHA mortgage loan, but the FHA appraisal is really quite different than a home inspection. A home inspection, carried out by a trained professional, is a much closer examination of the home and its component parts.

An FHA appraisal is basically what the name implies-a general appraisal of the home to make sure it meets minimum standards.

According to the FHA/HUD publication, “For Your Protection, Get A Home Inspection” we learn the FHA’s stance on the FHA appraisal process. “FHA does not guarantee the value or condition of your future home, and FHA does not perform home inspections. If you find problems with your new home after closing, FHA cannot give or lend you money for repairs, nor can it buy the home back from you.”

We discuss this issue from time to time because so many questions come in every year indicating that borrowers sometimes choose not to pay for the optional, but critically important home inspection. It is true that a home inspection can be expensive, but it’s a case of paying hundreds of up front to save potential thousands of dollars later.

Borrowers should never purchase a home without paying for the home inspection. Relying on the FHA appraisal alone is not only against the advice of the FHA itself, but also offers no recourse should a defect be found in the property once it has been purchased and the deal closed.

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 Housing Discrimination Settlement With Eden Management

001Housing discrimination affects those at all stages of finding a home, whether looking to buy or trying to find a rental unit. Housing discrimination cases are aggressively pursued by the Department of Housing and Urban Development (HUD), but often times the only way to stop further discrimination is for the victims to step forward to make a formal complaint.

That’s exactly what happened in one case, which reached a settlement this week according to a press release from HUD. According to HUDNo.16-76, the agency has reached an agreement with Eden Management in Illinois; “…a $630,000 agreement with a group of Illinois property owners and a management company resolving allegations they violated the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973 by using rental screening policies that prevented applicants with mental disabilities from living in a supportive living complex the group owned.”

According to the press release, “The case came to HUD’s attention after several individuals with mental disabilities filed complaints alleging they were denied residency at the property managed by Eden Management, LLC, due to their disabilities. The individuals filed their complaints with the assistance of HOPE Fair Housing Center, a HUD Fair Housing Initiatives Program agency in DuPage County. HOPE conducted three tests at Eden and also filed a complaint with the Department.”

Federal fair housing laws prohibit such discrimination. It is a violation of the Fair Housing Act to discriminate against a house hunter or potential renter, “in the sale or rental of a dwelling on the basis of disability. In addition, Section 504 of the Rehabilitation Act of 1973 prohibits discrimination on the basis of disability by any program or activity receiving federal financial assistance”. Those who feel they have been discriminated against in violation of Fair Housing Laws are urged to report their experiences to the Department of Housing and Urban Development.

“Discriminatory practices that target persons with disabilities not only violate their rights, they lock them out of decent, safe and affordable housing,” said Gustavo Velasquez, HUD Assistant Secretary for Fair Housing and Equal Opportunity, who was quoted in the press release. “HUD remains committed to taking action when property owners and managers fail to meet their obligations under the Fair Housing Act.”

The press release says the settlement includes a set of requirements for Eden Management. “Under the terms of the Conciliation and Voluntary Compliance Agreement, Eden will pay Complainants $630,000, which includes relief and attorneys’ fees and costs. The agreement further requires Eden to make significant policy changes, including revising its admissions manual and handbook; updating its non-discrimination statement; establishing a reasonable accommodation policy; and conducting fair housing training for employees.”

If you have experienced this or any other type of housing discrimination, file a complaint by contacting HUD’s Office of Fair Housing and Equal Opportunity: (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