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

Monthly Archives: June 2016

HUD Publishes Early Findings From Home Buyer Literacy Study

2015-34Financial literacy is an important part of being a well-informed home buyer. For those just starting out on the journey toward home ownership, there can be a great deal of learning to do; how FICO scores affect your ability to purchase a home, how open lines of credit can and often do factor into a lender’s decision to approve or deny a mortgage, etc.

HUD launched a study to see how home buyer education and certain types of financial counseling might make a difference to house hunters.

According to a recent press release at the HUD official site, “The U.S. Department of Housing and Urban Development (HUD) today published early findings from a rigorous, large-scale, random assignment study on the benefits that housing education and counseling provides to first-time homebuyers.”

“Early results from The First-Time Homebuyer Education and Counseling Demonstrationare encouraging and suggest homebuyer education and counseling may lead to favorable results for first-time homebuyers in terms of mortgage literacy and preparedness, homebuyer outcomes, and loan performance. ”

HUD began the study in 2013. Between then and early 2016, nearly six thousand first time home buyers in 28 areas were contacted. “The study involves three large national lenders”, the press release says, “63 HUD-approved housing counseling agencies, and two remote service providers.”

Families participating in the study were, “randomly assigned to one of three treatment groups: remote (online education and telephone-based counseling), in-person (group workshops and individual counseling) and a control group that was not offered any services.”

The study’s findings include 65 percent of early participants being offered “remote homebuyer education and counseling initiated services” compared to “25 percent of those who were offered in-person education and counseling” according to the press release at HUD.gov.

“The early findings of this study underscore the need to continue supporting housing education and counseling programs, and the particular importance of making remote education and telephone counseling easily accessible to prospective homebuyers,” says Katherine ORegan, HUDs Assistant Secretary for Policy Development and Research, who was quoted on the HUD official site.

“Over the next four years”, she adds, “we expect to produce long-sought answers about the impact of homebuyer education and counseling on mortgage literacy and preparedness, homebuyer outcomes and loan performance.”

According to HUD, the study’s early findings “suggest homebuyer education and counseling could be a cornerstone of successfully expanding homeownership opportunity and decreasing mortgage delinquency and foreclosures.” You can learn more about the study at http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-102.

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 At Multi-Year Lows

2015-02Mortgage rates are still holding at or near 36-month lows. Brexit drama continues to be a factor in the low rates, but some market watchers believe that we’re about to see the first increase in rates soon, if for no other reason than what’s termed “bond market weakness” that could be an indication things are about to change soon.

But there is a three-day weekend ahead, and things tend to get a bit conservative around the holiday. Rates could, based on previous holiday activity, go into “defensive mode”, not changing dramatically one way or the other. On the other hand, we have seen assumptions like that proven wrong due to breaking news, changes in investor behavior, etc.

In other words, yes rates are low now, but it’s not safe to assume they will be this low indefinitely.

30-year fixed rate conventional mortgages are reported for a small number of more competitive lenders at a best-execution 3.25% which is dipping into FHA territory in the short term. But the more common best execution rate for 30-year fixed conventional mortgages is a range between 3.375% and 3.5%. FHA mortgage loans are still at 3.25% but it is far too early to tell if that will become a new “comfort zone” for FHA rates.

Remember, the rates seen here are listed as best execution rates and your access to them depends greatly on your financial qualifications. These rates are not available to all borrowers or from all lenders. Your experience may vary.

When it comes to locking/floating, borrowers do no harm in locking in mortgage loan rates at levels we haven’t seen in 36 months, according to some market watchers. Those who are interested in taking the risk of floating here might find a payoff according to our sources, but floating is never risk free and there is always a chance that breaking news or new developments (with or without Brexit drama) could push rates higher once more.

It’s always a good idea to discuss your lock/float strategy with your loan officer. Getting some advice will, if nothing else, make you a more informed borrower and help you make the most informed choice possible when it comes to the timing of your mortgage rate lock commitment.

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: Legal Ownership Of A Property To Be Refinanced

108A reader asks, “I have a FHA loan that I received with my ex wife we have been divorced for approx. 7 years. Due to the amicable nature of the divorce we did not specify that I would keep possession of the house, we have a gift of deed.”

“But the mortgage company says I can not refinance because there is no clause in the divorce decree about house ownership transfer. Wouldn’t the deed of gift be a legal binding document to prove ownership?”

FHA loan rules found on page 126 states, “A refinance transaction is a new Mortgage for a Borrower with legal title on the same Property with the proceeds used to pay off any existing liens”.

We don’t give out legal advice or opinions here as it’s beyond the scope of this blog to do so. We aren’t lawyers or legal experts, so the best we can do is quote the relevant portions of the FHA home loan rules in HUD 4000.1 or related documents. The reader would need to consult with someone who has legal expertise in this area.

The reasons for this are varied; state law affects such transactions and laws are different from state to state. What is permitted in one state may be illegal in another.

Also, state community property laws may also apply. Community property laws affect the final disposition of a borrower’s shared financial responsibilities for debt and property accumulated in a legal marriage. While not all states have community property laws, those that do have have more complex requirements in divorce cases.

And as we often point out, even of the FHA loan rulebook did have more to say about the issue, lender standards may also apply. It may be that a given lender won’t accept the type of paperwork mentioned in the reader question.

To approve a refinance loan, the lender may require a specific type of legal procedure or document in such cases which proves the borrower is entitled to apply for a refinance loan on the property.

Since FHA loan rules do specify that the borrower must have legal title, the borrower would need to check with the local authority to see what is involved for getting the applicant’s name on the legal title.

It may also be a good idea to have a conversation with a lender to see what that lender specifically requires in order to make the refinance loan possible under such 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

FHA Loan Questions: Overtime Pay

109We get many questions in our comments section about how FHA loan rules may apply to a specific situation with regard to employment, pay, and verifiable income.

Some potential borrowers want to know if having frequent changes of employment will negatively affect an FHA loan application (not necessarily) and others want to know if their new commission income will count towards their “effective income” (it depends on how long the commission income has been earned and whether it’s likely to continue).

Still others want to know how the question of overtime pay is handled in the FHA loan rulebook. Recently, one reader asked:

“I previously worked in law enforcement (resigned in September of 2015) and I obtained a job in another industry which pays me double my previous salary. I made about $80000 (includes $20,000 in overtime) last year which was a combination of my previous employer and current. This year Im on track to make around $85,000 ( estimated $25,000 overtime). My question is will overtime be included in my debt ratio even if it was from 2 different employers, past and present?”

The basic answer to this question is, “It depends”. FHA loan rules in HUD 4000.1, page 189 addresses these and similar issues. There we find the following instructions to the lender:

“The Mortgagee may use Overtime and Bonus Income as Effective Income if the Borrower has received this income for the past two years and it is reasonably likely to continue. Periods of Overtime and Bonus Income less than two years may be considered Effective Income if the Mortgagee documents that the Overtime and Bonus Income has been consistently earned over a period of not less than one year and is reasonably likely to continue.”

So if the reader’s overtime income has been going on for at least one year prior to the loan application AND the lender is satisfied that it is likely to continue, it’s possible that the overtime might count towards the borrower’s debt to income ratio as part of his or her “verifiable income”.

However, if the overtime has not been earned for at least one year (reference the HUD 4000.1 quote above) the lender may have no choice but to reject the overtime based on the reading above.

It’s also worth mentioning that FHA loan rules aren’t the only ones that may affect the outcome in a situation like this. Lender standards may also apply and if the lender requires more time on the job with overtime earnings, the FHA minimums in this case may not help the borrower’s cause. However, there many variables and a borrower shouldn’t assume the loan can’t be approved until discussing the particulars with a 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

FHA Loans: Calculating The Monthly Mortgage Payment

110One of the most important questions a home loan applicant can ask is, “How much will my monthly mortgage payment be?” While this may seem to be a simple calculation of how much the loan is, divided by how many months the mortgage loan payments are required, the truth is that it’s more complex than that.

Mortgage loan applicants have a variety of online mortgage calculators to help them arrive at estimates, but what actually goes into the calculation of your monthly mortgage payment? If it’s not a simple matter of taking the loan amount and dividing it by the number of months the loan term is set for, what DOES go into those calculations?

There are a variety of things. The basic calculation we mention is part of it, but add in hazard insurance, mortgage insurance premiums and other expenses (plus any add-ons to the loan the borrower might choose such as an Energy Efficient Mortgage or EEM) and you have a list of items that must be factored in.

HUD 4000.1, page 311 has a list of items that may be included in the total mortgage payment:

-Principal and interest;
-real estate taxes;
-hazard insurance;
-flood insurance as applicable;
-MIP;
-HOA or condominium association fees or expenses;
-ground rent (where applicable);
-any required special assessments;
-payments for any acceptable secondary financing; and
-any other escrow payments.

According to HUD 4000.1 in this section, “The Mortgagee may deduct the amount of the Mortgage Credit Certificate or Section 8 Homeownership Voucher if it is paid directly to the servicer”.

As you can see there are many things that can go into the mortgage payment calculation. That’s one reason why it’s important to carefully review add-ons to the loan such as financing discount points (where applicable and permitted), EEM funds, etc. It’s clear that a borrower can watch her/his mortgage payment go up; unless add-ons to the loan amount are carefully monitored you may find your payments higher than you prefer.

It’s not impossible to arrive at a realistic estimate for your monthly FHA mortgage loan or refinance loan payments. Keeping a close eye on these expenses in the appropriate part of the planning stages of the loan can help you avoid surprises where the monthly payment is concerned. Have a conversation with your lender if there is any part of this process you have concerns with.

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: Still Moving Lower After Brexit Vote

2015-02Mortgage loan rates dropped sharply after the news of the Brexit vote last week, and the fallout from that outcome is still affecting mortgage rates in the short term.

The popular vote in Britain to leave the EU is not legally binding-the government there must still make procedural moves to actually depart, and there’s some uncertainty over when or even IF that might happen. Talk of a second referendum is in the news, as well as talk about the “what if” notion of the government in Britain simply doing nothing, not departing the EU in spite of the vote. That, of course, is very much in the realm of speculation at the time of this writing.

What does all this mean at home? That investors are still reacting to the Brexit drama in ways that benefit mortgage loan rates in the short term. We saw rates move decisively lower on Friday, and on Monday rates dropped again, putting some 30-year fixed rate conventional lenders offering best execution rates at between 3.375% for more aggressive lenders and 3.5% for others.

Once again, conventional mortgage loan rates are dipping into FHA territory. They aren’t there yet, but with the FHA having left behind its long reported comfort zone range between 3.25% and 3.5% in favor of the bottom of that range, is it possible we could see FHA best execution rates dip even closer to the very bottom of the three percent zone?

That is speculation, and there’s no telling when the market might “bounce” or move sharply higher as a kind of correction to the current downward trend. It’s not safe to assume that these rock-bottom rates, described by some market watchers as “best in three years” or close to it, are here to stay.

Much depends on what happens with Brexit over the short term, or more specifically, how investors react. If that reaction continues to favor mortgage loan rates, we might see an extended run of the current numbers or close to them. But if and when the pendulum begins to swing in the opposite direction, there’s no telling how far or how fast rates might go higher.

Some market watchers don’t feel that the downward trend is over just yet. There’s talk that some gains might not be passed along until Tuesday, and there are those who look to the Brexit drama with the idea that it could affect rates for months to come. But it’s important to remember that other economic developments and breaking news can also affect mortgage loan rates-Brexit isn’t the only thing that has the power to affect mortgage loan interest rates.

So it’s crucial as always to assess your risk tolerance and choose wisely. Floating may be less risky in the short term, but holding off on a mortgage loan interest rate lock in hopes that rates go lower is never completely risk-free. Deciding in advance what you will do if and when rates begin to rise again is the best preparation you can make when choosing your lock/float strategy.

As always, the rates we report on here are listed as “best execution” rates, which assume a highly qualified applicant with outstanding FICO scores and other financials. Your experience may vary, these rates are not available to all borrowers or from all lenders.

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: Terms and Definitions You Should Know

2015-19Are you thinking about buying a home with an FHA mortgage or refinancing a current mortgage loan? If you are new to either process, or if it’s been a long time since you purchased your first home, there may be terms and definitions you need to re-familiarize yourself with. Here are some basics you should know:

FHA single-family home loans are what most borrowers are after when they want an FHA mortgage to purchase a home, town home, condo, manufactured home, etc. The idea is basically that the home purchased with the FHA loan is an owner-occupied property which is primarily residential in nature, and where at least one of the borrowers or co-borrowers will live once the loan is closed.

Occupancy requirements refer to the FHA policy that single family homes must be occupied by at least one borrower within a reasonable time after closing, usually 60 days or less. The occupancy requirement is in place to prevent FHA single family mortgage loans from being used to purchase investment properties.

Minimum required investment is a term you’ll see in FHA loan application documents, lender paperwork, etc. It refers to the minimum down payment needed to qualify for the FHA loan. The Minimum required investment is separate from all other fees, expenses, and costs of the loan and must come from approved sources.

The cost of an appraisal or other fees is NOT considered part of the down payment/minimum required investment. Your down payment amount can be affected by factors such as FICO scores, etc.

Mortgage Insurance Premiums (MIP) are part of your FHA loan monthly mortgage payment. These premiums are required as part of the FHA loan and are not associated with private mortgage insurance. Sometimes it’s easy to confuse MIP with private mortgage insurance which is sometimes referred to as PMI, but private mortgage insurance is NOT the same as the FHA’s required mortgage insurance premium. The FHA MIP is separate from the FHA Up Front Mortgage Insurance Premium which is part of the borrower’s closing costs. This may be included in the loan amount depending on circumstances, but the borrower must either pay or finance the entire amount.

Base loan amount is defined by the FHA official site (www.FHA.gov) as follows: “The Base Loan Amount is the mortgage amount prior to the addition of any financed Up front Mortgage Insurance Premium (UFMIP)”.

Installment loans are often mentioned in FHA loan documents, especially when it comes time for a credit check by the lender. Your loan officer wants to know what kinds of debt you have including revolving credit (credit cards), and other types of monthly recurring debt. According to FHA.gov, “Installment Loans refer to loans, not secured by real estate, that require the periodic payment of principal and interest.”

One area that some borrowers may not be aware of-for those who are applying for an FHA mortgage for a primary residence, but who also have previously purchased a time share, FHA loan rules are specific about the nature of that type of debt: “A loan secured by an interest in a timeshare must be considered an Installment Loan.” That’s important to know in the planning stages of your FHA home loan or FHA cash-out refinance loan.

We will examine other FHA terms and their definitions in future blog posts.

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: Sharply Lower Following Brexit Vote

2015-02For five straight business days prior to the Brexit vote, mortgage loan rates moved higher. Investor reaction to the anticipation of the vote played an important part in this; uncertainty over the outcome of the vote and what the vote might do to markets added potential volatility to the daily ups and downs for mortgage loan rates in general.

Then the Brexit vote happened, the majority spoke, and investors reacted accordingly. The result? A major shift lower for mortgage rates on Friday, one not seen since well over a year ago. Rates moved lower in one day than they have in all that time, resulting in 30-year fixed rate mortgage best execution rates to fall down 3.5%.

FHA mortgage loan rates finally shifted out of their comfort zone during Brexit drama, closing Friday with a best execution 3.25%. That’s down from the previous FHA best execution range of rates between 3.25% and 3.5%.

Remember, “best execution rates refer to the rates offered applicants with extremely favorable financial qualifications. Your FICO scores and other financial qualifications will play a major role in your ability to access rates similar to the ones listed here. Your experience may vary; these rates are not available to all borrowers or from all lenders.

Some may be confused by these changes, until it’s explained that in many cases what is bad for the economy is good for mortgage loan rates. The Brexit vote-Britain’s voters choosing by a narrow majority to leave the European Union-cause a plunge in markets at home and abroad.

And mortgage rates, while not directly affected by such events, ARE affected by investor reaction to such events. In the markets that do affect mortgage loan rates, a shift towards “safe haven” investments benefits mortgage rates in the short term.

Those who pay attention to what the industry pros say about locking in a mortgage rate commitment with a lender (versus “floating”, holding off on making that commitment in hopes that rates will move lower) will notice that plenty of market watchers felt locking was the better move. Obviously those who were more interested in floating through the Brexit vote had a major payoff.

The lock/float advice in the wake of Brexit is mixed, but some believe that locking now is a safer move due to the uncertainty over how long current rates will last in the short term. Floating is never risk-free in the best of times, but if you are tempted to float, ask some advice of your lender to make the most informed choice possible.

There’s simply no telling where rates might go from here, and it would be wrong to assume a “bounce” or correction is NOT coming at some point. When the pendulum swings in one direction, eventually it must swing the other way. The question is, how long before that movement occurs?

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: Co-Borrowers

108A reader asks, “My husband is a co burrower on his mothers mortgage loan and he has been asking her to remove his name from it but she hasnt. The mortgage has affected his credit and has made it hard to get a home of our own. Can his name be removed from the mortgage or is this something we need a lawyer for?”

Before answering this question, let’s examine how the FHA defines the role of a co-borrower. Page 128 of HUD 4000.1 states:

“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.”

According to HUD 4000.1, a co-borrower may occupy the home, or function as a non-occupying co-borrower. In either case, the co-borrower may be eligible for a new FHA home loan under certain conditions.

“A non-occupying co-Borrower on an existing FHA-insured Mortgage may qualify for an FHA-insured Mortgage on a new Property to be their own Principal Residence” as long as “the Borrower is vacating (with no intent to return) the Principal Residence which will remain occupied by an existing co-Borrower” or does not currently reside in the original property purchased with an FHA mortgage.

To answer the reader question, it’s important to note that state law may have a lot to say about how to proceed in circumstances like the one mentioned by the reader. We don’t give out legal advice (we are not lawyers or legal experts and such advice is beyond the scope of this blog) and a co-borrower’s best option in these cases may be to discuss the situation with the lender to see what recourse is available.

Barring that, hiring a lawyer with expertise in areas like these is a good idea, and you may find that the lender recommends this course of action too, depending on circumstances.

It’s important to remember that when co-borrowing or co-signing on a mortgage loan, the co-borrower is entering into a legally binding contract with the lender. It never hurts to discuss options prior to committing to a loan-including scenarios where a co-borrower may need to purchase a home of their own or seek a remedy to satisfy a legal need. Knowing your options, rights, and responsibilities prior to signing the contract is important.

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: Self Employment

2015-32A reader asks, “I am working on getting an FHA loan and my lender asks that I provide W2s. I am self employed via my own business as well as had a regular job how will this affect my loan being that i have no W2 and that my taxes were done via 1099 and 1040 forms for myself and my business?”

In cases like these, the lender will require whatever tax documentation that is available to show proof of income. For self employed borrowers, the lender may also require additional documentation such as profit and loss statements, business plans, and other items that may be required.

Lender standards will apply so FHA loan rules and minimums are only part of the equation.

FHA loan rules in HUD 4000.1 do permit the lender to use self-employment income as verifiable income if it meets FHA standards. According to page 192 of HUD 4000.1:

“The Mortgagee may consider Self-Employment Income if the Borrower has been self-employed for at least two years.”

However, the next line on page 192 also instructs the lender:

“If the Borrower has been self-employed between one and two years, the Mortgagee may only consider the income as Effective Income if the Borrower was previously employed in the same line of work in which the Borrower is self- employed or in a related occupation for at least two years.”

There are also certain factors that a lender must consider when reviewing this type of income to see if it can be included in the borrower’s debt-to-income ratio:

“Income obtained from businesses with annual earnings that are stable or increasing is acceptable. If the income from businesses shows a greater than 20 percent decline in Effective Income over the analysis period, the Mortgagee must downgrade and manually underwrite.”

As you can see from the above, self-employment income can be a bit more complicated, but if the income meets FHA standards it may be considered acceptable to the lender. It’s important to remember that lender requirements and even state law, where applicable, may apply so the final say in matters like these might depend on the lender.

Borrowers who are self employed should take extra time to locate and copy their tax documents, business plans, profit and loss statements and any other required paperwork before applying for the loan. You may be required to furnish several years’ worth of this documentation so it’s definitely advisable to get a head start on compiling it.

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