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

Monthly Archives: November 2016

Mortgage Rate Trends: Slightly Higher

Mortgage Loan Rate Trends
Were giving additional time for mortgage rate trends this week in light of the sharply higher movement and attempts at recovery weve seen in recent days.

Since our last report, mortgage rates have moved higher once more, but overall the best execution numbers are roughly about in the same range as mentioned in our last report. There are a variety of reasons for Wednesdays upward turn for rates.

One factor is overseas economic news related to the OPEC deal, which in and of itself might serve to put some upward pressure on rates depending on investor reaction to those developments. However, the OPEC situation combined with domestic inflation fears related to the incoming President and his administration serves to dump more fuel on the fire.

These two factors are cited by many industry pros as reasons why the current rate environment is what it is, and why its riskier to float or delay making a mortgage rate lock commitment with your lender (especially if you are within 60 days or less of your closing date).

At the time of this writing, 30-year fixed rate conventional mortgage loans were reported at a best execution range between 4.0% in some cases and up to 4.25%. FHA mortgage rates are in a best execution range between 3.75% and 4.0%. In some cases borrowers may notice the change in mortgage rates reflected in closing costs rather than an actual change in the rates themselves.

The rates you see here are listed as best execution rates, which assume an ideal borrower with outstanding FICO scores and loan repayment history. Your experience may vary depending on a variety of factors including your financial qualifications and the lender. These rates are not available from all lenders or to all borrowers.

We’ll be paying some extra attention to rates in the coming days until the current trends begin to level out. For now, the ups and downs are enough to justify some added column inches here, so we’ll be watching the trends as we approach the end of the year and move into the rate environment that will affect home loans in 2017.

2017 Home Loans: Is Your Holiday Spending A Factor For An FHA Loan?

140Holiday credit card use tends to spike, and those considering 2017 home loans should take this into account when planning for a new mortgage loan application. Your credit card debt affects your debt-to-income ratio, which the lender will calculate at application time. That ratio, called DTI for short, is a very important factor in home loan approval.

For some borrowers, the amount of credit card debt, even holiday spending, isnt as much of a problem as timely payments. Some consumers are tempted at holiday time to skip payments in order to free up some much-needed cash, but a missed payment within 12 months of your FHA mortgage or refinance loan application is not a good thing.

Financial experts recommend borrowers maintain on-time payments with no late or missed payments for a minimum of 12 months leading up to your home loan application. This also applies for those seeking cash-out refinancing as well as for new purchase loans.

The lender is required to check your credit reports for patterns of creditworthiness, and if your payment habits are spotty at holiday time, this may be a red flag to your loan officer.

Those who arent sure how to plan or budget for a home loan in 2017 should consider contacting the FHA directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD approved housing counselor who can help borrowers with pre-purchase planning issues including budgeting, credit, and what to expect from the lenders credit check.

The best overall advice is to resist the urge to skip payments at holiday time, keep your credit card balances as low as possible, and very importantly, avoid applying for new lines of credit leading up to your home loan application.

Applying for more credit may also be a red flag for a lender, especially if a borrower is concerned that FICO scores or other credit report data may be borderline. 2017 home loans may require a bit of extra planning with holiday spending underway, but the effort is definitely worth it.

Mortgage Rates: Recovering

Mortgage Loan Rate TrendsSince our last report on mortgage loan interest rate trends, we saw 30-year fixed rate conventional mortgage rates hit 4.25% best execution (depending on the lender).

That was something of a milestone in 2016 after many, many months of sub-four percent mortgage rates. But since that time, rates have recovered some lost ground and while the current best execution rates are still above the four percent mark, any news of lower rates at this point is welcome.

30-year fixed rate conventional mortgages are, at the time of this writing, reported at a best execution range between 4.125% and 4.25% depending on the lender. FHA mortgage loan rates are still within a range between 3.75% and 4.0%, best execution.

As we always point out, the rates seen here are listed assuming ideal conditions; best execution refers to situations with an extremely qualified borrower. The rates listed here are not available from all lenders or to all borrowers. Your FICO scores, loan repayment history and other financial qualifications will play a large part in determining your access to rates like these.

In the short term, industry professionals are still saying that the current rate environment is not borrower-friendly. The prevailing advice is that locking within 60 days of closing is a safer bet than floating in hopes that the short term recovery trend picks up steam. Locking in your mortgage loan interest rate commitment with the lender means protection against further rate increases based on the terms of your commitment. Floating means holding off on that commitment hoping that rates move lower.

In the current rate environment that is a riskier proposition than usual, which is why many industry professionals are using the word lock in their advice in the short term.

Well be giving more column space to mortgage rates and associated trends in the short term as further developments in politics and market activity affects rates.

FHA Loans Closing Checklist

136Borrowers who buy a home with an FHA loans or any other type of home loan, learn that their closing dates and other details become very important the closer the borrower comes to signing on the dotted line and taking possession of the home.

To help borrowers manage all the details about closing, federal law requires the loan officer to provide a closing disclosure that details expenses, fees, and other information.

The government’s watchdog agency, the Consumer Financial Protection Bureau (CFPB) at ConsumerFinance.gov says of this disclosure, “Lenders are required to provide your Closing Disclosure three business days before your scheduled closing. Use these days wisely”.

The three day period before you close should be used to review your closing details-use it like a closing checklist to make sure everything is in order including the proper spelling of your name, the proper amount of your closing costs, etc.

This disclosure will also project your monthly payments, escrow information, and the amount needed in cash to close the loan. Some areas of the disclosure might not apply to FHA borrowers, such as pre-payment penalties. If you aren’t sure about these portions of your disclosure statement, ask the lender.

The disclosure checklist may sound fairly basic, but if there are errors on the disclosure, you will need to get in touch with your loan officer as quickly as possible to resolve these issues prior to your closing date.

Some things might not be errors per se, but dollar amounts you didn’t expect or thought were higher or lower. What that means for an individual transaction depends greatly on the situation, but it is crucial to resolve these problems as quickly as possible.

And, as the CFPB official site states, if you don’t understand the answers or don’t get the answers you need, it’s important to keep asking questions. Borrowers should fully understand the nature of their home loans, closing costs, insurance fees, and down payment requirements.

FHA Loans And Community Property States

133One of the most common questions we are asked in the comments section involves state community property laws, non-borrowing spouses, and their credit issues. Does an FHA loan applicant have to include a non-borrowing spouse’s financial data when applying for an FHA mortgage?

It all depends on whether the state the borrower is living in has community property laws or not. In cases where such laws are present, the transaction may be affected. FHA loan rules on this topic are addressed in HUD 4000.1, starting on page 180. It begins with a definition:

“Non-Borrowing Spouse Debt refers to debts owed by a spouse that are not owed by, or in the name of the Borrower.”

In cases where a borrower lives in a community property state, where state law has a say in who is financially responsible for the debts of a legally married couple, the following applies:

“If the Borrower resides in a community property state or the Property being insured is located in a community property state, debts of the non-borrowing spouse must be included in the Borrowers qualifying ratios, except for obligations specifically excluded by state law.”

This section adds that the non-borrowing spouse’s credit history is not “considered a reason to deny a mortgage application” according to FHA loan rules. State law and lender standards may also factor into these circumstances, but in general the FHA loan requirement includes the following:

“The Mortgagee must verify and document the debt of the non-borrowing spouse. The Mortgagee must make a note in the file referencing the specific state law that justifies the exclusion of any debt from consideration.”

The above means that your lender will be required to get a credit report for the non-borrowing spouse, “in order to determine the debts that must be included in the liabilities. The credit report for the non-borrowing spouse is for the purpose of establishing debt only, and is not submitted to TOTAL Mortgage Scorecard for the purpose of credit evaluation. The credit report for the non-borrowing spouse may be traditional or non- traditional.”

Speak to a participating lender to see what may be required at that financial institution above and beyond what’s mentioned here.

The Debt To Income Ratio: FHA Rules In 2017

132If you are thinking about your FHA loan options in 2017, one area to pay special attention to (especially over the holidays) is your debt to income ratio (DTI). This ratio is one of the most important factors in the lender’s decision to approve or deny a home loan-it can be just as crucial as your FICO scores.

The debt to income ratio is a calculation your lender will make by taking the amount of verifiable income you have and comparing it with the amount of your monthly financial obligations. This ratio is calculated with and without your proposed mortgage payment in order to determine if you can afford the loan payments every month.

How does the lender make these calculations? According to HUD 4000.1, pages 177 and 178:

“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.”

Note the term, “material inquiries” above, which this section defines as follows:

“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.”

And how does your loan officer get your debt information? HUD 4000.1 instructs the lender, “The Mortgagee must determine the Borrowers monthly liabilities by reviewing all debts listed on the credit report, Uniform Residential Loan Application (URLA), and required documentation. All applicable monthly liabilities must be included in the qualifying ratio.”

Holiday spending can definitely increase your debt-to-income ratio, so borrowers who are moving out of the planning and saving stage of the home buying or refinancing process and into the application portion should keep these factors in mind when using credit cards or thinking about opening new lines of credit.

203(k) Rehab Loans In 2017: Maximum Mortgage Amounts

mortgage loan and business debtFHA 203(k) rehab loans and 203(k) refinance loans in 2017 will help qualified borrowers buy and improve property in need of repairs, renovation, etc. The FHA 203(k) rehab loan program allows a borrower to fill out an application purchase a “fixer-upper” or improve a property. Here’s what the FHA official site says about this type of FHA mortgage:

“Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgageor to finance the rehabilitation of their existing home.” There’s both a standard 203(k) and a limited FHA 203(k) loan for smaller projects.

But how does the lender calculate the amount of the 203(k) mortgage or refinance loan? HUD 4000.1 addresses how the maximum mortgage amount is to be calculated. We find this information on page 366. For purchase loans:

“The maximum mortgage amount that FHA will insure on a 203(k) purchase is the lesser of:
-the appropriate Loan-to-Value (LTV) ratio from the Purchase Loan-to-Value Limits, multiplied by the lesser of:

the Adjusted As-Is Value, plus:
Financeable Repair and Improvement Costs, for Standard 203(k) or Limited 203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); and
Financeable Mortgage Payment Reserves, for Standard 203(k) only;

or

-110 percent of the After Improved Value (100 percent for condominiums);

or

the Nationwide Mortgage Limits.

For a HUD REO 203(k) purchase utilizing the Good Neighbor Next Door (GNND) or $100 Down sales incentive, the Mortgagee must calculate the maximum mortgage amount that FHA will insure in accordance with HUD REO Purchasing.”

And what about for borrowers interested in an FHA 203(k) refinance loan instead?

“The maximum mortgage amount that FHA will insure on a 203(k) refinance is the lesser of:

-existing debt and fees associated with the new Mortgage, plus:

1. the Financeable Repair and Improvement Costs, for Standard 203(k) or Limited
203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); andFinanceable Mortgage Payment Reserves, for Standard 203(k) only;

or
2. the Adjusted As-Is Value, plus:

appropriate LTV ratio below, multiplied by the lesser of:
Financeable Repair and Improvement Costs, for Standard 203(k) or Limited 203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); and Financeable Mortgage Payment Reserves, for Standard 203(k) only);

or
110 percent of the After Improved Value (100 percent for condominiums); or 3. the Nationwide Mortgage Limits.”

Talk to a participating FHA lender to discuss your 203(k) options including loan-to-value ratios and specific types of rehab projects you can do under the program with contractors or as a borrower providing “own labor”.

FHA Appraisal Fees in 2017

151If you are considering an FHA home loan in 2017, the FHA appraisal fees and other appraisal issues are likely something you’ll be thinking about soon. Planning and budgeting for a home loan includes anticipating FHA appraisal fees, hazard insurance, and required closing costs that won’t be included in the loan amount. Do you know how much to save up for such expenses?

We get many questions about FHA appraisals in our comments section. One common question has to do with the specific amount of the fee and how such fees are determined. We are also asked about refunds of the appraisal cost if the home is ultimately declared unsuitable for an FHA mortgage, or if the borrower chooses not to purchase the property for some reason.

The key to understanding both the FHA appraisal process and how the appraisal is priced? Remembering that an appraisal is a service that is rendered for a fee, rather than an end result for which a fee is paid.

The appraisal service costs a specific amount of money, which varies depending on the housing market. There’s no one set cost for an appraisal any more than there is one set cost for an oil change, computer repair, etc. All of these things are services for which the borrower pays a fee that is customary in that market.

If you need an appraisal in 2017, you’ll need to check with local appraisers to see roughly how much they charge in your area for the service. The FHA and HUD do not keep records of how much is charged or who offers these services.

HUD 4000.1 contains the rules and instructions for FHA appraisals including a section that discusses FHA appraisal fees. According to page 63, we learn, “The Appraiser and the Mortgagee or Mortgagee-designated third party will negotiate the appraisal fees and due date. FHA does not establish appraisal fees or due dates.”

So it’s clear from this reading of FHA loan rules that the FHA and HUD are not involved in setting prices for appraisals. This is also true of hazard insurance, broker fees, and other expenses related to your FHA home loan. Your lender can advise you on how much has been charged in the past for these expenses based on that person’s experience with other loans in your market.

Happy Thanksgiving 2016

american flagHappy Thanksgiving! We pause from our usual schedule of writing about FHA home loans and answering reader questions to observe the holiday. Thank you very much for reading! Our regular schedule returns on Friday.

FHA 203 (k) Loans in 2017: What To Expect

120Are you considering an FHA 203(k) rehab loan or refinance loan in 2017? There are rules for this fixer upper loan (and its refinance loan counterpart) you should know going into the process.

For starters, when a borrower is applying for an FHA 203(k) loan, the lender is required to use a 203(k) consultant. According to HUD 4000.1, “The Mortgagee must select an FHA-approved 203(k) Consultant from the FHA 203(k) Consultant Roster in FHAC…The Consultant must inspect the Property and prepare the Work Write-Up and Cost Estimate.”

This section of the loan rules adds definitions for the terms mentioned above. “The Work Write-Up refers to the report prepared by a 203(k) Consultant that identifies each Work Item to be performed and the specifications for completion of the repair. Cost Estimate refers to a breakdown of the cost for each proposed Work Item, prepared by a 203(k) Consultant. Work Item refers to a specific repair or improvement that will be performed.”

In some cases, a borrower might be planning to do her own repair/rehab work. These circumstances are also addressed in HUD 4000.1. “For Borrowers performing their own work under a Rehabilitation Self-Help Agreement, the Consultant must identify on the Work Write-Up each Work Item to be performed by the Borrower. The Borrower must not be reimbursed for labor costs.”

203(k) rehab loans in 2017 include a list of items defined as “repair and improvement costs” that can be financed into the loan. They include:

-costs of construction, repairs and rehabilitation;
-architectural/engineering professional fees;
-the 203(k) Consultant fee subject to the limits in the 203(k) Consultant Fee Schedule section;
-inspection fees performed during the construction period, provided the fees are reasonable and customary for the area;
-title update fees;
-permits; and
-a Feasibility Study, when necessary to determine if the rehabilitation is feasible.

Speak to a loan officer to learn more about FHA 203 loans including the 203(k) and 203(h), and refinance versions of same.