Monthly Archives: December 2016
FHA mortgages for single family residences include a wide variety of eligible property types. You can purchase a typical suburban home with an FHA loan, a condo unit, manufactured home, modular home, or other approved structure meant to house a family that qualified under FHA loan rules. These properties can be single-unit homes or have up to four living units.
While it’s true that not all lenders approve loans for all the possible types of housing available under the FHA program (some lenders choose not to loan money for mobile homes or new construction homes, for example) there are some general guidelines about the types of property you can purchase from a participating lender.
FHA mortgages are approved for those who intend to be owner-occupiers. FHA mortgages are not available for investment property or for situations where the buyer will not be occupying the home as her or his principal residence.
All FHA properties must be on or affixed to a permanent foundation. This means the houseboats, recreational vehicles, or any other type of property not classifiable as “real property” due to it not being affixed to an approved permanent foundation would not qualify for an FHA mortgage.
Furthermore, HUD 4000.1, the FHA loan rulebook, has a list of property types that are not eligible for single-family FHA mortgages:
-hotels, motels and condotels
-bed and breakfast establishments
-other transient housing
-fraternity and sorority houses
Potential FHA borrowers may be permitted to purchase a multi-unit property, occupy one of the units, and rent out the remaining unused spaces. The income from such rentals may or may not be included in the borrower’s debt-to-income ratio calculations. Much depends on the individual circumstances and whether the borrower has any previous experience as a landlord. Lender standards may also apply.
Is it possible for borrowers to apply for second FHA loans, resulting in paying on two mortgages at once? A reader asks, “Several months ago I relocated to another state over 400 miles away. To help offset costs I rented my home with the FHA loan. I have been renting in the new state and now ready to purchase a home in my new state. Will I be able to get an FHA loan even though I had to rent out my old home?”
Unfortunately there’s no one single answer to a question like this. Aside from FHA loan rules, a borrowers credit rating, loan repayment history, and debt-to-income ratio may all play a part in whether a lender is able to approve or deny an FHA loan.
In cases like these, one of the most important factors would be (all other considerations aside) focused on the borrower’s debt-to-income ratio. With an existing mortgage payment, will the borrower be able to afford the new mortgage?
In general, FHA loan rules in HUD 4000.1 state that a borrower can only have one FHA mortgage loan at a time. However, certain exceptions are possible. Here’s one of them:
“A Borrower may be eligible to obtain another FHA-insured Mortgage without being required to sell an existing Property covered by an FHA-insured Mortgage if the Borrower is:
- relocating or has relocated for an employment-related reason; and
- establishing or has established a new Principal Residence in an area more than 100 miles from the Borrowers current Principal Residence.”
HUD 4000.1 adds that in such cases, “If the Borrower moves back to the original area, the Borrower is not required to live in the original house and may obtain a new FHA-insured Mortgage on a new Principal Residence, provided the relocation meets the two requirements above.”
Borrowers who technically meet such exceptions would be required to provide supporting documentation in order for the lender to be able to justify approving borrowers who want to carry second FHA loans.
In any case, lender standards, state law, and other requirements may also apply. The FHA loan rules that make purchasing another home with an FHA mortgage possible may be cancelled out by lender standards or state law, so it’s important to research the lender and the new housing market to see what may be possible.
Someone who has entered into an FHA loan transaction as a non-occupying co-borrower is also eligible to apply for an FHA mortgage for a principle residence.
Mortgage loan interest rates clawed back some of their losses on Wednesday, dropping down to 14-day lows and creeping back from the mid four-percent zone a bit. The gains came after bond market activity favorable to mortgage loan rates.
Professional market watchers say we’re likely not to see any significant, decisive movement until well after the New Year’s Eve holiday, but the improvements on Wednesday are encouraging to some.
There are plenty of factors that could still put upward pressure on mortgage rates including economic uncertainty related to the American political climate. “Wait and see” is the phrase most used when contemplating this as a spoiler on mortgage rates. Borrowers unsure of whether to lock in a mortgage rate commitment with a lender or not should discuss the current rate environment with a loan officer and get some expert advice.
30-year fixed rate conventional mortgages were reported in a best-execution range between 4.25% and 4.375%. At the time of this writing there was talk of 4.25% being just as common as the upper end of the range. That could easily change in the current rate environment, so when it comes to locking or floating, borrower beware.
FHA mortgage rates are still reported at a best execution 4.0%. FHA rates tend to vary more than conventional mortgage rates, so you may have to shop around a bit for the most competitive numbers.
Wednesday’s gains weren’t enough to push FHA loan rates out of the comfort zone, but if they do move it’s likely that we’ll see a range of rates with 4.0% at one end of the spectrum or the other depending on whether the rates are moving higher or lower.
As always, the numbers you see here are reported as “best execution” interest rates and may not be available from all lenders or to all borrowers. Your financial qualifications have a major impact on your ability to access rates at or near the ones listed here. Your experience may vary.
As mentioned above, it may be well after New Year’s that we see any real new developments that affect interest rates beyond a one-day adjustment. We’ll keep an eye out for significant changes, if activity warrants additional coverage, we’ll report about it here.
Are you one of the many house hunters planning on filling out FHA loan applications for 2017? Are you ready to apply? Here are some tips to help you determine how close you might be to the application stage of a new FHA mortgage.
Do you know the contents of your credit reports? Do you know your FICO scores? If not, you’ll need some additional time before applying for your home loan to review your credit, see what the lender may see, and determine whether your credit history is free of errors or evidence of identity theft.
If your credit report shows erroneous information or if you suspect identity theft based on questionable entries on your report, you will need additional time prior to your FHA loan application to clear up the matter. It’s not advisable to apply for a new line of credit with unresolved issues on your credit report.
It is strongly recommended to come to the application process with no fewer than 12 months of on-time payments on all your financial obligations including rent, taxes, credit cards, student loans, etc. Late or missed payments within the 12 months leading up to your loan application could make it harder for your loan officer to approve your mortgage.
FHA Loan Options
Have you decided which FHA loan options you want to use when you apply? FHA mortgages offer fixed-rate loans, adjustable rate mortgages, and other options. If you haven’t thought about the type of loan you need or the terms (15 or 30-year loans, etc.) It’s best to have those choices carefully thought about prior to filling out the paperwork.
Some issues are optional-applying for an FHA Energy Efficient Mortgage for additional funds in the loan to upgrade the home. Others are more critical, such as whether you’ll need to factor in hazard insurance to your mortgage payment budget depending on the location of the home you wish to buy.
Do you think you may be in the home for five years or more after purchase? Do you see the potential for selling before the loan is paid in full? There are many types of home loan strategies that may help depending on your financial goals and needs.
Some borrowers choose an adjustable rate mortgage to take advantage of the introductory “teaser” rate with a mind to sell the home once that rate expires or soon thereafter. Others prefer the peace of mind that a fixed-rate mortgage brings and have no plans to sell the home once they move into it. Knowing where you’d like to be in five or ten years and the role of your new home in those plans can be a big help when it comes to deciding what kind of FHA mortgage loan to apply for.
If you are not sure about one or more of these areas, there is help available. You can call the FHA/HUD directly at their toll-free number (1-800 CALL FHA) to request a referral to a local, HUD-approved housing counselor who can help with advice and information in the form of pre-purchase counseling.
On the FHA/HUD official site, there is a section covering the purchase of HUD homes, including tips on which FHA home loan might be best for these transactions.
According to the Department of Housing and Urban Development official site, “A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim”.
These homes are offered for sale via HUD. Who is qualified to buy one of these properties? According to HUD.gov, “Anyone who has the required cash or can qualify for a loan (subject to certain restrictions) may buy a HUD Home. HUD Homes are initially offered to owner-occupant purchasers (people who are buying the home as their primary residence). Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.”
The HUD official site has some advice for those who are interested in using FHA loans to purchase a HUD home. These properties are often available for much less than than they might be sold for on the open market, but the properties can be distressed and their condition is NOT guaranteed by HUD in any way.
According to the official site, “HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get an inspection from a licensed professional home inspector prior to submitting an offer to purchase.”
That’s where the FHA 203(k) rehab loan comes in. HUD.gov advises, “When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.”
“FHA’s 203(k) Rehabilitation Loanis designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.”
An FHA 203(k) loan still requires the property to meet minimum standards and state/local building code; unlike a traditional new purchase loan, the property would be required to meet these standards once the work is complete rather than prior to purchase. What kind of work can be done with a 203(k)?
“The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor (though exceeding $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure.”
Speak to a loan officer to learn more about your options under the 203(k) program.
According to a Department of Housing and Urban Development press release, HUD “awarded an additional $1.8 billion to help Louisiana, West Virginia, Texas, North Carolina, South Carolina and Florida to recover after severe flooding events that occurred earlier this year. Provided through HUDs Community Development Block Grant Disaster Recovery (CDBG-DR) Program, these recovery funds will assist the most impacted communities that experienced the most serious damage to their housing stock.”
Earlier this month, President Obama signed the Fiscal Year 2017 Further Continuing Resolution, which became law on December 10, 2016.
The resolution is described on the HUD official site as a stopgap spending measure. HUD is directed by the resolution to allocate $1.8 billion in the most impacted and distressed areas. Those areas experienced “presidentially declared disasters in 2016 but prior to December 10, 2016” according to the press release.
This relief includes money for presidentally declared disaster areas affected by Hurricanes Matthew and Hermine. Our team worked quickly to make sure these funds reach thecommunities most impacted by amajor disaster this year.says HUD Secretary Julian Castro, who was quoted in the HUD press release. He adds, Well do everything we can to support thepeople and places still struggling to rebuild.
Home owners in disaster areas such as the ones mentioned here are urged to stay in contact with their lenders, contact FEMA and state/local relief agencies, and be cautious when offered settlements from insurance companies. The most important things to do in the wake of a disaster all have one thing in common-it’s wrong to assume that help is simply “on the way” with no contact required from a borrower or home owner.
Some disaster relief such as loan forbearance or other measures that directly affect the borrower’s payment requirements will need to be negotiated with the lender on a case-by-case basis. Other relief may be available via online forms or mail-in requests, or by appointment with an agency representative.
If you aren’t sure what to do in the wake of a natural disaster, contact your lender first, along with your insurance company, and FEMA to learn how to begin the recovery process and protect yourself financially.
But these changes aren’t enough to push best execution rates lower, it’s going to take either many days of sustained-but-small improvement or some more significant changes in the short term to revise rates lower. Borrowers affected by the recent incremental moves lower will likely see the changes reflected in closing costs.
Just ahead of the holiday weekend, 30-year fixed rate conventional mortgages were reported in a best execution range between 4.25% and 4.5%. That’s quite a long spread, but it is important to keep in mind that the most competitive lenders (and a small number of them, too) are the ones at the lowest end of the range, while the middle of the current best execution range may be more common for qualified borrowers.
FHA mortgage rates are holding steady at a best execution 4.0%, though FHA rates tend to vary more among participating lenders than their conventional counterparts. It pays to shop around for rates, and FHA loans are no exception to this rule.
The rates quoted here are listed as “best execution” rates which assume an ideal borrower with excellent credit history, FICO scores, debt-to-income ratios, etc. Your experience may vary; access to the rates listed here is not guaranteed. These rates are not available to all borrowers or from all lenders.
Industry professionals note that the final week of 2016 will likely be one where rates are in “defensive” mode-there may not be much variation either way for rates until after the New Year’s holiday. That said, it’s possible that breaking news, economic data releases, or other factors that can and do affect the markets that influence mortgage rates could alter things.
Locking in a mortgage rate commitment with a lender seems to be the best strategy for any borrower with low risk tolerance. Floating, or delaying that commitment in hopes that rates will go lower in the meantime, is never without risk. But in the current rate environment that risk is elevated. Borrowers should discuss any plans to float with the lender-get some advice before choosing.
Happy Holidays 2016! The Monday AFTER December 25 might seem to be a strange time to make that statement, but today is the observed holiday since Christmas came over the weekend this year. Many banks are closed, the markets that affect mortgage rates aren’t operating to day, and we too observe the extended holiday weekend.
We’ll resume our usual posting schedule on Tuesday including an updated look at mortgage rate trends. Thank you for reading!
According to an FHA mortgagee letter, “Mortgagee Letter 16-20 set Federal Housing Administration forward mortgage limits for calendar year 2017, but indicated incorrect ceiling limits for Alaska, Hawaii, Guam, and the Virgin Islands, which are special exception areas which allow for higher construction costs.”
That’s according to Mortgagee Letter 2016-25, which adds the “the correct forward mortgage limit ceiling for those special exception areas”.
The Mortgagee Letter is quick to add that there are NO CHANGES for FHA loan limits, including those in the special exception areas. According to the new mortgagee letter:
“While ML 16-20 referenced incorrect ceiling limits for the special exception areas, there are no changes to the mortgage limits in any jurisdiction, including the special exception areas, as no jurisdiction in the special exception area has a median house price that generates a mortgage limit above the amounts referenced in ML 16-20.”
According to the FHA official site, the FHA high costs of construction in the special exception areas requires adjustments to mortgage limit ceilings for Alaska (AK), Hawaii (HI), Guam (GU) and the Virgin Islands (VI).
“These Special Exception Area limit ceilings are set at 150 percent of FHAs High Cost Area mortgage limits, rounded down to the nearest $25” according to the official site. “These four special exception areas have a higher ceiling as follows:
-One-unit: $954,2 25
If you are not sure how these numbers or their correction from the original posting affects your transaction, speak to your loan officer for more information.
This correction applies for all affected FHA loans in the special exception area with FHA loan case numbers assigned on or after 1 January, 2017.
An FHA loan comes with a variety of options including the types of property you can buy (suburban home, townhome, condo unit, manufactured home, etc.) and the types of mortgage you can apply for (15-year term, 30-year term, fixed rate, adjustable rate mortgage, etc.).
FHA Loan Fact: Applying For An FHA Mortgage With A Participating Lender
There are many participating FHA lenders waiting to help you, and while FHA loans are NOT available from a financial institution that does not participate, the number of those who do is quite high. If you need to refinance a conventional loan and your lender is not an FHA lender, you’re free to find one who does and refinance into an FHA mortgage.
FHA Loan Fiction: First Time Home Buyers Only?
FHA loan rules do not give precedence or an advantage to first time home buyers. Your participating lender may have a program from that financial institution which does, but the FHA loan program itself welcomes all qualified borrowers regardless of their status as first-time home owners or experienced buyers.
FHA Loan Fact: Lower Down Payments
While FICO scores and credit history may have an effect on the down payment requirements for some borrowers, typically FHA mortgage loans require 3.5% down based on the adjusted value of the property. You may find conventional loans requiring a much higher down payment.
FHA Loan Fiction: Interest Rates
The FHA does not set or regulate interest rates on FHA single family mortgages. That is an area where the buyer and lender will negotiate, and the only FHA requirement is that interest rates charged on FHA mortgages be “customary” compared to similar loan products available to the borrower based on his or her financial qualifications. FHA loans allow the borrower to purchase “points” that can lower the cost of the mortgage in the form of lower rates, and this is part of the negotiation of the loan if the borrower chooses to purchase or finance discount points (where permitted).
FHA Loan Facts: Credit History
Your FHA lender will definitely check your credit rating, FICO scores, and other qualifications to make sure you are a good credit risk. Go into the FHA loan application process with no fewer than 12 months of on-time payments on all financial obligations with no late or missed payments for best results.
Lenders have a difficult time approving loans where the borrower’s most recent 12 month history has “lates” and/or missed payments. However, if you can show that such incidents were circumstantial and not likely to occur again (be prepared to document this) your lender may be able to work with you, depending on the particulars. Talk to a loan officer to see what your best options are for an FHA loan or refinance loan.