April 23, 2012
There’s a common theme among many of our most frequently asked questions about FHA guaranteed home loans; “Why do the FHA rules say one thing, while my lender says another?” In many cases this question has to do with FHA rules covering appraisals, minimum property requirements, or even the minimum waiting period required after foreclosure before the borrower can try applying for a new FHA home loan.
For example, the FHA loan rules about streamline refinancing loans state that an appraisal may not be required under the right circumstances. From the FHA official site: ” Streamline refinances can be insured with or without an appraisal. When an appraisal is completed FHA does not require the repairs (except for lead based paint repairs) to be completed, however the lender may require completion of repairs as a condition of the appraisal.”
The first line of that statement says the streamline can be done with or without an appraisal. But notice the second line–the FHA standards say one thing, but a lender’s own standards may require another. That also applies for the appraisal itself–the lender is free to require one even if the FHA does not. There could be many reasons why the lender chooses to require the appraisal–and the lender may be bound by state or federal law in some cases.
The same is true of down payments–the FHA minimum is 3.5%, but the lender may require more depending on the borrower’s credit or other factors applicable to that particular loan application.
All of these situations are unique. The FHA rules cover a certain set of parameters, but also allow flexibility on the lender’s part for a variety of reasons. If you read an FHA rule that states a minimum requirement, it’s important to know that it’s simply that–a minimum. The lender is free to set a higher standard as long as that standard is legal, applied equally to all according to Fair Housing Act rules, etc.
It’s also important to know that some FHA guidelines are designed to cover a general set of circumstances, giving deference to state or local laws for the specifics. This is true for many aspects of the appraisal process, where local building codes must be met. The FHA cannot and does not keep a list of all local codes or ordinances. It simply defers to them when required.
It’s important to recognize the difference between a higher standard and a different standard. If a lender does not abide by FHA loan rules, as opposed to meeting and exceeding the standards, that institution should be reported to the FHA. This is especially true when a potential borrower suspects discrimination, predatory lending practices, or other violations. Borrowers who aren’t sure whether the borrower has simply set higher standards or if a violation of FHA guidelines is happening should contact the FHA directly. The toll-free number 1-800-CALL FHA is there for you to get help and advice in such cases.
Do you have a question about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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