Articles Published in: December 2012

December 31, 2012

FHA Streamline Refinance Loans: Lower Interest and/or Mortgage Payments

With interest rates at lows not seen in many years, many FHA borrowers are considering refinancing their existing FHA home loan even if they have previously refinanced in the last few years. While some consider the term “serial refinancing” to be negative, this practice is in vogue once more as many rush to get better interest rates than they had access to when they first applied for a mortgage loan. Refinancing is especially popular at present due to concerns over the “fiscal cliff” and its potential to affect the average person’s bottom line through higher income taxes, the possible reduction or elimination of certain tax breaks including the mortgage interest deduction. Is now the right time to pre-qualify for an FHA refinance loan or apply for FHA streamline refinancing? That’s | more...

December 28, 2012

What You Should Know About FHA Loan Rules For Investment Property Vs. Single Family Homes

By Joe Wallace

While there are some exceptions described in the FHA loan rulebook, FHA loans for single-family homes are limited to what the FHA describes as “owner-occupied principal residences only”. The FHA describes “principal residences” as a property that “will be occupied by the borrower for the majority of the calendar year”. We’ve covered this topic elsewhere in previous posts; what we’re discussing today is situations where the borrower may perceive a gray area in the rules–what situations are considered purchases for investment purposes versus single-family home loans as described above? In general, any loan where the following applies to the borrower may be considered a non-investment type purchase: “FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of | more...

December 27, 2012

FHA Loan Applications: Verification of Employment

By Joe Wallace

From time to time we get questions about FHA loans including variations on the commonly asked, “How long do I have to spend on the job to get an FHA loan?” The short answer is that FHA loan rules require the lender to verify at least two years of employment, though not necessarily two years with the SAME employer. According to HUD 4155.1 Chapter One Section B, “The lender must obtain a Verification of Employment (VOE), and the borrower’s most recent pay stub” as part of this verification. But there are alternatives to this; FHA loan rules say “As an alternative to obtaining a written VOE, the lender may obtain the borrower’ s: • original pay stub(s) covering the most recent 30-day period, and • original IRS W-2 forms from | more...

December 26, 2012

FHA Loan Applications: What Your Loan Officer Needs

By Joe Wallace

FHA loan applications are designed to give the lender the information needed to start the approval process. It’s true that a loan application can be lengthy–it’s a major line of credit, after all. What does the bank need from the borrower to move forward? The application is designed to help the lender obtain a range of details including: • general mortgage credit analysis documents • evidence of Social Security Number • verification of deposit • verification of employment (VOE) • federal income tax returns, and • appraisal documentation. That’s reprinted from the FHA loan rulebook for lenders, HUD 4155.1, which adds, “Lenders must obtain the most recent documents required to perform the mortgage credit analysis. “Most recent” refers to the most recent document available at the time the loan application | more...

December 26, 2012

FHA Loan Rules For Loan Documents

By Joe Wallace

If you are new to the house hunting process, there are some guidelines you should know that directly affect your search for a home to buy with an FHA guaranteed mortgage. Some of these guidelines are in place for your protection, some have been created to prevent tampering with the loan approval process–or the appearance of such tampering. For example: one common bit of “legal advice” you can get from any reputable source on contracts and credit agreements includes the warning never to sign a contract with blank spaces or agreements that seem to be incomplete. This is sound advice–what is to prevent one party or the other from filling in those blank spaces later with terms that are favorable only to that person or persons? The FHA takes the | more...

December 25, 2012

Happy Holidays!

By Joe Wallace

Today we pause from our usual posts on FHA loan-related topics to spend time with friends and family for the holidays. We wish you all a safe and fun December 25, no matter what traditions you observe. Happy holidays from all of us–we’ll be back tomorrow to talk FHA loans, answer reader questions and look at the issues. Thank you for reading!

December 24, 2012

FHA Revises Flood Zone Determination Policy

By Joe Wallace

The FHA and HUD have issued revised and updated guidance for borrowers and lenders regarding its flood zone determination policy. On December 11, 2012, the FHA official site was updated to include Mortgagee Letter 2012-28, which is intended to overrule a previous Mortgagee Letter issued in 2010 on the subject. At one time, those applying for FHA loans were not affected by a mandatory flood zone determination policy. In the past lenders were “strongly encouraged” to get a flood zone determination for home purchased with an FHA insured mortgage. That policy was revised, and is now updated and re-stated in FHA Mortgagee Letter 2012-28. According to the new mortgagee letter, “FHA requires all mortgagees obtain a flood zone determination on all properties. The documentation provided to evidence the flood zone | more...

December 21, 2012

Can A House Seller’s Appliances Reduce The Amount of My FHA Loan?

By Joe Wallace

When you want to buy a home with an FHA loan, unless you’re having a house built to spec, chances are good that appliances like a washer/dryer, stove, refrigerator and other items could be included in the purchase. In some cases this is not a problem, but depending on what the buyer and seller agree will “come with the house” as part of the purchase, could such items reduce the amount of your FHA loan? There’s an FHA loan rule about something known as an “inducement to purchase”. A seller is permitted to make a contribution to some financial aspects of the FHA loan (but not the down payment) in order to make the deal more attractive. Those contributions are limited as part of “the six percent rule”. According to | more...

December 20, 2012

FHA Loan Rules: Third Party Contributions

By Joe Wallace

FHA loan rules state that a borrower must provide a minimum down payment–3.5%–as a requirement of FHA loan approval for a single-family property. For some borrowers, that down payment takes up a good amount of the available cash on hand. What can a borrower do when he or she can afford a down payment, but may struggle to come up with some of the cash needed for closing costs, pre-paid expenses or other costs of an FHA loan? The FHA has a rule stating that the borrower can have assistance in this area in the form of a third party contribution. FHA loan rules state that the seller, “or third party” may contribute, “up to six percent of the lesser of the property’s sales price or the appraised value toward | more...

December 19, 2012

FHA Loans, Scams, and Standard Procedures

By Joe Wallace

In today’s world, protecting your identity, personal information, credit card numbers and Social Security data is crucial. There are plenty of warnings of identity fraud scams across all types of business, but lending and credit are especially vulnerable areas. Borrowers should always take steps to protect themselves against scammers; beware of third parties who contact you requesting your personal data by phone, e-mail, or even in person. All that said, there are some standard operating procedures borrowers should be prepared for that are NOT attempts to harvest your personal data. The key to knowing which is which–a scam versus a legitimate business transaction–is often how and when these procedures occur. For example, FHA loan rules state that a lender may need or require something called a “blanket authorization” in order | more...