Articles Published in: December 2013

December 18, 2013

FHA Loans and Credit Improvement: A Reader Question

A reader asks, “I’m looking to be a first time home owner by July 2014. My credit isn’t good (607 at this time). However, I’m looking to improve my credit score significantly by June. I’m unsure where to get started in the process of getting a mortgage loan. Just need some help with the very basics in getting started.” Borrowers who need to improve their credit scores before applying for an FHA home loan need to be realistic about how long it might take to do so. It’s strongly recommended that borrowers come to the FHA loan process with at least 12 months of on-time payments for all financial obligations before applying. Why is that? The answer can be found in the FHA loan rulebook, HUD 4155.1, which has a | more...

December 17, 2013

FHA Loan Reader Questions: Late Payments on Credit History

By Joe Wallace

A reader asks, “My wife and I have already completed home inspection,down payment and now must apply for FHA. We have already been officially told we qualify by score and income. I would like to know when mortgage companies look back at credit history and notice at least 3 creditor with late payments on them but I have the backing that I was in combat and wounded and not able at the time to pay it on time. I am 100% Disabled with VA award letters, can the company allow this as an acceptable excuse for not paying on time?” FHA loan rules on credit history are found in HUD 4155.1, Chapter Four Section C, which says: “Past credit performance is the most useful guide to • determining a borrower’s | more...

December 16, 2013

FHA and HUD Update Lending Standards

By Joe Wallace

The FHA and HUD have issued a press release announcing changes to come FHA loan policies that involve manually underwritten loans. According to HUDNo.13-188, the changes in policy are designed to help participating FHA lenders more objectively review creditworthiness and assist in loan approval to qualified borrowers. According to the press release, “New manual underwriting requirements announced today are intended to encourage lenders to use a defined set of objective standards and ‘compensating factors’ in order to make responsible, risk-based underwriting decisions.” “In addition, FHA’s manual underwriting guidance addresses loan characteristics such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.” “We want to provide revised guidance for our lenders so that they are confident in offering affordable mortgage | more...

December 13, 2013

Preparing For an FHA Home Loan: A Reader Question

By Joe Wallace

A reader asks, “I am a first time home buyer, my score is 618 and I am on Section 8. I am in a home buyer program. Why is it taking so long to become a homeowner? It is all more than a year. (My housing counselor) has me working on my credit report. Now that i got it to 618, she wants me to open some account. Why is that?” There are many reasons why the home loan process can take so long–especially for borrowers who go though housing counseling programs prior to purchasing. Even without housing counseling, many finance experts recommend taking at least 12 months to prepare for a home loan–any kind of home loan–in order to save money for down payment and closing costs, check credit | more...

December 12, 2013

FHA Loan Credit Score Rules: A Reader Question

By Joe Wallace

A reader asks, “If my credit score is currently between 618 and 630 why can’t I qualify for a loan? Does it have to be 700?” The answer to this question may not be as simple as citing FHA loan policy on credit scores, but it’s a good place to begin. Credit score minimums, according to the FHA loan rules found in HUD 4155.1, are as follows: These are MINIMUMS found in the FHA loan rulebook, and there’s nothing that says a lender cannot require a higher minimum score as long as those requirements are applied in accordance with Fair Housing Act laws. But credit scores alone don’t determine whether a borrower is eligible for an FHA home loan. Credit repayment history is also a factor. If a borrower comes to | more...

December 12, 2013

FHA 2014 Loan Limits

By Joe Wallace

Recently we covered the FHA and HUD’s press release announcing changes in FHA loan limit policies. FHA loan limits have been changed in accordance with laws passed in 2008, which did not become effective until this year with regard to FHA loan limits. At the same time the FHA issued the press release announcing the changes, it also published a mortgagee letter describing the 2014 “floor” and “ceiling” for low-cost areas and high-cost housing markets, respectively. According to FHA Mortgagee Letter 2013-43, “The minimum FHA national loan limit “floor” is at 65 percent of the national conforming loan limit (which is $417,000 for a one unit property for the period January 1, 2014 through December 31, 2014). The “floor” applies to those areas where 115 percent of the median home | more...

December 11, 2013

FHA Announces New Loan Limits

By Joe Wallace

The FHA has announced changes to FHA loan limit policy. According to HUDNo.13-184, effective at the beginning of the new year in 2013, there will be new FHA single-family loan limits that comply with the Housing and Economic Recovery Act (HERA) of 2008. FHA Commissioner Carol Galante was quoted in the press release, saying, “As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play…implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved.” The press release says that current standard FHA loan limits “for areas where housing costs are relatively low” will remain unchanged in 2014–that limit at the | more...

December 10, 2013

Closing the FHA Loan: Settlement Costs

By Joe Wallace

When you learn about FHA home loans, the phrase “cash required to close” is one you’ll soon become familiar with. One of the reasons so many experts recommend taking as much time as possible to prepare for a home loan? Giving yourself enough time to save up the money required to close the deal. The required 3.5% down payment is part of that, as are the payments you’ll need to make for appraisals and any required compliance inspection. But there are other costs as well; fortunately FHA loan rules in HUD 4155.1 instruct the lender to prepare an estimate sheet to give the borrower a better idea of what these expenses are. According to Chapter Five of HUD 4155.1, “For each transaction, the lender must provide the initial Good Faith | more...

December 9, 2013

FHA Loan Credit Score Requirents And Co-Signers: A Reader Question

By Joe Wallace

A reader asks, “My son and his wife are looking to buy their first home but both have credit scores in the 570-580 range. My parents will gladly act as co-signer or co-borrower with them and their credit history is excellent. Would that help them get a loan?” FHA loan FICO score requirements state that borrowers with credit scores at or above 580 are “eligible for maximum financing”. However, lenders are free to require higher FICO scores than the FHA minimums and often do. Borrowers with FICO scores below 620 (and in many cases, 640) may have difficulty finding a lender willing to work with them on an FHA mortgage loan. This may or may not be true when a co-signer or co-borrower is present. In such cases the lender’s | more...

December 6, 2013

FHA Loans, Missed Mortgage Payments, and Refinancing Loans: A Reader Question

By Joe Wallace

A reader asks, “I inquired about a refi with [a lender], I have a bankruptcy on my credit report but I have been out of it for three years. I was told that I had two late payment on my report thru my credit union.” “I informed the person that I spoke that my payment to my credit union was automatic payment and that those were no fault of my own. He explained to me that I would have to contact my cu and they would have to call the reporting bureau, he also stated that until that was remove I would not qualify for a loan. Is this true?” This reader question raises a very good point about FHA mortgages all borrowers should keep in mind. Not all lender | more...