Articles Published in: December 2013

December 5, 2013

FHA Loan Down Payments–Can A Family Member Loan The Money?

We’ve been discussing FHA loan down payments quite a lot lately–there are many questions about the required 3.5% minimum down payment for new purchase FHA home loans. This down payment is known as a “minimum cash investment” and while it is definitely lower than the money down required of many conventional loans, it can still be difficult for some borrowers to pull the money together out of pocket. In such cases, the FHA does permit borrowers to apply for collateralized loans from third parties with no financial stake in the loan transaction. But some borrowers would rather turn to a family member for such a loan instead. Does the FHA, with its requirements that all down payment sources be scrutinized, allow such a loan from a family member? The answer | more...

December 5, 2013

FHA Loan Down Payment Sources: Disaster Relief Grants and Loans

By Joe Wallace

Whenever a natural disaster strikes and the affected counties become federally-declared disaster areas, one source of help comes from FHA loan programs such as the FHA 203(k) Rehab loan. There may also be FEMA, state and local assistance for borrowers trying to recover from storm damage or other disaster-related problems. Some can’t rehab a damaged home and must look for a new place to live. When it comes to new purchase FHA loans, could certain types of disaster relief count as a legitimate source of down payment funds? If those sources meet FHA approval, the answer could be yes. According to HUD 4155.1, Chapter Five Section B, “Grants or loans from state or Federal agencies, such as the Federal Emergency Management Agency (FEMA), that provide immediate housing assistance to individuals | more...

December 4, 2013

FHA Loan Downpayment Sources: Loans

By Joe Wallace

There are many questions about the required minimum downpayment for FHA home loans. Borrowers are required to put a minimum amount (3.5%) down on the FHA loan, and the money used to make this down payment must come from what the FHA terms “approved sources”. Those sources can include the borrower’s own money from savings, investments, cashed-in stocks, and many other accounts. Why does the FHA put scrutiny on the sources of down payment money? One reason is to avoid conflicts of interest between lender and borrower–the lender cannot provide down payment funds to the borrower, for example. A borrower who cannot afford to make a down payment out-of-pocket may need to apply for a collateralized loan for some or all of the downpayment amount. FHA loan rules permit this | more...

December 3, 2013

FHA Loan Downpayment and Rent Credit: A Reader Question

By Joe Wallace

A reader asks, “If leasing a property that you intend to purchase can part of each month’s rent go towards the full downpayment amount?” The short answer to this question is, “It depends”. Much depends on whether or not such rent credit meets FHA loan requirements. The FHA loan rulebook, HUD 4155.1, states that rent credit could be considered a legitimate source of down payment funds, but only if certain standards are met. This information is found in HUD 4155.1, Chapter Five Section B, which says, “The cumulative amount of rental payments that exceed the appraiser’s estimate of fair market rent may be considered accumulation of the borrower’s cash investment.” FHA instructions to the lender in these cases include the following: “The endorsement package must include the • rent with | more...

December 2, 2013

FHA Loan FICO Score Requirements: A Reader Question

By Joe Wallace

A reader asks, “What if my credit score is below 600, but am now cleaning up my record so I can purchase a home. Not a pricey home but one I can retire in some day. I checked my credit report and some of the things on it are no longer a problem, and now paid, but they remain on it. I need to know as soon as possible because the small home I am interested in might be sold soon.” Let’s examine what the FHA loan rulebook (HUD 4155.1) says about minimum FHA requirements for credit scores: This table is reproduced directly from HUD 4155.1. Note that the FHA minimum credit score requirements is 500 or above. But does this mean that a borrower with a FICO score of | more...