Articles Published in: March 2015

March 18, 2015

FHA Refinance Loans With An Appraisal: Some Basics

If you have never applied for an FHA appraisal-required refinance loan before, you probably have plenty of questions about program basics. How long can the new loan be? Can I re-use a previous appraisal? What is the maximum loan amount? The answers to these questions can be found in HUD 4155.1 Chapter Three Section A, which informs us that the longest loan term for any refinance with an appraisal is 30 years. Chapter Three also adds: “The maximum term of a streamline refinance without an appraisal is limited to the lesser of • the remaining term of the existing mortgage, plus 12 years, or • 30 years.” The appraisal question is also answered here, with FHA loan rules stating that FHA appraisals (for existing properties) are good for six months, | more...

March 18, 2015

FHA Loan Assumptions: A Reader Question

By Joe Wallace

A reader asks, “Myself and my brother bought a house together in 2010, and now my brother and his adult son (nephew) would like to assume the mortgage and remove me of any obligation instead of going through the process/cost of buying/selling. Is this possible with an FHA loan?” A home purchased with an FHA mortgage loan may be assumed by another party under certain conditions. The FHA/HUD official site says the following about FHA loan assumptions: “Assumption of an FHA-insured mortgage is a servicing function where the responsibility of the mortgage is acquired by another person through either Simple or Creditworthiness process. Individuals may assume mortgages originated prior to December 1, 1986, by utilizing the “Simple Assumption” process.” “For those mortgages originated on December 1, 1986 and thereafter, HUD | more...

March 17, 2015

More On FHA Appraisals Versus Home Inspections

By Joe Wallace

In our last blog post we addressed a reader question about FHA appraisals and why appraisals are not considered home inspections. This is a very important issue and deserves some extra attention here for one important reason: an FHA appraisal is never a substitute for a home inspection. Borrowers may be tempted to save a few hundred dollars and skip having the voluntary (as in, not required as a condition of the loan) home inspection performed, but doing so is a very bad idea. An FHA appraisal is, as the FHA official site points out, for the lender and addresses the lender’s needs only. A home inspection, which is not required by the lender as a condition of the loan, is for the borrower and is designed to look out | more...

March 17, 2015

FHA Loan Appraisals and Home Inspections

By Joe Wallace

A reader asks, “Just bought a home and while in crawl space installing drain tile I realized the main sewer line was leaking. The house was unoccupied for 2 years prior to purchase. I have an FHA loan and cannot afford to have contaminated soil removed and line repaired. I realize that I made a mistake buying this home but I felt protected from major issues in getting an FHA loan. What can I do?” The most important question in this situation is whether the borrower paid for a home inspection prior to purchase. It can be tempting for borrowers to rely on the appraisal alone to catch problems or issues with a house, but it’s never a good idea to do so. Why? FHA loan rules are clear–the FHA | more...

March 16, 2015

FHA Loan Income Rules: Projected Verifiable Income

By Joe Wallace

We write a lot about FHA loan income rules. When the lender is processing your FHA loan application, your verifiable income is counted against your monthly financial obligations. The lender must review all sources of your income to determine whether those sources are stable, reliable, and likely to continue for a reasonable period of time. Your job and current income is verified by the lender by way of pay stubs and other documentation. But what happens when a borrower has a pay raise or promotion due later on that could positively change the borrower’s debt to income ratio? Can the lender include such projected income in the equation? The rules covering this issue are found in HUD 4155.1 Chapter Four Section E, which says in part: “Projected or hypothetical income | more...

March 16, 2015

FHA Loan FICO Score Requirements: Are There Exceptions?

By Joe Wallace

Many potential FHA borrowers want to know if their FICO scores qualify them for an FHA mortgage; others want to know if they can qualify for an FHA loan even if their FICO scores aren’t quite high enough based on what they might have heard the FHA loan minimum scores are. Do participating FHA lenders have the power to make exceptions when it comes to certain qualifying factors or ratios associated with an FHA home loan? The simplest answer is that it depends greatly on the lender. In general, FHA loan standards permit a degree of flexibility on FHA loans if the lender determines that a borrower doesn’t quite meet the standards required for the loan. But when could a lender make such exceptions based on the FHA loan program | more...

March 14, 2015

FHA Loan Questions: FICO Score Minimum Requirements

By Joe Wallace

A reader asks, “I have a transunion score of 600 an Equafax score of 591 and a Experian score of 591. Am I eligible to apply for a FHA loan through the website? (Lender name deleted) here in Peoria,IL told me that I would need a score of 620 before I can qualify for an FHA loan. Is this true?” The “is this true?” part of the reader question is a common one. Yes, it is true that a given lender may require a score of 620 in order for the applicant to be approved for an FHA home loan. No, it is not true that 620 is the FHA limit–FHA loan rules say a borrower can have a credit score as low as 580 and still be eligible for | more...

March 13, 2015

FHA Loan Reader Questions: Seasoning Period Following Bankruptcy

By Joe Wallace

A reader asks, “On 3/11/15 I was told by a potential lender that consumers who have claimed bankruptcy must wait 4 years to potentially qualify for ANY loan… conventional or FHA. My bankruptcy was discharged in August 2013 and I have been rebuilding my credit ever since…. with the hopes that I could start looking at buying a home at the near 2 year mark, post discharge. Can someone please clarify this for me? And give the source of the data that is accurate? The lender just blew me off…” This reader’s question asks if what a lender told her about waiting four years after bankruptcy may be true if those are that particular lender’s standards. Those standards may vary from bank to bank, lender to lender. But if the | more...

March 13, 2015

Are You Ready For An FHA Loan Application?

By Joe Wallace

Are you ready for an FHA home loan application? If you’ve been considering your options, it’s a very good idea to create a list of to-do items in the preparation time leading up to your application. The first thing to do is to make sure you’re ready for your loan by checking your credit reports and FICO scores. Your repayment history and FICO score play a big part in whether you get approved or denied for the loan. Hand in hand with those factors is the amount of debt you have getting paid every month versus how much income you have. Reducing the amount of debt–especially credit cards and related types of debt–can help your application’s chances. Some borrowers don’t think about saving up for their home loan beyond making | more...

March 12, 2015

FHA Loan Down Payment Rules: Sources Of The Down Payment

By Joe Wallace

We often post about FHA loan preparation time, advising borrowers to give themselves at least 12 months before turning in an application for the FHA mortgage. Part of this is so the borrower can check credit reports, but also to insure that at least 12 months have gone by without the borrower missing any payments on financial obligations. Part of this advice also includes the notion that a borrower not apply for any new lines of credit for the 12 months leading up to the loan application for the FHA mortgage. There are several reasons for this, one of the most important being that new credit opens up the potential for a higher debt-to-income ratio. That higher ration can work against the borrower, especially in cases where the debt to | more...