Articles Published in: August 2016

August 16, 2016

FHA Loan Rules: Rental Income

When purchasing a home with an FHA single-family loan, a prospective borrower may want to know whether rental income from the property to be purchased with an FHA mortgage can be counted in the borrower’s debt-to-income ratio. FHA loan rules do permit this under specific circumstances, and borrowers should know that FHA loan occupancy rules apply. Borrowers are required to occupy the home as their primary residence, but for those purchasing property with more than one unit, the rental issue is a factor many consider. The rules for rental income are found in HUD 4000.1 and include the following: “The Mortgagee may consider Rental Income from existing and prospective tenants if documented in accordance with the following requirements. Rental Income from the subject Property may be considered Effective Income when | more...

August 15, 2016

FHA Amends Rehab Loan Consultant Fee Policy

By Joe Wallace

The FHA has amended policies for the FHA 203(k) Rehabilitation Mortgage Insurance Program where the 203(k) Consultant Draw Inspection Fee is concerned. According to the FHA official site, the rule change is designed to revise the maximum fee that may be charged by a 203(k) consultant for the “Draw Inspection” Mortgagee letter 2016-12 states that the FHA and HUD continue to “analyze the overall Consultant Fee structure” established in 1995 for FHA rehab loans. In doing so, the FHA and HUD have “determined that the current $100 limit on the Draw Inspection Fee discourages consultant participation in the Section 203(k) program and has the potential to limit access to credit.” Consequently, the FHA has revised this fee limit. “The Consultant Draw Inspection Fee is amended to permit a fee that | more...

August 15, 2016

Mortgage Rate Trends: Ups and Downs

By Joe Wallace

Mortgage rates went higher and lower last week. They bounced higher Monday, recovered Tuesday, and repeated that cycle on Thursday and Friday. At week’s end, rates recovered back to 30-day lows, but there are a variety of scheduled economic data releases ahead that could push rates higher depending on investor reaction to them. Friday, 30-year fixed rate conventional mortgages wound up in range between 3.375 and 3.5% best execution, though some sources claim 3.375% is more available at the time of this writing. FHA mortgage loan interest rates are holding in their comfort zone at 3.25% best execution, though FHA rates can vary more among participating lenders. It pays to shop around. Best execution rates are offered to borrowers with ideal credit. Your FICO scores, loan repayment history and other | more...

August 12, 2016

FHA Loans and Social Security Income

By Joe Wallace

A reader asks, “I don’t understand if I have a 1099 and I have a benefits letter, and the letter that states at the end of the year what I am getting for the following year, why I am being asked or can be asked for something that states I will get social security for 3 years? There is nothing that says social security will give this to me or a name for it.” FHA loan rules governing Social Security income are found in HUD 4000.1, page 195 under “Other Sources Of Effective Income”. The rules require the lender to make a distinction between “effective income” which would continue for at least three years of the new loan, and “compensating factors” in the case where the lender cannot establish that | more...

August 11, 2016

FHA Loans and Cash Back

By Joe Wallace

FHA home loans have specific rules about when a borrower can get cash back on an FHA transaction and how. In general, FHA mortgage loans for new purchases don’t permit cash back except in the form of legitimate refunds, but HUD 4000.1 outlines certain circumstances where a small amount of cash back is permitted. However, that cash back cannot be “excessive”. A lender is required to estimate the costs of the loan before the actual expenses are tallied. These estimates could result in the borrower budgeting more than is required. When money is due back to the borrower, HUD 4000.1 states: “When the estimated costs utilized in calculating the maximum mortgage amount result in greater than $500 cash back to the Borrower at mortgage Disbursement, Mortgagees may reduce the Borrowers | more...

August 10, 2016

FHA Loan Questions: Appraisal Issues

By Joe Wallace

A reader asks, “We just purchased our first home using an FHA loan. After 2 months in the house we had a typical Arizona monsoon storm come through. Our home flooded due to poor drainage on 3 sides of the house. The grading slopes towards the structure and not away. There are no gutters on the home nor a drainage system to move the pooling water away from our home. What recourse do we have when the FHA approved appraiser reported that there are no problems with the grading and drainage? Our home is damaged and our insurance does not cover flood damages.” The FHA official site is clear on the subject of FHA appraisals in that the appraisal process is not meant to be a home inspection. The appraisal | more...

August 9, 2016

HUD Announces Settlement In Housing Discrimination Case Against Richmond, Virginia

By Joe Wallace

The Department of Housing and Urban Development has announced a settlement in a housing discrimination case brought against the city of Richmond, Virginia. According to a August 4, 2016 press release on the HUD official site, “The U.S. Department of Housing and Urban Development (HUD) announced today that it has approved an agreement with the City of Richmond, Virginia, settling 14 complaints of housing discrimination filed against the City by Hispanic residents. The complaints alleged that the City of Richmond selectively enforced its code requirements against residents of the Citys mobile home parks, who are predominantly Hispanic.” The Fair Housing Act makes it illegal to discriminate against people on the basis of their national origin. That includes discriminatory or selective enforcement of housing regulations or other issues related to enforcement. | more...

August 8, 2016

Mortgage Rate Trends: Higher After Jobs Report

By Joe Wallace

Mortgage loan interest rates pushed higher on Friday after a stronger-than-expected jobs report. The Employment Situation Report came out on Friday with good news for the economy-approximately a quarter million new jobs reported as opposed to the approximately 180 million expected to be reported. This resulted in what can be confusing for some who are new to market watching; good news for the economy equalling bad news for mortgage loan rates. It’s something that often happens, and it’s something you come to expect after some experience watching mortgage loan interest rates and the factors that can affect them. 30-year fixed rate conventional mortgages closed out Friday reported at a range between 3.375 and 3.5% best execution. Friday’s move higher could reflect in a borrower’s closing costs rather than the actual | more...

August 5, 2016

FHA Loan Questions: Personal Data

By Joe Wallace

A reader asks, “Must income verification documents include sensitive information, such as account numbers, full SS# and bank account number(s). Can verification be made with sensitive information being Blacked-Out or omitted, as to not expose ones self to possible criminality?” FHA loan rules require the lender to verify personal information including Social Security Numbers, bank account numbers, credit reports, etc. So the lender will definitely be required to have that information at the bank’s disposal to verify not only the identity of the borrower, but also the sources of down payment funds and other money as governed by HUD 4000.1. HUD 4000.1, page 111 instructs the lender, “The Mortgagee must obtain the Borrowers authorization to verify the information needed to process the mortgage application. The Mortgagee must obtain a non-borrowing | more...

August 4, 2016

FHA Loan Rules: Special Forbearance For Unemployed Home Owners

By Joe Wallace

When a borrower applies for an FHA mortgage, experiencing financial trouble isn’t top-of-mind; qualifying for the loan, making the down payment, and moving in are likely the big issues most think about when applying. But financial difficulties can and sometimes do come, so what can a borrower do if he or she finds themselves unemployed after purchasing a home with an FHA mortgage? FHA loan rules in HUD 4000.1 do permit the lender to offer something known as “special forbearance” or SFB for unemployed borrowers who are in danger of missing payments, going into loan default, etc. “The SFB-Unemployment Agreement is a written agreement between a Mortgagee and the Borrowers, one or more of whom has become unemployed, allowing for reduced and/or suspended Mortgage Payments.” This is an arrangement negotiated | more...