Articles in Category: Debt Ratios

May 1, 2017

FHA Loan Questions: Verifying Alimony and Child Support

FHA loan questions often come in our comments section after we’ve posted on a certain topic. Recently we wrote about how a lender is supposed to verify child support and alimony payments to a borrower who wants to use them as income: “I applied for a loan and my loan officer said I need proof of continuing payment for the next 3 yrs because my oldest son is 16 but will not graduate high school until after he turns 19. Would my court ordered support papers, my sons school records showing graduation year, and a copy of the law stating that he has to pay until he graduates be good enough proof?” FHA loan questions like these are proof that there’s still much work to do on explaining how FHA | more...

April 24, 2017

FHA Loans and Alimony/Child Support

By Joe Wallace

A reader asked a question in our comments section about FHA loan rules for alimony and child support payments: “What is a voluntary payment agreement? I am divorced its a closed case and I actually pay a little more than what we agreed to in the official settlement agreement. Shes now trying to buy a house and will be dealing with the whole proving amount of alimony/child support and its very difficult to amend a closed case.” “If we have an agreement between ourselves for (x) dollars/month for (x) amount of time and have this notarized, would this constitute a voluntary payment agreement?” The reader is referencing an earlier blog post from 2013, which includes the following about how the lender may consider alimony and child support as part of | more...

what is mortgage insurance and how does it work?

April 17, 2017

FICO Scores And FHA Loan Approval

By Joe Wallace

How do FICO scores affect your FHA home loan application? A reader got in touch this week to ask a question in this area: “Hello, my credit score is between high 500s, low 600s. I make $8,000 a month. My mother in law said she would co-sign for my wife and I, her score is near perfect. Is this situation possible to get a loan for a home? She manages an apartment complex and pays no rent. Thanks for your time.” FHA loan rules in HUD 4000.1 state that a borrower is technically qualified for maximum financing (with a required minimum 3.5% down payment) with FICO scores at 580 or higher. Borrowers with FICO scores between 500 and 579 are technically eligible for FHA loans with a 10% minimum required | more...

April 5, 2017

Temporary Reduction of Income: FHA Loan Rules

By Joe Wallace

What happens if a borrower fills out an FHA loan application while having a temporary reduction of income either on the record or ongoing during the application process? Does the FHA loan rule book, HUD 4000.1, address these situations? Fortunately, yes. There are many reasons why a loan applicant might experience a temporary reduction of income-short term disability, for example. Maternity leave. Temporary leaves of absence, sabbaticals, etc. According to page 206 of HUD 4000.1, FHA loan rules in this area include the following: “For Borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the Mortgagee may consider the Borrowers current income as Effective Income, if it can verify and document that: – the Borrower intends to return to work; – the Borrower | more...

Can I buy a manufactured home with an FHA loan?

April 4, 2017

Commission Income and FHA Loans: A Reader Question

By Joe Wallace

A reader asked about the FHA loan rules governing commission income this week in our comments section: “My employer recently (1yr) switched the pay scale to a base/commission/bonus format. Basically we now get paid per load instead of hourly. Since weve only received commission for 2016 and not 2015, should my itemized job related expenses for 2015 count against my income over the previous two years?” FHA loan rules in HUD 4000.1 address this issue, but may not be the only rules at work-lender standards would also apply as well as any applicable state law. Here’s what HUD 4000.1 states about commission income: “The Mortgagee must calculate Effective Income for commission by using the lesser of (a) the average net Commission Income earned over the previous two years, or the | more...

March 27, 2017

FHA Loan Rules For Part-Time Income

By Joe Wallace

A reader asked us a question in the comments section this week about part-time income and how it may or may not qualify as verifiable income for an FHA loan. The reader asks: “My file is with the underwriter for review, they have asked for an VOE from my employer but they stated I work 16 hours a week (position hired into) but I always work more the 16 hr a week for the last 5-6 months and I’m going to continue to work more then that, they have already seen check stubs and both w2 from 2015 and 2016. Could this deny me for my loan?” We first have to determine what the FHA definition of part-time income. HUD 4000.1 gives lenders guidance in this area beginning with the | more...

How much can I borrow with an FHA refinance loan?

March 14, 2017

Mortgage Markets and FHA Loans

By Joe Wallace

At the beginning of 2017, Forbes.com published a housing outlook for 2017 which included predictions from experts about what could happen this year. Three months into the new year, how accurate were some of the highlights of this piece? How do current trends affect mortgage loan applicants and those looking to refinance? A quick look at current events shows that some of the observations made at Forbes.com in an article by Samantha Sharf are absolutely right and there’s no reason to expect anything different in the short to mid-term. Consider the prediction made in this piece about mortgage rates. According to the article: “By historic standards rates are still low. In 2017 experts expect movement, but differ on where for the 30-year fixed rate will land. Estimates out there range | more...

When Is An FHA Loan Better Than A Conventional Loan?

March 7, 2017

Back Taxes And FHA Home Loans

By Joe Wallace

Are unpaid back taxes a liability when it comes time to applying for an FHA mortgage or refinance loan? A reader asks, “I am currently paying back taxes on a payment plan but have filed all appropriate tax returns. Is the rule that your taxes must be paid in full prior to applying for an FHA loan or they just have to be filed? In other words, am I still eligible while paying back taxes owed?” FHA loan rules in HUD 4000.1 do address the back taxes issue, primarily from the standpoint of the loan applicant who has delinquent federal tax debt. That is not to imply that the reader asking this particular question is in that category, but rather to point out that FHA loan rules address the issue | more...

March 3, 2017

Are You Ready For An FHA Mortgage Application?

By Joe Wallace

If you are thinking about filling out an FHA mortgage application, there are a few questions to ask yourself before you do-if you’re ready to apply for an FHA loan, you’ll have the answers ready. How Much Down Payment Money Do You Have? In the planning stages of buying a new home, one of the most important things you can do early is determine how much home you can realistically afford. Using a mortgage calculator can help you estimate how much you need. Since FHA home loans typically require a minimum 3.5% down based on the adjusted price of the home, you can get an estimate of how much will need to be saved up to make that down payment. Know how much you’ll need-at least a rough estimate-early in | more...

February 21, 2017

Commission Income and FHA Loans: A Reader Question

By Joe Wallace

How does commission income count when applying for an FHA mortgage? A reader asked us recently, “I was denied a mortgage because of a commissioned salary, even though Im full time and am guaranteed 15.75/hr. Interestingly, everything was all ready to go on my measly 12/hour salary before I got this better job. Now Im thinking that may have been a mistake on the part of the lender…” FHA loan rules governing this type of income (as verifiable income that is stable and likely to continue) are found in HUD 4000.1. The reader question does not state as much, but it seems implied that the commission income situation is recent. If so, the lender may need the borrower to have more time on the job as an employee earning commissions | more...