Articles in Category: FHA Requirements

June 22, 2023

FHA Loan Rules For Income: Investments, Trusts, and Promissory Note Payments

Part of the FHA loan approval process involves the lender verifying an applicant’s income. FHA rules state that for purposes of calculating a borrower’s debt-to-income ratio, only verifiable income can be counted in that ratio. Do FHA rules allow a borrower’s interest or dividend payments from investments to be counted as verifiable income? For some borrowers, this can be an important question. According to the FHA Lender’s Handbook, “The Mortgagee must verify and document the Borrower’s Investment Income by obtaining tax returns for the previous two years and the most recent account statement.” Additional instructions to the lender for this issue include the requirement that when making the calculation. “The Mortgagee must subtract any of the assets used for the Borrower’s required funds to close to purchase the subject Property | more...

June 16, 2023

FHA Loans For Mixed-Use Property

By Joe Wallace

A common reader question about FHA mortgages has to do with purchasing mixed-use property with an FHA loan. Here is a variation on the theme: “I want to buy a 4-unit building with a store front. Is there any type of loan that I can apply for to make this purchase?” The good news is that this type of purchase may be possible; FHA loan rules permit the purchase of properties between one and four units. For mixed-use property, commercially zoned residential property or other non-traditional purchases, HUD 4000.1 states: “The non-residential portion of the total floor area may not exceed 49 percent. Any non-residential use of the Property must be subordinate to its residential use, character and appearance.” “Non-residential use may not impair the residential character or marketability of | more...

Conventional Loan Interest Rates Make History, FHA Loan Rates Still Incredibly Low

June 15, 2023

FHA Loans and Interest Rates: The Interest Rate Lock

By Joe Wallace

Under the rules of the FHA loan program, borrowers and lenders negotiate together on interest rates for the FHA loan. Part of those negotiations is the interest rate lock agreement. This can feel intimidating for some who aren’t used to the home-buying process, but it’s a common part of the home loan transaction. What do you need to know about FHA home loan rates and getting a rate lock commitment from your lender? The FHA does not set interest rates, and it’s also not responsible for regulating them aside from a general requirement that the rates be comparable to similar types of loans. Interest rates on mortgages and other high-value transactions are under more scrutiny in 2023 due to continued elevated mortgage rates. At the moment, it’s good to explore | more...

June 13, 2023

FHA Loan Expenses That Can Be Paid By The Seller

By Joe Wallace

One common question about FHA loans involves whether the seller can pay some of the expenses of the borrower’s FHA loan as a motivation to purchase. Can the seller pay closing costs, offer to supply appliances, or add other incentives to the sales agreement? According to FHA loan rules in the FHA Lender’s Handbook, the answer is yes–but with limitations. According to HUD, “Certain expenses” paid by the seller (or other “interested third parties”) on behalf of the borrower are considered “inducements to purchase” and result in a dollar-for-dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate loan-to-value (LTV) factor. That said, sellers can contribute up to six percent of the sales price without a penalty. They can also offer | more...

June 8, 2023

FHA Loans And The State Of The Housing Market in 2023

By Joe Wallace

In the last 12 months, many have speculated about the state of the housing market. We all wonder about when an expected recovery might happen and how quickly we can start reaping the benefits. Before we launch into speculation about the future of FHA loan mortgage rates, it’s a good idea to discuss expectations and how to plan ahead for buying your future home. When Is It The Right Time To Buy A Home? Are you in the planning and saving stages of your home loan? If you are, there’s no reason to speed up that process. just because you expect things to improve in the next quarter of 2023. The same is true for those about to move out of the planning and saving part of the process. If | more...

June 6, 2023

Alimony and Child Support: FHA Loan Rules

By Joe Wallace

FHA loan rules permit alimony and child support to be counted as verifiable income for borrowers who receive it and who choose to list it in their income sources. Like all other sources of income, the rules in HUD 4000.1 state the lender is responsible for verifying the income through documentation such as court agreements or other paperwork. Receiving this income can help you qualify for a home loan, but what about FHA loan applicants responsible for paying alimony and child support? Does this count against a borrower’s debt ratio? HUD 4000.1 says yes, lenders must count alimony and child support payments as recurring debts. The FHA loan rule book gives the following instructions to the lender: “For Alimony, if the Borrowers income was not reduced by the amount of | more...

June 2, 2023

FHA Home Loan Pre-Approval And Mortgage Loan Approval

By Bruce Reichstein

If you are considering an FHA home loan it is a smart idea to get pre-approved for a home loan before you start house hunting. If you are new to the home loan process, you might not be sure what the difference is between FHA loan approval and getting pre-approved for an FHA mortgage. What is that difference? Getting through the initial pre-approval application does not mean you’ve been fully approved for the mortgage. But it IS an important tool for soon-to-be homeowners. Home loan pre-approval is a tool for both borrower and lender to determine if you’re ready to buy based on your income, debt to income ratio levels, the amount of down payment you have saved, etc. Think of pre-approval as the start of the loan process, but | more...

May 30, 2023

FHA Home Loan Down Payment Rules in 2023

By Joe Wallace

What must you know about the down payment requirement for an FHA mortgage? FHA home loans have specific rules about the amount of your down payment and where it can come from. Knowing the down payment rules before you start saving for your home loan may make the entire process more efficient, especially if you know you’re required to give the lender the sources of your down payment money and document it accordingly. FHA Loan Rules: Down Payments Are Different From Other FHA Loan Costs Some want to know if their down payment requirement can include the money they pay toward closing costs, lender fees, or earnest money. But such costs do not count as part of your down payment amount; you must provide funds for your entire down payment | more...

May 26, 2023

Is Your Credit Ready For A Mortgage?

By Joe Wallace

Do you worry about your ability to obtain or use credit because of identity theft, errors in your credit report, or coronavirus-related financial issues that still linger even after the end of the pandemic? You can protect your credit and work on your credit rating; you don’t have to sit idly by and wonder what’s happening with your FICO scores and credit report. One of the first steps for many is to use credit monitoring. This type of service offered by third parties allows you to see changes in your credit report, including activities and scores (over a period of time, not necessarily in real-time) that may affect your ability to get credit in the future. Credit monitoring is a good way to start because using such a service makes | more...

May 25, 2023

Do FHA Loan Payments Increase Over Time?

By Joe Wallace

Could the monthly amount due on an FHA mortgage increase over time? If you want a fixed-rate mortgage, that may seem like a silly question. After all, isn’t the idea behind a fixed-rate home loan to provide predictability and stability in the payments? The short answer is yes, but there are still factors that could change the total amount of mortgage-related expenses over time. Depending on circumstances, the amount you owe each month may change depending on variables such as changes in your insurance, property taxes, and homeowner’s association fees. Adjustable Rate Mortgages Your monthly mortgage payment will change if you have an Adjustable Rate Mortgage or ARM loan. An ARM loan features an introductory period with a (typically lower) “teaser” rate, but once that introductory period ends? The home | more...