Articles Tagged With: FHA Handbook

January 18, 2013

FHA Home Loans On Investment Properties: A Reader Question

A reader asks, “As a homeowner, can I purchase an investment property with a FHA loan? FHA loans for single-family homes are designed for principal residences, which means the borrower must intend to live in the home as his or her primary residence. FHA loan rules state, “To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA generally will not insure more than one mortgage for any borrower (transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired are acceptable). Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance except under the situations described below. Properties previously acquired as investment properties | more...

January 17, 2013

Paying The Up Front Costs Of Your FHA Loan

By Joe Wallace

The FHA loan program is designed to help borrowers get into an affordable home. However, those new to the FHA loan program might not realize there are up front expenses which must be budgeted for; unlike the VA loan program administered by the Department of Veterans Affairs, the FHA loan program does not feature a “no down payment” option. FHA home loans have a required down payment the FHA regulations describe as a “minimum investment”. FHA loan rules as found in HUD 4155.1 describe the up-front costs of an FHA loan (including the down payment) as follows: “Under most FHA programs, the borrower is required to make a minimum downpayment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales | more...

January 16, 2013

FHA Loan Rules For Applications: Your Tax Returns

By Joe Wallace

As part of the home loan application process for FHA insured mortgages, applicants are required to furnish a set of paperwork that includes tax documents. According to the FHA loan rulebook, HUD 4155.1, in a section titled “Federal Income Tax Returns”, the rules tell the lender to get the applicant’s: • federal income tax returns for the most recent two years, both individual and business, including all applicable schedules, for self-employed borrowers, and • individual federal tax returns for commissioned individuals. ” The phrase “all applicable schedules” refers to things like Schedule C and other forms required. If you don’t know what Schedule C is, you likely have not needed to file one. (It’s for borrowers who report business income or self-employment income. FHA loan rules also state that the | more...

January 14, 2013

FHA Loan Questions on Legal and Tax Issues Related to FHA loans

By Joe Wallace

There have been several questions lately about legal issues. Here’s one–a reader asks: “I live in a Michigan condominium that will have a special vote of our co-owners on 1/24/12 to determine if our association will make application under the HUD Review and Approval process (HRAP) to obtain FHA certification for our Association.” “In advance of this vote, our Board of Directors issued an opinion letter to our co-owners urging them to vote NO citing outdated 2008 FHA guidelines as the basis for their opinion, even though they are aware of the HRAP requirements that went into effect in 2010. If this proposal is defeated in our election, has by Board of Directors exposed my association to a potential discrimination suit because they intentionally mislead our co-owners in their opinion | more...

January 11, 2013

FHA Loan Credit Issues: A Reader Question

By Joe Wallace

A reader asks, “I have poor credit. I am a single mother of 4 and need to buy a bigger home. I have noticed reading several posts, that the lowest credit score FHA will accept is 580. Is this true in every case? After I was divorced my credit score dropped, big time. Everything was divided in court but at the time I was not working and it ruined my credit.” The answer to this question is likely one the reader doesn’t want to get. The reader asks if the FHA minimum credit score requirement is true in every case, and the short answer is “No”. However, the reason is due to the lender’s additional requirements for credit scores, not a more lenient loan policy on the FHA’s part. The | more...

January 10, 2013

FHA Streamline Refinance Loans Without An Appraisal

By Joe Wallace

FHA Streamline loans are described in the official rules (HUD 4155.1) as follows: “Streamline refinances • are designed to lower the monthly principal and interest payments on a current FHA-insured mortgage, and • must involve no cash back to the borrower, except for minor adjustments at closing, not to exceed $500.” The no-cash-out rule makes FHA Streamline Refinance loans different than cash-out refinances. Streamline loans may be done with or without an appraisal. According to FHA loan rules, when a Streamline Refinance is done without an appraisal, the following applies: “Generally, the streamline refinance mortgage amount may never exceed the statutory limits, except by the amount of any new upfront mortgage insurance premium (UFMIP). However, the maximum mortgage may exceed the statutory limits on certain specialty products.” Additionally, there are | more...

December 28, 2012

What You Should Know About FHA Loan Rules For Investment Property Vs. Single Family Homes

By Joe Wallace

While there are some exceptions described in the FHA loan rulebook, FHA loans for single-family homes are limited to what the FHA describes as “owner-occupied principal residences only”. The FHA describes “principal residences” as a property that “will be occupied by the borrower for the majority of the calendar year”. We’ve covered this topic elsewhere in previous posts; what we’re discussing today is situations where the borrower may perceive a gray area in the rules–what situations are considered purchases for investment purposes versus single-family home loans as described above? In general, any loan where the following applies to the borrower may be considered a non-investment type purchase: “FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of | more...

December 27, 2012

FHA Loan Applications: Verification of Employment

By Joe Wallace

From time to time we get questions about FHA loans including variations on the commonly asked, “How long do I have to spend on the job to get an FHA loan?” The short answer is that FHA loan rules require the lender to verify at least two years of employment, though not necessarily two years with the SAME employer. According to HUD 4155.1 Chapter One Section B, “The lender must obtain a Verification of Employment (VOE), and the borrower’s most recent pay stub” as part of this verification. But there are alternatives to this; FHA loan rules say “As an alternative to obtaining a written VOE, the lender may obtain the borrower’ s: • original pay stub(s) covering the most recent 30-day period, and • original IRS W-2 forms from | more...

December 21, 2012

Can A House Seller’s Appliances Reduce The Amount of My FHA Loan?

By Joe Wallace

When you want to buy a home with an FHA loan, unless you’re having a house built to spec, chances are good that appliances like a washer/dryer, stove, refrigerator and other items could be included in the purchase. In some cases this is not a problem, but depending on what the buyer and seller agree will “come with the house” as part of the purchase, could such items reduce the amount of your FHA loan? There’s an FHA loan rule about something known as an “inducement to purchase”. A seller is permitted to make a contribution to some financial aspects of the FHA loan (but not the down payment) in order to make the deal more attractive. Those contributions are limited as part of “the six percent rule”. According to | more...

December 20, 2012

FHA Loan Rules: Third Party Contributions

By Joe Wallace

FHA loan rules state that a borrower must provide a minimum down payment–3.5%–as a requirement of FHA loan approval for a single-family property. For some borrowers, that down payment takes up a good amount of the available cash on hand. What can a borrower do when he or she can afford a down payment, but may struggle to come up with some of the cash needed for closing costs, pre-paid expenses or other costs of an FHA loan? The FHA has a rule stating that the borrower can have assistance in this area in the form of a third party contribution. FHA loan rules state that the seller, “or third party” may contribute, “up to six percent of the lesser of the property’s sales price or the appraised value toward | more...