Articles Tagged With: Mortgage Underwriting

December 10, 2013

Closing the FHA Loan: Settlement Costs

When you learn about FHA home loans, the phrase “cash required to close” is one you’ll soon become familiar with. One of the reasons so many experts recommend taking as much time as possible to prepare for a home loan? Giving yourself enough time to save up the money required to close the deal. The required 3.5% down payment is part of that, as are the payments you’ll need to make for appraisals and any required compliance inspection. But there are other costs as well; fortunately FHA loan rules in HUD 4155.1 instruct the lender to prepare an estimate sheet to give the borrower a better idea of what these expenses are. According to Chapter Five of HUD 4155.1, “For each transaction, the lender must provide the initial Good Faith | more...

December 2, 2013

FHA Loan FICO Score Requirements: A Reader Question

By Joe Wallace

A reader asks, “What if my credit score is below 600, but am now cleaning up my record so I can purchase a home. Not a pricey home but one I can retire in some day. I checked my credit report and some of the things on it are no longer a problem, and now paid, but they remain on it. I need to know as soon as possible because the small home I am interested in might be sold soon.” Let’s examine what the FHA loan rulebook (HUD 4155.1) says about minimum FHA requirements for credit scores: This table is reproduced directly from HUD 4155.1. Note that the FHA minimum credit score requirements is 500 or above. But does this mean that a borrower with a FICO score of | more...

November 29, 2013

FHA Credit and Downpayment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I have checked my credit report before and it came back insufficient. I do have older doctor bills that are outstanding but everything else I have saved and paid cash for, therefore making it unnecessary to have a credit card.” “If I had a portion of money for a down payment on a house would I be able to receive an FHA loan? And I would also like to know what the first step of buying a house is, because I would be a first time home buyer and have no idea what the process is.” Having the required minimum 3.5% cash investment is only one requirement for FHA loan approval, so the simple availability of the down payment wouldn’t be enough. A borrower is required to | more...

November 21, 2013

Basic Information on FHA Refinance Loans

By Joe Wallace

When it’s time to refinance a home loan with an FHA loan, borrowers may wonder whether their situation qualifies for an FHA refinance, whether that’s a Streamline Refinance or a Cash-Out refinance loan. Obviously an homeowner with an existing FHA mortgage wouldn’t have a problem getting a streamline refinance loan, but what about those who have conventional or even VA loans? What do FHA loan rules say it takes to qualify for an FHA refinance? FHA loan rules on this subject are found in HUD 4155.1 Chapter Three Section A, under the heading, “General Information on Refinance Transactions”. It says in part: “A refinance transaction is used to pay off an existing real estate debt with the proceeds of a new mortgage for borrower(s) with legal title, and on the | more...

November 19, 2013

Credit Qualifying Information For FHA Loans: What Your Lender Needs

By Joe Wallace

It’s good to understand the process of FHA loan approval. Knowing what your lender is looking for on your credit application is an important part of being ready for an FHA mortgage application. When you fill out your credit forms, what does your lender do with all that data? When it comes to your credit information, the lender doesn’t just rely on what’s provided on your paperwork; FHA loan rules listed in HUD 4155.1 say the lender must request a credit report that consists of information from the three major credit reporting agencies in something called a Three Repository Merged Credit Report or TMCR. That data must include: –all inquiries made within the last 90 days –all credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA), | more...

November 15, 2013

FHA Loans and Residency Status

By Joe Wallace

One not-so-common, but very important question for some potential FHA borrowers revolves around citizenship status. Does a borrower have to be a citizen of the United States in order to apply for an FHA home loan? Let’s examine what the FHA loan rules published in HUD 4155.1 Chapter Four Section A say about this question. According to Chapter Four, “U.S. citizenship is not required for mortgage eligibility. The lender must determine the residency status of the borrower, based on information provided on the loan application, and other applicable documentation. “ That is good news for people in a variety of circumstances including legal resident aliens, those who are taking citizenship tests or who are in the process of relocating to this country under certain conditions. Chapter Four adds, “FHA insures | more...

November 14, 2013

Looking For An FHA Loan In Another Part Of The Country? A New HUD Tool Could Help

By Joe Wallace

Not everyone looking for a home with an FHA loan has the luxury of being able to drive through a lot of neighborhoods to look at all the “for sale” signs. Some are forced to look for a new home out of necessity–a job relocates to a new city, a new promotion requires a change of address, sometimes even natural disasters can urge a house hunter to look elsewhere. A lot of people feel at a disadvantage when it comes to looking for homes in a city other than their own, which is why the Department of Housing and Urban Development has created a new tool to help FHA loan applicants and anyone else looking for a home loan. According to a recent FHA/HUD press release, U.S. Housing and Urban | more...

November 7, 2013

FHA Clarifies Foreclosure Rules

By Joe Wallace

The FHA has updated its loss mitigation rules for the foreclosure process. FHA Mortgagee Letter 13-40, which supersedes or overrules previous or contradictory FHA foreclosure rules, has a collection of guidance for lenders. Some of that guidance is very important for borrowers who may be facing foreclosure on FHA mortgages to understand fully. According to the publication, “Effective loss mitigation is essential to stabilizing communities affected by natural disasters, poor housing market conditions, etc. Therefore, servicers are reminded that participation in FHA’s Loss Mitigation Program is not optional, they are to inform borrowers of and evaluate them for each loss mitigation retention and non-retention option1 in a timely manner.” The clarified loss mitigation procedures include direct instructions to the lender on when and how foreclosure proceedings may take place. “Pursuant | more...

October 31, 2013

FHA and HUD Update Loss Mitigation Instructions for Lenders

By Joe Wallace

Borrowers who get into financial trouble may have difficulty paying their monthly FHA mortgages. In all cases, the FHA encourages borrowers to get in touch with the lender as soon as possible to make arrangements to avoid going into delinquency and default on an FHA loan. Borrowers who do this have the most options, and find many more doors open to them. Borrowers who wait until it’s too late to prevent going into default may have few choices. What is the lender’s responsibility when a borrower starts missing payments and is in danger of foreclosure? The FHA and HUD have issued updated guidance telling lenders what must be done and what the acceptable course of action is for the financial institution in such cases. These updates were published in FHA | more...

October 30, 2013

FHA Loans, Verifiable Income, and VA Benefits

By Joe Wallace

Some veterans and currently serving military members may choose to pursue an FHA home loan instead of a VA mortgage for any number of reasons. If a borrower is eligible for VA benefits, can he or she count those benefits as income for the purposes of qualifying for an FHA insured mortgage loan? According to the FHA loan rulebook, military pay and some benefits may be counted as verifiable income as long as it meets the right criteria. Chapter Four of HUD 4155.1 says, “Military personnel receive base pay, and are often entitled to additional forms of pay, such as • variable housing allowances • clothing allowances • flight or hazard pay • rations, and • proficiency pay. These types of additional pay are acceptable when analyzing a borrower’s income | more...