Articles Published in: October 2011

October 19, 2011

FHA Loan Down Payments

All FHA home loans require a down payment. In lender-speak, this is known as a “minimum required investment” from the borrower. The absolute minimum down payment for an FHA new purchase home loan is “not less than 3.5 percent of the appraised value of the property” according to FHA Mortgagee Letter 2008-23. But what if the borrower cannot afford to pay the down payment out of pocket? FHA rules prohibit the down payment from being included in the mortgage, so what is a borrower to do in cases where they don’t have enough funds available for the minimum required investment? According to FHA loan rules, “The borrower may obtain a loan for the total required investment, as long as satisfactory evidence is provided that the loan is fully secured by | more...

October 18, 2011

FHA Loans: Can I Use a Power of Attorney to Close?

By Joe Wallace

The FHA loan process can be a long and winding road before getting to the closing date, and not every transaction goes as smoothly as hoped. While many FHA borrowers fully anticipate showing up on closing day to sign final paperwork, render any payments due and take possession of the property, sometimes life gets in the way and prevents the borrower from being there in person. Sometimes that’s because of work requirements, family emergencies, health problems or other factors, but regardless of the cause, something is preventing the borrower from being physically present to sign his or her name and take ownership of the home. If a borrower cannot be present in person to close the deal, do FHA rules allow a third party to act on the borrower’s behalf | more...

October 18, 2011

FHA Loans and Required Repairs

By Joe Wallace

When an FHA loan applicant finds a home they are serious about purchasing, an offer is made for the property and a process is set in motion that leads to the FHA loan being approved or denied. When the loan is approved, it means the property has been appraised by an FHA-approved appraiser. In some cases a home may pass the appraisal process with few or no required improvements or repairs. In other cases a home may be rejected as unsuitable because of the condition of the property, but in many other cases a home may be approved for an FHA mortgage provided certain repairs or improvements are made as a condition of the sale. In such cases, depending on the repairs, the borrower or seller may be required to | more...

October 17, 2011

FHA Property Appraisals Vs. Home Inspections

By Joe Wallace

A recent reader question came in about FHA appraisals. “How do I file a complaint about a lemon home? It was inspected by an FHA approved inspector.” This question raises two very important issues. Does the FHA “inspect” properties? If not, who does? The FHA requires an appraisal before an FHA loan will be approved and can move to closing. The appraisal is designed to insure the property meets minimum standards, is safe and livable, and the appraisal also establishes a fair market value. But an FHA appraiser is not an inspector. The FHA appraisal process is not designed to guarantee the home is free from defects or problems. The appraisal process does not guarantee your home is problem-free. Before a borrower commits to purchasing the home, or as a | more...

October 14, 2011

HUD Suspends Former Lend America President Michael Primeau

By Joe Wallace

The FHA and HUD have announced the suspension of Michael Primeau, former President of Lend America, following Primeau’s guilty plea in a loan fraud scheme. Primeau is no longer permitted to conduct business with the FHA or HUD. According to a press release at FHA.gov, “The U.S. Department of Housing and Urban Development (HUD) today announced it is immediately suspending Michael Primeau, former President of Lend America, from doing any business with HUD following his admission that he engaged in a wide-scale mortgage fraud scheme.” “Specifically, Primeau pled guilty to charges he directed employees of Lend America, a former FHA-approved lender, to divert mortgage funds intended to pay off borrowers

October 13, 2011

FHA Title I Home Improvement Loans

By Joe Wallace

If you explore FHA home loan options, you’ll find a variety of them–there are loans for new purchase mortgages, but also options for energy efficient mortgages, home equity conversion loans, rehab loans, and something called the FHA Title I Home Improvement loan. Title I loans are used for repair, alteration, or site improvements and can be used together with a 203k Rehabilitation Mortgage if needed. Title I loans for a single family home can be approved for amounts up to $25,000 for qualified borrowers. Applicants aren’t required to ask for the maximum amount; according to the FHA official site, “Both large and small improvements can be financed.” FHA rules also state, “Any loan over $7,500 must be secured by a mortgage or deed of trust on the property.” As with | more...

October 12, 2011

FHA Loan Applicants With Little Or No Credit History

By Joe Wallace

A reader sent in a question about credit history, asking if a lack of credit was grounds for disqualifying an FHA home loan application. It would be easy to assume the answer to that questions is “Yes”, but a quick check of FHA loan requirements reveals an answer that may surprise you. According to the FHA rules for lenders found in Handbook 4155.1, the lack of credit history cannot be used as the basis for rejecting an FHA loan application. That answer leads many to wonder how the lender can tell whether a borrower is a good credit risk or not. How does the FHA approach situations where the borrower has no previous credit? According to the official site, “FHA permits mortgage lenders to establish a borrower

October 12, 2011

FHA Loans: For U.S. Citizens Only?

By Joe Wallace

A recent reader question raised an interesting issue; does an FHA loan applicant have to be a U.S. citizen in order to qualify for the loan? According to FHA rules, “Permanent Resident Aliens are eligible for an FHA-insured mortgage under the same terms as US citizens.” The FHA also adds, “ Non-Permanent Resident Aliens are eligible for FHA-insured mortgages provided the property will be the borrower’s principal residence, they have a valid social security number, and the borrower is eligible to work in the US.” How does the lender get evidence showing that a borrower is able to be approved for an FHA mortgage in these cases? The FHA rules say “Evidence of residency and work status should be obtained from the U.S. Citizenship Immigration Services (USCIS). Eligibility to work | more...

October 11, 2011

HUD Charges New York Real Estate Company With Fair Housing Act Violations

By Joe Wallace

On occasion you’ll find reports here about the latest actions brought by HUD against those in the housing industry suspected of violating the Fair Housing Act, RESPA, and other federal anti-discrimination laws. We write about these things for two reasons–one is to raise awareness of the issues, but the other is to remind FHA loan applicants and borrowers that there is recourse when anti-discrimination laws are violated. One of the reasons the FHA and HUD are able to bring legal actions against those who break these laws is because the victims file a complaint–the victim is often the first line of defense against those who discriminate. Without reporting the problem, the FHA and HUD have a much tougher time preventing housing discrimination. Many of the headlines we report have to | more...

October 10, 2011

FHA Loans and the Debt-To-Income Ratio

By Joe Wallace

The debt-to-income ratio is an important calculation all home buyers need to understand. To qualify for an FHA home loan, potential borrowers should have a debt-to-income ratio of 43%. But what does that mean? According to the FHA, that means that the total mortgage payment plus all monthly financial obligations cannot exceed 43% of the borrower’s “gross effective income”. It’s important to point out that the debt-to-income ratio does include the mortgage payment–not the amount of the borrower’s current financial obligations alone at the time of the FHA loan application. Knowing the debt-to-income requirements can help a future borrower prepare for the FHA loan application because it’s as simple as doing the math on your income/expenses and set financial goals accordingly. If you know a year in advance that your | more...