Articles Published in: January 2012

January 31, 2012

FHA Loans, Effective Income, and Alimony

One important section of the rules for FHA loans states a borrower’s income must be verified by the lender as “effective income”. This means that the income must be stable and likely to continue. Some types of income can’t be counted. A part-time business selling goods on eBay, for example, might not qualify. But what about other types of non-employment income like child support, alimony, or maintenance payments? There are plenty of borrowers who receive or are eligible to start receiving these types of payments. Does the FHA recognize them as effective income? In certain cases, yes. Alimony, maintenance payments as part of a divorce decree, and/or child support can qualify and be counted toward a borrower’s debt-to-income ratio provided the payments meet standards set by they FHA. According to | more...

January 30, 2012

FHA Loan Reader Question: FHA Condo Loan Approval

By Joe Wallace

FHA loan rules for home purchases are different than the rules for FHA insured loans for condominium units. Since there are unique requirements for condo loans–including a requirement that condos to be considered for FHA mortgages be on an FHA-approved list–the FHA has published a set of guidelines for condo mortgages. One reader wrote in to ask, “Is there a list of the FHA requirements that a condo project needs to comply with in order to be listed on the FHA approved list? Where can it be obtained? Thanks.” The list of FHA requirements for a condo to be approved and listed can be downloaded at: www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-19ml.doc What do these guidelines cover? According to the FHA, condo projects must consist of two units or more, and be covered by hazard | more...

January 27, 2012

FHA Loan Restrictions on Cash-Out Refinancing

By Joe Wallace

When borrowers want to refinance an FHA mortgage, there are two basic types of refinancing to choose from; FHA cash-out refinancing loans and those with no cash to the borrower. The FHA loan rules for cash-out refinancing are naturally more stringent than those with no money to the borrower–in cash-out transactions the borrower must qualify under FHA requirements and meet certain standards that may not be the same as for non-cash out transactions. What are the restrictions on FHA cash-out refinancing? For starters, according to the FHA official site at FHA.gov, “Cash out refinance transactions are only permitted on owner-occupied principal residences”. The FHA takes the owner/occupant issue quite seriously, going so far as to add an additional rule stating; “Non-occupant co-borrowers may not be added in a cash out | more...

January 26, 2012

FHA Loan Reader Question: Refinancing a “Private Loan”?

By Joe Wallace

A tricky FHA loan question came in recently asking about FHA refinancing, bankruptcy, and more. The reader asks; “I have a situation where i have filed BK chapter 7 and had my house foreclosed, at the same time i had a money lender purchase a house for me and put it in my name and I make payments to him, I have been making payments for 21 months all on time and with taxes and insurance. I would like to refinance through a regular lender and pay off the original loan…So how do I refinance this loan and when am I eligible to qualify? It has been over two years from filing chapter 7 and it will be two years from the foreclosure in Oct 2012. Any thoughts?” There are | more...

January 25, 2012

FHA Loan Applications and Income Rules

By Joe Wallace

Borrowers who apply for an FHA insured mortgage are required to submit application data including specific details about employment, income, and the sources of that income. FHA income requirements aren’t limited to just dollar amounts and the history of the borrower’s employment–the sources and stability of the income listed on the application are also reviewed. A borrower’s debt-to-income ratio, the amount of money going out versus the amount of money coming in, is calculated using only verifiable and reliable income. The FHA has rules about the nature of the income that can be used for this calculation; if a borrower has a job that isn’t “stable and reliable” when it comes to income, it won’t help the borrower for the purposes of qualifying for an FHA mortgage. Specifically, the FHA | more...

January 25, 2012

FHA Loan Rules VS. Lender Requirements

By Joe Wallace

We encourage readers to submit their questions about the FHA loan process and related issues by using our comments section; as a result we’ve gotten a large number of comments about the difference between FHA regulations and lender requirements. For example, if the FHA requires a minimum FICO credit score, why does the lender require a higher score? Isn’t the borrower qualified at the lower, but still permissible score according to FHA loan rules? This is where a great deal of confusion can and does occur, mainly because of an expectation that the FHA rules have the final say in such matters. But the truth is that FHA lenders are free to require higher credit scores and other criteria so long as such requirements are applied equally for all applicants, | more...

January 24, 2012

FHA Loan Rules: Proposed Seller Concession Changes

By Joe Wallace

When a house hunter wants to buy a home with an FHA insured mortgage, he or she may find a seller willing to offer incentives–known as seller concessions–to make the deal more attractive. Seller concessions can include interest rate buydowns, discount points or other contributions that are related to closing costs. At the time of this writing, FHA loan rules state that these concessions can total no more than six percent of the sales price. Any more than six percent is considered an inducement to purchase the property and the FHA requires an adjustment in the loan amount. According to the FHA official site, “Each dollar exceeding FHA

January 23, 2012

FHA Loans Reader Question: Chapter 7 Bankruptcy

By Joe Wallace

There have been many reader questions in the last six months about bankruptcy, foreclosure, and the required waiting period for new FHA home loans after these procedures. One reader asks, “When does the waiting period began per FHA Guidelines? If you included a conventional loan in a Chapter 7 bankruptcy, does the waiting period began at the discharge date? Or does the waiting period began at the trustee sale?” The short answer is that after Chapter 7 bankruptcy, the borrower must wait out the minimum “seasoning” period plus any additional amount required by the lender–three years in many cases though some lenders may be willing to work with qualified borrowers after the FHA two-year minimum for Chapter 7. This waiting period begins from the time the bankruptcy is discharged. Since | more...

January 20, 2012

FHA Loan Reader Question: Why Was I Denied an FHA Home Loan?

By Joe Wallace

Many readers write in with questions similar to the one we received this week, which includes the following: “I am recently divorced. While married, went through two bankruptcies (both discharged) have/had issues with back taxes (installment plans made and determined to be paid in full by ex per divorce decree). Have moved to another state, working (1.5 years), full time student. Was living with children, have moved into an apartment paying $600.00 per month (comfortably), because I could not get qualified for a loan. Have two major credit cards (visa/master credit cards not debts) established in my name for 1.9 years, never late, never over limit. Credit score is 620. Is there a main reason why, I did not or cannot be approved for a FHA loan?” Before addressing an | more...

January 19, 2012

FHA Loan Reader Question: FHA Loans and Credit History

By Joe Wallace

Sometimes, shopping around for a participating FHA lender is a bit more complex that you might think. There are basic issues related to competitive interest rates, getting the most favorable terms, even the simple chemistry between the borrower and the bank can be an issue. But what about situations where the borrower feels the lender hasn’t quite done right in terms of customer service? One reader left this comment; “I owned my home for 12 years (FHA loan) and sold it December 2010. I am now told that I have NO CREDIT SCORE!!! I paid cash for car and have no credit cards. I