Articles Published in: April 2013

April 30, 2013

FHA Loan Answers: How Long Is An FHA Loan?

One common FHA loan question is fairly simple and straightforward; how long can an FHA loan be? In general, FHA loans are available for 15 or 30 year terms. FHA loan rules as spelled out in HUD 4155.1 state that there is a maximum loan term–one that depends on the type of transaction and other factors. “The maximum mortgage term may not exceed 30 years from the date that amortization begins. In the case of adjustable rate mortgages (ARMs), the term must be for 30 years. FHA does not require that loan terms be in five year multiples.” FHA loan rules add, “Some programs require a shorter term, including certain streamline refinances made without appraisals.” For FHA Streamline Refinances made without an appraisal, FHA loan rules state, “The streamline refinance | more...

April 29, 2013

Deadline For New FHA MIP Policy Approaches

By Joe Wallace

The deadline for a new FHA mortgage insurance premium policy is approaching; beginning on June 3, 2013 most FHA loans endorsed on or after that date will be affected by the following changes as described in FHA Mortgagee Letter 2013-04: “For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP for the maximum duration permitted under statute.” That basically means that many affected FHA loans will feature annual MIP for the duration of the loan rather than cancelling the MIP after a certain point. Other FHA loans will have MIP where there was none required previously. Additionally, Mortgagee Letter 2013-04 states, “For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) | more...

April 26, 2013

FHA Loan Reader Questions: Can My Spouse Apply Alone For An FHA Loan?

By Joe Wallace

A reader asks, “I am married and I have an extremely high debt to income ratio. On the other hand my husband has less credit but double my income and very low debt to income ratio. Is it possible that an he qualify using only his income and credit to qualify for an FHA loan?” There are several factors which may apply in a situation like this. Borrowers should know that when applying for FHA home loans, credit scores, employment history, verifiable income and other factors will figure into loan approval. That said, assuming all the above requirements are met, the basic question is whether a borrower can apply for an FHA loan independently of the spouse. This depends on community property laws which may apply in the state where | more...

April 25, 2013

FHA Loans and Non-Traditional Credit

By Joe Wallace

One commonly asked question about FHA mortgage loans involves the eligibility of borrowers who don’t have what are considered “traditional” credit histories. Can a borrower with little or no credit still qualify for an FHA loan? FHA loan rules do make provisions for those who have little credit history that can be researched via a typical credit bureau report. In cases like these, the lender is required to review certain types of documentation to verify the borrower is a good credit risk. According to HUD 4155.1, “In order for the underwriter to determine that a borrower has sufficient credit references to help evaluate bill paying habits, the credit history must…include three credit references” including at least one of the following: Rental housing payments (subject to independent verification if the borrower | more...

April 25, 2013

VA Loan Answers: The Difference Between “Maximum Loan Amount” and “Maximum FHA Loan Guaranty”

By Joe Wallace

There is a commonly asked question about FHA loans that pertains to the amount of loan a borrower is eligible to apply for; what is the FHA maximum loan amount? There is no set, across-the-board limit for an FHA mortgage. Instead, the loan amount is determined in part by the appraisal and in part by the FHA mortgage guaranty limits for that county. Those limits are not on the actual amount the loan is for, but rather for the amount the FHA will insure. According to FHA loan rules in HUD 4155.1, “The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s • sales price, subject to certain required adjustments, or • appraised value.” | more...

April 24, 2013

FHA Loan Reader Questions: Commission Income

By Joe Wallace

A reader asks, “How would you calculate a borrower who started a new job in May 2011, made a base salary with incentive? In 2012 went from incentive to commission + base & will continue for 2013 w/a verification stating commission likely will continue. Please advise.” While many FHA loan applicants work in “traditional” vocations with weekly, bi-weekly, or monthly paychecks, others are self employed, work on commission, etc. FHA loan rules anticipate these types of employment situations and have rules based on them. FHA loan rules address commission income in HUD 4155.1 Chapter Four Section D, which states, “Commission income must be averaged over the previous two years. To qualify with commission income, the borrower must provide –copies of signed tax returns for the last two years, and –the | more...

April 23, 2013

FHA Credit Report Rules

By Joe Wallace

When you apply for an FHA loan, your loan application will include forms you sign to give your loan officer permission to pull your credit reports, check your employment history and other items that are required in order to approve your VA home loan. But what are the rules for the lender when pulling your credit reports? What is the loan officer obligated to review and how is the process regulated? FHA loan rules, as printed in HUD 4155.1, give the lender a long set of instructions when it comes to accessing credit data. For starters, the lender can only accept credit report information directly from the credit agencies. It cannot come from any third party including the borrower. Additionally, HUD 4155.1 Chapter One Section Five states, “A credit report | more...

April 22, 2013

FHA Loan Reader Questions: Credit Score Minimums and FHA Requirements

By Joe Wallace

A reader asks, “We have been working for the last year to clean up our credit with the help of a credit repair company. We have made strides. We have been living in our home the last three years which we are purchasing on a land contract.” “It is now the end of the contract and we need to do the financing. I’m reading that the minimum credit FHA requires is 580, but I cannot find any place that will finance a person with less then a 640 credit score. Secondly, it is my understanding that we should be doing a refinance anyhow, but the places I have called are clueless. HELP! Our high score is right at 580 and we need to finish this financing NOW.” This is an | more...

April 19, 2013

FHA Loan Reader Questions: FHA Loans For Retired People

By Joe Wallace

A reader asks, “Have been trying to get my Freddie Mac loan reduced for 16 months with no good results. Can a retired person get an fha/obama loan if they have excellent credit, no debt and low income?” The answer to this question really depends on more information. The FHA itself does not have a minimum income requirement for FHA refinance loan approval. Instead, the FHA guidelines state that the borrower’s debt-to-income ratio would be a factor in some kinds of refinancing. The term “low income” itself is very relative–what might seem to be low income for some is perfectly acceptable in other cases. A borrower with good credit and a low debt-to-income ratio may be perfectly able to qualify for an FHA mortgage assuming other qualifying factors are also | more...

April 18, 2013

FHA Loan Forbearance and Refinance Relief: Hurricane Sandy and Beyond

By Joe Wallace

Recently the FHA modified its guidelines to lenders for borrowers struggling to recover in federally declared disaster zones such as the large areas affected by Hurricane Sandy. There are two very important aspects of this policy modification that borrowers should know–before, during, and after natural disaster. According to FHA Mortgagee Letter 2013-11, “FHA is expanding forbearance relief for affected borrowers. Under this policy: Borrowers may suspend up to 12 months’ worth of mortgage payments while they repair their homes; and After the forbearance period, borrowers may be eligible for an FHA streamlined loan modification to avoid large lump sum payments. Up to 285,922 borrowers in the Sandy-affected areas who were eligible for forbearance relief as of February 28, 2013, may be eligible for an FHA streamlined modification.” The Streamlined loan | more...