Articles Published in: May 2013

May 31, 2013

FHA Loan Application Rules

When some FHA mortgage loan applicants fill out their loan paperwork, it may be tempting to leave recent or new financial obligations out of that paperwork. In some cases it may be a simple oversight, in others it might be a question of an applicant mistakenly thinking that the lender won’t know or can’t find out. What’s the reality? FHA loan rules anticipate situations like these. In HUD 4155.1, Chapter Four, Section C, there’s a heading titled, “Recent and/or Undisclosed Debts or Inquiries”. It states: “Lenders must determine the purpose of any recent debts, as the borrower may have incurred the indebtedness to obtain the required cash investment.” That means that the lender must, among other things, determine whether the borrower has gone into debt in order to make his | more...

May 30, 2013

FHA Loan Credit Standards

By Joe Wallace

When applying for an FHA home loan, many borrowers are in the dark about credit score requirements and other issues related to FICO scores in general. We recently answered a reader question about FHA loan credit requirements and now is a good time to review FHA policy on FICO scores. The FHA requires the lender to use an available credit score to determine whether or not the borrower is eligible for an FHA home loan. The FHA has rules for interpreting or using FICO scores from credit reports. According to the FHA Frequently Asked Questions list on the official site: “When the credit report reflects: • 3 credit scores (one from each repository) – the middle score is used • 2 credit scores – the lower of the two scores | more...

May 30, 2013

FHA Loan Reader Questions: Credit Scores

By Joe Wallace

A reader asks, “My credit score is in the ‘poor’ range (low score 475. Hi score 585) and I will need assistance with down payment. However, I have an excellent income and have been on the job over 15 yrs. I have recently been approved for an auto loan which I am using to I prove my credit scores. Might I qualify for FHA, and what assistance is available for the down?” The FHA has rules about minimum credit scores needed for FHA loan approval. According to the FHA official site: “When a credit score is available, it must be used to determine eligibility for FHA insured financing. The score that is used to determine eligibility is called the ‘decision credit score’. When the credit report reflects: • 3 credit | more...

May 29, 2013

FHA Loan Reader Questions: No Credit History?

By Joe Wallace

A reader asks, “I had a question about buying a home with no credit. My partner has had a very good job for over 2 years now and I am a stay at home mom. Our problem is that she has no credit it’s not bad credit it’s no credit history.” “I, on the other hand have some credit but since I stay home that wouldn’t be sufficient. She has records of paying her bills on time and rent on time. Would we be able to qualify for a home loan with that information and no credit?” The answer to this question is found in the FHA loan rules as published in HUD 4155.1 Chapter Four Section C, which states the following: “The lack of a credit history, or the | more...

May 28, 2013

HUD Settles Alabama Housing Discrimination Case

By Joe Wallace

A press release issued by the FHA and HUD announces the settlement of a housing discrimination case in Alabama. According to HUDNo.13-077, “The U.S. Department of Housing and Urban Development (HUD) announced today that LLB&B, Inc., a real estate company based in Mobile, AL, will pay $29,000 as part of a Conciliation Agreement resolving allegations that one of its agents refused to show a condominium to a prospective homebuyer because he is African American. ” This violation of the Fair Housing Act came to light thanks only to a misdirected phone call. According to the press release, “The homebuyer alleged that he learned of the discrimination when the real estate agent inadvertently left a message on his telephone voicemail indicating her belief that white neighbors would ‘panic’ at the prospect of | more...

May 27, 2013

Remembering Our Veterans

By Joe Wallace

Memorial Day is traditionally a time to remember the sacrifices made by men and women in uniform. The writer Joseph Campbell once said, “A hero is someone who has given his or her life to something bigger than oneself.” Our veterans, past and present, have sacrificed plenty, and it’s only fitting to pause and give thanks whether silently in private or in a public event. Memorial Day is a time to reflect on the sacrifices made by those in uniform; this holiday is so much more than back yard barbecues, sales and a day when the banks are closed. The reason we’re able to enjoy our freedoms is due to what our people in uniform have done and continue to do. Those who have made the ultimate sacrifice for their | more...

May 24, 2013

FHA Loan Reader Questions: Buying a Home After a Short Sale

By Joe Wallace

A reader asks, “I did a short-sale last year, with total debt forgiveness and no delinquency judgement. I never missed a payment the 8 years I held the mortgage. It did not effect my credit which is currently 737.” “The bank did however report the short sale to the credit bureau and now I’m told it will be an issue getting an FHA loan. Lender says one thing, actual FHA website says another. I’m confused and discouraged. Advice?” The real issue here seems to be a disconnect between what the FHA loan rules say and the lender’s standards. If the FHA requires a certain minimum, but the lender has a higher standard, who is right? What standard is used to determine whether or not the loan can be approved? FHA | more...

May 23, 2013

FHA Announces Assistance For Homeowners in Oklahoma

By Joe Wallace

The FHA and HUD have announced disaster relief for victims of the recent tornado in Oklahoma. According to HUDNo.13-078, “HUD will speed federal disaster assistance to the State of Oklahoma in addition to resources being provided by Federal Emergency Management Agency (FEMA) and other federal partners. HUD will provide support to homeowners and low-income renters forced from their homes due to tornadoes and severe storms.” U.S. Housing and Urban Development Secretary Shaun Donovan has also reiterated current Federal Housing Administration policy, “that mortgage lenders should release insurance payments to homeowners rather than applying these funds toward outstanding mortgage debt” according to the press release. On Tuesday May 21, 2013, the President made a federal disaster declaration for Oklahoma counties including Cleveland, Lincoln, McClain, Oklahoma and Pottawatomi. A federal declaration allows | more...

May 22, 2013

FHA Loan Reader Questions: Closing Costs

By Joe Wallace

A reader asks, “Can you have the closing costs added to your mortgage loan in California? Or do you have to pay them before escrow closes?” Let’s see what the FHA loan rules, as described in HUD 4155.1, have to say about this. Chapter Five, Section A has a heading titled Settlement Requirements Needed To Close, which states: “Lenders may pay a borrower’s closing costs, and/or prepaid items by ‘premium pricing.’ Closing costs paid in this manner do not need to be included as part of the seller contribution limitation. The funds derived from a premium priced mortgage • may never be used to pay any portion of the borrower’s downpayment • must be disclosed on the GFE and the HUD-1 Settlement Statement • must be used to reduce the | more...

May 22, 2013

Foreclosure Avoidance: FHA Modifies Mortgage Rate Rules

By Joe Wallace

The FHA loan program requires borrowers to find a participating lender, negotiate terms, and come to an agreement on an acceptable mortgage loan interest rate. In general, the FHA and HUD do not set or regulate mortgage rates, except to require that such rates be “reasonable and customary” for the market. But the FHA has issued new guidance for mortgage rates as they apply to home loss mitigation/foreclosure avoidance programs as described in FHA Mortgagee Letter 2013-17. “The purpose of this Mortgagee Letter is to provide guidance for determining the interest rates to use when implementing FHA’s Loss Mitigation Home Retention options,” the document states, adding that the new policies described in ML 2013-17, “are to be implemented by mortgagees for Trial Payment Plans offered on or after July 1, | more...