Articles Published in: June 2013

June 18, 2013

FHA Loan Reader Questions: Chapter 7 Bankruptcy

A reader asks, “I have a Chapter 7 and I want to apply for a FHA home loan. If my scores are in the high 600′s or 700′s? Do I still have to wait two years after my bankruptcy has been discharged to apply?” FHA loan rules on the subject of getting a loan after a Chapter 7 bankruptcy filing are found in HUD 4155.1 Chapter Four, Section C. The FHA loan rules say borrowers with a Chapter 7 on their credit record are not automatically barred from getting an FHA mortgage, but the following applies: “A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, | more...

June 17, 2013

FHA Loan Occupancy Rules

By Joe Wallace

We answer many reader questions about FHA loans, FHA loan rules, and what it takes to qualify for an FHA insured mortgage. Did you know there is an occupancy requirement for all new purchase single family FHA mortgage loans? FHA loans for single-family purchases do have an occupancy requirement, which does not permit the borrower to buy the home then turn around and rent out the property to someone else. According to the FHA loan rules found in HUD 4155.1, the home MUST be used as the principal residence or primary address. “A principal residence is a property that will be occupied by the borrower for the majority of the calendar year. At least one borrower must occupy the property and sign the security instrument and the mortgage note in | more...

June 14, 2013

HUD Updates Good Neighbor Next Door Policy

By Joe Wallace

The Department of Housing and Urban Development has updated its policy on the Good Neighbor Next Door program, which offers homes at a major discount to qualifying borrowers. According to HUD, the program “offers HUD owned single family (one-unit) homes to eligible participants at a 50% discount” to “law enforcement officers, teachers and firefighters/emergency medical technicians and who meet all other requirements of the program”. The HUD Good Neighbor Next Door program is available to those who want to purchase using an FHA insured mortgage. Recently the FHA and HUD have issued guidance about the Good Neighbor Next Door Program, which includes clarification on the mortgage insurance premium for the loan. According to FHA Mortgagee Letter 2013-20, “The purpose of this Mortgagee Letter is to: Clarify that the mortgage insurance | more...

June 13, 2013

FHA Loan Rules on Verifiable Income: Commissions

By Joe Wallace

FHA loans require the lender to verify the applicant’s employment, credit history, and income. When it comes to income verification, the FHA requires the lender only to use “verifiable income” when calculating a borrower’s creditworthiness. When an FHA loan applicant has ordinary hourly or salary income, it’s simple to establish what verifiable income might be using pay stubs, income tax reports, and other documentation. But what about when a mortgage loan applicant has a job that pays a commission instead of a salary? FHA loan rules have provisions for commission-based income, as described in HUD 4155.1 Chapter Four. There, you’ll find the following: “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 | more...

June 13, 2013

FHA Loan Reader Questions: Minimum Employment

By Joe Wallace

A reader asks, “Info to qualify FHA loan–I only have one year proof of taxes (W2). Do I need to finish this year to try to qualify?” While this question isn’t quite clear, it seems safe to assume the reader wants to know whether he or she meets FHA loan approval standards for an FHA mortgage. Let’s examine what FHA loan rules have to say about minimum employment history. Those rules can be found in HUD 4155.1 Chapter Four Section D, which says: “To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower’s employment for the most recent two full years, and the borrower must • explain any | more...

June 12, 2013

FHA Loan Reader Questions: Appraisals, Moldy Bathrooms, and Dirt Floor Basements

By Joe Wallace

A reader asks, “Can I get an FHA loan if the home has a dirt floor basement and mold in the bathroom?” There are two important things FHA loan applicants should know about the FHA appraisal process. One is that the FHA does not have a complete, exhaustive list of every type of issue a home might have that could disqualify it from FHA loan approval. Second, the FHA requires homes be in compliance with state and local building code. Any situation that is not code compliant for the state or local authority would not pass for the FHA, either. In such cases the FHA appraiser might require corrections, repairs, or other modifications as a condition of FHA loan approval. In other cases the problems may be so bad that | more...

June 11, 2013

HUD, Bank of American Settle Home Loan Refinance Discrimination Case

By Joe Wallace

The FHA/HUD official site has issued a press release announcing the settlement of a housing discrimination case involving Bank of America, “settling allegations that the Charlotte, NC-based lender and Fannie Mae violated the Fair Housing Act by denying a borrower’s application to modify her mortgage loan because she did not provide sufficient information about the nature of her disability.” We report on such cases here as they happen as a reminder to borrowers that they are often the only line of defense against violations of the Fair Housing Act. Without reporting such discrimination cases, it’s possible they may never be prosecuted or settled. In this particular instance, HUD officials make it quite clear what the rules are. “People with disabilities should not have to answer unnecessary questions about the nature | more...

June 10, 2013

FHA Loan Reader Questions: Employment History and Time on the Job

By Joe Wallace

A reader asks, “Do I qualify for a loan? I have been at my present job for only a few months. I do have years of good credit. I pay my full balance on my credit cards every month. I never bought a house in my life.” The FHA loan rules as stated in HUD 4155.1 have a list of requirements the lender must fulfil when processing an FHA loan application. Those requirements included employment verification; “The lender is required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met: the current employer confirms a two-year employment history (this may include a pay stub indicating a hiring date) the lender only uses base pay (no | more...

June 7, 2013

FHA Loan Questions: Applying for an FHA Loan With No Credit Card History

By Joe Wallace

A reader asks, “I have a credit score of 662, but I have no outstanding credit. I do not have any credit cards open, nor a car loan (loan was open in 2003)I have 0 installment loans, 0 credit cards, 0 retail cards. How can I get approved for a home loan? I have had credit in the past, but closed my accounts when I moved out of the country in 2001 and never got any credit cards again.” FHA loan rules address this in HUD 4155.1 Chapter Four, Section C. That section says in part, “Past credit performance is the most useful guide to • determining a borrower’s attitude toward credit obligations, and • predicting a borrower’s future actions. Borrowers who have made payments on previous and current obligations | more...

June 6, 2013

FHA Loan Rules: Contingent Liability

By Joe Wallace

FHA loan rules cover a wide range of circumstances and situations. Many of these rules were written in anticipation of needs that, while not as common as some, still might be in demand many times over the course of a single fiscal year based on the sheer volume of FHA mortgage loan applications. One set of rules governs something known as “contingent liability”, which the FHA loan rulebook describes in HHUD 4155.1 Chapter Four, Section C. “A contingent liability exists when an individual is held responsible for payment of a debt if another party, jointly or severally obligated, defaults on the payment.” This sort of obligation may be known as a co-sign agreement, a co-borrower or co-obligor arrangement. FHA loans require any borrower who has a contingent liability to list | more...