Articles Published in: March 2014

March 31, 2014

FHA Updates Official Site On Electronic Signatures Policy

Recently, the FHA updated its electronic signature policy to accept “e-signatures” on a wider range of documents related to FHA home loans. According to the official site at www.FHA.gov, “FHA will accept electronic signatures on the following ‘Authorized Documents’ (see below), provided they are not otherwise prohibited by law, and comply with the standards set forth in Mortgagee Letter 2014-03 and with the Electronic Signatures in Global and National Commerce (ESIGN) Act.” The mortgagee letter issued at the end of January 2014 stated that FHA recognizes electronic signatures within certain limits as defined by the ESIGN act. “The ESIGN Act defines electronic signatures as “any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent | more...

March 28, 2014

FHA Loan Rules: Government Benefits and Assistance Income

By Joe Wallace

One of the most common questions we get about FHA home loans involves the borrower’s basic eligibility for the FHA loan program based on receiving government assistance or other types of government payments including: • military income • VA benefits • government assistance programs • mortgage credit certificates • Section 8 home ownership vouchers What do FHA loan rules say about these types of income? Can they be used to qualify for an FHA mortgage? Not all these types of payments are covered under one blanket rule. The different types of pay have different rules. For example, when it comes to military allowances above and beyond base pay, HUD 4155.1 Chapter Four says: “Military personnel receive base pay, and are often entitled to additional forms of pay, such as • | more...

What you should know about FHA 203(h) Loans For Disaster Victims

March 28, 2014

FHA Loan Answers: Does Alimony/Child Support Count As Income?

By Joe Wallace

We’ve been discussing topics this week related to FHA loan rules for income and employment. The participating FHA lender is responsible for verifying an FHA loan applicant’s employment and income to make sure it is stable and reliable. Not all forms of income can be used on the FHA loan application. Sporadic income from sales of goods online, for example, may not qualify, and certain types of commissions may not qualify depending on their frequency. GI Bill housing stipends cannot be used because they are not “likely to continue” past a certain number of months. Then there is the common question about child support and/or alimony payments. Can this form of income, if declared on the FHA loan application, be used to qualify for the mortgage? Chapter Four of HUD | more...

March 27, 2014

FHA Loan Rules: Qualifying For A Home Loan As Self-Employed/Family Business Employee

By Joe Wallace

FHA home loan rules include a requirement that the lender verify employment and sources of income. The reasons for this verification include making sure the job and wages are stable and likely to continue to help the borrower pay the monthly mortgage bills. But what are the rules for borrowers who are self employed or who work at a family business? The rules that cover these requirements are found in HUD 4155.1 Chapter Four, Section D. Under the heading, “General Information on Self Employed Borrowers and Income Analysis” we find the following instructions to the lender: “Income from self employment is considered stable and effective, if the borrower has been self employed for two or more years.” However, the FHA loan rules do make a distinction between someone who owns | more...

March 26, 2014

FHA Loan Rules: Does Commission Income Count As Verifiable Income?

By Joe Wallace

For an FHA home loan, the participating FHA lender is required to verify the borrower’s employment and income. Only verifiable income can be used to calculate the borrower’s debt-to-income ratio and there are instructions for the lender on how to determine if certain types of income can be used and under what circumstances. Commission income is a very good example. Not all commission income may be eligible to be used for the debt to income ratio. How does the lender determiner what’s permissible and what’s not? There are instructions to the lender in HUD 4155.1, Chapter Four, Section D under the heading, “Salary, Wage, And Other Forms Of Income”. It begins by saying: “Commission income must be averaged over the previous two years. To qualify with commission income, the borrower | more...

March 25, 2014

FHA Loan Reader Questions: Income Requirements

By Joe Wallace

A reader asks, “What is the income limit for a loan? My daughter and friend wants to buy a home with a few acres. She started a new job in Nov of 2013. He has a good income and working on his credit rating. They do not have enough for a large down payment.” FHA loans do not feature a minimum or maximum income limit. Instead, the lender must get employment and income information from the borrower(s) and determine the applicant’s debt-to-income ratio. A borrower with too much debt and not enough income will not qualify for the FHA loan. The borrower who has little debt but not enough income to qualify for the loan based on how much debt to income that would apply with the mortgage figured in | more...

March 21, 2014

FHA Loan Minimum Property Standards: A Reader Question

By Joe Wallace

A reader asks, “Will FHA allow a house with no heat to use (the FHA Energy Efficient Mortgage) energy package? The EEM program states “improve”; what if it is a question of not having heat at all. Does this program still apply?” There are several different standards that might affect such a transaction. The reader wants to know whether a home without a heating system might be eligible for an FHA mortgage using an Energy Efficient Mortgage that could, if the question is interpreted correctly, add a heating system. What do FHA loan rules say about this? For starters, ” “FHA will endorse a mortgage for an existing property before the energy- efficient improvements are installed, provided that the lender establishes an escrow account and deposits funds into the account to | more...

March 20, 2014

Am I Eligible For A New FHA Loan After A Short Sale?

By Joe Wallace

One of the most commonly asked questions we get in our comments section has to do with whether a borrower can apply for a new FHA loan following a short sale. The loan rules for post-short sale transactions are found in HUD 4155.1, Chapter Four, Section C under the heading, “Short Sales”. It starts off by stating that while it IS possible to get a new FHA loan following a short sale under the right conditions, “A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to • take advantage of declining market conditions, and • purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.” The rules mention | more...

March 19, 2014

FHA Loans and Borrower Credit

By Joe Wallace

Some borrowers get nervous when applying for an FHA mortgage loan because of the credit check. There can be many reasons for this–some come to the house buying process with some history of credit problems, others may have disputes with creditors or other problems. Having credit issues in the past is not necessarily a barrier to an FHA loan in the present. But there are FHA guidelines for the lender you should be aware of that can help you better prepare for an FHA loan. The rules for FHA home loans found in HUD 4155.1 include instructions to the lender for analyzing borrower credit. Chapter Four of HUD 4155.1 has a section titled, “Past Credit Performance” and includes the following: “Past credit performance is the most useful guide to • | more...

March 18, 2014

FHA Loan Rules: Condominiums

By Joe Wallace

FHA loan rules permit single-family mortgages on suburban homes, mixed-use properties that meet FHA loan requirements, townhomes and condominiums. For a condo to qualify for an FHA mortgage, it must be on or be added to a list of FHA approved condo projects. But some borrowers aren’t sure what constitutes a condominium–what do FHA loan rules recognize as a condo unit as opposed to other types of property? As stated above, FHA requires condo units to be approved. The rulebooks states, “FHA must approve condominium projects before a mortgage on an individual condominium unit can be insured.” The rules for FHA loans on what constitutes a condo are found in HUD 4155.1, Chapter Four Section B under the heading “Requirements For Condominium Eligibility”. Those rules begin by stating: “A condominium | more...