Articles Published in: April 2014

April 30, 2014

FHA HECM Loan Changes: A Reader Question

A reader asks, “I have reviewed the new changes regarding protecting the surviving spouse on a reverse mortgage. My husband and I took out a reverse mortgage in 2012 and was told that when I turn 62 in 2015, that I could be added to the loan and be safe.” “Since then I have found out that is not true. We would have to refinance, however, there may be a large amount of money needed to do this. Now we are worried that I may not get on this loan and I could be in danger if my husband dies before me. Will this new ruling protect me?” This reader question refers to our previous blog post about changes to the FHA HECM program which now offer non-borrowing spouses protection | more...

April 29, 2014

FHA Loan Reader Questions: Qualifying For an FHA Loan With Substantial Cash Reserves

By Joe Wallace

A reader asks, “I have low income but sufficient to qualify, credit score qualification and a low amount of debt. I also have significant savings (over $150,000) in a money market acct from a property settlement agreement. Does my large savings disqualify me? Is there a limit to the amount of assets one can own and still qualify?” This is a common misconception about FHA home loans–the notion that FHA loans are only for first-time home buyers, or only for those who might be considered at an economic disadvantage of some kind. The truth about FHA loans is quite different. FHA mortgages have no minimum income requirement. Instead they are approved based on a borrower’s FICO scores, debt-to-income ratio and other financial factors. There is also no maximum income limit. | more...

April 28, 2014

FHA Updates HECM Loan Rules

By Joe Wallace

The FHA has issued a new Mortgagee Letter updating the rules of the FHA Home Equity Conversion Mortgage (HECM) loan program. Mortgagee Letter 2014-07 announces rule changes for HECM loans that feature a non-borrowing spouse. “This Mortgagee Letter uses the authority granted HUD in the Reverse Mortgage Stabilization Act of 2013 to amend the Federal Housing Administration’s (FHA) HECM program regulations and requirements concerning due and payable status where there is a Non-Borrowing Spouse at the time of loan closing.” What are the rule changes? We’ll cover them in depth in another blog post, but essentially the HECM loan program has been modified to further protect the interests of a non-borrowing spouse in cases where the HECM loan borrower dies. “For many years, Non- Borrowing Spouses were able to refinance | more...

April 25, 2014

FHA Loan Rules For Adding Repairs To The Sales Price Of The Home

By Joe Wallace

When it comes to FHA appraisals, some borrowers and sellers have a common question. Can the cost of a repair or improvement be added to the sales price of the home? If an FHA appraiser requires the upgrade, repair or improvement, does this expense have to be negotiated separately instead? FHA loan rules covering this question are found in HUD 4155.1 Chapter Two Section A, which explains: “Repairs and improvements may be added to the sales price before calculating the mortgage amount when the repairs and improvements are required by the appraiser as essential for property eligibility, and paid by the borrower”. But there’s more. These repairs must be included in the sales contract or an addition to the contract stating that the borrower is responsible for the payment of | more...

April 24, 2014

FHA Loan Rules: Seller Paid Closing Costs

By Joe Wallace

The FHA loan rulebook, HUD 4155.1, has rules about how much a seller or other third party can contribute to the closing costs of a borrower purchasing a property using an FHA mortgage. According to the rules, it is possible for a seller to contribute toward closing costs, but there are limits. “The seller and/or third party may contribute up to six percent of the lesser of the property’s sales price or the appraised value toward the buyer’s closing costs, prepaid expenses, discount points and other financing concessions.” Six percent of the sales price or appraised value (whichever amount is lower) also includes the following: third party payment for permanent and temporary interest rate buydowns, and other payment supplements payments of mortgage interest for fixed rate mortgages mortgage payment protection | more...

April 24, 2014

FHA Loan Reader Questions: Closing Cost Caps?

By Joe Wallace

A reader asks, “Is there a cap on what borrower can pay in order to close an FHA loan? In other words, after the down payment, is borrower limited in what they can pay to close the deal?” There’s no set dollar amount limit on closing costs per se–all home loans are different–but FHA loan rules as spelled out in HUD 4155.1 do explain what expenses a borrower can be charged and what he or she is not allowed to be charged. For example, in Chapter Five, Section A, we learn: “Lenders may charge and collect from borrowers those customary and reasonable costs necessary to close the mortgage loan. Borrowers may not pay a tax service fee.” Additionally, “FHA no longer limits the origination fee to one percent of the | more...

April 23, 2014

FHA Loan Reader Questions: FHA Loan Foreclosures

By Joe Wallace

A reader asks, “How long does it take to foreclose an FHA loan ?” The FHA official site has much to say on this subject in general, but borrowers should know that FHA foreclosure times will vary by state. FHA.gov says, “Foreclosure processes are different in every state. If you are worried about making your mortgage payments, then you should learn about your state’s foreclosure laws and processes. Differences among states range from the notices that must be posted or mailed, redemption periods, and the scheduling and notices issued regarding the auctioning of the property.” There is an FHA foreclosure timeline, however, that can give some good general information in this area. The timeline is very general and the amount of time this process takes will definitely vary. According to | more...

April 22, 2014

FHA Loan Appraisals–When Do They Expire?

By Joe Wallace

One common question about FHA loans involves the length of time an appraisal is valid. How much time before a current appraisal expires on the property you want to purchase with an FHA mortgage loan? According to FHA loan rules, “The validity period for all appraisals on existing, proposed and under construction properties is 120 days.” That is found in HUD 4155.2 Chapter Four, which also adds some instructions to the lender about when the appraisal is considered valid–the actual starting date for the validity period: “The term of the appraisal begins on the day the home is inspected by the FHA-approved appraiser and this date appears on the URAR.” The existence of these rules begs an important question. Can an FHA borrower refinance with an “appraisal required” FHA refinancing | more...

April 21, 2014

FHA Loan Down Payments

By Joe Wallace

One important question about any home loan transaction involves the down payment. How much should a borrower save? When it comes to FHA home loans, there are rules about the minimum required “cash investment” (down payment) specified in HUD 4155.1 Chapter Two. The amount of the down payment depends on the appraised value and/or the sale price of the home. According to Chapter Two, the maximum amount the borrower can get with the FHA loan guarantee is calculated as follows “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.” The next step according to this portion of Chapter Two is calculating | more...

April 18, 2014

FHA Loan Reader Questions: Complaints About Substandard Work

By Joe Wallace

A reader asks, “I am looking for how to report substandard work with FHA home loan and FHA inspection being done by pictures. I purchased my home in November of 2013 and still have not received the needed corrections on the home that in turn is adding more cost to me for repairs.” There are several possibilities based on the reading of this question. Is the reader complaining about an FHA appraisal that had required corrections that never took place? Or does the reader’s mention of an “FHA inspection” mean that the borrower paid for a home inspection that made recommendations that were never carried out to the borrower’s satisfaction? In the case of the latter, if the borrower contracted for home repairs based on the recommendation of a privately | more...