Articles Published in: April 2014

April 18, 2014

FHA Loan Approval and Rejection

When you fill out an FHA loan application, sometimes the hardest part of that entire process is waiting to get word on FHA loan approval or rejection. FHA loan rules in HUD 4155.1 instruct the lender on exactly what should happen once the loan is approved or denied. In HUD 4155.1 Chapter One, Section A, we find the following: “The lender is responsible for notifying the borrower of the approval, either in writing or verbally, immediately after receipt of the underwriter’s decision.” What happens when the loan is disapproved? Chapter One says: “When a loan is rejected, the lender must immediately complete • a rejection notice consistent with the requirements of Regulation B and, • when required, an Equal Credit Opportunity Act (ECOA) notice, forwarded to the borrower. At least | more...

April 17, 2014

HUD and the City of Dubuque, Iowa Settle Discrimination Case

By Joe Wallace

A recent press release at the FHA/HUD official site announced a settlement in a racial discrimination complaint brought by HUD against the city of Dubuque, Iowa. The FHA/HUD press release HUDNo.14-034 says HUD and the city of Dubuque have reached an agreement to end a practice which HUD alleged discriminated against people based on race. “The U.S. Department of Housing and Urban Development (HUD) announced today an agreement with the city of Dubuque, Iowa, settling allegations that the City discriminated against African Americans in the administration of its Housing Choice Voucher Program…The agreement announced today is the result of a review HUD conducted in June 2011, which found that Dubuque imposed policies that discriminated against housing choice voucher applicants based on their race.” What were those policies? According to the press | more...

April 16, 2014

FHA Loan Answers: Do Student Loans Count Against Your Debt-To-Income Ratio?

By Joe Wallace

When you apply for an FHA loan, your lender must calculate the amount of income you have versus the amount of debt you currently pay on and factor in the amount of your projected mortgage. The amount of debt is compared to your income to determine whether or not you can afford the loan based on FHA guidelines. In general, borrowers should have less that 40% of their income taken up by recurring financial obligations. FHA rules explain exactly how much debt to income you can have and still qualify for an FHA mortgage. These ratios can vary depending on the borrowers status as a self-employed person or other factors. The overall debt picture is important when the lender is trying to figure out if a borrower is a good | more...

April 14, 2014

FHA Loans Following Foreclosure On A Previous FHA Mortgage

By Joe Wallace

There are loan rules for when a borrower can apply for a new FHA mortgage following a short sale, bankruptcy, or similar scenarios, but one area that is commonly misunderstood is what happens when a borrower goes into foreclosure on a home purchased with an FHA mortgage, with regards to how soon after that bankruptcy has been disharged. FHA loan rules for this situation can be found in HUD 4155.1 Chapter Four, Section A. It says, “If the borrower has had past delinquencies or has defaulted on an FHA- insured loan, there is a three-year waiting period before he/she can regain eligibility for another FHA-insured mortgage.” In addition to clearing up confusion over that basic policy, Chapter Four also addresses when that waiting period is considered effective: “The three-year waiting | more...

April 14, 2014

Applying For An FHA Loan Without A Credit History

By Joe Wallace

Take a look at what the FHA loan rulebook, HUD 4155.1 Chapter Four, Section C says about how lenders must treat borrowers who come to the FHA loan process without a credit history: “The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application. Some prospective borrowers may not have an established credit history. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from • utility payment records • rental payments • automobile insurance payments, and • other means of direct access from the credit provider, as described in HUD 4155.1 4.C.1.e.” Why | more...

April 11, 2014

FHA Loan Occupancy Rules

By Joe Wallace

In our last blog post, we answered a reader question about what might happen if the FHA loan applicant didn’t comply with FHA occupancy requirements spelled out for all new purchase single-family FHA home loans. But what ARE those occupancy requirements? What should a borrower know about the FHA home loan requirements for occupancy before committing to the FHA mortgage? The rules for occupancy when it comes to single-family FHA loans can be found in HUD 4155.1, Chapter Four under the heading, “Eligibility Requirements For Principal Residences”. Those requirements include the following definition of a principal residence: “A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.” Why is this definition so important? Because of the very next section in | more...

April 11, 2014

FHA Loan Rules For Occupancy: A Reader Question

By Joe Wallace

A reader asks, “Nowhere does it say in the HUD document what the penalty is for not physically making your FHA home a primary residence within 60 days. What if it is 90 days or 120? What if you choose to renovate?” This is something a borrower should discuss prior to the loan closing with the lender, or with a legal expert who may be able to give sound advice based on case law or years of experience. We can’t offer legal advice, but the one thing we can advise is that the borrower be as familiar as possible with the language of the loan agreement. When it comes to renovations planned immediately after loan closing, you may have to make arrangements with the lender. Does your FHA home loan | more...

April 10, 2014

FHA Loan Reader Questions: What’s The Definition of a Condominium?

By Joe Wallace

A reader asks, “How can a person go about proving that a particular development is not a condo development? Realtors and others in our area typically call any attached housing development ‘condos’ when they are looking to sell them.” “I am specifically looking at a neighborhood of attached sing-story homes that has a HOA, charges fees for common maintenance, but when you buy a unit you also buy the ground under the unit, and an undivided percentage of the common area. The developer declares they are townhomes and not condos.” This can be a tricky question to answer for a variety of reasons, including the fact that state and/or local laws might come into play in these cases. FHA loan rules alone may not be enough to get the whole | more...

April 9, 2014

April Is Fair Housing Month

By Joe Wallace

In 1968, a federal law known as the Fair Housing Act was passed to prevent discrimination in housing. Every April, the FHA and HUD celebrate Fair Housing Month to remind borrowers, lenders, landlords and house hunters of the protections offered by the Fair Housing Act. A recent FHA/HUD press release announced the start of Fair Housing Month, stating: “Each April, the U.S. Department of Housing and Urban Development (HUD) uses Fair Housing Month to mark the passage of the 1968 Fair Housing Act, the landmark law passed shortly after the assassination of Dr. Martin Luther King, Jr. which prohibits housing discrimination based on race, color, national origin, religion, sex, disability, and family status. This year’s Fair Housing Month theme is “Fair Housing is Your Right: Use It!” Throughout the month, | more...

April 8, 2014

FHA Loan Income Requirements: Projected Income

By Joe Wallace

FHA home loan rules say the lender must verify a borrower’s income and employment as a qualifying factor for the loan. A borrower who lists his or her income as X amount of dollars will have that figure verified–the lender will check pay statements, review tax records, and possibly even speak with an employer in some cases to verify the information. But what about borrowers who don’t have income at the present time, but have “projected income” based on a job that is about to start soon, or income that is about to increase because of a promotion, pay raise, etc? Does the FHA loan rulebook make any provisions for these circumstances? According to HUD 4155.1, Chapter Four Section E, “Projected income is acceptable for qualifying purposes for a borrower | more...