Articles Published in: June 2014

June 30, 2014

FHA Loan FICO Score Rules: A Reader Question

A reader asks, “How low can a credit score be? i know mine is about 540. If it is for low income people with BAD credit why should the score matter at all?” The FICO score question has two important aspects borrowers should be aware of. FHA loan rules establish a minimum FICO score requirement. HUD 4155.1 includes a chart to show the FICO minimums and how maximum financing is affected depending on what the borrower’s FICO score is within these ranges: FHA minimum scores are just that–the minimum numbers required. Lenders can and often do have more strict FICO score rules than what you see printed above. There’s no such thing as a “bad credit FHA home loan”. Borrowers who do not meet the minimums listed above can’t be | more...

June 27, 2014

FHA Appraisals and Required Corrections: A Reader Question

By Joe Wallace

A reader asks about a refinance loan situation where “an appraisal is done there’s a recommendation of installing an electric line water heater and roof sealing, can the loan be approved without doing these improvements or can the cost be added to the mortgage loan to do so?” If the FHA appraiser recommends corrections or alterations, these are usually done as a condition of loan approval and may require a compliance inspection to insure they have been accomplished. However, the second part of this reader question does offer the borrower some possibilities when the borrower is required to pay for the fixes. According to the FHA loan rules published in HUD 4155.1 Chapter Two, Section A, under the heading titled, “Adding Repair and Improvement Costs to the Sales Price” we | more...

June 27, 2014

FHA Loans For Schoolteachers: A Reader Question

By Joe Wallace

A reader asks, “My daughter is a schoolteacher. Where she lives, they do not give new hires full time jobs, but hire the teacher part time all the time so they do not have to give benefits. Can she get an FHA loan? Her total need would be $400,000 for the house less a 20% down payment, which she has. She has been working for a long time under this arrangement, but is not classified a a full time teacher. Her mother or I could co-sign for her if necessary. We are both retired but have verifiable incomes and property well in excess of the total loan amount.” FHA loan rules permit co-signers, non-occupying co-borrowers and other arrangements, so the answer to this question where that is concerned is that | more...

June 26, 2014

FHA Loans For Second Homes? A Reader Question

By Joe Wallace

A reader asks, “I would like to know how hard it is to get a loan on buying a second home. Our credit scores are 649 and 685. Before anyone runs our credit again, my husband makes 2000 a month plus we get SS of 2500 a month.” The answers to this reader’s questions depend greatly on a number of factors not mentioned in the question. First there’s the question of the first home–is there an existing FHA mortgage? FHA loans for new purchase transactions require occupancy and borrowers are not permitted to apply for FHA loans for homes they don’t plan to occupy as their full time residence. FHA loans for single-family homes are intended for borrowers to purchase for their own occupancy and an FHA single family mortgage | more...

June 25, 2014

FHA Refinance Loans and HELOC: A Reader Question

By Joe Wallace

A reader asks, “We have an old home built in 1924 in Vallejo, CA. We took a HELOC on the property in 2006 when the home appraised at around $450000. The loan was structured as 10 yrs. interest only payments, which will become principal and interest at the then current HELOC rate in Oct. of 2016. “The home is now worth about half of its prior value, and we are worried about what the HELOC rate will become in 2016. We still owe $244,000 and a house around the corner sold for $235,000. Is there an FHA loan we can qualify for to help get out from under this situation? We have excellent credit(over 760 each)and income around $120000 annually, with no debt other than this HELOC situation.” FHA loan | more...

June 24, 2014

FHA Appraisal Rules For Foundations: A Reader Question

By Joe Wallace

A reader asks, “We are up for a FHA refinance and the appraiser noted that we have a crack in our foundation. We have never had water in the basement ever and it hasn’t moved since i originally purchased the home. We are waiting to hear back from our lender. What is the likelihood this loan will be denied?” There are several issues that apply in a situation like this including the severity of the foundation problem. Not knowing that specific information makes it hard to know which way the call might go but it’s impossible to speculate what one financial institution might do. But that’s not the most relevant issue at work here. State or local building code may address the foundation issue specifically. If the home is not | more...

June 23, 2014

New FHA HECM Rules: Determining The Principal Loan Amount

By Joe Wallace

Last week we reported on changes to the FHA Home Equity Conversion Mortgage loan program–changes announced by FHA and HUD that change the terms of the loan program for fixed rate HECMs and adjustable rate HECM loans. As of HECM loans with case numbers assigned on or after June 25, 2014, FHA HECM loans for fixed rate mortgages feature the following restrictions as per the FHA official site: “FHA will only insure fixed interest rate reverse mortgages where the mortgage limits the mortgagor to: –A single, full draw to be made at loan closing; and –Does not provide for future draws by the mortgagor under any circumstances.” The FHA also made changes to adjustable rate HECM loans–the FHA official site says: “The Single Disbursement Lump Sum payment option shall not | more...

June 20, 2014

FHA Announces Major Changes To HECM Loan Program Rules

By Joe Wallace

In our previous blog post we mentioned some big changes made by the FHA to the Home Equity Conversion Mortgage (HECM) loan program. HECM loans are for eligible borrowers age 62 or older, and feature no monthly mortgage payment for the borrower, who instead gets a lump sum or regular cash dispersal under the terms of the loan until the borrower either dies or sells the property. That’s when the loan becomes due in full. Among the new changes announced by the FHA to the HECM program? Limitations on fixed-rate HECM loans and how the money can be paid to the borrower. There’s also a change to adjustable rate HECM loans, and both of these changes are very important for borrowers to understand before committing to this type of mortgage | more...

June 20, 2014

FHA Issues Clarifications On HECM Loan Rules

By Joe Wallace

FHA Mortgagee Letters are issued from time to time from the FHA/HUD to clarify policies, set up new rules, or prepare borrowers and lenders for changes in the FHA program as dictated by law or other means. Two new FHA Mortgagee Letters were issued recently that discuss changes to the rules and regulations covering the FHA’s Home Equity Conversion Mortgage loan program (HECM). There are some important changes that affect the HECM program’s basic design and options for qualified borrowers, plus clarification on how the HECM program may be marketed and warnings against deceptive advertising or marketing practices. One of the most important changes to the FHA HECM program announced by the recent Mortgagee Letters involves limitations to fixed interest rate HECM loans. According to FHA Mortgagee Letter 2014-11: “FHA | more...

June 19, 2014

FHA Loan Credit Requirements For Co-Borrowers: A Reader Question

By Joe Wallace

A reader asks, “I have awesome income and FAIR Credit. My wife has Excellent Credit and low income. Can we qualify for a FHA mortgage with my income and her credit if we both apply? I live in Texas a community property state.” FHA loan rules governing creditworthiness and FHA loan approval are found in HUD 4155.1 Chapter Four Section A. It states, “When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their • income • assets • liabilities, and • credit histories.” This may prove a problem for borrowers who have insufficient credit scores according to FHA or lender standards. The above quote from the FHA loan rulebook implies that the lender must consider credit and income from both parties. In the case of a community | more...