Articles Published in: June 2014

June 18, 2014

FHA Loan Rules For Chapter 7 Bankruptcy: A Reader Question

A reader asks, “Upon filing Ch 7 we never missed a payment. The problem we had was several years ago when CC companies raised their minimum payments and interest rates. We payed these increased payments for years until we knew we were going too run out of money.” “We filed because we were literally using CCs to live. Make a CC payment only to use the credit for Food and Gas. My credit score went down a little but still around 680. It has been a year since discharge. With OK credit score and always making payments before and after Ch 7, Do we still have to wait another year to buy a home? We have a Home but would like to move from a townhouse to a house.” FHA | more...

June 16, 2014

Basic FHA Refinance Loan Rules

By Joe Wallace

FHA loan rules governing refinance loans are found in HUD 4155.1, Chapter Three. In this chapter the FHA lists some basic rules that can and do affect all FHA refinance loans. Knowing these rules can help you better understand the FHA refinance loan process. For example, did you know that FHA loan rules say that even when an FHA appraisal is still valid on a property (they are valid for six months), you cannot re-use the same appraisal for an FHA refinance that was used to purchase the home originally? Chapter Three states: “FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused • during the six month validity period once the mortgage for which the appraisal was ordered has closed, or • for a | more...

June 13, 2014

Quaifying Ratios For FHA Loans

By Joe Wallace

When you apply for an FHA home loan, one thing the lender must do is determine whether your income and monthly debts are such that you can afford the additional financial burden of the monthly mortgage payment. When these calculations are made, the “qualifying ratio” is a very important factor in loan approval. The rules for qualifying rations are found in HUD 4155.1 and there are two basic calculations to be made. One of them involves the borrower’s income versus his or her projected mortgage obligation. HUD 4155.1 says, “The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income.” There can be exceptions as provided by the rules in HUD 4155.1. “A ratio exceeding 31% | more...

June 13, 2014

FHA Loan Minimum Property Standards: A Reader Question

By Joe Wallace

A reader asks, “Where can I find electrical requirements as a homeowner to pass for a FHA home sale?” In cases like these, the homeowner should consult with the local authority on state and local building codes. FHA loan rules don’t necessarily list out all the required electrical standards–these standards likely vary greatly from state to state. The FHA can’t and doesn’t keep copies of all state/local electrical code requirements–the sheer volume of material from all 50 states would be impossible to maintain! The same goes for water, sewage, etc…there are a variety of issues governed by state and local code–FHA defers to these regulations rather than trying to list out exacting standards for all locales. FHA minimum property requirements never overrule building codes, the same way FHA regulations don’t | more...

June 12, 2014

FHA FICO Score Requirements: A Reader Question

By Joe Wallace

A reader asks, “I was told that i could qualify for a FHA loan with a credit score of 608. I am a first time home buyer. Is the information I was given true?” It may sound glib to say that the answer depends on who told you, but in this case that is true. Technically speaking FHA loans are available, according to FHA loan standards in HUD 4155.1, to those in the FICO score range the reader is asking about. However, the FHA loan rules are not the only ones at work in these case. Lender FICO standards can be, and ofter are, higher than the FHA rulebook minimums. This is allowed and there’s nothing wrong with a lender who requires a higher FICO score as long as those | more...

June 11, 2014

FHA Loan Questions: Documents Required For Loan Approval

By Joe Wallace

There are sometimes questions about the nature of FHA loan application requirements. Some feel that the loan requirements are “intrusive” or are asking for too much personal data. Part of this sentiment comes from a lack of understanding of what the lender is required to do and provide under the rules of the FHA loan program. What does the FHA require of the lender in order to get a loan approved? Keeping in mind that a home loan is a major line of credit, it’s not surprising that the rules for income and employment verification, credit history and other things are more stringent than for smaller lines of credit like a credit card or cell phone account. For starters, the FHA requires all documentation to be current or at | more...

June 10, 2014

FHA Refinance Loan Rules For Payments Before and After The New Loan

By Joe Wallace

FHA refinance loan advice includes a variety of recommendations about creditworthiness. For example, you should make sure you have 12 months of on-time payments on your credit record before you apply for a refinance loan, especially when applying for cash-out refinancing loans. But what about the timeliness of your original mortgage payments? Borrowers who have made all their payments on time and are about to refinance may wonder if, because of the timing of an FHA refinance transaction, two payments might be required in a single month. Can’t the borrower skip the final payment on the old mortgage before the new one kicks in? The rules for refinance loans found in HUD 4155.1 Chapter Three instruct the lender to make sure the borrower is current and paid up all the | more...

June 9, 2014

FHA Loan Policies on Foundations: A Reader Question

By Joe Wallace

A reader asks, “My fiancé bought an FHA house. The foundation is cracked in several places. We just find the last wall of the basement has been leaking. The owners clearly knew the basement was leaking before the sold it. There are signs of it being covered up. Isn’t he protected from something like this in FHA loan policies?” A home that is classified as new existing construction may or may not be covered in a builder’s warranty for certain structural issues, depending on the age of the property and the nature of the construction agreement–without knowing whether a warranty is in effect, it’s difficult to say whether a borrower has recourse but one thing is certain. All new purchase FHA loans require an appraisal, but a home that passes | more...

June 6, 2014

Adding Solar Energy Installation Costs To An FHA Loan

By Joe Wallace

When you’re purchasing a home with an FHA mortgage loan, it may be necessary to add improvement or upgrade costs to the loan amount, depending on the circumstances. The FHA has specific rules that govern this practice–for example, no costs incurred before the appraisal can be added to the loan. HUD 4155.1 has the rules that cover these extra costs. For example: “The repair and improvement amount that may be added to the sales price before calculating the maximum mortgage amount is the lowest of the • amount that the value of the property exceeds the sales price • appraiser’s estimate of repairs and improvements, or • amount of the contractor’s bid, if available.” FHA loan rules in the same section also state that, “The mortgage amount may be increased | more...

June 6, 2014

National Home Ownership Month

By Joe Wallace

The FHA and HUD have announced June as National Home Ownership Month, an effort to raise awareness of a variety of issues including the recent push to expand FHA loan access to under served borrowers through a special program known as HAWK, or Homeowners Armed With Knowledge. HAWK is particularly relevant to FHA borrowers because it could potentially save program participants about $10 thousand over the lifetime of an FHA home loan. HAWK is a new program under development, and according to the FHA/HUD it’s viewed as a key part of saving the American Dream of home ownership for borrowers current and future. “Under the HAWK pilot program, homebuyers who commit to housing counseling will qualify for tangible savings on their FHA-insured loans. The average buyer would save approximately $325 | more...