Articles Published in: 2014

June 24, 2014

FHA Appraisal Rules For Foundations: A Reader Question

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...

June 18, 2014

FHA Loan Rules For Chapter 7 Bankruptcy: A Reader Question

By Joe Wallace

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...