Articles Published in: 2014

May 5, 2014

FHA Loan Reader Questions: Credit Score Minimums

A reader asks, “If a lender can want a higher credit score then FHA does, how do I find a lender that will work with me having a lower credit score? Mostly because if the lender is approved by FHA but don’t have to go by their guidelines doesn’t that make it that much more difficult for a low credit score individual to get a loan?” This question raises an important issue all FHA loan applicants should be aware of–FHA credit score minimums are just that. They are minimum requirements that lenders use as a benchmark, but the lender is free to require a higher credit score as long as that requirement is applied fairly and in accordance with federal Fair Housing Act laws. Let’s look at the FHA loan | more...

May 2, 2014

FHA Loans, Credit Reports, And Late Payments On Your Record

By Joe Wallace

Some borrowers come to the FHA loan application process worried that late payments on their credit history might jeopardize their chances at FHA loan approval. What do FHA loan rules say about late payments and how does the FHA loan rulebook address this issue? HUD 4155.1 Chapter Four Section C has guidance for participating FHA lenders about late payments. Chapter Four says, “The lender must document the analysis of delinquent accounts, including whether late payments were based on • a disregard for financial obligations • an inability to manage debt, or • factors beyond the borrower’s control, such as delayed mail delivery, or disputes with creditors.” That can be comforting for borrowers who do have some minor credit issues in their past. FHA loan rules actually go a bit further | more...

May 1, 2014

FHA Loan FICO Score Requirements: A Reader Question

By Joe Wallace

A reader asks, “I have an average FICO OF #709. My EQUIFAX is #686, TRANSUNION is #695, and my EXPERIAN IS #748. What lenders will use my average FICO to determine my FHA LOAN eligibility?” FHA loan rules about credit scores are found in HUD 4155.1. While we cannot speak for individual financial institutions, in general, lenders seem willing to work with borrowers with an average FICO score of between 620-640 or better. How does the FHA determine what the average FICO score is when the borrower has different scores from each of the three major credit reporting agencies? HUD 4155.1 Chapter Four Section A addresses this under the section titled, “Definition of Minimum Decision Credit Score”. According to Chapter Four, “If a credit score is available, it must be | more...

May 1, 2014

FHA Energy Efficient Mortgage Loans: A Reader Question

By Joe Wallace

A reader asks, “Can an FHA EEM loan be a stand alone or does it need to be a part of a purchase money loan or a refinance loan?” The FHA Energy Efficient Mortgage program allows a borrower to add money to a new purchase home loan or an FHA refinance loan–money that is intended to be used for approved energy efficient upgrades to the home. The rules governing FHA EEM loans are found in HUD 4155.1 Chapter Six Section D, which states in part: “New and existing one to four unit properties, including one unit condominiums and manufactured housing properties, are eligible for the Energy Efficient Mortgage (EEM) Program. EEMs may be used for both purchases and refinances, including streamline refinances, with • Section 203(b) • Section 203(k) rehabilitation | more...

April 30, 2014

FHA HECM Loan Changes: A Reader Question

By Joe Wallace

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...