Articles Published in: 2014

February 21, 2014

FHA Loan Reader Questions: Closing Costs Paid By The Seller

A reader asks, “What portion FHA’S closing costs that the buyer cannot pay that must be paid by the seller?” A look at HUD 4155.1 revealed no language that included a requirement for the seller to pay closing costs on behalf of the borrower for an FHA home loan. There IS language in FHA loan rules saying that the borrower cannot be charged certain fees or expenses such as the lender’s legal fees for retaining a lawyer. FHA loan rules in Chapter Five, Section A of HUD 4155.1 also mention the following: “If the seller pays the broker fee as part of the sales commission, it is not considered an inducement to purchase, or part of the seller contributions limitation, as long as the seller is paying only the normal | more...

February 20, 2014

When Filling Out Your FHA Loan Application

By Joe Wallace

When a borrower fills out an FHA home loan or refinancing loan application, some may be tempted to leave out unfavorable information or provide documents to the lender that are not as up to date as they could be, but reflect more favorably than the most current information. When applying for a home loan, honesty is definitely the best policy–FHA loan rules published in HUD 4155.1 require the lender to exercise due diligence where this information is concerned. Chapter One Section B of HUD 4155.1 instructs the lender: “The mortgage loan application package must contain all documentation that supports the lender’s decision to approve the mortgage loan. When standard documentation does not provide enough information to support the approval decision, the lender must provide additional, explanatory statements that are consistent | more...

February 19, 2014

FHA Loan Reader Questions: Divorce, First Mortgages, and Second Mortgages

By Joe Wallace

A reader asks, “Currently, my husband and I have a FHA loan on our primary residence. We are no longer living together, but still married. I have lived in the home for the last 5 years and paid the first mortgage which is current, never late. My husband inquired a second mortgage on the property in 2006 but is not current on the payments of the second mortgage.” “The second mortgage is in his name only. He filed bankruptcy in 2009 which has been discharged. He did not reaffirm debt of the first mortgage, but he reaffirmed the second mortgage. Can his name be removed from the FHA loan, especially since he is no longer obligated to pay the first mortgage by not reaffirming the debt during his Chapter 7 | more...

February 18, 2014

FHA Loan Reader Questions: Credit History Issues

By Joe Wallace

A reader asks, “I meet the income and credit score qualifications for an FHA loan, however I have two collection accounts on my credit report. These accounts were paid in full eight months ago. In addition, I had two credit card accounts 30 days late approximately a year ago. These were remedied within a reasonable time, yet they show on my credit report. I would like to add that these delinquent payments were due to a medical illness that left me disabled.” “I recently applied with a lender for an FHA loan and was told that I did not qualify because of my payment history. I read that, ‘a collection is minor in nature and usually does not need to be paid-off as a condition for loan approval’. If these | more...

February 17, 2014

After The Application: FHA Loan Procedures

By Joe Wallace

When you fill out and submit an FHA loan application, there are a number of steps the lender will take to process your application. Borrowers want to know how long the application review process takes and the answer can vary depending on the lender’s workload, the amount of information that needs to be verified and reviewed, etc. Some borrowers hope for an answer on their FHA loan application in a matter of days, but this isn’t possible–it takes weeks, not days, to verify all the information on your application. One reason for this is the rules the lender is required to observe when verifying employment and credit details. Did you know the lender cannot accept credit reports and similar documents from third parties? FHA loan rules say the lender must | more...

February 14, 2014

FHA Loan Interest Rates

By Joe Wallace

Some who are new to the FHA loan application process might believe that the FHA sets or regulates interest rates on the mortgage loans it guarantees. But the truth is, the lender and the borrower negotiate the interest rate as part of the application process. All FHA loans are processed on an individual basis, and the borrower’s credit history and other factors can play a role in what kind of rate is offered. What does this mean? The interest rates available to an FHA loan applicant may depend on the borrowers FICO scores and other financial qualifying data–some borrowers are entitled to the “best execution” rate because of outstanding credit scores and repayment histories. Others may have to negotiate the rate based on the results of their credit reports–a borrower | more...

February 14, 2014

FHA Loan Rules On Maximum Mortgage Limits

By Joe Wallace

When you’re applying for an FHA home loan, one of the first questions you likely have to ask is how much you can borrow. The answer to that question depends on a variety of factors, including how much down payment you are putting down or may be required to put down. The FHA has minimum requirements for down payments (3.5%) and some guidelines on how much the borrower can get with an FHA insured mortgage loan. The rules for maximum FHA loan amounts are found in HUD 4155.1 Chapter One Section A. It says in part: “The statutory provisions of the National Housing Act establish the maximum loan limits and mortgage amounts for all FHA mortgage insurance programs. Maximum loan limits vary depending upon the • specific program under which | more...

February 13, 2014

FHA Loan Questions: Electronic Signatures

By Joe Wallace

Ever since the FHA announced a wider acceptance of electronic signatures, some borrowers have had questions about the nature of this policy and what documents the FHA’s e-signature guidelines are applicable to. In FHA Mortgagee Letter 2014-03, it was announced that on certain documents not already approved for e-signatures, the electronic version of a borrower’s signature would be recognized the same as a traditional one. But the FHA e-signature policy doesn’t extend to the actual mortgage note itself (in some cases at the time of this writing). Which documents DOES the new policy allow e-signatures on? According to the mortgagee letter: “Unless otherwise prohibited by law or excepted below, FHA will accept electronic signatures on the documents referenced below (collectively referred to as “Authorized Documents”), provided that the mortgagee complies | more...

February 12, 2014

FHA Loan Reader Questions: Down Payments and Bankruptcy

By Joe Wallace

We’ve gotten plenty of reader questions lately on the subjects of down payments, bankruptcy, and eligibility for FHA home loans. Here’s one: “Is there any company that will finance a small condo without a down payment. Thank you” And here’s another: “My wife and I surrendered our home thru a chapter 13. The chapter 13 was a 100% repayment plan that was successfully discharged in December of 2013…We have entered into a lease option home purchase and would like a straight answer on how long of a “waiting period” we must endure before we are able to finance a home again? We also have about $80K in sweat equity against an agreed upon purchase price of $270K. What type of down payment can we expect to need?” FHA loan rules | more...

February 11, 2014

FHA Loan Reader Questions: Bankruptcy Issues and FHA Loan Eligibility

By Joe Wallace

A reader asks, “I am one year out of a bankruptcy. My income tax refund was offset by unemployment, I still owe them another $9,000. Am I eligible for FHA loan?” The questions asked here are too general to answer directly–FHA loan rules vary depending on the type of bankruptcy and a borrower’s circumstances can play a large part in whether another FHA loan is possible after the bankruptcy proceedings. For example, when it comes to Chapter 7 Bankruptcy, FHA loan rules in HUD 4155.1 state the following: “A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must have • re-established good credit, | more...