Articles Published in: 2014

January 16, 2014

Can A Family Member Loan Money For Closing Costs On An FHA Mortgage?

When you apply for an FHA loan, the lender will explain that there are a variety of closing costs to anticipate including the amount of the required 3.5% FHA loan down payment. Some FHA loan applicants may struggle financially with the credit costs and seek to borrow money to cover them. FHA loan rules permit this but only under approved conditions. A borrower’s required funds for down payment, for example, must come from an approved source such as personal savings, investments, or (in cases where a loan is required) from a secured loan. Down payment money cannot come from credit card cash advances, payday loans or other “non-collateralized” loans. Can a family member lend an FHA borrower the funds to close? According to FHA loan rules in HUD 4155.1, Chapter | more...

January 16, 2014

FHA Loans And Energy Efficient Mortgages

By Joe Wallace

Borrowers who choose the FHA Energy Efficient Mortgage (EEM) option as part of their FHA loan can get up to $8,000 in additional funds added to the loan amount for the express purpose of adding approved energy-efficient upgrades. According to the FHA loan rules in HUD 4155.1 , Chapter Six, “Once the borrower and the property are determined eligible for FHA-insured financing, the lender, using the energy rating report and the EEM worksheet, determines the dollar amount of the cost-effective energy package that may be added to the mortgage amount. The cost of any improvement to the property that will increase the property’s energy efficiency, and that is determined to be cost effective, is eligible for financing into the mortgage.The cost that may be added to the mortgage amount is | more...

January 15, 2014

FHA Loan Assumptions: For Qualified Borrowers

By Joe Wallace

Yesterday we discussed FHA loan assumption policies—FHA loans are assumable, provided the lender can determine that the proposed new owner is able to financially qualify for the mortgage. According to HUD 4155.1 Chapter Seven, the following applies to all FHA home loans subject to laws affecting loans closed in 1989 and after: “Under the HUD Reform Act of 1989, mortgages closed on or after December 15, 1989 require credit qualification of those borrowers wishing to assume the mortgage. The creditworthiness review requirement spans the life of the mortgage. This requirement applies to both those borrowers who • take title to a property subject to the mortgage without assuming personal liability for the debt, and • assume and agree to pay the mortgage.” FHA loan rules state that any mortgage falling | more...

January 14, 2014

Are FHA Loans Assumable?

By Joe Wallace

FHA single family home loans are available to any qualified borrower–there are no “first time home buyer” requirements or similar restrictions. But one feature of the FHA loan program some aren’t aware of is the ability to allow their loan to be assumed by another qualified borrower. Not everyone who buys a home with an FHA mortgage winds up staying in that home for the entire duration of the mortgage. Some sell and move on, others may decide to refinance. Others may encounter situations where they need to allow the loan to be assumed by a qualified third party. What do FHA loan rules say about this process? What kinds of rules govern the assumption of an FHA home loan? FHA loan rules for assumptions are found in HUD 4155.1 | more...

January 13, 2014

The FHA Energy Efficient Mortgage Loan

By Joe Wallace

The FHA loan program includes something called an Energy Efficient Mortgage. This program allows the borrower to apply for additional funds in order to make approved energy efficient upgrades to the property to be purchased with an FHA home loan. According to the FHA loan rules in HUD 4155.1 Chapter Six, Section D, the FHA EEM program allows the borrower to finance “100% of the cost of eligible energy efficient improvements into the mortgage, subject to certain dollar limitations, without an appraisal of the energy efficient improvements.” For the EEM Program, Chapter Six Section D says: mortgage amount includes the cost of the energy efficient improvements, in addition to the usual mortgage amount normally permitted FHA maximum loan limit for the area may be exceeded by the cost of the | more...

January 10, 2014

FHA Loans And Outstanding Debt: A Reader Question

By Joe Wallace

A reader asks, “If you have those (FHA) minimum scores do you still have to pay some remaining debt on your credit report? What if most those are doctor bills, and do they have a special buyers program for people on disability?” Though this reader question isn’t entirely clear, it seems the main issue is whether having outstanding debt might be an issue when applying for an FHA home loan. The real question for the lender in cases like this is whether the debt is typical monthly payments or a delinquency which needs to be resolved. According to FHA loan rules, outstanding debt can be an important factor in FHA loan approval or denial: “Past credit performance is the most useful guide to • determining a borrower’s attitude toward credit | more...

January 10, 2014

FHA Loan Approval and Evictions: A Reader Question

By Joe Wallace

A reader asks, “I was ‘renting to own’ a house from a close family friend. For 3 years, I paid her mortgage payment and all household repairs/maintenance. She then decided after her parents death to move back to our home state and ultimately take her home back. I started working with a lender who said I qualified for an FHA loan…My ‘landlord’ or family friend only wanted to give me 4 weeks to move out after announcing that she changed her mind and wanted her house back, and there was no way I could do that. I ended up needing 6 weeks, but was just made aware that she filed a rule of evict w/ the local magistrate court…” “…Now my lender called me and says he can’t help me | more...

January 8, 2014

FHA Loan Rules For Non-Traditional Credit

By Joe Wallace

One common type of question about FHA home loan applications involves how the lender process credit information. When a borrower wants to apply for an FHA loan and has plenty of “traditional credit”, there’s no problem developing and processing the loan application. But what about borrowers who come to the FHA loan process with little or no credit history or only what’s termed “non-traditional credit”? Some borrowers don’t want or use credit cards, which makes establishing a typical credit history more difficult. That may lead some to believe that a lack of credit card can hurt your chances for FHA loan approval. But that’s not necessarily true. The FHA has rules and instructions for the lender in cases where the borrower has non-traditional credit. We find those rules and guidelines | more...

January 7, 2014

FHA Loan Rules On Unemployment, Occupancy: A Reader Question

By Joe Wallace

A reader asks, “I currently live in Florida and want to purchase a home in Las Vegas, Nevada because I want to relocate there. I don’t have two years consistent work history, I might have 6 or 7 months of unemployment. My credit score meets the requirement. I want to know, will the gap in my work history affect my chances of getting approved? Also can I qualify in Florida and purchase a home in Vegas while still living in Florida?” The answer to this question requires us to look up FHA loan rules for employment, income, and gaps in employment. These rules are found in HUD 4155.1, Chapter One, Section B, which says: “The lender must obtain the most recent pay stub showing year-to-date earnings of at least one | more...

January 6, 2014

FHA Loan Down Payment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I want to buy a house for $399,000.00…how much of a down payment will i have to make? I understand that banks require a 20% down payment. Does the FHA also require 20%? The minimum cash investment–a down payment on an FHA guaranteed mortgage–is set at 3.5%. However, there are many circumstances where a lender may require a higher down payment. This can include situations where a borrower’s FICO scores or other qualifying information are marginal or outside the usual range for FHA loan approval. A higher down payment can be considered a “compensating factor”. In cases where compensating factors need to be considered, a larger down payment is acceptable, but only if the down payment meets FHA guidelines. Those guidelines include a minimum 10% down, as | more...