Articles Published in: March 2015

March 31, 2015

FHA Clarifies Rules For FHA HECM Loans

The FHA and HUD have clarified rules that govern how FHA Home Equity Conversion Mortgage Loans are handled with regard to “life expectancy set-asides” and calculation of property taxes as part of a borrower’s debt-to-income ratio. FHA Mortgagee Letter 2015-09, “establishes a monthly growth rate for Life Expectancy Set-Asides and clarifies a discrepancy between the HECM Financial Assessment and Property Charge Guide and the model HECM Financial Assessment Worksheet transmitted with Mortgagee Letter 2014-22.” What is a “life expectancy set-aside” and how does the new clarification affect it? According to the FHA, “The Life Expectancy Set-Aside (LESA) is used for the payment of property taxes, and hazard and flood insurance premiums, and will increase each month at a rate equal to one-twelfth of the sum of the mortgage interest rate | more...

March 31, 2015

FHA Short Refinance Program: A Reader Question

By Joe Wallace

A reader asks, “Will the FHA Short Refinace Program give the lowest interest rate? Secondly, will there be a refinance charge? Does this work with Fannie Mae?” This reader question refers to the FHA Short Refinance Loan Program which was extended last year to 2016 and is intended for borrowers who find theselves “upside down” or “underwater” on their home loans. According to an FHA fact sheet published at FHA.gov: “FHA’s Refinance of Borrowers in Negative Equity Positions (“Short Refinance”) is available to help people who owe more on their mortgage than their home is worth because their local markets have seen large declines in home values. The temporary enhancements to the existing refinance program apply to loan applications with FHA case numbers issued on or after September 7, 2010 | more...

Can I buy a manufactured home with an FHA loan?

March 30, 2015

FHA Loan FICO Score Minimums: A Reader Question

By Joe Wallace

A reader asks, “My husband recently contacted quicken loans which do fha loans, they pulled his credit and said he was short one point with a score of 619? If you guys are showing you can do loans with scores in the 500s. Why would he of been denied?” One thing potential FHA borrowers should remember about FICO score requirements on FHA home loans is that FHA minimums are just that–the minimum requirement. An individual lender as mentioned in the reader question is free to require a higher FICO score in order to get a loan with that financial institution as long as that higher requirement is applied in accordance with federal laws. It’s true that the FHA loan rules printed in HUD 4155.1 state that a borrower with a | more...

March 30, 2015

FHA Loan Rules: Back To Work

By Joe Wallace

A reader asks, “I have taken the ‘back to work’ counseling class twice. the first one expired but we found a house after it expired. Do you know if FHA can or will waive or make an exception on ‘being completed a minimum of thirty (30) days’ rule. The house is a ‘Fanny Mae’ house and is in Foreclosure. We don’t want to lose it.” The reader is referring to an earlier blog post we wrote about the FHA’s Back To Work Program which may permit, depending on circumstances, a borrower who has experienced foreclosure, bankruptcy or some other negative “economic event” to apply for an FHA home loan once more. According to the FHA official site, “FHA recognizes the hardships faced by these borrowers, and realizes that their credit | more...

March 28, 2015

FHA Loans and Community Property Laws: A Reader Question

By Joe Wallace

A reader asks, “I have a previous property from my divorce showing as a foreclosure on my credit report. The property has actually been in litigation for the last three years and has not been forclosed. My current husband and I are trying to purchase a new home. Do you have any suggestions? Should I apply as a non purchasing spouse?” The course of action suggested in the reader question may be a good one, but there are some variables that can affect whether or not it is possible to do so. The first of these is whether or not the reader lives in a community property state where the laws dictate how shared financial responsibility in a legal marriage is handled. Community property laws may require the applicant(s) and | more...

March 27, 2015

FHA Home Loan LTV Calculations: A Reader Question

By Joe Wallace

A reader asks, “Is the LTV calculated on the total loan amount (base loan+MIP), or the base loan amount only?” FHA loan rules covering the subject of loan-to-value calculations are found in HUD 4155.1 Chapter Two Section A, which states: “The maximum mortgage amount that FHA will insure on a purchase is calculated by multiplying the appropriate loan-to-value (LTV) factor by the lesser of the property’s –sales price, subject to certain required adjustments, or –appraised value. In order for FHA to insure this maximum loan amount, the borrower must make a required investment of at least 3.5% of the lesser of the appraised value or the sales price of the property.” The 3.5% investment, better known as the borrower’s down payment, is also covered in Chapter Two Section A with | more...

March 27, 2015

FHA Loan Reader Questions: FICO Scores and Down Payment

By Joe Wallace

A reader sent us a question via our comments section recently, asking: “I HAVE A CREDIT SCORE OF 591, I HAVE WORKED FOR MY JOB FOR 18 YEAR. I WOULD LIKE TO PURCHASE A HOME AND AM WORKING ON MY CREDIT WITH MY CREDIT UNION. WHAT MORTGAGE COMPANY WOULD WORK WITH ME TO GET A HOME? I DON’T HAVE MONEY FOR A DOWN PAYMENT”. Unfortunately, FHA home loans do not offer a zero downpayment option. FHA loan rules found in HUD 4155.1 states clearly that a “minimum borrower cash investment” or downpayment is required. The minimum down payment on any new purchase FHA home loan is 3.5% of the sale price or appraised value of the home (whichever is lower). That information is found in HUD 4155.1 Chapter Five Section | more...

March 26, 2015

Mortgage Interest Rate Trends

By Joe Wallace

Our last look at mortgage loan interest rate trends saw rates making an impressive comeback after some upwards momentum that pushed 30-year fixed rate conventional mortgages up into territory close to the four percent range earlier in the month. That improvement trend has been fairly consistent until yesterday, March 25, 2015, when rates took a big single-day move higher. For about a dozen days now rates have been on the downward trajectory, but yesterday’s move puts 30-year fixed rate conventional mortgages at a best-execution rate of 3.75% depending on the lender. Best execution rates are not available to all borrowers or from all lenders–your FICO scores, loan repayment history and other financial qualifications will play a large role in determining your access to mortgage loan rates. When it comes to | more...

March 26, 2015

FHA Loans With Co-Borrowers: A Reader Question

By Joe Wallace

A reader asks, “Hello. Im a first time buyer my income its from 45 to 50g a year, as i understand i qualify base on my income and fico score. my question is, since my wife did bankruptcy last year , can i include her in the loan for ours first home?” When answering reader questions like this, it’s important to note that state laws have a lot to say in cases where the borrower lives in a community property state. Community property laws govern how new debts are incurred once the legal marriage begins; FHA loans address mortgage loan approval rules in general, but the FHA loan rulebook does not override the law. FHA loan rules in HUD 4155.1 state that all borrowers must credit qualify for the FHA | more...

March 26, 2015

FHA Loans and Non-Traditional Credit Histories

By Joe Wallace

There are many situations where a new borrower might want to apply for an FHA home loan, but without bringing a “traditional” credit history to the process. Do FHA loan rules permit a loan even when the borrower doesn’t have a typical credit history, has chosen not to use credit cards, etc? HUD 4155.1, the FHA rulebook for lenders, does make provisions for this. There’s a section of the rules governing what the FHA terms a “Non-Traditional Credit Report” or NTMCR for short: “NTMCRs are designed to assess the credit history of borrowers who do not have the types of trade references that normally appear on a traditional credit report. An NTMCR can be used as a • substitute for a TRMCR or an RMCR for a borrower without a | more...