Articles Published in: August 2015

What happens to my FHA loan in a natural disaster?

August 19, 2015

FHA Loan Rules For Debt-To-Income Ratios Versus “Total Mortgage Amount”

In our previous blog post about FHA loans and debt-to-income ratios, we mentioned two calculations the lender makes to determine whether or not an FHA loan applicant can truly afford the mortgage loan. One of those calculations matches the applicant’s total “gross effective income” versus the amount of the total mortgage payment to make that determination. According to HUD 4155.1, Chapter Four, “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.” Naturally the FHA does make some exceptions for that 31% cap. “A ratio exceeding 31% may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded…” and the FHA also permits a higher debt to income | more...

August 18, 2015

FHA Mortgage Rate Trends: Higher Ahead Of Fed

By Joe Wallace

Mortgage loan rates have been trading higher days with lower days; Monday say rates move low enough to wipe out the losses seen on Friday, but Tuesday had rates moving higher, erasing Monday’s progress. For Tuesday, rates moved higher partially in anticipation of the Fed minutes release scheduled for Wednesday. Those minutes will have details of the July Fed meeting and we may gain a bit of insight as to the Fed’s posture on the upcoming meeting. There’s been a lot of “Will they or won’t they?” type talk about a Fed interest rate hike, and any discussion of that hike is a potential market mover. So there’s been a bit of advice against floating into the release of those Fed minutes tomorrow, and it’s easy to see why, given | more...

August 18, 2015

FHA Streamline Refinance Loans: Basics For Credit Qualifying Streamline Refinancing

By Joe Wallace

In our last blog post we discussed some basics on FHA Streamline Refinance Loans. The FHA Streamline Refinance loan program permits lenders to process the loan paperwork for these refinances (FHA-to-FHA only) with no credit check in most cases. But lenders are free to require a credit check, and there are some cases where the credit check is required if add-ons to the loan cause the borrower’s monthly payments to increase by 20% or more, but there are other circumstances that may also require credit-qualifying. HUD 4155.1 states: “A credit qualifying streamline refinance must be considered: –when a change in the mortgage term will result in an increase in the mortgage payment of more than 20% –when deletion of a borrower or borrowers will trigger the due-on-sale clause –following the | more...

August 18, 2015

FHA Streamline Refinance Loans: Some Basics

By Joe Wallace

FHA refinance options for those who already have FHA mortgages include something know as the FHA Streamline Refinance. FHA Streamline Refinance loans allow FHA borrowers to apply for a refinance loan designed to lower monthly payments, interest rates (or both), get out of an adjustable rate mortgage, or refinance from one fixed-rate loan to another. Borrowers can also, according to FHA loan rules, refinance from one adjustable rate mortgage to another. The rules that govern FHA streamline refinance loans are found in HUD 4155.1, Chapter Six, Section B, which begins by explaining that FHA Streamline Refinances: “–are designed to lower the monthly principal and interest payments on a current FHA-insured mortgage, and — must involve no cash back to the borrower, except for minor adjustments at closing that are not | more...

August 17, 2015

Qualifying Income For FHA Loans: Required Paperwork

By Joe Wallace

We’ve written in recent weeks about the process of verifying income for an FHA home loan–the nature of your employment, additional income, and other financial factors that might contribute to your debt to income ratio are required to get scrutinized by the lender. The lender’s process for verifying income is spelled out in HUD 4155.1 Chapter One Section B, but there’s one part of the rules we haven’t covered in our other blog posts–the Verification of Deposit requirement. Chapter One Section B states that the lender must get documentation in writing for all “assets to be used in qualifying” for the FHA mortgage. Borrowers should expect to furnish verification in writing for the last three months worth of qualifying at a minimum. The borrower can provide either a written Verification | more...

August 17, 2015

FHA Mortgage Loan Interest Rates

By Joe Wallace

FHA home loans have a set of rules that govern interest rates. HUD 4155.1 explains that lenders must inform the borrower that FHA loan interest rates are negotiable–FHA does not set or regulate the rates, though it does require interest rates on FHA loans to be reasonable and “customary” compared to similar loans of its type. Chapter One of HUD 4155.1 states: “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.” We write regularly about FHA loan interest rate trends, and discuss something called the interest rate lock or interest rate lock-in, which is an agreement between the borrower and lender to commit to a mortgage rate for a specific period of time, to protect the | more...

August 15, 2015

FHA Mortgage Loan Interest Rate Trends: Higher, Lower, Higher, Lower…

By Joe Wallace

Mortgage rates had a back-and-forth week, with rates starting off higher, wiping out the gains seen on the previous Friday. Then on Tuesday, news of China’s currency policies pushed rates back down into the high three percent range (best execution) for 30-year fixed rate conventional mortgage loans. FHA rates stayed in their comfort zone of 3.75% that day in spite of the improvements; FHA rates tend to take longer to adjust until there’s been a sustained move in one direction or the other, or a dramatic change in rates on a single day or two. Overseas currency drama over the value of the Yuan had an effect on rates all week–either waxing or waning influence, depending on the day and sometimes even the time of day. On Wednesday, rates began | more...

August 14, 2015

FHA Loan Income Rules: Government Income, Assistance Income, And Military Income

By Joe Wallace

We’ve written elsewhere about the importance of the borrower’s verifiable income when it comes time to fill out an FHA loan application and have the lender review the amount of money coming in versus how much goes out for financial obligations. A borrower’s employment income is very important, but the job you have may not be the sole source of income at application time. For some applicants there may be military income, public assistance or other types of government income for the lender to consider. What are the FHA loan rules for this type of income? Is it allowed at all? The loan rules for the income types mentioned above are found in HUD 4155.1 Chapter Four Section E. We’ll start with military income. Basic pay and allowances are not | more...

August 14, 2015

FHA Loan Income Rules: Does Alimony/Child Support Count As Income?

By Joe Wallace

For any applicant trying to get an FHA loan to purchase a home, the debt-to-income ratio is very important. How much money you have coming in versus how much you have going out for monthly bills and other financial obligations is a very big part of the lender’s calculations to see whether a borrower can afford the new loan. One area that concerns some is whether alimony/child support is able to be used as part of the borrower’s potential income for those calculations. FHA loan rules currently available in HUD 4155.1 have plenty to say on how and why such income might be used. This type of income can indeed by used, as long as it meets FHA minimum requirements for “effective income” or “verifiable income”: “Alimony, child support, or | more...

August 13, 2015

FHA Loan Rules For Income and Co-Borrowers

By Joe Wallace

When two borrowers want to apply for an FHA loan together, there are often questions about whether one borrower can make up shortcomings for the other. For example, can a borrower who earns less be offset by the borrower who earns more? As with many areas of the FHA single family home loan process, lender standards may apply, but it’s good to know the basic FHA loan requirements that apply. When it comes to income, FHA loan rules found in HUD 4155.1 at the time of this writing address the issue in Chapter Four Section D: “The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrowers income level can be reasonably expected to continue through at least the | more...