Articles Published in: March 2016

March 10, 2016

FHA Loan Standards: Charge-Offs and Collections

We’ve gotten several questions in the comments section about certain credit issues related to charge-offs, collections and other forms of derogatory credit information. With those questions in mind it seems like a good time to review the rules as published in HUD 4000.1 that instruct the lender on how to interpret these things and decide on loan approval. But before we start looking at the rules, it’s very important to point out that the information listed here are FHA minimum standards. A given lender or financial institution may have more strict requirements depending on circumstances, state laws, or other factors. Remember that FHA loan rules don’t override state law and lenders are free to require higher standards as long as they are in compliance with federal laws. When it comes | more...

March 10, 2016

Mortgage Rate Trends: Lower, Then Higher

By Joe Wallace

Mortgage rates dropped a bit on Tuesday, but edged higher on Wednesday ahead of Thursday’s scheduled announcement by the European Central Bank (ECB) which has potential to move rates depending on the contents of that announcement and investor reaction to it. We’ve seen rates shift up and down in the last week or so (mostly up); industry professionals used phrases on Wednesday like “highest since January” but those professionals are often quick to point out that the movement we’ve seen lately is within a specific range. That range has been fairly narrow so the moves higher and lower should be viewed in context. There doesn’t seem to be much short term danger of breaking out of that range, but breaking news and things like the European Central Bank announcement have | more...

When Is An FHA Loan Better Than A Conventional Loan?

March 9, 2016

FHA Loan Rules in HUD 4000.1 on Maximum Loan Amounts

By Joe Wallace

When the FHA and HUD published HUD 4000.1, that document became the comprehensive rule book for FHA single family home loans and refinance loans. Many policies were updated, amended, altered or restated and there’s no way to compare all the changes with the previous version of FHA home loan rules found in HUD 4155.1 and HUD 4155.2. With that in mind we have been examining important sections of HUD 4000.1 to learn what the most up-to-date FHA loan policies are. Today we’re examining the FHA loan rules for maximum loan amounts. HUD 4000.1 begins this section by explaining the basics: “A Mortgage that is to be insured by FHA cannot exceed the Nationwide Mortgage Limits, the nationwide area mortgage limit, or the maximum Loan-to-Value (LTV) ratio. The maximum LTV ratios | more...

March 8, 2016

FHA Loan Rules For Home Sales: HUD 4000.1

By Joe Wallace

The FHA Single Family Mortgage Loan program is regulated by the rules published in HUD 4000.1. These rules cover everything from appraisal requirements and FICO score minimums to Fair Housing requirements and responsibilities. HUD 4000.1 also establishes requirements for the home loan transaction–for example, did you know FHA mortgage loan rules have specific parameters for who can sell the property to the borrower purchasing with an FHA mortgage? HUD 4000.1 clearly states: “To be eligible for a mortgage insured by FHA, a Property must be purchased from the owner of record. The transaction may not involve any sale or assignment of the sales contract.” How is the lender required to establish that the seller is the owner of record? FHA loan rules say the lender must, “obtain documentation verifying that | more...

March 8, 2016

Mortgage Rate Trends: Edging Higher

By Joe Wallace

Monday saw mortgage rates moving higher, pushing rates closer to highs we haven’t seen since early in the year. 30-year fixed rate conventional mortgages are still reported in a best-execution zone around 3.75%. Some borrowers may have noticed Monday’s rate movement in the form of higher closing costs, but if the upward trend continues we could see conventional fixed rates break out into a range between 3.75% and 3.875%. FHA mortgage rates are still reported in a range between 3.25% and 3.5%, but how long this remains isn’t clear. Upward pressure on rates could eventually push this range back into a single best-execution rate at the upper end of the current range. As always, access to the best execution rates listed here depends greatly on the borrower’s financial qualifications. Your | more...

March 7, 2016

HUD 4000.1 Rules On Down Payment Assistance

By Joe Wallace

FHA home loans require a minimum 3.5% down payment as a condition of the loan. In some cases, depending on state law, the availability of a program, and other factors, certain borrowers may be eligible for some form of down payment assistance. This assistance is often intended for first time home buyers, which may create some confusion–it’s easy to mistakenly assume FHA loans themselves offer some kind of incentive for first time home buyers, or that the FHA provides down payment assistance. Neither of those two things are true–the FHA offers no preferential treatment to first-time buyers nor does it require more of second-time buyers. The FHA itself does not offer any form of down payment assistance. However, the FHA single family home loan program rule book, HUD 4000.1, does | more...

March 7, 2016

Mortgage Rate Trends: Higher On Friday

By Joe Wallace

Mortgage loan interest rates moved higher on Friday after the much-anticipated Employment Situation Report came out with numbers better than some expected. When it comes to economic data releases, information that indicates an improving economy can be bad for mortgage loan interest rates depending on investor reaction to that data. Sometimes the markets ignore such data in favor of other breaking news or developments, so scheduled economic data releases like the employment report don’t always or consistently affect mortgage loan rates. This time, the data did influence rates, and we saw 30-year fixed rate conventional mortgages move out of a previous range between 3.625% and 3.75% (best execution) and more solidly into the 3.75% zone. FHA mortgage loan interest rates stayed in their current best-execution comfort zone range between 3.25% | more...

March 4, 2016

Ordering a Second FHA Appraisal: The Rules in HUD 4000.1

By Joe Wallace

There are many questions about the FHA appraisal process–we get many in the comments section asking about the nuances of FHA appraisals. One typical question has to do with when a second appraisal is appropriate or permitted. Can a second FHA appraisal be ordered if the borrower or lender doesn’t agree with the outcome of the original? HUD 4000.1 spells out the rules for FHA appraisals including “second appraisal” requirements. They include the following: “The Mortgagee is prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required. The Mortgagee may order a second appraisal for Mortgages that are in accordance with requirements on Property Flipping.” FHA policy, based on the reading above, is clear–you can’t | more...

March 3, 2016

Settlement Reached In Kansas “Redlining” Mortgage Discrimination Case

By Joe Wallace

The Department of Housing and Urban Development (HUD) has announced a settlement in a mortgage discrimination case involving First Federal Bank of Kansas City. According to a press release at the FHA/HUD official site, “The U.S. Department of Housing and Urban Development (HUD) announced today an agreement with First Federal Bank of Kansas City to resolve allegations of redlining against African American mortgage applicants. HUD and two fair housing organizations claimed the lenders designated service area effectively excluded African American neighborhoods, limiting residential mortgage lending to persons based upon their race.” Federal law makes it illegal to discriminate against mortgage loan applicants or anyone seeking housing because of their race. According to the press release, “Homeownership should never be affected by the color of a persons skin. This agreement helps | more...

March 2, 2016

FHA Home Loan Rules: Non-Borrowing Spouses

By Joe Wallace

Some legally married couples who want to purchase a home don’t necessarily want to do so with both spouses on the mortgage loan. Does an FHA loan require both spouses to submit to a credit check even though only one will be the borrower? The answer depends not on FHA loan requirements, but whether or not the couple live or are purchasing a home in a state with community property laws that have something to say about the nature of the debts incurred once the couple are legally married. FHA loan rules in this area are found in HUD 4000.1, which has a section dedicated to instructing the lender how to process the credit information for a non-borrowing spouse in community property states. This portion of the FHA loan rules | more...