Articles Published in: May 2017

May 19, 2017

An FHA Mortgage Post-Bankruptcy?

Is a mortgage loan possible after bankruptcy? When it comes to FHA home loans the answer is yes, as long as the borrower meets FHA loan standards and sits out a mandatory waiting period (which may vary depending on the bankruptcy, state law, and lender standards). One reader asked a question this week about bankruptcy and FHA loans: “My credit rating is 677 as of 5/18/2017. My income is established by a job that Ive held for over 15 years. My bankruptcy was completed in July of 2011. Can I qualify for an FHA mortgage?” There are many issues at work in situations like these including whether or not the borrower has established a satisfactory pattern of credit activity following the bankruptcy action. The mandatory waiting period (under FHA standards, | more...

May 18, 2017

FHA Appraisal Problems: A Reader Question

By Bruce Reichstein

We’ve gotten a variety of questions in our comments section this week about issues connected to the FHA appraisal process. Here’s the latest: “I have an FHA loan. It started raining on the day of the appraisal and we noticed a leak in the basement. The sellers agreed to fix the drainage issue that was causing it. During the walk-through we noticed that instead of busting out concrete and installing drainage pipes that they patched it up with more concrete. As ugly as it was I was okay with it as long as it kept the basement dry.” “Fast Forward to the first rainy day after closing on the home and I have an all out flood in my basement! My realtor said that there is nothing that can be | more...

Can I buy a manufactured home with an FHA loan?

May 18, 2017

FHA Loan Questions: Credit Score

By Joe Wallace

Do FHA loan rules require more than one credit score for a borrower to qualify for a mortgage loan? That’s what one reader wants to know this week: “Can you tell me if FHA can lend if someone only has one score? It’s a 621 score. This home buyer had a short sale four years ago and did not rebuild credit as she decided not to get any credit cards. She has a debit card and that is it. Please advise if one score would be accepted?” FHA loan rules for credit score requirements are found in HUD 4000.1, the FHA single-family home loan rule book. HUD 4000.1 has instructions to the lender for credit score requirements which include the following about what is called the Minimum Decision Credit Score: | more...

May 17, 2017

FHA Loan Appraisal Questions: Well Water Guidelines

By Joe Wallace

A reader asked us an FHA loan appraisal question this week about a recent post we did on water quality issues. “We have been requiring a safe water test to verify the water standards are meet per the guidelines but we now have an Loan Officer arguing that it is not required unless the appraiser notes an issue. Is a water test really not required have I been reading the guidelines wrong since 2015?” The “we” in this case would seem to be a participating FHA lender. Is the loan officer mentioned in the question correct? We turned to the relevant passages in HUD 4000.1 to reaffirm what the FHA loan rule book says about water quality. “The Mortgagee must confirm that a connection is made to a public or | more...

May 17, 2017

FHA Appraisal Questions: Defective Conditions

By Joe Wallace

A reader asks a question about FHA appraisal issues: “Bought a house that was supposedly totally renovated about a 1.5 months ago. Finding out about major issues and violations in the house. There were a lot of concealed things hidden…found they had unlicensed contractors.” “Didn’t have the money to do a regular home inspection. People were saying FHA does their own home inspection to make sure house is safe…problems with windows plumbing illegal hookup with water main electrical box etc. Have to make a payment to mortgage plus fighting with seller to get licensed contractors…please tell me why didn’t FHA see these issues.” FHA appraisals must never be confused with a home inspection. The FHA and HUD warn borrowers of this in a document found on the FHA/HUD official site | more...

May 16, 2017

FHA Loan Application Data: What You Should Know

By Joe Wallace

The FHA single family loan program rule book, HUD 4000.1, has a variety of rules and instructions to the lender on how FHA loan application information is to be handled and processed. You might not think those rules affect you as an applicant, but some of the rules do pertain to how the lender must collect the borrower’s information and the approved sources of that information. Your credit scores and other data must be given to the lender from approved sources. Did you know that HUD 4000.1 does not permit the borrower to handle or transmit certain kinds of information to the lender? Your loan officer is responsible for making sure she gets the information from the proper sourcing. According to HUD 4000.1: “Mortgagees must not accept or use documents | more...

May 16, 2017

FHA Appraisal Questions: Peeling Paint, Electrical Outlets

By Joe Wallace

We frequently get FHA appraisal questions in our comments sections. Here’s one of the latest: “Im trying to purchase a home and I have an FHA loan. The only thing Im concerned about is the peeling paint outside and that some of the outlets arent grounded. How would this affect my FHA loan approval?” FHA appraisal rules are found in HUD 4000.1. The instructions to the FHA appraiser don’t cover all possible contingencies for defective conditions, required corrections, etc. but do have something to say about peeling paint. The age of the paint may determine the extent of the corrections/repairs in this area. According to HUD 4000.1, for homes or improvements on or before 1978: “The Appraiser must note the condition and location of all defective paint and require repair | more...

May 15, 2017

FHA Loan Rules For Bankruptcy: Chapter 7 and Chapter 13

By Joe Wallace

We’ve had a number of reader questions in our comments section recently asking about scenarios for loan approval that involve bankruptcy and related issues. Can a borrower get a new FHA loan following a bankruptcy? Under what conditions? FHA loan rules in HUD 4000.1 address this issue with separate entries for Chapter 7 and Chapter 13. According to the FHA loan rule book, Chapter 7 requires the lender to observe the following: “A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Mortgage if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge. During this time, the Borrower must have: – re-established good credit; or – chosen not to incur new credit obligations.” HUD 4000.1 | more...

May 15, 2017

FHA Home Loans, Deed-In-Lieu, Foreclosure: A Reader Question

By Joe Wallace

How do actions like deed-in-lieu of foreclosure or actual foreclosure affect borrowers and their chances at getting new FHA home loans? A reader asks: “I have a bankruptcy filed and discharged in 2012. My 1st and Heloc were not reaffirmed. I will be moving out of California and to Arkansas but want to know how FHA would look at the wait for purchasing if I: Surrender property in deed in lieu, or Allow the home to be foreclosed upon. Also would it make a difference if I applied before foreclosure is final since it is not reporting on my credit report (I would not be making payments if this is the scenario and staying with family)?” It is hard to answer questions like this without addressing certain implications or ambiguities. | more...

May 12, 2017

Mortgage Rate Trends: Pushing Higher

By Joe Wallace

Since our last report, we’ve watched an upward mortgage rate trend pushing interest rates slowly higher. Some of this is contrary to bond market activity on Thursday that would otherwise typically “help” rates. So at the moment it seems that in the very short term we’re seeing mortgage rates behave in ways they don’t normally. Why? Some market watchers point to the timing of that bond market activity-there was what industry professionals describe as “weakness” on Wednesday that caused rates to adjust higher, but the following day improvements occurred. But not all lenders modify their mortgage loan rates at the same time, so for those where rates pushed higher on Thursday, it’s possible that the timing of their adjustments is at least partly to blame. That doesn’t likely interest house | more...