Articles Published in: June 2023

June 30, 2023

Is an FHA Home Loan Right For You?

Mortgage loan interest rates have increased significantly since hitting all-time lows in years past. In 2023, some renters are now wondering whether it’s smarter to rent or own in the current housing market. Some can afford to wait to buy until the rates return to a consistently lower range, but others have to buy soon, no matter what the state of the housing market. FHA Loans Versus Conventional Loans And for these borrowers, FHA loans, being government-backed, often feature interest rates and terms competitive with some conventional alternatives. They can also be competitive with conventional loans when it comes to terms. No penalty for early payoff, the ability to refinance with an FHA Streamline should conditions make that option more viable, and a lower down payment requirement are all features | more...

June 29, 2023

FHA Mortgage Loans: Second Appraisals

By Joe Wallace

If you or the seller don’t agree with the results of the appraisal, is it possible to get a second appraisal and a reconsideration of value of the home? FHA loan rules specifically prohibit ordering a second appraisal just because one party or the other is hoping for a different result. HUD 4000.1, the FHA Single-Family Lender’s Handbook, states the lender 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.” FHA loan rules note the lender is permitted to order a second appraisal “for Mortgages that are in accordance with requirements on Property Flipping”. But what circumstances permit a second appraisal? HUD 4000.1 says that the original mortgagee or lender is allowed to | more...

June 27, 2023

FHA Loan Seller Concessions: What’s Allowed?

By Joe Wallace

When it is time to negotiate the price of a home using an FHA home loan, borrowers should know that sellers can, and often do, contribute to the buyer to make the deal more enticing or help the borrower reduce up-front costs. Such contributions are known as seller concessions. The FHA Lender’s Handbook says for FHA mortgages, concessions are permitted within a certain set of boundaries and are limited to six percent of the sales price of the home. Any seller contributions that exceed that six percent limit require a dollar-for-dollar reduction in the loan amount. According to FHA loan rules, “Sales concessions influence the price paid for real estate. For this reason, FHA requires that appraisers identify and report sales concessions and properly address and/or adjust the comparable sale | more...

June 26, 2023

Is It Possible To Have Multiple FHA Loans?

By Joe Wallace

Many people want to know if they can apply for more than one FHA loan at a time. In some cases this is because the potential borrower wants to buy a home they don’t intend to use as their primary residence. In others, the issue might be that a larger home is needed due to a change in family size. Are these reasons for having more than one FHA loan valid under FHA loan rules? What FHA Loan Rules Say FHA loan rules for the single-family home loan program in the FHA Single-Family Handbook generally permit FHA loans only for owner-occupiers. The short answer to the question, “How many FHA loans can I have at the same time?” is ONE. The home must be occupied by at least one person | more...

June 23, 2023

FHA Mortgage Loan Terms: Understanding Equity

By Joe Wallace

Home equity is an important term to understand when you’re applying for any kind of mortgage loan, but for some loans, equity is a larger factor than others. For example, when you apply for a new purchase FHA loan to buy a home, you start out with 3.5% of the adjusted price of the home as your equity. That’s the amount of your down payment, and the equity grows over time with the number of payments you make. The more you pay down your FHA mortgage, the more equity you accrue. When you apply for a home equity loan, a home equity line of credit, or an FHA Home Equity Conversion Mortgage (HECM), you’re applying for a loan based on the amount of equity you have built up in the | more...

June 22, 2023

FHA Loan Rules For Income: Investments, Trusts, and Promissory Note Payments

By Joe Wallace

Part of the FHA loan approval process involves the lender verifying an applicant’s income. FHA rules state that for purposes of calculating a borrower’s debt-to-income ratio, only verifiable income can be counted in that ratio. Do FHA rules allow a borrower’s interest or dividend payments from investments to be counted as verifiable income? For some borrowers, this can be an important question. According to the FHA Lender’s Handbook, “The Mortgagee must verify and document the Borrower’s Investment Income by obtaining tax returns for the previous two years and the most recent account statement.” Additional instructions to the lender for this issue include the requirement that when making the calculation. “The Mortgagee must subtract any of the assets used for the Borrower’s required funds to close to purchase the subject Property | more...

June 20, 2023

FHA Loan Qualifications

By Joe Wallace

We get many reader questions about FHA home loans. A common variation on one such question goes like this: “What qualifications are needed to be approved for an FHA home loan?” We get questions like these quite often. Some people mistakenly assume that FHA loans are only for first-time home buyers or those with lower incomes. This is not true; any qualified FHA loan applicant may be approved for an FHA mortgage. This is true regardless of whether the applicant has purchased a home before, has an income above or below a certain threshold, etc. If the borrower can realistically afford the loan and meet the other lender and FHA requirements, loan approval is possible. There is no minimum or maximum income level for FHA loans–instead, the lender will measure | more...

June 16, 2023

FHA Loans For Mixed-Use Property

By Joe Wallace

A common reader question about FHA mortgages has to do with purchasing mixed-use property with an FHA loan. Here is a variation on the theme: “I want to buy a 4-unit building with a store front. Is there any type of loan that I can apply for to make this purchase?” The good news is that this type of purchase may be possible; FHA loan rules permit the purchase of properties between one and four units. For mixed-use property, commercially zoned residential property or other non-traditional purchases, HUD 4000.1 states: “The non-residential portion of the total floor area may not exceed 49 percent. Any non-residential use of the Property must be subordinate to its residential use, character and appearance.” “Non-residential use may not impair the residential character or marketability of | more...

Conventional Loan Interest Rates Make History, FHA Loan Rates Still Incredibly Low

June 15, 2023

FHA Loans and Interest Rates: The Interest Rate Lock

By Joe Wallace

Under the rules of the FHA loan program, borrowers and lenders negotiate together on interest rates for the FHA loan. Part of those negotiations is the interest rate lock agreement. This can feel intimidating for some who aren’t used to the home-buying process, but it’s a common part of the home loan transaction. What do you need to know about FHA home loan rates and getting a rate lock commitment from your lender? The FHA does not set interest rates, and it’s also not responsible for regulating them aside from a general requirement that the rates be comparable to similar types of loans. Interest rates on mortgages and other high-value transactions are under more scrutiny in 2023 due to continued elevated mortgage rates. At the moment, it’s good to explore | more...

June 13, 2023

FHA Loan Expenses That Can Be Paid By The Seller

By Joe Wallace

One common question about FHA loans involves whether the seller can pay some of the expenses of the borrower’s FHA loan as a motivation to purchase. Can the seller pay closing costs, offer to supply appliances, or add other incentives to the sales agreement? According to FHA loan rules in the FHA Lender’s Handbook, the answer is yes–but with limitations. According to HUD, “Certain expenses” paid by the seller (or other “interested third parties”) on behalf of the borrower are considered “inducements to purchase” and result in a dollar-for-dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate loan-to-value (LTV) factor. That said, sellers can contribute up to six percent of the sales price without a penalty. They can also offer | more...