FHA Loan Rules For Loan Documents

If you are new to the house hunting process, there are some guidelines you should know that directly affect your search for a home to buy with an FHA guaranteed mortgage. Some of these guidelines are in place for your protection, some have been created to prevent tampering with the loan approval process–or the appearance of such tampering.

For example: one common bit of “legal advice” you can get from any reputable source on contracts and credit agreements includes the warning never to sign a contract with blank spaces or agreements that seem to be incomplete. This is sound advice–what is to prevent one party or the other from filling in those blank spaces later with terms that are favorable only to that person or persons?

The FHA takes the advice a step further, incorporating it into the rules and regulations of the FHA loan process. The FHA loan rulebook, HUD 41551.1 Chapter One Section B states clearly;

“Lenders may not have borrowers sign

• documents in blank

• incomplete documents, or

• blank sheets of paper.”

This is just one example. Another is the FHA loan rule which states that lenders can’t accept credit reports, employment verification or related documentation that does not come directly from the source. According to Chapter One Section B;

“Lenders may not accept or use documents relating to the credit, employment, or income of borrowers that have been handled by, or transmitted from or through the equipment of interested third parties, such as

• real estate agents

• builders, or

• sellers.”

Additionally, “The mortgage loan application package must contain all documentation that supports the lender’s decision to approve the mortgage loan.”

There is even a requirement for the age of such documentation. Did you know the FHA has a rule in this area? In HUD4155.1 Chapter One Section B there is a section titled, “Maximum Age of Mortgage Loan Application Documentation” which advises the lender, “At loan closing, all documents in the mortgage loan application may be up to 120 days old, or 180 days old for new construction, unless

• a different time frame is specified in this handbook or in other applicable HUD instructions, or

• the nature of the documents is such that their validity for underwriting purposes is not affected by the prescribed time frame, such as

? divorce decrees, or ? tax returns.

If the age of documents exceeds the above limits, the lender must obtain updated written verification of the documentation.”

These requirements are for your protection and the lender’s. Knowing these rules can help borrowers understand the FHA loan process better and plan ahead for situations that may require the reference of these rules and others. An informed borrower is a satisfied one.

Do you have questions about FHA home loans? Ask us in the comments section.