July 5, 2016
There are a variety of reasons why a military member would consider buying a home with an FHA mortgage, including the desire to own a home instead of renting in a crowded military rental market.
While it’s true that VA home loans are available for military members as part of their benefits, some may choose the FHA option instead. What should a military member know about FHA mortgages and refinance loans?
The first thing some borrowers need to know is that, yes, it is possible to refinance a VA mortgage into an FHA mortgage loan. FHA refinance loans permit the refinancing of non-FHA mortgages for cash-out refinancing and “non-streamline” refinance options.
You do not have to use your existing lender to refinance into an FHA mortgage, instead a borrower is free to shop around among participating FHA lenders to explore their options.
FHA loans, similar to VA mortgages, have an occupancy requirement. For some military borrowers this may seem like an issue, but HUD 4000.1 specifically addresses military borrowers and the occupancy issue. There are exceptions for military members who qualify, according to HUD 4000.1 page 128:
“Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service.”
That addresses a couple of specific concerns many military members have, including what happens to the borrower’s owner/occupier status if he or she is deployed or reassigned away from the area where the home purchased with the FHA mortgage is located. However, supporting documentation is required in such cases:
“The Mortgagee must obtain a copy of the Borrowers military orders evidencing the Borrowers Active Duty status and that the duty station is more than 100 miles from the subject Property. The Mortgagee must obtain the Borrowers intent to occupy the subject Property upon discharge from military service, if a Family Member will not occupy the subject Property as their Principal Residence.”
Military members applying for FHA loans should know that the co-signer and co-borrower requirements are the same as for others applying for a loan who are not affected by the military occupancy exceptions.
“To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.”
Military borrowers who are legally married, like their civilian counterparts, may have additional considerations in states with community property laws. “In community property states, the Borrowers spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”
Co-borrowers musts financially qualify the same as the primary applicant. What are the cosinger requirements for FHA loans? According to HUD 4000.1, both military and civilian borrowers should know the following:
“Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument.”
Military borrowers who want an FHA mortgage should get in touch with a loan officer to discuss their needs and any additional paperwork that might be needed to handle occupancy issues, etc. Pre-purchase counseling is also available directly from the FHA at their toll-free number: 1-800 CALL FHA. Request a referral to a local, HUD-approved housing counselor who can answer questions.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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