Articles in Category: Adjustable Rate Mortgage

January 28, 2016

FHA Loan Questions: Maximum FHA Loan Amounts For Building A Home

A reader asked us a question recently in the comments section about FHA new construction loans: “My husband and I will be building a home, we have land that we are interested in, what is the max for a construction loan and build that FHA gives?” To be clear, the FHA itself does not issue loans–the borrower must find a participating FHA lender willing to offer a new construction loan. When it comes time to determine the maximum loan amount for new construction mortgages, the FHA loan rulebook has specific instructions for the loan officer. How does the FHA instruct lenders to determine the maximum mortgage amount in these cases? According to HUD 4000.1: “The maximum mortgage amount is calculated using the appropriate purchase Loan-to- Value (LTV) percentage of the | more...

January 13, 2016

FHA Home Loan Questions: FICO Scores

By Joe Wallace

A reader got in touch recently in the comments section to ask a question about FICO scores and FHA home loan applications. “My new wife’s credit score is 749 and mine is 620 due to an ugly divorce and transfer several years ago. We make over 287K per year with very little debt. Would we qualify for a loan together with a favorable rate? All debt paid except car loans.” This question implies that FICO scores are the deciding factor for an FHA loan approval decision, and while credit scores are very important, they are not the only factor taken into account by the lender. When you apply for an FHA home loan, the lender will examine not just your FICO scores, but your history of payments–especially those made in | more...

January 8, 2016

FHA Loan Rules: When Landlords Sell To Tenants

By Joe Wallace

Sometimes when a borrower wants to buy a property with an FHA mortgage, it’s a situation where the applicant has been renting for some time and has an offer from the landlord to purchase. FHA loans do permit these transactions but there are special rules that govern them. These rules, published in HUD 4000.1, state that in some cases a higher down payment is required. But in others an exception to that requirement is possible depending on the relationship between landlord and tenant. The higher down payment requirement is needed because tenant/landlord sales can fall under something known as the “identity of interest” rule, which requires a 15% down payment in cases where identity of interest applies. According to HUD 4000.1: “The maximum LTV percentage for Identity-of-Interest transactions on Principal | more...

When Is An FHA Loan Better Than A Conventional Loan?

December 31, 2015

FHA Loan Rules In HUD 4000.1 On Closing Costs, Discount Points

By Joe Wallace

FHA loan rules in HUD 4000.1 include some instructions to the lender about closing costs, discount points, down payment funds, and much more. Can a borrower use closing costs as part of his or her down payment? What does the FHA rulebook say about interest rate lock-in fees? There are many rules and regulations–borrowers and lenders alike should be familiar with the guidelines. For example, when it comes to the down payment question, FHA loan rules are clear that the down payment money is a separate and distinct thing from closing costs. Specifically, HUD 4000.1 states: “The Mortgagee is not permitted to use closing costs to help the Borrower meet the Minimum Required Investment (MRI).” So that means an FHA borrower will need to budget for both closing costs and | more...

What if my home was damaged in a natural disaster?

October 30, 2015

HUD 4000.1 On FHA New Construction Loans

By Joe Wallace

When you review your options for an FHA home loan, you’ll run across loan information about FHA mortgages for “existing construction” loans and “new construction” or “under construction” loans. The requirements for new construction versus existing construction may differ due to a variety of reasons including the fact that the borrower can’t always take possession of a new or under construction home right away once the loan has closed. FHA loan rules for existing construction include appraisal requirements that may differ (procedurally) from new construction loans. For these reasons, the FHA has specifically defined what constitutes a new, proposed, or under construction property versus one that is “existing construction”. Existing construction is more or less a home that has already had an owner and has been in existence for a | more...

May 7, 2015

FHA Loans And The Credit Review

By Joe Wallace

We get many questions about FHA loan applications–questions that involve credit, FICO scores, FHA loan standards, and more. Many borrowers aren’t sure about whether they have FICO scores high enough to qualify for an FHA mortgage, and others may wonder if having a history of late or missed payments could hurt their chances at an FHA home loan. In general, borrowers are encouraged to wait to apply for an FHA mortgage until they have 12 full months of on-time payments on all financial obligations. This brings a potential home loan borrower closer to FHA loan approval; anything less can put your loan application in danger. Why? It’s good to know the FHA stance on these issues, and the FHA loan rulebook does spell out the reason why such a premium | more...

April 24, 2015

FHA Refinance Loans For Investment Property? A Reader Question

By Joe Wallace

A reader asks, “I have rental property with a mortgage balance of $26000. The property shows a current value of $98900. I would like to refinance but seem to have a problem getting it refinanced? What would you advise me to do in order to utilize my equity to finance another investment.” The scope of this blog is FHA single-family home loans, and we answer questions about FHA loans with that scope in mind. Non-FHA loan related questions that deal with general finance topics may or may not be outside our range of topics. The reader question above may have been submitted under a mistaken assumption that the FHA single family home loan program might include refinance loans (which it does) for investment properties or other non owner-occupied residences (which | more...

March 3, 2015

Interest Rate Caps On FHA ARM Loans

By Joe Wallace

In our last blog post we began discussing FHA adjustable rate mortgages, also known as ARM loans. We talked about how an FHA ARM loan works: “An ARM has four components: (1) an index, (2) a margin, (3) an interest rate cap structure, and (4) an initial interest rate period. When the initial interest rate period has expired, the new interest rate is calculated by adding a margin to the index. Your lender will disclose the margin at time of loan application (margins may vary from lender to lender, so it’s a good idea to shop around for a low margin).” We also mentioned the adjustable nature of the interest rates on these loans. “As the index figure moves up or down, the FHA official site says a borrower’s interest rate, | more...

March 8, 2013

FHA Loan Answers About Down Payments

By Joe Wallace

We get reader questions about FHA loan down payments–many people aren’t sure how much they need to pay up front and how much is required by the FHA loan program. Some borrowers mistakenly assume there’s a “no money down” option for first-time FHA loan applicants, and others assume there is a set dollar amount which must be paid regardless of the transaction. What’s the reality? FHA home loans do not feature a no-money-down option. FHA loan rules state that the minimum required down payment is as follows: “For purchase transactions, the maximum LTV is 96.5% percent (the reciprocal of the 3.5% required investment).” The acronym “LTV” stands for loan-to-value and is, in simple terms, the amount of the loan after the down payment has been made. An LTV of 96.5% | more...

August 15, 2012

FHA ARM Loans: Basic Rules For Interest Rates and Disclosure

By Joe Wallace

Did you know the FHA offers Adjustable Rate Mortgages (ARM loans) for qualified borrowers? These loans feature lower introductory rates for at least one year, with interest rate adjustments specified over a period of time agreed upon between the borrower and lender. FHA ARM loans may feature an introductory rate fixed for one year or up to as many as 10 years depending on the terms of the loan. When the introductory period is over, the loan’s interest rate may be adjusted between one and two interest rate points with an interest rate cap over the lifetime of the loan of up to six points, depending on the loan. According to FHA.gov, “The lender and borrower negotiate the initial interest rate and margin. The margin must be constant for the | more...