Articles in Category: Closing Costs

When Is An FHA Loan Better Than A Conventional Loan?

July 18, 2016

FHA Loan Rules On Seller Contributions Part Two

In our last blog post, we answered a reader question about whether or not it’s permitted for the seller to contribute to the buyer’s closing costs and down payment. FHA loan rules do not permit anyone with a financial stake in the outcome to contribute towards a buyer’s down payment, but the rules DO permit the seller or other interested parties to contribute up to six percent of the sales price of the home. There’s a caveat to that listed in HUD 4000.1. Any contributions by the seller (or other interested parties) that exceeds the six percent limit is classified as an “inducement to purchase”. HUD 4000.1 explains what this means on page 221: “Inducements to Purchase refer to certain expenses paid by the seller and/or another Interested Party on | more...

July 18, 2016

FHA Loan Questions: Down Payment Assistance From The Seller?

By Joe Wallace

A reader asks, “Can the buyer use seller assist for the down payment and closing costs? If yes, what is the limit?” This is a more common question than it may seem at first-sellers can and often do contribute toward the closing costs of an FHA loan, but the FHA loan rulebook definitely has some things to say about how much and what kinds of contributions a seller may make. FHA loan rules governing these contributions are found on page 220 of HUD 4000.1 and cover more than just the seller’s assistance. Any financial help toward the closing costs coming from what the FHA terms “interested parties” is governed by these rules. To begin with, no one with a financial stake in the outcome of the sale of the property | more...

July 12, 2016

More On FHA Loans And Down Payment Gift Funds

By Joe Wallace

In our last blog post we answered a reader question about whether it’s acceptable to receive gift funds from a family member for an FHA borrower’s down payment. FHA loan rules in HUD 4000.1 permit this, but the gift funds must come from approved sources. For example, no one with a financial stake in the outcome of the FHA loan can provide down payment gift funds for a borrower. And for down payment gift funds that do come from an approved source, the lender has specific instructions in HUD 4000.1 on how to proceed. For example, on page 219 of HUD 4000.1, we learn: “The Mortgagee must obtain a gift letter signed and dated by the donor and Borrower that includes the following: –the donors name, address, and telephone number; | more...

July 12, 2016

FHA Home Loans and Down Payment Funds

By Joe Wallace

A reader asks, “Can I use gift funds from a family member to make my down payment on an FHA mortgage?” This is a common question. FHA mortgages do require a lower down payment than many conventional loans, but a down payment is still required and must come from approved sources. Your lender will be required to verify the source of down payment funds, which must not come from uncollateralized loans, credit card cash advances, “payday loans”, etc. The loan rules that affect down payments are found in HUD 4000.1 in a variety of places but our answers are coming from page 213-214, which begins by stating the FHA definition of a down payment. The rulebook calls the down payment a “Minimum Required Investment” or MRI for short: “Minimum Required | more...

May 12, 2016

FHA Loan Rules On Down Payment Assistance, Gift Funds

By Joe Wallace

We’ve gotten several questions recently about FHA loan rules for down payment assistance programs and related topics. While we’ve addressed issues like this before, it never hurts to revisit topics like these, especially since the FHA transitioned from its previous single family home loan rule books into the single, comprehensive HUD 4000.1. In the past, certain types of down payment assistance grant programs such as NewSong, Grant America, and Nehemiah operated by providing what was known as “seller provided down payment assistance”. In 2008, President Bush signed an act that prohibits such assistance, so all seller-provided down payment funds were no longer possible. But there are state and local programs that do provide some type of down payment assistance. If these programs meet FHA guidelines and requirements, a borrower may | more...

May 3, 2016

FHA Loan Rules: Cash to Close

By Joe Wallace

One of the most common questions we are asked in the comments section involves the nature of a borrower’s required minimum investment-the down payment-for an FHA mortgage. Some potential borrowers want to know if they can finance the down payment, others want to know if other closing costs might be counted as part of the down payment. In both cases the answer is no. Closing costs are separate from the borrower’s required 3.5% minimum down payment according to HUD 4000.1. Furthermore, the down payment must be paid in cash at or before closing time and cannot be financed into the loan amount. The money needed for a borrower’s down payment and certain closing costs are regulated by FHA guidelines. For example, a borrower can’t come up with a down payment | more...

April 29, 2016

FHA Loan Questions: Minimum Income?

By Joe Wallace

Recently we were asked if FHA home loans have either an income limit, or a minimum amount the borrower must earn per month/year in order to qualify. FHA loan rules in HUD 4000.1 do not specify a maximum income. FHA loans are designed for those who want to purchase a home and want an alternative to conventional mortgages. FHA home loans are not created for a specific income bracket. Let’s examine the rules for income in HUD 4000.1: “The Mortgagee must document the Borrowers income and employment history, verify the accuracy of the amounts of income being reported, and determine if the income can be considered as Effective Income…” “…The Mortgagee may only consider income if it is legally derived and, when required, properly reported as income on the Borrowers | more...

Can I buy a manufactured home with an FHA loan?

April 21, 2016

FHA Loan Rules and Individual Lender Standards

By Joe Wallace

A recent question in the comments section reminds us of the need to differentiate between lender standards and FHA loan rules. Both will have a say in loan approval, terms and conditions, and more. The reader asks, “I was just in bank office today and yesterday. Yesterday before the lender saw my pay stubs i was pre-qualified for 70,000, now after seeing my work hours plus my W2. I’m now approved for only 30,000. How did that happen? I lost 40,000 just by not having 80 hours a week.” There are several issues at work here. The first is the nature of being pre-qualified for a mortgage loan. When you pre-qualify, your lender is giving you an estimate of what you may be able to borrow based on some initial | more...

April 20, 2016

FHA Loan Questions: Identity of Interest Transactions

By Joe Wallace

For some FHA home loans, a higher down payment may be required when there is an “identity of interest” transaction. FHA loan rules in HUD 4000.1 define this as follows: “An Identity-of-Interest Transaction is a sale between parties with an existing Business Relationship or between Family Members. Business Relationship refers to an association between individuals or companies entered into for commercial purposes.”An identity of interest transaction requires a 15% down payment unless the borrower qualifies for an exception. With this in mind, let’s look at a recent reader question in our comments section. A reader asks, “My wife and I went under contract on a house that is owned by her stepfather. We just found out yesterday about the FHA identity of interest certification. It is his rental property. Is | more...

April 8, 2016

FHA Loan Questions: Paying Fees

By Joe Wallace

A reader asks, “Is their costs in an FHA loan the the seller has to pay for the buyer, and if so what are those costs?” FHA loan rules in HUD 4000.1 permit “interested parties” to contribute a certain amount towards approved expenses of an FHA mortgage loan for a new purchase. The rules for these contributions are found starting on page 220, which has both a definition of the phrase, and the types of costs these parties may contribute. “Interested Parties refer to sellers, real estate agents, builders, developers or other parties with an interest in the transaction. Interested Party Contribution refers to a payment by an Interested Party, or combination of parties, toward the Borrowers origination fees, other closing costs and discount points.” FHA loan rules limit these | more...