Articles in Category: Closing Costs

April 5, 2016

Understanding FHA Appraisals

Whether you’re purchasing a suburban home, a town home, manufactured home or condo, all properties must be appraised before the loan can be approved. The appraisal process and its requirements may vary depending on whether the home is under construction, is considered new construction, or is termed “existing construction”, but in all cases the property must meet minimum FHA standards also know as MPRs and MPS. HUD 4000.1 explains the appraisal process: “The Appraiser must observe, analyze and report that the Property meets HUDs MPR and MPS. Minimum Property Requirements (MPR) refer to general requirements that all homes insured by FHA be safe, sound, and secure. Minimum Property Standards (MPS) refer to regulatory requirements relating to the safety, soundness and security of New Construction.” “Every Property must be safe, sound, | more...

March 17, 2016

FHA Loan Advice: Know Your Costs, Interest Rates

By Joe Wallace

We give a lot of advice both here and in our comments section about FHA home loans. And there’s a lot to give; FHA loan rules cover everything from the acceptable minimum condition of the home to a borrower’s credit requirements for maximum financing. But what does the FHA itself, as a government agency, say about the home buying process? Our publication is not associated with the FHA in any way, and what follows is the result of our research and examination of FHA-published material. What we have found is definitely information a potential borrower should consider during the planning stages of a new home loan or refinance loan. An FHA publication titled, Looking For The Best Mortgage has some excellent overall advice for the borrower starting with the old | more...

March 7, 2016

HUD 4000.1 Rules On Down Payment Assistance

By Joe Wallace

FHA home loans require a minimum 3.5% down payment as a condition of the loan. In some cases, depending on state law, the availability of a program, and other factors, certain borrowers may be eligible for some form of down payment assistance. This assistance is often intended for first time home buyers, which may create some confusion–it’s easy to mistakenly assume FHA loans themselves offer some kind of incentive for first time home buyers, or that the FHA provides down payment assistance. Neither of those two things are true–the FHA offers no preferential treatment to first-time buyers nor does it require more of second-time buyers. The FHA itself does not offer any form of down payment assistance. However, the FHA single family home loan program rule book, HUD 4000.1, does | more...

January 19, 2016

FHA Loan Questions: Tax Service Fees

By Joe Wallace

A reader got in touch with us recently to ask a question about the allowable fees and expenses associated with FHA new purchase home loans (also known as “forward mortgages”). The gist of the question–can an FHA loan applicant be charged a tax service fee as part of closing costs or other loan-related fees and expenses? The answer to this question and others like it can be found in HUD 4000.1, in the portion of the rule book titled Part III Servicing And Loss Mitigation. This section includes a list of prohibited fees and expenses–costs that cannot be charged to the borrower. That list includes the following information: “The Mortgagee must not charge the Borrower for the following services: –costs of telephone calls, telegrams, personal visits with the Borrower, certified | more...

January 7, 2016

FHA Loan Rules For Up Front Mortgage Insurance Premiums (UFMIP)

By Joe Wallace

When you buy a home with an FHA mortgage, there’s a requirement to pay an Up Front Mortgage Insurance Premium or UFMIP. This is not to be confused with Private Mortgage Insurance (PMI), and according to the FHA loan rules published in HUD 4000.1 most FHA loans require UFMIP. “Most FHA mortgage insurance programs require the payment of UFMIP, which may be financed into the Mortgage. The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and LTV limits.” There are exceptions as found in HUD 4000.1: –Streamline Refinance and Simple Refinance Mortgages used to refinance a previous FHA-endorsed Mortgage on or before May 31, 2009 –Hawaiian Home Lands (Section 247) –Indian Lands (Section 248) How is the UFMIP calculated? “The UFMIP charged for all amortization terms is | 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...

December 24, 2015

FHA Appraisal Standards: “Ordinary” Home Purchases Versus Fixer-Uppers

By Joe Wallace

One good question that comes our way in the comments section from time to time involves the difference between an ordinary new home purchase loan or FHA mortgage and the purchase of a fixer-upper with an FHA rehab loan. If appraisal standards for FHA loans include minimum property requirements, how can a fixer-upper be purchased with an FHA mortgage? After all, the nature of a fixer-upper loan is that you take a property that is in need of rehab or repairs and bring it up to standards. How can a fixer upper pass an FHA appraisal? Fortunately, this issue is addressed in HUD 4000.1, which includes the following: “As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes | more...

October 22, 2015

Mortgage Loan Interest Rate Trends: Recovering After A Move Higher

By Joe Wallace

On Tuesday, mortgage loan rates moved a bit higher, then recovered on Wednesday. These are basically small adjustments and loan applicants may, where applicable, find the difference in closing costs rather than an actual higher or lower rate. At the time of this writing, 30-year fixed rate conventional mortgage loans were still offered by many lenders at a best execution rate between 3.75% and 3.875%. The reason for the downward movement on Wednesday included improvements in the bond markets that affect mortgage loan rates, but there’s some European economic data due for release on Thursday that could, depending on report contents and investor reaction to that report, put pressure on rates. FHA mortgage rates are still being quoted at 3.5% best execution, though as usual we like to remind our | more...

September 4, 2015

FHA Loan Rules For Lenders: HUD 4000.1

By Joe Wallace

We’ve been reporting on a series of rule updates, amendments, and modifications to FHA single-family home loan policy scheduled to take effect on September 14, 2015. The new FHA Single Family Housing Handbook, also known as HUD 4000.1, contains all the rules and requirements for the FHA single family home loan program. The FHA/HUD official site has a Frequently Asked Questions list that addresses questions about a variety of aspects related to HUD 4000.1. Some of those questions involve FHA policy that pertains to borrowers, some pertain strictly to the lender. For example, lenders may wonder what the FHA policy is with regard to becoming or remaining a participating FHA lender. The FAQ section addresses that specific issue with a list of guidelines that include the following under a section | more...

What happens to my FHA loan in a natural disaster?

August 19, 2015

FHA Loan Rules For Debt-To-Income Ratios Versus “Total Mortgage Amount”

By Bruce Reichstein

In our previous blog post about FHA loans and debt-to-income ratios, we mentioned two calculations the lender makes to determine whether or not an FHA loan applicant can truly afford the mortgage loan. One of those calculations matches the applicant’s total “gross effective income” versus the amount of the total mortgage payment to make that determination. According to HUD 4155.1, Chapter Four, “The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income.” Naturally the FHA does make some exceptions for that 31% cap. “A ratio exceeding 31% may be acceptable only if significant compensating factors, as discussed in HUD 4155.1 4.F.3, are documented and recorded…” and the FHA also permits a higher debt to income | more...