Articles Tagged With: Credit Requirements

August 20, 2013

New FHA Loan Guidelines For “Back to Work”

The FHA recently issued a mortgagee letter detailing new guidelines for lenders working with borrowers who have had financial setbacks that might not indicate their ability to make monthly mortgage payments or other financial obligations. According to FHA/HUD Mortgagee Letter 2013-26, “FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances.” The letter continues, “As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively | more...

August 19, 2013

FHA Revises Loan Policies For Credit Issues Related to Unemployment, Economic Hardship

By Joe Wallace

The FHA has issued a new mortgagee letter which revises its policies related to credit evaluation for FHA loan approval. FHA Mortgagee Letter 2013-26 says the FHA is committed to helping borrowers who need FHA mortgage loans who may have financial difficulty due to reduced or terminated employment, bankruptcy, and other financial difficulties. “FHA is continuing its commitment to fully evaluate borrowers who have experienced periods of financial difficulty due to extenuating circumstances. As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre- foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts.” Mortgagee Letter 2013-26 continues | more...

August 15, 2013

FHA Mortgage Insurance Rules Update

By Joe Wallace

The FHA rules for mortgage insurance changed when the FHA and HUD issued Mortgagee Letter 2013-04, which featured, “Revision of Federal Housing Administration (FHA) policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP”. All of the scheduled changes to the MIP rules have taken place. Among the major features of those changed rules? According to the introductory paragraphs of the FHA/HUD mortgagee letter: “Consistent with FHAs ongoing efforts to strengthen the Mutual Mortgage Insurance Fund, FHA is: revising the period for assessing the annual MIP; removing the exemption from the annual MIP for loans with terms of 15 years or less and Loan to Value (LTV) ratios of less than or equal to 78 percent at origination; and increasing the annual MIP on | more...

August 14, 2013

FHA Loan Answers: Is There Ever an Automatic Rejection of an FHA Loan Application?

By Joe Wallace

FHA loan rules include certain “automatic” rejections of an FHA loan application. For most typical borrowers these factors may not be an issue, but it is a question that arises from time to time: what circumstances force an automatic rejection of an FHA loan application? Here’s one example from the FHA loan rulebook, based on FHA FICO score requirements: That table indicates that a borrower with a FICO score of less than 500 is not eligible for an FHA mortgage. But there are other circumstances which may also result in an automatic rejection of the loan application. HUD 4155.1 Chapter Four, Section A has a heading titled, “Mandatory Rejection of a Borrower” and states: “A borrower is not eligible to participate in FHA-insured mortgage transactions if he/she is suspended, debarred, | more...

August 13, 2013

FHA Loan Reader Questions: Buying a Home With a Power of Attorney or Attorney In Fact

By Joe Wallace

A reader asks, “Can I use an AIF to apply for a mortgage loan in my absence? Namely fill out entirely on his own and sign the Uniform Residential Loan Application?” We’re assuming by using the acronym “AIF” the reader means “attorney in fact”. A search of the FHA loan rules in HUD 4155.1 reveals nothing specifically about using an attorney in fact, but FHA loan rules that cover who is permitted to sign the documents committing a borrower to the FHA loan are very clear. Chapter One, Section B of HUD 4155.1 states: “All borrowers applying for the mortgage and assuming responsibility for the debt must sign Fannie Mae Form 1003, Uniform Residential Loan Application (URLA), and all addenda. Either the initial loan application or the final, if one | more...

August 12, 2013

FHA Loan Questions: Applying For a Loan Following a Chapter 13 Bankruptcy

By Joe Wallace

A reader asks, “I was just released from Chapter 13 Bankruptcy and I would like to buy a house. What do I have to do to achieve this? My credit score is 635, 635 and 643.” FHA loan rules printed in HUD 4155.1 state that simply having a Chapter 13 bankruptcy does not disqualify you from getting an FHA loan, but there are certain standards a borrower needs to meet which must also be documented by the lender. Specifically, HUD 4155.1 Chapter Four Section C states, Chapter 13 bankruptcy”does not disqualify a borrower from obtaining an FHA-insured mortgage provided that the lender documents that: • one year of the pay-out period under the bankruptcy has elapsed • the borrower’s payment performance has been satisfactory and all required payments have been | more...

August 8, 2013

FHA Loan Answers: Employment Verification by Fax or Internet

By Joe Wallace

When applying for an FHA home loan, your loan officer is required to verify your employment history–current and former–as a condition of loan approval. Some borrowers live and work in the same area for extended period of time, while others may have crossed the country to accept new employment or even transitioned from overseas locations to stateside (as is often the case with military families and other government employees). In such cases, how does the lender verify employment? It may not be practical for the borrower to return to an old office or workplace to request verification and telephone or emailed requests for mailed documentation may not be done as quickly as needed. Can the lender or borrower request a faxed document from an old employer instead? Here’s what FHA | more...

August 8, 2013

FHA Loan Reader Questions: Minimum Employment Rules

By Joe Wallace

A reader asks, “My son-in law has been employed for the past two years, but only 19 months with the current employer. He is paid on a 1099. Another job opportunity has been offered by a different company, and different industry, but he will be making more money with this second company. He also will be paid via a 1099. Will he meet the employment requirement under these circumstances?” FHA loan rules for employment verification are found in HUD 4155.1. This document gives instructions to the lender for verifying employment, among many other things. According to HUD 4155.1, “The lender is required to verify the applicant’s employment history for the previous two years. However, direct verification is not required if all of the following conditions are met: the current employer | more...

August 6, 2013

FHA Loan Questions: Is It Ever “Impossible” To Deny An FHA Loan Application?

By Joe Wallace

A reader asks, “I was awarded permanent disability on June 2011; with a ‘long term re-evaluation’ in 5 to 7 years per SS; will the lender under FHA loan qualifications, not be able to decline loan because of said re-evaluation?” Assuming we understand this reader’s question properly, it seems the issue at hand is whether or not the FHA loan is “guaranteed” to be approved because of Social Security income status. FHA loan rules as written in HUD 4155.1 Chapter Four Section D state that one requirement of FHA loan approval is an examination of income and how likely that income is to continue. “The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrower’s income level can be | more...

August 5, 2013

FHA Loan Questions: Outstanding Judgments

By Joe Wallace

A reader asks, “I have an outstanding judgment in the amount of $8000. Can I still get a loan?” There are two very important considerations in situations like this, where the loan applicant has concerns about a credit issue blocking his or her approval for an FHA mortgage loan. One consideration is the FHA loan program’s rules and regulations. The other is the lending standards and requirements of the participating FHA lender. The FHA loan program is voluntary–that is to say that not all lenders choose to participate, and the ones that do have to abide by FHA minimum requirements. But lenders are not prevented from requiring higher standards as long as those standards are applied fairly and in accordance with Fair Housing laws. We can’t comment on what an | more...