Articles Tagged With: Credit Requirements

June 26, 2013

FHA Loan Rules For Down Payments: Gift Funds and Approved Sources of Those Funds

In a recent post we examined the FHA loan policy about down payments for new purchase home loans. FHA loan rules require all new purchase loans for single family residences to include a minimum cash investment from the borrower of 3.5%. That 3.5% must come from an approved source including the borrower’s own cash reserves, cashed-in investments, savings bonds or other holdings. The required down payment cannot come from what the FHA labels “non-collateralized loans” such as a payday loan, credit card cash advance, etc. The down payment money is permitted to come from a third party as a bona fide gift, as long as the source of that gift is acceptable under FHA loan rules. What are considered acceptable sources of gift funds for down payments? Before we can | more...

June 25, 2013

FHA Loan Answers: All About Seller Concessions

By Joe Wallace

Seller concessions are a commonly asked-about topic related to FHA home loans. FHA loan rules permit a seller (or a “third party”) to contribute up to six percent of the sales price or appraised value of the property toward closing costs, discount points or “other financing concessions” according to the FHA official site. The six percent limit would be the lesser of the two amounts–the sale price or appraised value. What specifically can the seller or third party contribute? According to FHA loan rules spelled out in Chapter Two of HUD 4155.1, that six percent limit may include: third party payment for permanent and temporary interest rate buydowns, and other payment supplements payments of mortgage interest for fixed rate mortgages mortgage payment protection insurance, and payment of the upfront mortgage | more...

June 24, 2013

FHA Loan Reader Questions: Down Payment Assistance

By Joe Wallace

A reader asks, “I want to move and was qualified for an FHA but needed to know if there is any programs to help assist with the down payment. I know there is an option for sellers to offer 6% sellers assist but is there any else to cover the rest?” The FHA itself does not offer any type of down payment assistance program. In the past there have been down payment assistance programs offered on a state or local level, but some federal laws have banned certain types of down payment assistance. Others not banned by federal law would be obliged to meet FHA loan rules as to the source of down payment money (see below). What does this mean? FHA loan rules require all borrowers to make a | more...

June 21, 2013

FHA Loan Rules: Maximum Loan Amounts and Down Payments

By Joe Wallace

FHA loan rules include guidance for lenders and borrowers about maximum loan amounts and down payment requirements. There’s a myth about today’s FHA home loans that some still repeat–variations on the idea that there may be no down payment required for first-time home buyers. What’s the reality? FHA loans do require a down payment. It’s much lower than the required down payment for many conventional loans, which is why some might believe that the FHA down payment requirement is reduced or eliminated for first-time borrowers. The minimum down payment amount for an FHA new purchase loan is 3.5%. No closing costs can be used to meet this requirement–the down payment is a separate amount from what are called “non-recurring” costs, prepaid expenses, discount points, etc. The down payment amount is | more...

June 19, 2013

FHA Loan Rules for Non-Purchasing Spouses

By Joe Wallace

One of the most commonly asked questions about FHA home loans is whether or not a spouse is required to sign, co-sign, or otherwise be committed to an FHA home loan. Can one spouse by a home with an FHA insured mortgage without participation of the other? That depends greatly on state law. FHA loan rules cannot and do not override state laws, but there are clauses found in the FHA loan rules written in HUD 4155.1 that address this issue. These items are found in Chapter Four, Section A under a section titled Non-Purchasing Spouses. It says in part; “If required by state law in order to perfect a valid and enforceable first lien, a non-purchasing spouse may be required to sign either the security instrument or documentation indicating | more...

June 17, 2013

FHA Loan Occupancy Rules

By Joe Wallace

We answer many reader questions about FHA loans, FHA loan rules, and what it takes to qualify for an FHA insured mortgage. Did you know there is an occupancy requirement for all new purchase single family FHA mortgage loans? FHA loans for single-family purchases do have an occupancy requirement, which does not permit the borrower to buy the home then turn around and rent out the property to someone else. According to the FHA loan rules found in HUD 4155.1, the home MUST be used as the principal residence or primary address. “A principal residence is a property that will be occupied by the borrower for the majority of the calendar year. At least one borrower must occupy the property and sign the security instrument and the mortgage note in | more...

June 14, 2013

HUD Updates Good Neighbor Next Door Policy

By Joe Wallace

The Department of Housing and Urban Development has updated its policy on the Good Neighbor Next Door program, which offers homes at a major discount to qualifying borrowers. According to HUD, the program “offers HUD owned single family (one-unit) homes to eligible participants at a 50% discount” to “law enforcement officers, teachers and firefighters/emergency medical technicians and who meet all other requirements of the program”. The HUD Good Neighbor Next Door program is available to those who want to purchase using an FHA insured mortgage. Recently the FHA and HUD have issued guidance about the Good Neighbor Next Door Program, which includes clarification on the mortgage insurance premium for the loan. According to FHA Mortgagee Letter 2013-20, “The purpose of this Mortgagee Letter is to: Clarify that the mortgage insurance | more...

June 13, 2013

FHA Loan Rules on Verifiable Income: Commissions

By Joe Wallace

FHA loans require the lender to verify the applicant’s employment, credit history, and income. When it comes to income verification, the FHA requires the lender only to use “verifiable income” when calculating a borrower’s creditworthiness. When an FHA loan applicant has ordinary hourly or salary income, it’s simple to establish what verifiable income might be using pay stubs, income tax reports, and other documentation. But what about when a mortgage loan applicant has a job that pays a commission instead of a salary? FHA loan rules have provisions for commission-based income, as described in HUD 4155.1 Chapter Four. There, you’ll find the following: “Commission income must be averaged over the previous two years. To qualify with commission income, the borrower must provide • copies of signed tax returns for the | more...

June 13, 2013

FHA Loan Reader Questions: Minimum Employment

By Joe Wallace

A reader asks, “Info to qualify FHA loan–I only have one year proof of taxes (W2). Do I need to finish this year to try to qualify?” While this question isn’t quite clear, it seems safe to assume the reader wants to know whether he or she meets FHA loan approval standards for an FHA mortgage. Let’s examine what FHA loan rules have to say about minimum employment history. Those rules can be found in HUD 4155.1 Chapter Four Section D, which says: “To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower’s employment for the most recent two full years, and the borrower must • explain any | more...

June 11, 2013

HUD, Bank of American Settle Home Loan Refinance Discrimination Case

By Joe Wallace

The FHA/HUD official site has issued a press release announcing the settlement of a housing discrimination case involving Bank of America, “settling allegations that the Charlotte, NC-based lender and Fannie Mae violated the Fair Housing Act by denying a borrower’s application to modify her mortgage loan because she did not provide sufficient information about the nature of her disability.” We report on such cases here as they happen as a reminder to borrowers that they are often the only line of defense against violations of the Fair Housing Act. Without reporting such discrimination cases, it’s possible they may never be prosecuted or settled. In this particular instance, HUD officials make it quite clear what the rules are. “People with disabilities should not have to answer unnecessary questions about the nature | more...