Articles Tagged With: FHA Counseling

December 20, 2013

FHA Loans and Commission Income: A Reader Question

A reader asks, “Is it true that if you work in a job where your pay is based on commission you have to be with your current employer for at least one year to obtain a FHA loan, even if your prior job was in the same line of work and was also a commission paying job?” FHA loan rules require the lender to verify employment and income. Only verifiable income can be used to calculate a borrower’s ability to afford an FHA home loan and there are FHA regulations that determine what constitutes verifiable income. Commission income can be used if it meets certain criteria. The rules governing commission income are found in HUD 4155.1, Chapter Four Section D under a heading titled, “Salary, Wage, and Other Forms of | more...

December 18, 2013

FHA Loans and Credit Improvement: A Reader Question

By Joe Wallace

A reader asks, “I’m looking to be a first time home owner by July 2014. My credit isn’t good (607 at this time). However, I’m looking to improve my credit score significantly by June. I’m unsure where to get started in the process of getting a mortgage loan. Just need some help with the very basics in getting started.” Borrowers who need to improve their credit scores before applying for an FHA home loan need to be realistic about how long it might take to do so. It’s strongly recommended that borrowers come to the FHA loan process with at least 12 months of on-time payments for all financial obligations before applying. Why is that? The answer can be found in the FHA loan rulebook, HUD 4155.1, which has a | more...

December 5, 2013

FHA Loan Down Payments–Can A Family Member Loan The Money?

By Joe Wallace

We’ve been discussing FHA loan down payments quite a lot lately–there are many questions about the required 3.5% minimum down payment for new purchase FHA home loans. This down payment is known as a “minimum cash investment” and while it is definitely lower than the money down required of many conventional loans, it can still be difficult for some borrowers to pull the money together out of pocket. In such cases, the FHA does permit borrowers to apply for collateralized loans from third parties with no financial stake in the loan transaction. But some borrowers would rather turn to a family member for such a loan instead. Does the FHA, with its requirements that all down payment sources be scrutinized, allow such a loan from a family member? The answer | more...

December 4, 2013

FHA Loan Downpayment Sources: Loans

By Joe Wallace

There are many questions about the required minimum downpayment for FHA home loans. Borrowers are required to put a minimum amount (3.5%) down on the FHA loan, and the money used to make this down payment must come from what the FHA terms “approved sources”. Those sources can include the borrower’s own money from savings, investments, cashed-in stocks, and many other accounts. Why does the FHA put scrutiny on the sources of down payment money? One reason is to avoid conflicts of interest between lender and borrower–the lender cannot provide down payment funds to the borrower, for example. A borrower who cannot afford to make a down payment out-of-pocket may need to apply for a collateralized loan for some or all of the downpayment amount. FHA loan rules permit this | more...

November 29, 2013

FHA Loans and Lack of Credit History

By Joe Wallace

Can a borrower be turned down for an FHA loan because of a lack of credit history? Recently we fielded a reader question about FHA loans that included the following line: “I do have older doctor bills that are outstanding but everything else I have saved and payed cash for, therefore making it unnecessary to have a credit card.” Would this lack of a credit card work against the FHA loan applicant? Before answering, it’s important to point out that a borrower’s credit activity, regardless of the type of credit (utility bills, rent payments, student loans, etc) must reflect a general pattern of reliability. A borrower that cannot show at least one year of on-time payments to all creditors in the time leading up to the new loan application may | more...

November 29, 2013

FHA Credit and Downpayment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I have checked my credit report before and it came back insufficient. I do have older doctor bills that are outstanding but everything else I have saved and payed cash for, therefore making it unnecessary to have a credit card.” “If I had a portion of money for a down payment on a house would I be able to receive an FHA loan? And I would also like to know what the first step of buying a house is, because I would be a first time home buyer and have no idea what the process is.” Having the required minimum 3.5% cash investment is only one requirement for FHA loan approval, so the simple availability of the down payment wouldn’t be enough. A borrower is required to | more...

November 20, 2013

FHA Loan Occupancy Requirements: A Reader Question

By Joe Wallace

A reader asks, “My mother works in Florida and wants to finance a home in Kentucky. Can she get a FHA loan? I’ll be the co-owner of the home, but not the co-borrower on the loan. I’ll be at he home all the time.” FHA loan rules for single family home loans require the borrower to certify that he or she will purchase the home for “personal occupancy”. The borrower is required to certify in writing that he or she will occupy the home within a specific amount of time after the loan closes. These rules are found in HUD 4155.1, Chapter Four Section B. It states, “At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to | more...

November 4, 2013

FHA Loan Income Requirements: A Reader Question

By Joe Wallace

A reader asks, “I have a question about the FHA 3.5 percent down program. I know my scores are all in the high six’s lowest 637 highest 677 , I was told that I qualify for the loan but when push came to shove, I was told I needed my net income to be almost 4 times what i make now. What is or are the financial requirements to qualify for the program? Also, I am self employed and have been for over 5 years. I presume the rules vary from lender to lender, state to state, etc…I need to know if this lender purposely made up this story just to ‘show me the door’ so to speak.” We can’t speak for a lender’s intentions, so we’ll skip the last | more...

October 31, 2013

FHA Loan Mortgage Insurance: A Reader Question

By Joe Wallace

A reader asks, “Veterans are not required to purchase mortgage insurance with a VA loan. Is there a way that a veteran can be exempt from the mortgage insurance premium? The mortgage insurance is very high.” The short answer to this reader question is “no”. FHA loans are not designed the same way that VA home loans are–FHA loans require a Mortgage Insurance Premium (MIP), where VA home loans do not. Veterans should consider their options between VA home loans and FHA mortgages carefully. In some cases a veteran or currently serving military member could choose an FHA loan over a VA mortgage, for a variety of reasons. But a borrower faced with these choices should make the most informed decision possible. FHA home loans do have certain similar features | more...

October 10, 2013

FHA Loans For Building on the Borrower’s Own Land Part Two

By Joe Wallace

A reader asked us recently about FHA loans for building on land the borrower already owns: “…My end goal would be to demolish (the original) house and build a completely new one in its place for us to all reside in…what I am wondering is does this kind of demolish and rebuild qualify for FHA loans and with me having to move to do this what kind of eligibility would I have for FHA loans.” The rules for FHA loans where construction would happen on land the borrower already owns can be found in HUD 4155.1, Chapter Two. FHA loan rules allow new purchase loans for single family homes when the borrower wants to build on his or her own land. According to Chapter Two, “A borrower is eligible for | more...