Articles Tagged With: FHA Guidelines

May 8, 2014

FHA Loans Where The Seller Is A Family Member: A Reader Question

A reader asks, “What is defined as a family member? My partner and I were told by our underwriter that we can only get a loan for 85% of the house’s value. The person we are purchasing from is a fourth cousin of my partner who wouldn’t be on the mortgage.” “The house’s appraisal value is significantly lower than expected. It’s replacement value is over 250k, but due to a glut of houses on the market and a lack of comparable in the area it was appraised at under 75k. It was appraised just higher than what the purchase price would be. Our loan officer has questioned the underwriter about this and they said family is family. Is there a definition of family put out by the FHA?” The sale | more...

April 11, 2014

FHA Loan Rules For Occupancy: A Reader Question

By Joe Wallace

A reader asks, “Nowhere does it say in the HUD document what the penalty is for not physically making your FHA home a primary residence within 60 days. What if it is 90 days or 120? What if you choose to renovate?” This is something a borrower should discuss prior to the loan closing with the lender, or with a legal expert who may be able to give sound advice based on case law or years of experience. We can’t offer legal advice, but the one thing we can advise is that the borrower be as familiar as possible with the language of the loan agreement. When it comes to renovations planned immediately after loan closing, you may have to make arrangements with the lender. Does your FHA home loan | more...

March 26, 2014

FHA Loan Rules: Does Commission Income Count As Verifiable Income?

By Joe Wallace

For an FHA home loan, the participating FHA lender is required to verify the borrower’s employment and income. Only verifiable income can be used to calculate the borrower’s debt-to-income ratio and there are instructions for the lender on how to determine if certain types of income can be used and under what circumstances. Commission income is a very good example. Not all commission income may be eligible to be used for the debt to income ratio. How does the lender determiner what’s permissible and what’s not? There are instructions to the lender in HUD 4155.1, Chapter Four, Section D under the heading, “Salary, Wage, And Other Forms Of Income”. It begins by saying: “Commission income must be averaged over the previous two years. To qualify with commission income, the borrower | more...

March 3, 2014

FHA Loan Waiting Periods Post-Bankruptcy: A Reader Question

By Joe Wallace

A reader asks, “In 2007 I applied for bankruptcy and got dismissed in 2008. The creditors didn’t accept my plan. In 2008 house got sold. I need to know the waiting period before applying for an FHA loan.” There are two types of bankruptcy mentioned by name in the FHA loan rules found in HUD 4155.1. One is Chapter 7, the other is Chapter 13. Since the reader didn’t mention which type of bankruptcy, we’ll quote both guidelines. For Chapter 7, HUD 4155.1 Chapter Four states: “A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must have: –re-established good credit, or –chosen not | more...

December 16, 2013

FHA and HUD Update Lending Standards

By Joe Wallace

The FHA and HUD have issued a press release announcing changes to come FHA loan policies that involve manually underwritten loans. According to HUDNo.13-188, the changes in policy are designed to help participating FHA lenders more objectively review creditworthiness and assist in loan approval to qualified borrowers. According to the press release, “New manual underwriting requirements announced today are intended to encourage lenders to use a defined set of objective standards and ‘compensating factors’ in order to make responsible, risk-based underwriting decisions.” “In addition, FHA’s manual underwriting guidance addresses loan characteristics such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.” “We want to provide revised guidance for our lenders so that they are confident in offering affordable mortgage | more...

December 5, 2013

FHA Loan Down Payment Sources: Disaster Relief Grants and Loans

By Joe Wallace

Whenever a natural disaster strikes and the affected counties become federally-declared disaster areas, one source of help comes from FHA loan programs such as the FHA 203(k) Rehab loan. There may also be FEMA, state and local assistance for borrowers trying to recover from storm damage or other disaster-related problems. Some can’t rehab a damaged home and must look for a new place to live. When it comes to new purchase FHA loans, could certain types of disaster relief count as a legitimate source of down payment funds? If those sources meet FHA approval, the answer could be yes. According to HUD 4155.1, Chapter Five Section B, “Grants or loans from state or Federal agencies, such as the Federal Emergency Management Agency (FEMA), that provide immediate housing assistance to individuals | more...

October 12, 2011

FHA Loans: For U.S. Citizens Only?

By Joe Wallace

A recent reader question raised an interesting issue; does an FHA loan applicant have to be a U.S. citizen in order to qualify for the loan? According to FHA rules, “Permanent Resident Aliens are eligible for an FHA-insured mortgage under the same terms as US citizens.” The FHA also adds, “ Non-Permanent Resident Aliens are eligible for FHA-insured mortgages provided the property will be the borrower’s principal residence, they have a valid social security number, and the borrower is eligible to work in the US.” How does the lender get evidence showing that a borrower is able to be approved for an FHA mortgage in these cases? The FHA rules say “Evidence of residency and work status should be obtained from the U.S. Citizenship Immigration Services (USCIS). Eligibility to work | more...