Articles Tagged With: FHA Handbook

December 12, 2012

Are Military Members Eligible For FHA Home Loans?

Members of the Army, Navy, Air Force, and Marine Corps have a military benefit through the Department of Veterans Affairs that they can use to purchase a home with no downpayment in most cases, and several other perks. Some of those perks are very similar to FHA loans, such as the option to pre-pay or pay off the loan ahead of schedule without a penalty. But are military members who are eligible for VA loans also eligible for an FHA loan if they choose FHA over VA? Does having the option to apply for a VA home loan render them ineligible for an FHA mortgage instead? FHA loan rules do not exclude military members; there are many reasons why a borrowe may choose not to use his or her VA | more...

November 23, 2012

FHA Loans and Credit Scores Below 620: A Reader Question

By Joe Wallace

A reader asks, “My husband and I have a credit score of 536. We have 41,000 to put down on a house. Can I get an FHA loan. I applied with a bank but could not.” This reader question doesn’t specifically ask, but it does imply that the reader might be under one of the most common misconceptions about the FHA loan program–that the FHA itself is responsible for making loans, lending money or otherwise distributing funds. The FHA does not loan money or disburse funds. Instead, it guarantees the home loans which are issued by a participating lender. The lender is responsible for processing, approving or denying the FHA loan applications it receives. FHA loan applicants should know that while FHA minimum credit scores at listed at 500 and | more...

November 21, 2012

FHA Amends Loss Mitigation Policies

By Joe Wallace

The FHA has announced important changes to its Loss Mitigation Home Retention options, intended as stated in FHA Mortgagee Letter 2012-22, to “reduce the number of full claims against the FHA Mutual Mortgage Insurance Fund by assisting a greater number of qualified, distressed mortgagors in retaining their homes.” The new rules, posted on November 16, have specific requirements for the lender. “No later than 90 days after issuance of this Mortgagee Letter, mortgagees must begin to assess mortgagors in default under FHA’s loss mitigation priority order and policies referenced herein.” The new FHA loan rules alter FHA’s Home Affordable Modification Program’s (FHA-HAMP) guidelines, as well as “the definition of “Special Forbearance” in Mortgagee Letter 2002-17; and Loss Mitigation priority order guidelines in Mortgagee Letter 2000-05.” What are these changes? We | more...

November 13, 2012

FHA Loan Credit Scores: A Reader Question

By Joe Wallace

A reader asks, “I want to buy a home. I am renting a house that cost me $ 1300.00 plus lights and water bill. I filed bankruptcy almost 3 years ago and my credit score is bad. I am working at the same place for almost 7 years for about 42,000.00 yearly. Could I get a FHA loan to buy a house?” FHA loan rules, as described in HUD 4155.1 Chapter Four, explains what (from a lender’s point of view) is required when applying for an FHA home loan. Under the section of Chapter Four titled, “Hierarchy of Credit Review” we learn that FHA requires the lender to take several issues into account when evaluating credit: “Evaluating credit involves reviewing payment histories in the following order: first: previous housing expenses, | more...

November 7, 2012

FHA Loan Rules For Flood and Hazard Insurance

By Joe Wallace

In the wake of Hurricane Sandy, it seems like a good time to review a recent FHA Mortgagee Letter which addresses issues regarding hazard and flood insurance payments. While not all FHA borrowers may be affected by either storm damage or the rules in this FHA mortgagee letter, those that are affected should know the latest FHA guidance. FHA mortgagee letter 2012-19, titled “Hazard and Flood Insurance Requirement Reminder” reminds lenders about the Department of Housing and Urban Development’s “existing servicing procedures as they pertain to releasing hazard insurance proceeds for damaged properties securing Federal Housing Administration (FHA) insured mortgage loans.” According to the letter, the FHA “standard mortgage document” requires that the mortgagee–the lender–is named as a “Loss Payee” on the hazard insurance policy issued in connection with an | more...

October 31, 2012

FHA Energy Efficient Mortgages: Is Escrow Required?

By Joe Wallace

When learning abo0ut FHA home loans, escrow is one issue some borrowers have questions about. The FHA frequently asked questions pages include the following about escrow, which is governed by something called the Real Estate Settlement Procedures Act or RESPA: “Does RESPA require borrowers to maintain an escrow account? NO. It is the lender’s decision whether the borrower must maintain an escrow account for the purpose of paying taxes and other items. The HUD regulations only limit the maximum amount that a lender can require a borrower to maintain in an account.” That Q&A from the FHA official site seems to indicate that the FHA does not require escrow; indeed, it is the lender’s choice to require escrow or not. But are there situations where an escrow account may actually | more...

October 29, 2012

Hurricane Sandy and FHA Advice on Natural Disasters and FHA Loans

By Joe Wallace

Hurricane Sandy has been dominating the headlines; it’s a good time to review FHA loan policy for those who might be affected by a natural disaster such as a hurricane, flood or other weather-related issue. Much of the FHA loan policies are directed towards those who have had properties damaged by a disaster, but some borrowers have employment issues after a weather-related incident and may have difficulties making their next FHA loan payment. FHA loan rules do address that situation as well as cases where the borrower is trying to recover from storm damage or other problems. From the FHA official site: “Was your home or your ability to make your mortgage payments harmed by an event that the President declared a disaster? You may qualify for relief to help | more...

October 24, 2012

FHA Loan Eligibility

By Joe Wallace

When a borrower applies for an FHA guaranteed mortgage, the lender is required to determine whether the borrower is a good risk by examining credit rating, the applicant’s debt-to-income ratio, and employment. But the lender also has some other checking to do. FHA loan rules state, “To determine whether a borrower is eligible to participate in an FHA mortgage loan transaction or must be rejected, the lender must: examine HUD’s LDP list, the GSA List and CAIVRS, and document the reviews on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.” What do all those abbreviations mean? “LDP” stands for “Limited Denial of Participation”. GSA is short for “U.S. General Services Administration List of Parties Excluded from Federal Procurement or Non-procurement Programs”. The acronym “CAVIRS” refers to “HUD’s Credit Alert Interactive | more...

October 18, 2012

Rules For Credit Reports Associated With FHA Loan Applications

By Joe Wallace

Some FHA loan applicants may consider the credit check something of a mystery. Borrowers should know and understand how the FHA loan application process works–including the credit check–as it can help better prepare the borrower for the preparation needed to get an FHA loan approved. What does the lender need–and get–from the credit check process? Many lenders rely on something known in the industry as the “three repository merged credit report” or TRMCR to gather the borrower’s credit information. According to FHA loan rules, this report must contain information on all credit inquiries made within the last 90 days, any credit and legal data “not considered obsolete under the Fair Credit Reporting Act (FCRA)” which may include the last seven years worth of information about bankruptcy, court judgments, lawsuits, tax | more...

October 9, 2012

FHA Loans and Credit Score Requirements

By Joe Wallace

Recently we posted a reader question about FICO scores and FHA loan approval. The reader wanted to know why a credit score range between 540 and 618 didn’t qualify for an FHA mortgage. The reader question included the following: “My scores are 618 – 595 – 540…why couldn’t I qualify for this loan?” There are two factors at work when viewing FICO scores. The lender is required to observe FHA loan minimums–which this reader was technically able to meet. But the lender is also required to observe the FICO minimums established by the financial institution. If the FICO score doesn’t meet the bank’s minimum, it’s not eligible for FHA loan approval. How does the lender interpret the three credit scores to determine eligibility if a borrower is right on the | more...