Articles Tagged With: FHA Handbook

August 22, 2013

Back to Work: How the new FHA Loan Guidelines Apply to Bankruptcy

In our last several blog posts we’ve been examining an important new development from the FHA, a program known as Back To Work that allows lenders to work with borrowers who may have negative credit information due to the recession that doesn’t necessarily reflect the ability to pay for an FHA mortgage. The FHA describes an applicable financial setback as an “economic event” and allows borrowers to be more lenient with credit requirements for qualified borrowers. Back To Work rules were issued in FHA Mortgagee Letter 2013-26, which says “FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control; the | more...

August 21, 2013

New FHA Rules For Borrowers Who Have Faced an “Economic Event”

By Joe Wallace

In recent blog posts, we’ve examined some of the new guidelines for FHA borrowers who may have negative credit information on their records as a result of financial difficulties the FHA describes as an “economic event”. The FHA/HUD issued Mortgagee Letter 2013-26 outlining new guidelines for lenders who are working with borrowers affected by such circumstances. According to the mortgagee letter, “Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: certain credit impairments were the result | more...

August 15, 2013

FHA Extends Unemployment Foreclosure Avoidance Program Indefinitely

By Joe Wallace

The FHA has extended a program designed to help unemployed borrowers avoid FHA loan default and foreclosure. A recent FHA mortgagee letter announced, “the extension of the unemployment special forbearance policies detailed in Mortgagee Letter 2011-23, Unemployment Special Forbearance: Temporary Program Changes and Clarifications.” This program allowed FHA borrowers, “having trouble making their mortgage payments due to unemployment postpone or reduce their monthly mortgage payment while they look for work” according to a letter by Assistant Secretary For Housing Carol J. Galante, who also writes, “Beginning in August 2011, HUD required FHA servicers to offer suspended or reduced payments for at least 12 months or until the struggling borrower found a job.” That FHA loss mitigation program was set to expire August 1, 2013. But now, that program has been | 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 9, 2013

FHA Loan Answers: Tax Documentation

By Joe Wallace

One question many borrowers have about applying for an FHA loan for the very first time involves the type of documentation a lender may require for loan approval. The tax question is a common one–do FHA loan rules require the borrower to furnish tax documentation in addition to other credit-qualifying details? According to HUD 4155.1 Chapter One Section B, “The lender must obtain federal income tax returns for the most recent two years, both individual and business, including all applicable schedules, for self-employed borrowers, and individual federal tax returns for commissioned individuals.” As you can see, not everyone may be required to supply tax data, but for those who are required, there are additional rules that may apply. “The lender must obtain signed forms IRS 4506, IRS 8821, Tax Information | 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 1, 2013

FHA No Cash Out Refinancing Loans With An Appraisal

By Joe Wallace

FHA refinance loans include an option described in the FHA loan rules as a No Cash-Out Refinancing Loan With An Appraisal. These loans have rules that govern all aspects of the loan from the amount of the maximum mortgage amount (see below) and how much a borrower can receive in cash at the closing of the loan (the borrower may not receive cash back in excess of $500 at closing according to HUD 4155.1 Chapter Three Section B). How much is the maximum FHA loan amount for no cash-out refinancing loans? According to HUD 4155.1, “The maximum mortgage for a no cash out refinance with an appraisal (credit qualifying) is the lesser of the 97.75% Loan-To-Value (LTV) factor applied to the appraised value of the property, or existing debt.” Additionally, | more...

July 30, 2013

FHA Loan Answers: Buying Homes From Family Members With An FHA Mortgage

By Joe Wallace

Here’s a question about FHA loans that isn’t as common as some, but still comes up often enough to discuss here: can a family member purchase a residence from another family member using an FHA mortgage? FHA home loans have rules designed to protect the integrity of the loan process–FHA loan rules in HUD 4155.1 say that some FHA loan transactions may have different or lower loan amounts depending on the circumstances of those loans. “Certain types of loan transactions affect the amount of financing available to a borrower and how the maximum mortgage amount is calculated. These transactions include identity-of-interest properties with non-occupying coborrowers three- and four-unit properties properties where a house will be constructed by a borrower on his/her land, and/or as a licensed general contractor payoffs of | more...

July 29, 2013

FHA Loan Reader Questions: Bankruptcy and FHA Loans

By Joe Wallace

A reader asks, “I filled for a Chapter 13 bankruptcy in March 2009, then converted it to a Chapter 7 which was discharged in March 2012. I would like to buy a house, but was told I had to wait 2 years from the March 2012 date by a mortgage broker I called. I have worked to repair my credit since then and have incurred no more dept other than a small credit limit credit card that I was using to build new, good credit.” “I have a good job with good pay in education, with solid 2 years of increased income and have signed a contract for another year. What process should I take to try and qualify for an FHA loan under the 2 year wait period after | more...