Articles Tagged With: FHA Loan Requirements

January 7, 2014

FHA Loan Rules On Unemployment, Occupancy: A Reader Question

A reader asks, “I currently live in Florida and want to purchase a home in Las Vegas, Nevada because I want to relocate there. I don’t have two years consistent work history, I might have 6 or 7 months of unemployment. My credit score meets the requirement. I want to know, will the gap in my work history affect my chances of getting approved? Also can I qualify in Florida and purchase a home in Vegas while still living in Florida?” The answer to this question requires us to look up FHA loan rules for employment, income, and gaps in employment. These rules are found in HUD 4155.1, Chapter One, Section B, which says: “The lender must obtain the most recent pay stub showing year-to-date earnings of at least one | more...

January 6, 2014

FHA Loan Down Payment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I want to buy a house for $399,000.00…how much of a down payment will i have to make? I understand that banks require a 20% down payment. Does the FHA also require 20%? The minimum cash investment–a down payment on an FHA guaranteed mortgage–is set at 3.5%. However, there are many circumstances where a lender may require a higher down payment. This can include situations where a borrower’s FICO scores or other qualifying information are marginal or outside the usual range for FHA loan approval. A higher down payment can be considered a “compensating factor”. In cases where compensating factors need to be considered, a larger down payment is acceptable, but only if the down payment meets FHA guidelines. Those guidelines include a minimum 10% down, as | more...

December 26, 2013

FHA Loan Answers: New Job Income

By Joe Wallace

Many FHA loan applicants want to know if taking a new job will affect their chances at FHA loan approval. FHA loan rules are designed to help guide loan officers through the qualification process for a variety of scenarios including those where the borrower may have “projected income” that could be factored into the borrower’s debt-to-income ratio. What do FHA loan rules say about projected income? How is it defined? The answers to these questions and more can be found in HUD 4155.1 Chapter Four, Section E. “Projected income is acceptable for qualifying purposes for a borrower scheduled to start a new job within 60 days of loan closing if there is a guaranteed, non-revocable contract for employment.” That is simple enough–FHA loan rules allow for projected income when there | more...

December 20, 2013

FHA Loans and Commission Income: A Reader Question

By Joe Wallace

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 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 12, 2013

FHA 2014 Loan Limits

By Joe Wallace

Recently we covered the FHA and HUD’s press release announcing changes in FHA loan limit policies. FHA loan limits have been changed in accordance with laws passed in 2008, which did not become effective until this year with regard to FHA loan limits. At the same time the FHA issued the press release announcing the changes, it also published a mortgagee letter describing the 2014 “floor” and “ceiling” for low-cost areas and high-cost housing markets, respectively. According to FHA Mortgagee Letter 2013-43, “The minimum FHA national loan limit “floor” is at 65 percent of the national conforming loan limit (which is $417,000 for a one unit property for the period January 1, 2014 through December 31, 2014). The “floor” applies to those areas where 115 percent of the median home | more...

December 10, 2013

Closing the FHA Loan: Settlement Costs

By Joe Wallace

When you learn about FHA home loans, the phrase “cash required to close” is one you’ll soon become familiar with. One of the reasons so many experts recommend taking as much time as possible to prepare for a home loan? Giving yourself enough time to save up the money required to close the deal. The required 3.5% down payment is part of that, as are the payments you’ll need to make for appraisals and any required compliance inspection. But there are other costs as well; fortunately FHA loan rules in HUD 4155.1 instruct the lender to prepare an estimate sheet to give the borrower a better idea of what these expenses are. According to Chapter Five of HUD 4155.1, “For each transaction, the lender must provide the initial Good Faith | more...

December 6, 2013

FHA Loans, Missed Mortgage Payments, and Refinancing Loans: A Reader Question

By Joe Wallace

A reader asks, “I inquired about a refi with [a lender], I have a bankruptcy on my credit report but I have been out of it for three years. I was told that I had two late payment on my report thru my credit union.” “I informed the person that I spoke that my payment to my credit union was automatic payment and that those were no fault of my own. He explained to me that I would have to contact my cu and they would have to call the reporting bureau, he also stated that until that was remove I would not qualify for a loan. Is this true?” This reader question raises a very good point about FHA mortgages all borrowers should keep in mind. Not all lender | 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...