Articles Tagged With: FHA Loan Rules

July 13, 2023

FHA Loan Approval and Late or Missed Housing Payments

What is the connection between FHA loan approval and late or missed housing payments? The simplest formula given to most borrowers is that you should come to the home loan application process with nothing but on-time payments on all financial obligations for the last 12 months leading up to the day you apply. Not all borrowers take that advice, and many want to know what the consequences of having a late or missed payment might be; in some cases the issue may be more problematic than others. This is true of having late or missed housing payments on your record. The lender will review your record of housing payments as one of the indications that a borrower is a satisfactory credit risk. But what do the FHA loan rules tell | more...

July 11, 2023

FHA Loan Options Post-Bankruptcy

By Joe Wallace

There is a common reader question that goes something like this: “I had a bankruptcy discharged recently. How long do I have to wait to purchase another home? I have been working on my credit and improving my scores.” Post-bankruptcy, a borrower must work hard to establish the best credit possible in order to qualify for a new home loan. Lenders may be willing to work with borrowers with credit scores starting at around 620 or higher. But credit isn’t the only factor determining how soon after bankruptcy you can apply for a home loan. The nature of a borrower’s wait time to apply after bankruptcy depends on the nature of the bankruptcy. The rules governing this are found in the FHA Single-Family Lender’s Handbook, which advises that bankruptcy “does | more...

July 10, 2023

FHA Energy Efficient Mortgages In 2023

By Joe Wallace

In an older article, we discussed the FHA Energy Efficient Mortgage program, an option for those buying or building a home with an FHA loan. We decided to review the older article and note any program changes along the way. We originally wrote, “Borrowers who choose the FHA Energy Efficient Mortgage (EEM) option as part of their FHA loan can get up to $8,000 in additional funds added to the loan amount for the express purpose of adding approved energy-efficient upgrades.” Is that dollar amount still applicable? According to HUD 4000.1, the maximum amount you can borrow in 2023 is as follows: “The maximum amount of the energy package that can be added to the Base Loan Amount is the lesser of: According to the FHA loan rules in the | more...

June 29, 2023

FHA Mortgage Loans: Second Appraisals

By Joe Wallace

If you or the seller don’t agree with the results of the appraisal, is it possible to get a second appraisal and a reconsideration of value of the home? FHA loan rules specifically prohibit ordering a second appraisal just because one party or the other is hoping for a different result. HUD 4000.1, the FHA Single-Family Lender’s Handbook, states the lender is prohibited from “ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required.” FHA loan rules note the lender is permitted to order a second appraisal “for Mortgages that are in accordance with requirements on Property Flipping”. But what circumstances permit a second appraisal? HUD 4000.1 says that the original mortgagee or lender is allowed to | more...

June 27, 2023

FHA Loan Seller Concessions: What’s Allowed?

By Joe Wallace

When it is time to negotiate the price of a home using an FHA home loan, borrowers should know that sellers can, and often do, contribute to the buyer to make the deal more enticing or help the borrower reduce up-front costs. Such contributions are known as seller concessions. The FHA Lender’s Handbook says for FHA mortgages, concessions are permitted within a certain set of boundaries and are limited to six percent of the sales price of the home. Any seller contributions that exceed that six percent limit require a dollar-for-dollar reduction in the loan amount. According to FHA loan rules, “Sales concessions influence the price paid for real estate. For this reason, FHA requires that appraisers identify and report sales concessions and properly address and/or adjust the comparable sale | more...

June 16, 2023

FHA Loans For Mixed-Use Property

By Joe Wallace

A common reader question about FHA mortgages has to do with purchasing mixed-use property with an FHA loan. Here is a variation on the theme: “I want to buy a 4-unit building with a store front. Is there any type of loan that I can apply for to make this purchase?” The good news is that this type of purchase may be possible; FHA loan rules permit the purchase of properties between one and four units. For mixed-use property, commercially zoned residential property or other non-traditional purchases, HUD 4000.1 states: “The non-residential portion of the total floor area may not exceed 49 percent. Any non-residential use of the Property must be subordinate to its residential use, character and appearance.” “Non-residential use may not impair the residential character or marketability of | more...

June 13, 2023

FHA Loan Expenses That Can Be Paid By The Seller

By Joe Wallace

One common question about FHA loans involves whether the seller can pay some of the expenses of the borrower’s FHA loan as a motivation to purchase. Can the seller pay closing costs, offer to supply appliances, or add other incentives to the sales agreement? According to FHA loan rules in the FHA Lender’s Handbook, the answer is yes–but with limitations. According to HUD, “Certain expenses” paid by the seller (or other “interested third parties”) on behalf of the borrower are considered “inducements to purchase” and result in a dollar-for-dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate loan-to-value (LTV) factor. That said, sellers can contribute up to six percent of the sales price without a penalty. They can also offer | more...

June 9, 2023

Should You Apply For An FHA Adjustable-Rate Mortgage?

By Joe Wallace

Borrowers considering their FHA mortgage loan options might wonder about an FHA Adjustable Rate Mortgage or FHA ARM loan option instead of an FHA fixed-rate home loan. It is a great idea to compare the features of both types of loan side-by-side to see which might make sense for you. The motivation to do this now has much to do with the interest rate environment we are still dealing with in 2023–in spite of hopes of improvement as the summer wears on. Why would an FHA ARM loan make more sense for some borrowers? Because an ARM offers a lower introductory or teaser interest rate. You may have the option to keep that rate for a full year or as long as ten years. Much will depend on the type | more...

June 6, 2023

Alimony and Child Support: FHA Loan Rules

By Joe Wallace

FHA loan rules permit alimony and child support to be counted as verifiable income for borrowers who receive it and who choose to list it in their income sources. Like all other sources of income, the rules in HUD 4000.1 state the lender is responsible for verifying the income through documentation such as court agreements or other paperwork. Receiving this income can help you qualify for a home loan, but what about FHA loan applicants responsible for paying alimony and child support? Does this count against a borrower’s debt ratio? HUD 4000.1 says yes, lenders must count alimony and child support payments as recurring debts. The FHA loan rule book gives the following instructions to the lender: “For Alimony, if the Borrowers income was not reduced by the amount of | more...

June 5, 2023

HUD Takes Action To End Appraisal Bias

By Joe Wallace

The Department of Housing and Urban Development is acting against bias in the appraisal system. “Owning a home provides a path to the American dream. Yet, that dream has been deferred for Black and Brown people, as we have consistently had our homes under-valued,” according to HUD Secretary Marcia L. Fudge, quoted in the 1 June 2023 HUD press release on these appraisal reforms. Fudge adds, “Having your home undervalued is bigger than just a number on a page. It can be the difference between getting a loan and not – between having enough money for retirement or not.” According to Fudge, the PAVE Task Force is a project meant to focus on “taking bold action to address appraisal bias – and renewing our commitment to doing everything in our | more...