Articles Tagged With: FHA Loan Rules

January 8, 2014

FHA Loan Rules For Non-Traditional Credit

One common type of question about FHA home loan applications involves how the lender process credit information. When a borrower wants to apply for an FHA loan and has plenty of “traditional credit”, there’s no problem developing and processing the loan application. But what about borrowers who come to the FHA loan process with little or no credit history or only what’s termed “non-traditional credit”? Some borrowers don’t want or use credit cards, which makes establishing a typical credit history more difficult. That may lead some to believe that a lack of credit card can hurt your chances for FHA loan approval. But that’s not necessarily true. The FHA has rules and instructions for the lender in cases where the borrower has non-traditional credit. We find those rules and guidelines | more...

January 7, 2014

FHA Loan Rules On Unemployment, Occupancy: A Reader Question

By Joe Wallace

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...

January 3, 2014

FHA Loan Answers: What Are “Compensating Factors”?

By Joe Wallace

When a borrower applies for an FHA home loan, he or she may not fit the “ideal applicant” standard in terms of credit history, credit rating, loan repayment patterns, employment, etc. Sometimes the lender feels that an applicant may be a good credit risk in spite of these things, but needs something to justify approving the loan. Compensating factors can help the lender to do that. The FHA loan rules found in HUD 4155.1 defines “compensating factors” as things which are used, “to justify approval of mortgage loans with ratios that exceed benchmark guidelines must be recorded on the Underwriter Comments section of Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary. Any compensating factor used to justify mortgage approval must also be supported by documentation.” What can these compensating factors | more...

January 2, 2014

FHA Minium Property Requirements: A Reader Question

By Joe Wallace

A reader asks, “What are the property condition requirements for an FHA loan? For example, what if the home is older and has a main panel of the fuse type instead of the newer circuit breaker type – are those okay if they as long as they pass inspection? Does the roof need to be certified if it is not new? Is there a publication I can reference for this type of information?” FHA loan minimum property requirements are just that–minimums. State or local building codes also apply, so it’s important to check with the local authority for specifics on things like circuit panels, carpet and roof requirements. The FHA has general minimum property requirements listed in Chapter 12 of HUD 4155.1, but for detailed information, the local authority must | 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 19, 2013

FHA Loan Questions: Credit History–What Counts?

By Joe Wallace

We get a number of reader questions about FHA home loans, and many of those include questions about credit history. Does the presence of a few late payments on a borrower’s credit history jeopardize an FHA loan application? In general, it’s best to come to the FHA loan process with at least 12 months of on-time payments on your record, but we should examine the FHA loan rulebook (HUD 4155.1) to see what instructions are given to participating FHA lenders about credit history. These instructions can be found in Chapter Four, Section C of HUD 4155.1. They include the following, found under the heading “Documenting an Analysis of Delinquent Accounts”: “The lender must document the analysis of delinquent accounts, including whether late payments were based on • a disregard for | 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 Loan Credit Score Rules: A Reader Question

By Joe Wallace

A reader asks, “If my credit score is currently between 618 and 630 why can’t I qualify for a loan? Does it have to be 700?” The answer to this question may not be as simple as citing FHA loan policy on credit scores, but it’s a good place to begin. Credit score minimums, according to the FHA loan rules found in HUD 4155.1, are as follows: These are MINIMUMS found in the FHA loan rulebook, and there’s nothing that says a lender cannot require a higher minimum score as long as those requirements are applied in accordance with Fair Housing Act laws. But credit scores alone don’t determine whether a borrower is eligible for an FHA home loan. Credit repayment history is also a factor. If a borrower comes to | 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...