Articles Tagged With: FHA Loan Rules

April 20, 2016

FHA Loan Questions: Identity of Interest Transactions

For some FHA home loans, a higher down payment may be required when there is an “identity of interest” transaction. FHA loan rules in HUD 4000.1 define this as follows: “An Identity-of-Interest Transaction is a sale between parties with an existing Business Relationship or between Family Members. Business Relationship refers to an association between individuals or companies entered into for commercial purposes.”An identity of interest transaction requires a 15% down payment unless the borrower qualifies for an exception. With this in mind, let’s look at a recent reader question in our comments section. A reader asks, “My wife and I went under contract on a house that is owned by her stepfather. We just found out yesterday about the FHA identity of interest certification. It is his rental property. Is | more...

April 18, 2016

On the New FHA Student Loan Policy

By Joe Wallace

We’ve gotten a variety of questions and comments about the FHA’s recent update of policy regarding student loans, deferred obligations, and what calculation the lender is supposed to use when a borrower applies for an FHA mortgage with student loan debt in his or her name. Under the previous FHA loan policy, student loans that were in deferred status were still required to be included in the debt to income ratio by the lender. This was done by taking the balance of the student loan debt and using a percentage of it to calculate an estimated monthly mortgage payment if an actual payment wasn’t available at application time. The updated FHA loan policy for deferred obligations now excludes student loan debt. The rule for deferred obligations–a financial obligation which will | more...

April 15, 2016

FHA Loan Rules In HUD 4000.1: Escrow

By Joe Wallace

FHA loan rules in HUD 4000.1 have several things to say about escrow accounts. FHA loan rules don’t require escrow for every single home loan or refinance loan, but there are cases where escrow is a must and there are also lender standards which may require setting up an escrow account to pay certain expenses associated with the transaction. FHA loan transactions may require escrow for payments to builders in association with construction loans, rehab loans or reverse mortgages. The standards and circumstances vary from loan to loan, so if you aren’t sure whether an escrow account is needed for your FHA loan transaction, discuss your situation with the loan officer. In some cases escrow is used to pay property taxes, in others it may be used to disburse funds | more...

April 15, 2016

Mortgage Rate Trends: Slightly Higher

By Joe Wallace

On Wednesday and Thursday, mortgage loan interest rates have risen slightly. We’ve had a couple of scheduled economic data releases this week, but some market watchers this week gave bond market activity more attention. At the end of the day on Thursday, we see 30 year fixed rate conventional mortgages still being reported at 3.625% best execution in many cases, but our sources indicate that fewer lenders-the most aggressive ones-offered rates closer to 3.5%. So in effect, the slightly higher rates will come in the form of higher closing costs for some, but for others, the best execution rate may be the same as the day before depending on the lender. FHA mortgage loan rates are still holding at a best execution 3.25%. FHA rates tend to vary more among | more...

April 14, 2016

New FHA Loan Policy For Student Loan Debt

By Joe Wallace

Recently we wrote about the new FHA loan guidelines for student loan debt. The FHA and HUD have issued a mortgagee letter updating previous policies. According to FHA Mortgagee Letter 2016-08, the old FHA loan policy for student loan debt “required Mortgagees to calculate a monthly payment for deferred Student Loans using 2 percent of the outstanding balance, and include the payment in the Borrowers Debt-to-Income ratio for qualification purposes. Further, FHA policy currently does not differentiate between non-deferred Student Loans, which are in payment plans that do not fully amortize the loan, and other Installment Loan debt.” But now, FHA loan rules have changed, and while the “effective date” for these new policies isn’t until summer, the FHA states lenders can start using the new guidelines right away. “This | more...

April 14, 2016

FHA Clarifies Deferred Obligation/Student Loan Rules For FHA Loans

By Joe Wallace

The FHA is updating and clarifying the rules for deferred obligations as they pertain to how a lender is to calculate student loan debt. Lenders have, to this point, been required to include the amount of a borrower’s monthly student loan payment–or in the case of deferred payment, a percentage of the total amount. However, the FHA recently issued a mortgagee letter informing lenders of changes to FHA policy. According to HUD Mortgagee Letter 2016-08, the new guidance will affect “all FHA Title II forward mortgage programs with the exception of non-credit qualifying streamline refinances” and “provides documentation requirements and the standard for calculating monthly obligations for all student loans, regardless of payment type or status of payments”. As background, the mortgagee letter states: “With the implementation of Handbook 4000.1, | more...

April 13, 2016

FHA Mortgage Rate Trends: Holding Steady

By Joe Wallace

Mortgage rates held steady on Tuesday, ahead of Wednesday’s Retail Sales Report and Thursday’s Consumer Prince Index report. These scheduled economic data releases can and do affect mortgage rates depending on investor reaction to the data in the reports; borrowers who are hoping for lower rates this week will have to contend with these releases as a potential spoiler for rates moving lower in the short term. Mortgage rates seem to be at the bottom of a range at present, so holding steady is good news, but upward movement (however small) is always likely depending on scheduled economic data releases, breaking news, or other factors that may affect the markets that influence mortgage loan rates. At the time of this writing, 30-year fixed rate conventional mortgages held steady at between | more...

April 12, 2016

FHA Loans And Your Debt-To-Income Ratio: What You Should Know

By Joe Wallace

A borrower’s debt-to-income ratio or DTI is an important calculation the lender must make when processing an FHA home loan application. Your monthly debts, compared to your lender-verified income, will help determine your acceptability as a credit risk and your ability to pay your mortgage. But how does the lender process your debt information to arrive at the ratio? HUD 4000.1 establishes guidelines for the lender to follow in order to establish the borrower’s DTI. On pages 249 and 250 we find the following: “The Mortgagee must determine the Borrowers monthly liabilities by reviewing all debts listed on the credit report, URLA, and required documentation. All applicable monthly liabilities must be included in the qualifying ratio.” Some types of debt may be omitted by the lender in certain cases. For | more...

April 11, 2016

Department of Justice Announces Settlement In Wells Fargo Improper Lending Practices Case

By Joe Wallace

The Department of Justice has announced a settlement in the improper lending practices case brought against Wells Fargo. According to a DoJ press release, “…the United States has settled civil mortgage fraud claims against Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo executive Kurt Lofrano, stemming from Wells Fargo’s participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program. In the settlement, Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of | more...

April 11, 2016

Mortgage Rate Trends: Near Best Levels All Year?

By Joe Wallace

With only one day last week with rates moving upward, we’ve seen mortgage loan interest rates hit territory better than we’ve seen for a good portion of 2016. Much of last week was either improvement, or holding steady following that improvement. On Friday rates didn’t move downward, but they definitely held steady. 30 year fixed rate conventional mortgage rates with some very competitive lenders were as low as 3.5% best execution, with many more offering a best execution 3.625%. FHA mortgage loan rates remained at 3.25% best execution, having moved out of a previous range with 3.5% at the top end (best execution). It’s not clear whether this rate will become a new comfort zone for FHA loans or if we’re seeing a short term trend only. As always, best | more...