Articles Tagged With: Mortgage Underwriting

April 25, 2013

FHA Loans and Non-Traditional Credit

One commonly asked question about FHA mortgage loans involves the eligibility of borrowers who don’t have what are considered “traditional” credit histories. Can a borrower with little or no credit still qualify for an FHA loan? FHA loan rules do make provisions for those who have little credit history that can be researched via a typical credit bureau report. In cases like these, the lender is required to review certain types of documentation to verify the borrower is a good credit risk. According to HUD 4155.1, “In order for the underwriter to determine that a borrower has sufficient credit references to help evaluate bill paying habits, the credit history must…include three credit references” including at least one of the following: Rental housing payments (subject to independent verification if the borrower | more...

April 24, 2013

FHA Loan Reader Questions: Commission Income

By Joe Wallace

A reader asks, “How would you calculate a borrower who started a new job in May 2011, made a base salary with incentive? In 2012 went from incentive to commission + base & will continue for 2013 w/a verification stating commission likely will continue. Please advise.” While many FHA loan applicants work in “traditional” vocations with weekly, bi-weekly, or monthly paychecks, others are self employed, work on commission, etc. FHA loan rules anticipate these types of employment situations and have rules based on them. FHA loan rules address commission income in HUD 4155.1 Chapter Four Section D, which states, “Commission income must be averaged over the previous two years. To qualify with commission income, the borrower must provide –copies of signed tax returns for the last two years, and –the | more...

April 22, 2013

FHA Loan Reader Questions: Credit Score Minimums and FHA Requirements

By Joe Wallace

A reader asks, “We have been working for the last year to clean up our credit with the help of a credit repair company. We have made strides. We have been living in our home the last three years which we are purchasing on a land contract.” “It is now the end of the contract and we need to do the financing. I’m reading that the minimum credit FHA requires is 580, but I cannot find any place that will finance a person with less then a 640 credit score. Secondly, it is my understanding that we should be doing a refinance anyhow, but the places I have called are clueless. HELP! Our high score is right at 580 and we need to finish this financing NOW.” This is an | more...

April 18, 2013

FHA Loan Forbearance and Refinance Relief: Hurricane Sandy and Beyond

By Joe Wallace

Recently the FHA modified its guidelines to lenders for borrowers struggling to recover in federally declared disaster zones such as the large areas affected by Hurricane Sandy. There are two very important aspects of this policy modification that borrowers should know–before, during, and after natural disaster. According to FHA Mortgagee Letter 2013-11, “FHA is expanding forbearance relief for affected borrowers. Under this policy: Borrowers may suspend up to 12 months’ worth of mortgage payments while they repair their homes; and After the forbearance period, borrowers may be eligible for an FHA streamlined loan modification to avoid large lump sum payments. Up to 285,922 borrowers in the Sandy-affected areas who were eligible for forbearance relief as of February 28, 2013, may be eligible for an FHA streamlined modification.” The Streamlined loan | more...

April 17, 2013

FHA Refinance Loans, Disaster Assistance, and Loan Forbearance

By Joe Wallace

The FHA has updated its disaster relief policies to help those recovering from the effects of Hurricane Sandy, but also natural disasters in a federally declared disaster area in general. One area that hasn’t gotten much attention until now is the FHA policy on refinance loans in such cases. What assistance is there for someone with an FHA insured refinance loan who is struggling in a federal disaster area? According to the new FHA mortgagee letter, 13-11, “In accordance with HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage Insurance One- to Four-Unit Mortgage Loans, for the purpose of determining the acceptability of the borrower’s payment history for any FHA refinance, when a borrower has withheld mortgage payments pursuant to either a Formal or Informal Forbearance drafted under this Mortgagee Letter, | more...

April 16, 2013

Coldwell Banker Settles In HUD Housing Discrimination Claim

By Joe Wallace

A press release on the FHA/HUD official site announced the recent settlement of a housing discrimination claim involving Coldwell Banker. According to HUDNo.13-051B, ” The U.S. Department of Housing and Urban Development (HUD) announced today a $90,000 Conciliation Agreement with Coldwell Banker Residential Brokerage and the seller of a home in Worcester, Massachusetts, settling allegations they violated the Fair Housing Act by preventing the sale of a house to be used as a group home for persons with disabilities.” Fair Housing Act laws forbid discrimination in both rental procedures and property sales–including discriminatory standards or requirements based on disability. In this particular case, the requirements included a housing covenant that prevented the property from being used as a group home for disabled persons. “HUD is committed to promoting housing opportunities | more...

April 15, 2013

FHA Loan Answers: FHA Loan Applications, Separation, and Divorce

By Joe Wallace

A reader asks, “I’m married, the current home is FHA loan under my husbands name only….can i buy a home for 120,000 under FHA to live in? If so, will they count my husbands debts against me getting the loan? We have agreed to live separate, stay married though, do they require legal separation?” This question doesn’t have a one-size-fits-all answer for one very important reason. FHA loan rules go hand-in-hand with state community property laws. What does this mean? If a borrower is divorced, separated, or still legally married in a community property state, each spouse may be liable for all debts incurred during the marriage. In such cases, the FHA lender may be required to include both spouses on the FHA mortgage, run credit checks, etc. on both | more...

April 12, 2013

FHA Loans, Credit, and the Future Of Mortgage Lending

By Joe Wallace

A recent article in American Banker notes that while the housing market is definitely trying to recover, many borrowers face a difficult time getting a mortgage because of high credit standards. But the FHA and the Department of Housing and Urban Development are trying to work out solutions to this problem, one that according to the American Banker article by Kate Berry titled, FHA Working On Plan to Increase Lending, Reduce Banks’ Risk, would, “potentially release banks and mortgage lenders from liability for minor defects on FHA loans that meet current guidelines even if they ultimately default”. One of the problems–one addressed publicly by both the HUD Secretary and the head of the FHA–is the need for financial institutions to expand access to home loans for borrowers with credit scores | more...

April 9, 2013

FHA Loan Reader Questions: Foreclosure Waiting Period

By Joe Wallace

A reader asks, “I’m in the process of obtaining a FHA Loan. I completed my Chapter 13 bankruptcy a year ago after completing five years of payments on time. My credit score is not an issue right now. All of my paperwork is in, or so I thought. My mortgage lender now tells me that I need a letter from the bankruptcy court saying that I’m allowed to get a loan.” “She says that this is a requirement of the underwriters. I think that the underwriter should only be asking for this if I was still in the bankruptcy, not now, when I’ve been cleared by the courts. What can I do?” The answers are not simple in a situation like this, and there are many details we aren’t privy | more...

April 1, 2013

FHA Condo Loans: What Defines A Condo?

By Joe Wallace

There are many different types of property you can buy with an FHA mortgage. Some borrowers are interested in suburban homes, others want a condo unit within the city. FHA loans do permit borrowers to buy condominium units with an FHA guaranteed mortgage, but there are additional rules for these purchases. One of the first things a borrower learns about purchasing a condo unit with an FHA mortgage is the rule found in HUD 4155.1 Chapter Four, Section B. It says, “FHA must approve condominium projects before a mortgage on an individual condominium unit can be insured.” Discuss this requirement with your loan officer to learn more about the FHA approval process and how it works in cases where the condo isn’t currently on the “approved” list. The approval issue | more...