Mortgage Miracles Happen

December 12, 2014

FHA Loans and Verifiable Income: Alimony, Child Support, and Maintenance Payments

Borrowers applying for an FHA home loan have good reason to consider listing alimony, child support, and maintenance payment income on their loan applications.

Not all wish to have this type of income included in their application data, but when accompanied by proper documentation and when verified by the lender, these types of “non-employment income” can be used to help calculate the borrower’s debt-to-income ratio for FHA loan approval.

But what does the FHA require in order to verify and approve these income sources for the FHA loan?

According to the FHA official site, “Alimony, child support, or maintenance income may be considered effective, if
–payments are likely to be received consistently for the first three years of the mortgage
–the borrower provides the required documentation”

What does that documentation include? FHA rules say the borrower must provide a court order, divorce decree, separation agreement, and/or a statement of voluntary payments or other paperwork that shows in writing what the terms of the agreement are and how much per payment. Your lender may also require evidence that payments have been received over the previous year, which can include receipts, deposit slips, tax statements, or court records.

If payments have started but have not been going for a full year, FHA loan rules state, “Periods less than 12 months may be acceptable, provided the lender can adequately document the payer

November 28, 2014

FHA Loans and Student Loan Deferments

If applying for FHA and student loans are in deferment until after the closing date, does it have to show a year after the first payment is due? For example, if the payment is due July 1, 2012 does it have to show July 15, 2012 or later?”
 
This question is addressed in the FHA loan rules spelled out in HUD 4155.1, Chapter 4 Section C. It’s covered in the section titled, “Borrower Liabilities: Projected Obligations and Obligations Not Considered Debt” and includes a list of things the FHA does not consider debt for the purposes of calculating a borrower’s debt-to-income ratio for an FHA home loan.

Student loans are specifically addressed in this section, which states, “Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.”

But the rules also add, “Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.”

If a borrower has a student loan which has been deferred, it may or may not qualify to be excluded from the debt to income ratio calculation based on when it becomes due according to FHA policy. Will the lender’s individual policy vary from this? Could a lender require the debt to be included anyway based on the due date? It’s possible–but your experiences may vary depending on which lender you are working with.

FHA loan rules also have a list of other financial obligations and circumstances which do not have to be included in the debt to income ratio. The FHA lists them in the rule book as follows:
“Obligations not considered debt, and therefore not subtracted from gross income, include

November 25, 2014

FHA Loans and Verifiable Income: Alimony, Child Support, and Maintenance Payments

Borrowers applying for an FHA home loan have good reason to consider listing alimony, child support, and maintenance payment income on their loan applications.

Not all wish to have this type of income included in their application data, but when accompanied by proper documentation and when verified by the lender, these types of “non-employment income” can be used to help calculate the borrower’s debt-to-income ratio for FHA loan approval.

But what does the FHA require in order to verify and approve these income sources for the FHA loan?

According to the FHA official site, “Alimony, child support, or maintenance income may be considered effective, if
–payments are likely to be received consistently for the first three years of the mortgage
–the borrower provides the required documentation”

What does that documentation include? FHA rules say the borrower must provide a court order, divorce decree, separation agreement, and/or a statement of voluntary payments or other paperwork that shows in writing what the terms of the agreement are and how much per payment. Your lender may also require evidence that payments have been received over the previous year, which can include receipts, deposit slips, tax statements, or court records.

Do Government Assistance Payments Count As Verifiable Income?

One frequently asked questions about FHA home loans involves government benefits and/or government assistance payments. Can these income sources be used for the purpose of getting an FHA guaranteed home loan?

Under the right circumstances, the answer is yes. It’s not automatic–the lender must verify the source of the income and also determine how long that income will last.

According to HUD 4155.1 Chapter 4 Section E, “Income received from government assistance programs is acceptable for qualifying, as long as the paying agency provides documentation indicating that the income is expected to continue for at least three years.”
Borrowers aren’t simply out of luck if that income will not last for three years; it can’t be used as income, but it can be considered in other ways according to the FHA loan rulebook, which specifically says, “If the income will not be received for at least three years, it may be considered as a compensating factor.”

Some borrowers want to know if unemployment benefits are included in this set of rules, but there are separate guidelines for unemployment found in HUD 4155.1 Section E, which says “Unemployment income must be documented for two years, and there must be reasonable assurance that this income will continue. This requirement may apply to seasonal employment.”
What about VA benefits for service-connected disabilities? Does the FHA recognize this type of income?

According to the rules, “Direct compensation for service-related disabilities from the Department of Veterans Affairs (VA) is acceptable income for qualifying, provided the lender receives documentation from the VA.”

However, FHA loan applicants should know that GI Bill housing payments are not considered acceptable, which may have a lot to do with the nature of such benefits–they are only available while school is in session and eventually expire within a set number of months–therefore such payments would not be considered “likely to continue”.

November 24, 2014

Can My Spouse Apply Alone For An FHA Loan?

If a married couple has an extremely high debt to income ratio, can only one spouse be on the mortgage loan and leave the other spouse off? This is a situation where some spouses may have less credit but double my income and very low debt to income ratio. Is it possible that the spouse can qualify using only their income and credit to qualify for an FHA loan?”


There are several factors which may apply in a situation like this. Borrowers should know that when applying for FHA home loans, credit scores, employment history, verifiable income and other factors will figure into loan approval.

That said, assuming all the above requirements are met, the basic question is whether a borrower can apply for an FHA loan independently of the spouse. This depends on community property laws which may apply in the state where the loan is issued.

Community property laws concern the disposition of debts and property within the context of a marriage. Community property states generally may require both spouses to be obligated together on a real estate loan.

For this reason, borrowers should discuss community property issues with the lender and/or a lawyer where appropriate to make sure all rights and responsibilities are understood. In many cases a simple discussion of community property laws with the lender may suffice–if the borrower simply needs information. If the borrower needs legal advice, consulting a lawyer is the best course of action.
Unfortunately there are no quick answers to this question–not all states have community property laws, and those laws may differ from state to state.

November 21, 2014

Debt To Income Ratio Rules:

In the circumstances that one has a large amount of debt and the payments have been paid by another person, IE., A parent, ex-spouse, another person, can that debt not be counted on my debt ratios?

There are two basic factors at work when the lender is reviewing a borrower’s debt-to-income ratio. One is the borrower’s current debt load compared to the amount of income coming in. The other is how the new FHA loan payment would affect that debt load.

If a debt is in the borrower’s name, those debts would have to be considered, regardless of the extenuating circumstances. However, if there is a payment being made on the borrower’s behalf may or may not be considered as a compensating factor.

The basic answer to this question is that it may depend on the lender. A strict interpretation of FHA loan rules might lead one to believe that the borrower’s debts in this case are simply included in the ratio but not the payments from another person that has been making the payments for a minimum of 12 months and a paper trail can be provided showing payments coming out of that persons bank account then that debt can not be counted against the person getting the mortgage loan.

But if those payments are “likely to continue” in the eyes of the lender, there might be some flexibility possible. But saying that should not be construed as a guarantee or a promise that such arrangements will be approved by the lender or the FHA.

Matters such as these would be handled on a case-by-case basis. Borrowers should be prepared to fully document the situation, get written guarantees or other certifications that might convince a lender to favorably view the arrangement. But at the end of the day, it may be the lender’s call or the decision might be made based on the requirements of the financial institution or even the applicability of state law.

November 20, 2014

Income from a New Job

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 is documented evidence and legally binding agreements between the borrower and employer. But the rules also require the lender to verify not only the income, but also the ability to afford the loan in the meantime.

From Chapter Four; “The lender must verify that the borrower will have sufficient income or cash reserves to support the mortgage payment and any other obligations between loan closing and the start of employment.”

There are additional stipulations in Chapter Four–the projected income doesn’t help if the loan closes more than sixty days before the borrower begins his or her new employment. Chapter Four says as much:

“The loan is not eligible for endorsement if the loan closes more than 60 days before the borrower starts the new job. To be eligible for endorsement, the lender must obtain from the borrower a pay stub or other acceptable evidence indicating that he/she has started the new job. Examples: A teacher whose contract begins with the new school year, or a physician beginning his/her residency fall into this category.”

There are situations where projected income can be used, and those where it is not, but it should also be noted that the lender may have additional requirements in this area above and beyond FHA loan rules. Check with your loan officer about your specific needs to get a better understanding of what might be possible.

November 19, 2014

Part-Time Employment Income for Income on an FHA Mortgage Loan

FHA loan rules include a requirement that the lender verify sources of income and employment. Some types of income may or may not be permitted on the FHA loan application, and FHA loan rules printed in HUD 4155.1 explain what’s permitted or not allowed.

One area some borrowers may be concerned with in this area is part time income. Does the FHA allow a lender to verify and count as income the earnings from a part-time job? The rules for this are found in Chapter Four Section D of HUD 4155.1 under the heading “Salary, Wage, And Other Forms Of Income”. It says:

“Part-time and seasonal income can be used to qualify the borrower if the lender documents that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue. Many low and moderate income families rely on part-time and seasonal income for day to day needs, and lenders should not restrict consideration of such income when qualifying these borrowers.”
Note the emphasis on both part-time and seasonal income. That’s an important thing to know for affected borrowers who derive significant income from a seasonal position. Chapter Four also tells the lender, “Part-time income received for less than two years may be included as effective income, provided that the lender justifies and documents that the income is likely to continue.”

What does the FHA consider “part-time”? Chapter Four states, “For qualifying purposes, ‘part-time’ income refers to employment taken to supplement the borrower’s income from regular employment; part- time employment is not a primary job and it is worked less than 40 hours.”

Chapter Four has instructions for the lender about part time or seasonal income that does not live up to the rules, stating:

“Part-time income not meeting the qualifying requirements may be considered as a compensating factor only.” That can help some borrowers, but not others. Discuss your specific situation with a loan officer to learn what your part-time income might be able to do for your chances at FHA loan approval.

November 18, 2014

Does Alimony/Child Support Count As Income?

We’ve been discussing topics this week related to FHA loan rules for income and employment. The participating FHA lender is responsible for verifying an FHA loan applicant’s employment and income to make sure it is a stable and reliable source of income.

Not all forms of income can be used on the FHA loan application. Sporadic income that is not consistent income such as sales from online websites (ie. Ebay, Amazon, Paypal), for example, may not qualify, and certain types of commissions may not qualify depending on their frequency. GI Bill housing stipends cannot be used because they are not “likely to continue” past a certain number of months.

Then there is the common question about child support and/or alimony payments. Can this form of income, if declared on the FHA loan application, be used to qualify for the mortgage?
Chapter Four of HUD 4155.1 provides the answers.

“Alimony, child support, or maintenance income may be considered effective, if
• payments are likely to be received consistently for the first three years of the mortgage
• the borrower provides the required documentation, which includes a copy of the
− final divorce decree
− legal separation agreement,
− court order, or
− voluntary payment agreement, and
• the borrower can provide acceptable evidence that payments have been received during the last 12 months, such as
− cancelled checks
− deposit slips
− tax returns, or
− court records.”

Are FHA loan applicants with less than 12 months of child support or alimony income left out in the cold? Not if certain conditions are met, according to Chapter Four:

“Periods less than 12 months may be acceptable, provided the lender can adequately document the payer’s ability and willingness to make timely payments.”

Previous Mortgage Housing Obligations and Your Credit

When you fill out your FHA loan application paperwork online or in person, it’s obvious that part of the qualification process involves having your credit scores examined and your employment verified.
What may not be so obvious is that the lender is also looking for patterns of reliability in areas such as the timely payment of your monthly obligations. Some FHA loan applicants might mistakenly assume that while late or missed mortgage payments might be a factor that missed rent payments aren’t held in the same esteem.

Is this true? Not according to HUD 4155.1 Chapter Four, Section C, which has instructions for the lender on checking credit report data. A strict interpretation of Chapter Four reveals that there is no difference between how the FHA or the lender should view late or missed mortgage payments OR the equivalent in meeting monthly rental obligations.

“The borrower’s housing obligation payment history holds significant importance when evaluating credit. The lender must determine the borrower’s housing obligation payment history through the
  • credit report
  • verification of rent received directly from the landlord (for landlords with no identity-of-interest with the borrower)
  • verification of mortgage received directly from the mortgage servicer, or
  • review of canceled checks that cover the most recent 12-month period.”
The FHA takes this issue seriously enough to include the following note to the lender; “The lender must verify and document the previous 12 months’ housing history even if the borrower states he/she was living rent-free.”

A lender may not reject an FHA loan application on the basis of a one-time missed payment, or a period of financial difficulty that the borrower can show is now resolved. But much is left to the lender’s discretion. It’s good to know this before you apply for an FHA mortgage loan. Knowing what the lender is looking for in your credit history is a very good thing to understand fully as you get ready to apply.

November 17, 2014

Student Loans and Debt-To-Income Ratios

When you apply for an FHA loan, your lender must calculate the amount of income you have versus the amount of debt you currently pay on and factor in the amount of your projected mortgage. The amount of debt is compared to your income to determine whether or not you can afford the loan based on FHA guidelines.

In general, borrowers should have less that 40% of their income taken up by recurring financial obligations. FHA rules explain exactly how much debt to income you can have and still qualify for an FHA mortgage. These ratios can vary depending on the borrowers status as a self-employed person or other factors.

The overall debt picture is important when the lender is trying to figure out if a borrower is a good credit risk, but certain types of debt don’t factor in right away–for example, a student loan that is not yet due but may become due within a year or so of the home loan closing. Can this student loan debt be used in the debt-to-income ratio calculation?

FHA loan rules in HUD 4155.1 Chapter Four, Section C addresses this issue, stating:
“Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.”

However, FHA loan rules also add, “Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month time frame.” Borrowers who have a student loan deferred in such a manner should bring paperwork to the lender to show this will happen–the lender will need to document this accordingly.

It may be best to request deferment paperwork before you start the loan application process for an FHA mortgage loan. This will speed the process up by having the paperwork ready to turn in with the other documents with your mortgage application. If you’ve already applied for an FHA loan and you don't have the deferment paperwork, it is best to request the deferment paperwork on your student loans and request that they expedite the process in getting the deferment letter to you.

November 15, 2014

Down Payments & FHA Mortgage Loans

Many people talk about "No Down Payment Loans" and how can I buy a house with "No Money Down"?

So What's the real story with FHA Loans and No Money Down loans?

FHA home loans do not feature a no-money-down option. FHA loan rules state that the minimum required down payment is as follows: “For purchase transactions, the maximum LTV is 96.5% percent (the reciprocal of the 3.5% required investment).”

The acronym “LTV” stands for loan-to-value and is, in simple terms, the amount of the loan after the down payment has been made. An LTV of 96.5% basically means that the borrower gets a loan for 96.5% of the total amount of the purchase (rather than 100% because of the 3.5% down payment required and made by the borrower.)

There is also sometimes a bit of confusion over what constitutes a down payment. Do closing costs and other FHA loan expenses count as part of this 3.5% minimum down payment? Not according to the FHA loan rulebook:

“Closing costs (non-recurring closing costs, pre-paid expenses, and discount points) may not be used to help meet the borrower’s minimum required investment.” That means your down payment is made separately from these other costs and expenses.

There is no specific, set dollar amount for the down payment. Since it is calculated as a percentage of the loan amount, the borrower must work together with the lender to determine the amount of the down payment.

FHA loan applicants should know that while 3.5% is the minimum required down payment, it is not the only amount that may be put down. Borrowers are free to pay more and there is no penalty for early payoff of the FHA mortgage.

You may find a larger down payment to be a financial advantage over the lifetime of the FHA loan. Discuss your goals with the loan officer and ask how a larger down payment can be helpful over a 15-year or 30-year mortgage.


November 14, 2014

What is the FHA 203(b) Loan Program?

If you’re new to shopping for a mortgage and the whole process is confusing, you're not alone. Many people feel as they are swimming in the deep end of life and don't know who to trust for information and where to go.

I'm going to help make today's post an FHA for Dummies crash course.

So what is an FHA mortgage? It’s easy to get confused by the different types of FHA insured mortgages available. There are FHA 203(b) loans, the FHA 203(k) and a host of other FHA loan options; including FHA loans for those living on Indian reservations, FHA streamlines (streamline refinance loans).

Some borrowers are ready to get help right now and some are totally confused and ready to throw up their hands and just ask for “the FHA loan everybody applies for when they want a new home.”

The Plain Jane vanilla FHA loan that is common for everyone to get is known as the FHA 203(b) mortgage. This is the single-family mortgage insurance program most commonly used all over the United States. According to HUD's website for FHA loans, the FHA 203(b) “may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas including manufactured homes on permanent foundations. Typically, lenders offer terms at 15 or 30 years, and interest rates are negotiated between the borrower and lender.”

Borrowers who have looked at conventional mortgages and compare them with the FHA 203(b) learn several things. The 203(b) is easier to qualify for because the FHA backs the loan, giving protection to the lender.

Thanks to this protection, the FHA Frequently Asked Questions section at FHA.gov says, “…you don’t have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.”

FHA loans do not come with zero down payment offers, but the down payment that is required is comparatively lower than many conventional loans. FHA mortgages require a down payment as low as 3.5%, which the FHA allows to come from an employer, family member or charitable organization in the form of a gift if the borrower chooses to accept outside help for the loan.

In spite of what some assume, the FHA does not set interest rates on FHA mortgages, but according to HUD, “FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.”

All FHA loan money comes from participating lenders and the FHA does not provide “direct financing”. But it does require agency approval before a bank can issue an FHA home loan–the FHA and HUD work with lenders to insure quality, regulatory compliance, and fairness in the lending process.

There are plenty of other FHA insured home loans available besides the 203(b), it’s just one of many–but it’s the first thing many borrowers think of when they want to buy a home with an FHA mortgage, even if they don’t know the technical name for the loan.

What matters is you are prepared to better your situation of life by either buying a home if it will be better than renting or refinancing your current loan into a better set of financial circumstances.

November 13, 2014

Advice on Buying A Home With an FHA Mortgage

If you’re thinking about buying a home, now is a very good time to explore your options.  Buying a home with an FHA mortgage offers many home buyers an opportunity to get into a home when they don't have another option.

Mortgage loan rates are still very good, and the housing market recovery makes purchasing a home more attractive than ever.

Advice that I would share with anyone, whether a client or a close family member when buying a home, whether with a conventional loan or an FHA loan is what anyone needs.

The first thing to ask is whether you are ready to commit to buying a home now, or if you need to take some additional preparation time. How do you know if you’re ready to commit? According to the FHA,

A few questions you can ask your-self are:
- Do I have a steady source of income (usually a job)?
- Have I been employed on a regular basis for the last 2-3 years?
- Is my current income a reliable source of income?
- Do I have a good record of paying my bills?
- Do I have few outstanding long-term debts, like car payments?
- Do I have money saved for a down payment?
- Do I have the ability to pay a mortgage every month, plus additional costs?

If you can answer “yes” to these questions, you are probably ready to buy your own home.”

That’s excellent advice. Saving and budgeting are key elements to prepare and commit yourself to purchase a new home. Once you are ready, what does the FHA say to borrowers ready to explore the home buying process?

“Start thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment? How much space do you need? What areas of town do you like? After you answer these questions, make a ‘To Do’ list and start doing casual research. Talk to friends and family, drive through neighborhoods, and look in the ‘Homes’ section of the newspaper.”

Some like to search for the home themselves, others want the help of a real estate agent. You can find a reliable agent through referrals from friends or family, but you can also screen your own agent simply by talking with several of them and choosing the one you feel is the most trustworthy.
Once you’re ready to purchase a home, you can prequalify for an FHA home loan and get ready to take the step into home ownership.

November 12, 2014

First Time Homebuyer Requirement

One of the common misconceptions about FHA home loans is that you MUST be a first-time home buyer in order to qualify for one. This is not true. You may have state or local homebuyer assistance programs in your area that do require the applicant for that program to be a first time buyer, but FHA loans are open to all qualified applicants.

The real issue in this reader question has more to do with debt-to-income ratios (DTIs) will the FHA lender approve a buyer who already owns a home? Absolutely. I have done loans for clients that not only own another home, but one client that had 9 rental properties and an FHA loan was the better choice between a conventional loan and an FHA loan when the family was buying a new home to move into.

Single-family new purchase FHA home loans are for primary residences. The borrower MUST use the property bought with an FHA guaranteed mortgage as the main address. This particular reader question addresses that issue, so there isn’t a problem on that front. But the FHA does look carefully at a borrower’s debt-to-income ratio. If the existing mortgage PLUS the new mortgage on a potential FHA mortgage exceeds the FHA DTI the loan may be denied unless there are compensating factors.
How does the FHA view DTI?

WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.”

Again, these standards MAY be flexible IF the borrower has compensating factors including addition income, substantial cash reserves or other collateral. Borrowers should discuss their individual circumstances carefully with a lender before deciding what to do about a new FHA mortgage if they are concerned that their current DTI may be too high. Don’t assume you cannot apply for an FHA mortgage–talk it over with a lender to learn what your options may be.

FHA Refinance Loan Options

Mortgage rates are attractively low right now.  So low that many need to consider refinancing.

Those headlines make some homeowners seriously think about refinancing their FHA mortgages and getting into a lower interest rate and/or lower payments to offset the higher costs of owning a home should the fiscal cliff issue enter a worst-case scenario.

While no one should rush into such a decision, those who are ready to to refinance their current loan should know their FHA loan options. According to the FHA official site, borrowers with FHA or conventional home loans have the following choices as described in HUD 4155.1 Chapter Three:

“FHA insures several different types of refinance transactions, including
–Streamline refinances of existing FHA-insured mortgages made with or without appraisals
–No cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions,
and
–Cash out refinances. ”

The different types of refinance loan options have a variety of loan term requirements. The FHA limits the maximum term of “any refinance with an appraisal” to 30 years, whereas the maximum term of an FHA streamline refinance with no appraisal, “ is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or  30 years.”

What about appraisals on the home? Some lenders may require one even when the FHA does not. Some borrowers want to know if they can use the original appraisal on their home for the new loan. FHA loan rules state, “FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused
–during the six month validity period once the mortgage for which the appraisal was ordered has closed,
or
– for a subsequent refinance, even if six months have not passed.”

To further clarify, the FHA official site states, “A new appraisal is required for each refinance transaction requiring an appraisal.”

November 11, 2014

FHA MIP Premiums

Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requirements include mortgage insurance for all FHA loans. Here's the run down on the amounts of mortgage insurance on different FHA loans.

Current Up-Front Mortgage Insurance Premium

The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.

Current Up-Front MIP on Certain Streamline FHA Refinances

SF forward streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the UFMIP is currently 0.01 percent of the base loan amount.

Current Annual MIP on Certain Streamline FHA Refinances

FHA Streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be 55 bps, regardless of the base loan amount and takes effect on or after June 11th, 2012.

Annual MIP Premium

Annual Mortgage Insurance Premiums for all case numbers dated on or after June 3, 2013 for loans with an Loan to Value of less than or equal to 78% and with terms up to 15 years. The annual MIP for these loans is 45 basis points (45% of 1%).  The following has already been in effect for all case numbers dated on or after April 1st, 2013.

On terms > 15 years and loan amounts < = $625,500 - If the loan to value is < = 95%, the Annual Premium is 130 basis points (bps). If the loan to value is >95%, the new Annual Premium is 135 basis points (bps).

On terms < = 15 years and loan amounts < = $625,500 - If the loan to value is < = 90%, the Annual Premium is 45 basis points (bps). If the loan to value is >90%, the new Annual Premium is 70 basis points (bps).

Note: SF forward mortgages with amortization terms of 15 years or less, and a loan to value ratio of 78% or less, remain exempt from the Annual MIP (Mortgagee Letter 2011-35).

FHA Annual Mortgage Insurance Premium for loans over $625,000
FHA adds an additional 5 basis points to mortgages with base loan amounts exceeding $625,000.

On terms > 15 years and loan amounts >$625,500 - If the loan to value is < = 95%, the new Annual Premium is 150 basis points (bps). If the loan to value is >95%, the Annual Premium is 155 basis points (bps).

On terms < = 15 years and loan amounts >$625,500 - If the loan to value is 78.01% - 90.00%, the Annual Premium is 70 basis points (bps). If the loan to value is >90%, the Annual Premium is 95 basis points (bps).

November 10, 2014

FHA Loan FICO Score Requirements


FHA loan rules do specify a minimum FICO score for borrowers who want to qualify for the lowest down payment of 3.5%. FHA (HUD) has set a minimum score of 500. Though it it is set at 500, there are very few lenders in the country that will go down to a 500 Fico score. Most lenders have "Overlays". Some will have a minimum score of 580. Others are at 600 & some are at 620.

FHA loan rules do not prevent the lender from have more strict standards (overlays) as long as they are applied in compliance with federal law, Fair Housing Act regulations.

Individual borrower circumstances can and often do play a role in the kinds of terms a borrower is offered. FICO scores are only part of the picture.

Historically, the lower the score a borrower has, the more challenges there are with the file.
The best way to increase ones credit score is to pay your bills (accounts) on time for 12 months. By striving to pay down and pay off your debts.  Anytime you have a missed payment (30 day late), a drop is approximately 30 to 50 points. Collection accounts will drop a score 30 to 50 points.

How you can get an FHA loan


Do you have too much debt to qualify for a conventional mortgage? Having a less than perfect credit score or not much cash for a down payment or a shorter time period since a foreclosure or bankruptcy? You should consider buying a home with an FHA mortgage loan.

The Federal Housing Administration, a division of the Department of Housing and Urban Development, was created 80 years ago to help low and moderate-income families obtain financing for home ownership when there was not an option for the low income population.

The FHA doesn’t actually make home loans. It guarantees that lenders will be repaid if you default on the loan.

That guarantee allows banks and mortgage companies to work with borrowers who might not be able to qualify for conventional home loans and at surprisingly competitive interest rates.
The majority of mortgage lenders are the one that make FHA mortgage loan. One out of every five new home loans is now backed by the FHA according to Ellie Mae, a California-based mortgage technology firm.

FHA has maximum loan limits (loan limits or loan amounts) on how much you can borrow with an FHA loan. (See the FHA Loan Limit based for the county you want to view). Most parts of the country the maximum loan amount is up to $271,050 for single-family homes. Some areas are more. You need to see the FHA county loan limit guide for the county you are in. In high cost areas of the country, as much as $625,550 (areas such as New York and San Francisco).

If the loan amount you need fits in this range then you need to find out more about getting an FHA loan.

They have smaller and more lenient down payment requirements.
FHA mortgages require a down payment of 3.5%. This is $3,500 for every $100,000 you borrow. The average down payment on an FHA home loan is about 5%, according to Ellie Mae statistical reports.
Compared to conventional loans, this is well under the the average non-FHA mortgage loan.

The down payment can come from a gift from a relative, an employer or a community down payment organization that provides financial assistance.

Many conventional mortgages require the down payment to come from a borrower’s savings or other assets, such as proceeds from the sale of another home.

You can qualify with below-average credit scores.
Before the financial crisis, FHA loans were for borrowers with bad credit.
And we mean bad credit. Applicants with FICO credit scores below 640 scooped up more than half of all FHA-backed mortgages, while those with credit scores below 580 received about a quarter of them.

Now borrowers with such bad credit obtain fewer than one out of every 10 FHA loans.
Indeed, the average FICO score for rejected FHA applicants is 665, a score that would have landed in the top half of FHA borrowers just a few years ago.

Most of the money currently goes to home buyers who have below-average, but not terrible, credit. The average credit score for successful applicants is running at 685 so far this year.
But let's be clear. That's still way below the average score of 755 for non-FHA loans.
So what’s the secret to qualifying if you have a credit score in the low 700s or high 600s?
Successful applicants usually have a two-year history of steady employment and paying their bills on time.

You can get an FHA loan if you’re self-employed. Just be ready to document your income with tax returns and financial statements from your business.
The same big financial problems that derailed FHA applications in the past continue to do so. If you:
  • Declared Chapter 7 bankruptcy, you usually must wait two years from the date of discharge before qualifying.
  • Lost a home through foreclosure, you must wait three years. However, if you can prove that the foreclosure was caused by involuntary job loss or income reduction, and your payment history has been good since then, the waiting period can be as little as one year.
  • Are delinquent on a federal debt, such as a student loan or income taxes, you can’t get an FHA loan.
  • If you have a credit score lower than 500, you won’t qualify under FHA guidelines. Most lenders have a higher minimum of 600.
You’re allowed to carry more debt.

To obtain a non-FHA loan, borrowers must be spending no more than 36% to 45% of their pretax income on all debts, including mortgage payments, student loans, credit card bills and auto loans. The limit depends on the borrower’s down payment and credit score.

With an FHA mortgage, you can stretch that ratio to 47% — or even a little higher in some instances.
We can get loans approved over a 50% debt to income ratio. It doesn't happen on every file, but it can if they have excellent credit, good job stability, skin in the game and money in the bank after closing. 
If your credit score is below 580, however, debt-to-income ratio can’t exceed 43%. Just because you can be approved with a higher debt ratio doesn’t mean you will be. The typical rejected applicant has a debt-to-income ratio of 50% or higher.

Contact Ben Gerritsen for financing at: 801-747-9176 www.wedohomeloansforyou.com