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Welcome to FHA Mortgage Guide.

We take long-term mortgages for granted today, but it wasn't always that way. Long ago it was likely that if you financed a home you borrowed money with a five-year "term" mortgage -- and even then you needed 50 percent down. FHA's have changed dramatically, learn why! FHALoanPros.com is devoted to providing useful information about FHA Loans, but please note that neither FHALoanPros.com nor any of the products advertised on FHALoanPros.com are affiliated with or endorsed by the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), or other US Government department or agency.

FHA guidelines for 203(k) loans

admin
August 16th, 2012

FHA 203(k) loan amounts are based on an appraisal of the home as-is, plus an estimate of the as-repaired value. The total amount that can be borrowed for both renovations and purchase costs cannot exceed the maximum FHA loan limits for the area.

Regardless of whether the FHA loan is for a purchase or refinance, borrowers have two options for an FHA 203(k) loan:

  • Streamlined 203(k). Streamlined loans are limited to a maximum of $35,000 in repairs, which must be non-structural, non-luxury projects such as replacing the HVAC system, replacing windows, appliances or kitchen counters. There is no minimum repair amount. All repairs must start within 30 days of settlement and be complete within six months.
  • Standard 203(k). This FHA loan has a minimum repair amount of $5,000, allows structural repair work and requires a HUD consultant to supervise and approve of all renovations.

FHA mortgage requirements

Qualifying for an FHA 203(k) loan is similar to meeting traditional FHA mortgage requirements, including the need for a down payment (or home equity) of at least 3.5 percent, and the payment of mortgage insurance premiums. FHA lenders have varying standards for qualifications, but most require a credit score of at least 620 or 640 and a debt-to-income ratio of 41 percent to 45 percent, based on the total loan amount for renovations and purchase as well as other debts.

In addition, borrowers must pay slightly higher interest rates and additional fees that typically total about 1.5 percent of the cost of repairs. But given the limited availability of renovation loans and the higher credit and down-payment requirements for these transactions, an FHA 203(k) loan may be worth the extra costs for many homeowners and buyers who would like to renovate.

Michele Lerner

Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.

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Shopping for an FHA refinance

admin
August 15th, 2012

The FHA Streamline Refinance program, limited to borrowers who already have an FHA loan, received some revisions June 1, 2012, when mortgage insurance premiums were lowered for borrowers who qualified for a refinance. Income verification and an appraisal are not needed for an FHA Streamline Refinance, which encouraged many homeowners to apply even if they were underwater on their home loans. These borrowers still must meet FHA mortgage requirements and be current on their mortgage payments. In addition, each home loan must be within local FHA loan limits.

FHA lenders

While the FHA Streamline Refinance program seems very simple, even FHA-approved lenders are allowed to set their own guidelines for loan approval. According to a recent article on BusinessWeek.com, some lenders such as JPMorgan Chase, Wells Fargo and Bank of America announced that they would limit their FHA Streamline Refinance program to current customers. The banks said they were overloaded with applications for an FHA refinance and could not handle additional new customers.

Housing industry experts told BusinessWeek.com that some lenders refuse to refinance customers, even on a Streamline Refinance, unless they had a high credit score. Some lenders are also requesting an appraisal before approving a loan, particularly in cases in which they suspect the homeowner

may owe a substantial amount on their mortgage above the value of their home.

Homeowners with an FHA home loan who want to refinance can contact their current mortgage servicer, but they also can shop around with other FHA lenders to compare programs as well as the individual requirements of each lender.

Refinancing from conventional to FHA loans

While a Streamline Refinance is clearly a better deal for homeowners because of the reduced mortgage insurance fees, some homeowners with conventional mortgage loans may also want to look into refinancing into an FHA loan. Borrowers with credit scores under 740 or 720 may want to compare their options for conventional and FHA refinancing, because while FHA loans require mortgage insurance, they do not have risk-based interest rates as conventional mortgages do. Borrowers with low equity may have a better chance of approval from an FHA loan, because the loan-to-value can be as high as 97 percent. An FHA-approved lender can calculate payments on both loans to see which one has the lowest monthly payments.

Michele Lerner

Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.

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Why the FHA backed off on credit disputes

admin
July 23rd, 2012

The Federal Housing Administration (FHA) announced in June that it will abandon the requirement that applicants must settle their credit disputes before receiving an FHA-insured loan — a rule that had sparked protests from lenders, builders and real estate agents since it appeared in April.

As originally written, the rule required borrowers to pay off any credit dispute of $1,000 or more or document a payment arrangement. That payment arrangement was to become part of the borrower’s debt-to-income ratio.

After quickly revising the rule to exempt people with credit issues outside of their control, the <a href=”../2012/04/fha-delays-requirement-for-resolving-collection-accounts/”>FHA delayed the rule</a> in its entirety a week after imposing it, inviting lenders and other housing industry members to comment on the restriction. On June 15, the rule was formally rescinded, although the FHA says they will still take comments on the original proposal.

<strong>The FHA and credit disputes</strong>

The FHA has been tweaking <a href=”../fha-guidelines/”>its guidelines</a> for more than a year in order to compensate for the rising delinquencies that have sapped its reserve fund. Among the changes have been an increase in mortgage insurance premiums and a new rule that requires borrowers with a credit score of 580 or less to make a down payment of at least 10 percent.

Congress mandates that the insurance premiums the agency collects must be kept in a reserve fund that the FHA uses to pay lenders if a borrower defaults on an FHA-insured loan. The tightened credit standards and higher premiums were intended to reduce the number of defaults on FHA-insured loans and to increase the size of the reserve fund, reducing the chances that the agency would require a taxpayer bailout.

Lenders and home-builders, particularly those who work often with first-time home-buyers, fought the FHA rule on credit disputes when it came out because of concerns that too many borrowers would be unable to qualify for an FHA loan under the new rule.

They complained that consumers with credit issues are less likely to qualify for conventional financing, particularly if they have less than 20 percent for a down payment. In that case, the borrowers must pay private mortgage insurance and meet the requirements of mortgage insurance companies, which tend to be even stricter than conventional lending standards.

So for many consumers with credit issues, the new FHA restriction may have closed their most accessible route to home ownership.

<strong>Gone for good?</strong>

If you are considering an FHA loan and have any ongoing credit disputes, you may want to apply for your loan soon in case the rules change again. Or better yet, you could resolve your credit disputes before applying for a mortgage, placing you out-of-reach in case the FHA imposes a similar rule in the future — a possibility the agency has not ruled out.

Michele Lerner

Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.

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FHA lowers fees for streamline refinancing

Karen Lawson
May 18th, 2012

FHA announced that it will lower up-front and annual mortgage insurance premiums for streamline refinancing of FHA loans endorsed on or before May 31,2009. Effective June 11, 2012, the up-front mortgage insurance premium rate paid at closing will be reduced to .01 percent and the annual mortgage insurance premium rate will be reduced to .55 percent for qualified homeowners. Endorsement dates for FHA mortgage insurance can differ from actual mortgage closing dates. Homeowners interested in streamline refinancing can call their mortgage servicing companies for determining FHA endorsement dates for their loans. Acting FHA commissioner Carol Galante remarked that lowering the insurance premium rates for streamlining FHA mortgages “is one way that FHA can help homeowners who are doing the right thing, paying their bills on time and who want to take advantage of today’s low interest rates.” Homeowners whose home values have fallen and cannot refinance their <a title=”FHA home loan and mortgage overview” href=”http://www.fhaloanpros.com/resource/learning-center/fha-home-loan-and-mortgage-overview.php” target=”_self”>FHA mortgage loans</a> elsewhere may benefit from this program.

<strong>FHA: Streamline refinancing could help millions</strong>

<a title=”What is FHA?” href=”http://www.fhaloanpros.com/what-is-fha/”>FHA</a> estimates that there are approximately 3.4 million households with qualifying FHA mortgage loans with mortgage rates over 5 percent. The average household could save about $250 per month or $3000 annually using streamline refinancing. Providing homeowners with underwater mortgages an inexpensive method of refinancing can prevent foreclosures and provide homeowners with additional cash for paying bills or meeting essential household expenses. FHA asserts that lowering the MIP rates for streamline refinances will not incur taxpayer expenses or jeopardize its mutual mortgage insurance fund.

<strong>Low mortgage rates boosting refinance affordability</strong>

Refinancing to a lower mortgage rate provides benefits including lowering your monthly payments paying off your mortgage loan faster, as more of each mortgage payment is applied to your mortgage balance. FHA programs also provides <a title=”Refinancing your conventional loan to an fha loan” href=”http://www.fhaloanpros.com/resource/learning-center/refinancing-your-conventional-mortgage-to-an-fha-loan.php” target=”_self”>refinancing</a> options for homeowners wishing to refinance their non-FHA mortgage loans. Homeowners without enough equity for conventional refinancing options may qualify for refinancing through FHA, which allows for rolling allowable closing costs into the new mortgage amount and will approve refinance mortgages for up to 97.5 percent of your home’s current value. Contact your mortgage lender or FHA approved lenders for more information about FHA loans and <a title=”FHA Loan Pros: Current Mortgage Rates” href=”http://www.fhaloanpros.com/fha-mortgage-rates/” target=”_self”>current mortgage rates</a>. Comparing multiple quotes assists with finding your best deal on FHA refinancing.

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FHA delays requirement for resolving collection accounts

Karen Lawson
April 18th, 2012

The FHA has delayed requiring prospective borrowers to either pay off or make a minimum of three payments on their accounts referred for collection. The decision to delay this requirement’s effective date until July 1 came after FHA-approved mortgage lenders complained that the new rule would result in many potential FHA borrowers being disqualified.

Columnist Kathleen Pender wrote recently in the San Francisco Chronicle that approving FHA mortgage loans for borrowers who have outstanding debts in collection could increase taxpayer risk if these loans default and FHA doesn’t have enough in its reserve fund for reimbursing lenders’ losses. On the surface this makes sense, but several factors beyond would-be borrowers’ control can contribute to unpaid collection accounts:

  • No or limited health insurance coverage: With hospitals billing at thousands of dollars per day, uninsured patients can easily accumulate insurmountable debt.
  • Long periods of unemployment/underemployment: The economic downturn is causing many people with formerly spotless credit histories to default on their debts.
  • Failure of creditors to remove derogatory credit information from credit reports: Creditors may fail to remove debts discharged through bankruptcy or those repaid long after the original default.

If you’re considering an FHA loan, review your credit reports before applying and address incorrect information through the three credit reporting bureaus. If you have unpaid debts due to a hardship, such as a long-term illness, serious injury or unemployment, the FHA has reportedly indicated that it may be willing to waive the coming debt requirements if the hardship is well documented.

There is a difference between someone who charges a luxury vacation and doesn’t pay their credit card bill and a person who suffers a serious injury or illness while uninsured, unemployed or both. So if you’ve faced a situation in which a hardship led you into debt, be sure to make this distinction to your potential lender before you apply for an FHA loan.

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FHA streamline refinance program: Great deal, but few qualify

Karen Lawson
March 18th, 2012

The Los Angeles Times reported last week that FHA’s latest version of its streamline refinance program sounds sweet, but when you crunch the numbers, a lot of homeowners with FHA loans are ineligible for the program. Here are the qualifying criteria and their potential implications for would-be FHA refinancing candidates:

  • Home loans being refinanced must be insured by FHA. This makes sense, as eligible refinancing homeowners have met FHA lending criteria in the past, and allows the agency to forgo traditional reams of underwriting paperwork.
  • FHA loans owned by Fannie Mae, Freddie Mac, private investors or loans guaranteed by the Veterans Administration are not eligible for streamline refinancing.
  • FHA loans otherwise eligible must have been endorsed for FHA insurance no later than May 31,2009. This policy is intended to protect FHA from losses related to high default rates traditionally associated with mortgage loans less than three years old. Skeptics also note that FHA could save additional money, as it offers a partial refund of FHA mortgage insurance premiums for home loans refinanced within the first three years of the loan term. Estimates suggest that 145,000 households financed with FHA loans with interest rates above 5 percent are being denied refinances due to this requirement.
  • Homeowners must have made the past 12 consecutive mortgage payments on time.
  • Refinance terms must reduce the new mortgage payment by 5 percent of the original mortgage’s monthly principle, interest and mortgage insurance payment.

Cleared the streamline FHA qualification hurdle? Here’s the good news

Qualified homeowners will likely breathe sighs of relief as the “streamline” part of the FHA streamline refinance program kicks in:

  • No new verifications of employment or income required
  • Up front mortgage insurance premiums (UFMIP) will be reduced to .01 percent of the refinanced loan amount, and the annual mortgage insurance premium (MIP) will be reduced to .55 percent.
  • No new credit underwriting required. This means no new credit reports, credit scores or meeting current FHA credit criteria.
  • No new physical appraisal of the property securing the refinance mortgage.
  • Refinance terms must reduce the new mortgage payment by 5 percent of the original mortgage’s monthly principle, interest and mortgage insurance amount.

These requirements become effective for streamline refinance loans with FHA case numbers assigned on or after June 11, 2012.

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Citi settlement underlines FHA reserve concerns

Karen Lawson
February 15th, 2012

Citigroup recently agreed to pay $158 million to settle charges that it improperly processed roughly 1,000 FHA loans over the past decade. More than 30 percent of the FHA loans made by Citi since 2004 have defaulted, and the complaint in the case alleged that Citi failed in many cases to verify the borrower’s ability

to meet the loan payments.

The settlement comes as the FHA continues to face challenges regarding the agency’s financial reserves, which remain below government-mandated minimums. High rates of default on FHA loans, as was seen among the Citibank loans, have been a drain on the agency’s insurance reserves, which exist to compensate lenders who suffer defaults under the program.
FHA reserves: The bad news and the good news

FHA reserves for reimbursing lenders for losses from defaulted FHA loans remain below the legally required minimum level of 2 percent of its mortgage insurance liability. The FHA reserve fund for paying mortgage insurance claims is self-funded by premiums paid by FHA mortgage borrowers, but due to the unprecedented drain on its reserves, FHA could be forced to seek other funding sources for maintaining its required levels.

The good news is that FHA is slated to receive $1 billion from a recent settlement with four loan servicing organizations. This settlement is separate from the Citigroup settlement.
FHA seeking approval for raising loan limits in high cost areas

In a move that appears counter-intuitive at least and suicidal at worst, the FHA also wants to raise loan limits in high priced areas such as Hawaii and California. The plan involves providing upside-down borrowers in these areas with opportunities for refinancing to FHA loans.

Taking on the additional risk of insuring larger loans when home values continue declining may seem foolhardy, but if approved, time will tell whether this plan stems the tide of foreclosures or further sinks FHA mortgage insurance reserves.


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FHA extends waiver of anti-flipping regulations

Karen Lawson
January 12th, 2012

Acting FHA Commissioner Carole J. Galante recently announced that FHA will extend its waiver of anti-flipping regulations throughout 2012. This move is intended to stimulate slack housing markets while offering a solution to long-standing vacant properties and resulting neighborhood blight.

Real estate investors no longer inhibited by FHA rules against flipping, a practice where investors buy homes, repair them and quickly resell them, can take advantage of incentives offered by banks and other institutional lenders attempting to sell off foreclosed homes.

Buyers of homes offered for sale by so-called “flippers” may then apply for FHA mortgage loans. The FHA decision to

extend the anti-flipping waiver may instill confidence in investor sellers who don’t want to deal with arbitrary delays in selling homes they’ve renovated to buyers using FHA mortgage loans.

By waiving its anti-flipping rules for another year, FHA can insure FHA loans for first time buyers with little cash to put down. FHA insures mortgages for up to 97.5 percent of a home’s current appraised value. The combination of FHA mortgage loans and availability of renovated homes in moderately priced neighborhoods can potentially increase home ownership and stabilize crime and home devaluation frequently associated with vacant foreclosed and abandoned homes.

Prior to issuing the initial waiver in February 2010, FHA required property owners to hold their properties for a minimum of 90 days before selling them. The key to successful flipping relies on buying homes, quickly renovating them and turning them over. Artificial time constraints can reduce profits when investors are forced to “sit on” renovated properties while awaiting the 90-day waiting period to expire. FHA outlined specific conditions associated with its 2012 waiver of anti-flipping regulations:

  • Arm’s-length transactions: Buyers, sellers and others involved in a flipping transaction cannot have an ” identity of interest” between each other.
  • Limited seller profit: In cases where the sales price of a flipped property is 20 percent or more than the seller’s acquisition price, the seller is required to provide documentation justifying the selling price.
  • No HECM loans: FHA does not allow buyers to purchase flipped homes through its Home Equity Conversion Mortgage (HECM) program. Also known as reverse mortgages, HECM loans provide borrowers with cash drawn from home equity.

Since the inception of its waiver of anti-flipping rules, FHA cites the approximate value of 42,000 FHA mortgages arising from sales by sellers holding properties less than 90 days at $7 billion. These figures suggest that FHA may be on to something, and depending on how the extension of the anti-flipping waiver works in 2012, it could be time to scrap the anti-flipping rules altogether.

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The coming FHA loan limit battle

Peter G. Miller
October 6th, 2011

The battle of October 1st is over and financial sanity won out. The FHA has new and lower loan limits and now we need to get ready for Round 2.

The fact is that the loan limits that took effect at the beginning of this month might end on December 31st. That’s because the new loan limit formula is only designed to last three months.

In the usual situation loan limits are announced in November or December, begin in January and then last for a full year. However, since 2008 the loan limit system has been in a shambles and it still is today. The result is that as of January we could see higher limits, lower limits or no change.
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Will lower loan limits hurt FHA borrowers?

Peter G. Miller
September 28th, 2011

Unless there’s a surprise turn of events on Capitol Hill, the FHA loan limits for high cost areas will be reduced as of October.

Let’s assume that the new and lower limits become the law of the land as scheduled. Just who will be impacted?

“Congress must act now to prevent the loan limits from reverting to lower levels,” Bob Nielsen, chairman of the National Association of Home Builders, said in a statement. “A drop in mortgage loan limits would reduce housing demand, and place downward pressure on home prices in major markets. This would exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.”

Because of these concerns, the NAHB said it’s “engaged in a major grassroots push and association members are being urged to contact their members of Congress and seek their support for immediate efforts to extend the current loan limits.”

Actually, neither home builders nor anyone else has much to worry about regarding real or imagined terrors from reduced loan limits.
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Dispute with HUD counseling service needs to end

Peter G. Miller
August 16th, 2011

Every few months you read in the paper about a major mortgage modification clinic coming to town. In Washington, this meant that major meeting space was taken over in a downtown hotel, hundreds of counselors set up shop and the line of concerned borrowers hoping for help stretched out the door and waited patiently for their turn.

The group that operates such mass modifications is called the National Assistance Corporation of America or NACA. It must be doing a good job because it provides about 30 percent of the counseling services available to borrowers with money provided by HUD.

Or it did, until the money stopped.
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No 20 percent down requirement for FHA mortgages

Peter G. Miller
July 29th, 2011

There’s been a lot of talk regarding a new federal standard for home loans and how it will impact the marketplace. In these discussions, Federal Housing Authority (FHA) mortgages are frequently mentioned as if they had some sort of disease which is tearing at the heart of the national economy.

The new rules under Wall Street reform create a standard for loans. If a loan fits, it is then a qualified residential mortgage (QRM). If it doesn’t fit, then the lender can still make the loan and a borrower can still be dumb enough to accept such financing.

Lenders, of course, are screaming about the new QRMs. They’re telling everyone who will listen that loans under the QRM will require 20 percent, so be very afraid of the new standard.
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Should we bring back higher FHA loan limits?

Peter G. Miller
July 18th, 2011

There’s no surprise about this one, a lot of people are unhappy with the new mortgage loan limits set to start Oct. 1, 2011–loan limits which are lower than today’s standards.

“The housing market does not need a self-inflicted wound,” said Rep. Gary Ackerman (D-NY), a co-sponsor with Rep. John Campbell (R-CA) of legislation which would keep today’s loan limits in place. “With the economy remaining fragile and the housing sector still struggling to recover, now is not the time to make the cost of mortgages more expensive.”

Under HR 2508, loan limits for FHA and conventional loans would stay where they are until 2013.
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FHA eases mortgage rules for unemployed borrowers

Peter G. Miller
July 12th, 2011

Unemployment just won’t go away.

The latest numbers point to an “official” unemployment rate of 9.2 percent and paltry jobs growth–just 18,000 new jobs in June.

That’s 14.1 million people without a job, not counting that 2.7 million individuals who were “marginally attached” to the labor force.

Now the FHA has decided to do something useful to help the unemployed. It has established an unemployment forbearance program for those FHA borrowers who have lost their jobs.

This is going to be a good deal for several reasons: First, it will help people with real needs, and second, it will set an example the private sector can follow.
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FHA short refi program on the rocks

Peter G. Miller
July 11th, 2011

As we have long predicted, the FHA’s short refi program continues to be dead in the water. Despite a big announcement introducing the program last August, the marketplace reaction has been ho-hum.

Is this fair? Is there anything in the short refi program which might redeem the concept?

The latest numbers from Housing and Urban Development (HUD) tell us that since Oct. 1. a total of 535 applications have been submitted for the program and, of these, just 195 have been

approved so far. As of May just 65 applications were in the pipeline, suggesting that very large numbers of applications have fallen through.
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