FHA Frequently Asked Questions
With FHA loans becoming more popular due to the increased loan amounts, declining market issues, and changing MI guidelines, I have put together some FHA FAQs to cover some questions we've received concerning FHA loans.
Is there a minimum Credit Score requirement for?
No Cash Out Refinance: If the property was acquired less than one year before the loan application and is not already FHA-insured, the original sales price of the property must be considered in determining the maximum loan amount.
No more than 1x30 day housing payment delinquency in the last 12 months is allowed on FHA Streamline refinances.
Is there a maximum combined loan-to-value limit?
It depends on the subordinate financing. If there is a seasoned second lien (12 months or more), there is no CLTV limit provided the lien is subordinated to the FHA loan and it has been paid as agreed. If the transaction is a purchase with a new second lien, the CLTV cannot exceed 100% of the acquisition costs (sales price plus allowable eligible borrower-paid closing costs, energy efficient improvement costs, discount points, and rehabilitation expenses).
Can the FHA Monthly MI be cancelled when buying?
Per FHA guidelines, monthly MI is charged on all loans regardless of the LTV and will be collected until the loan reaches 78% LTV from the original purchase price or for at least a minimum of 5 years.
If a debt payment, for example a student loan, is scheduled to begin within 12 months of the mortgage loan closing, the lender must include the anticipated monthly obligation in the qualifying ratio, unless the borrower provides written evidence that the debt will be deferred to a period outside this timeframe. Similarly, balloon notes that come due within one year of loan closing must be considered in the underwriting analysis.
Do all liabilities need to be included in the debt-to-income calculation? It is the lender's responsibility to determine if the overall risk is acceptable based on the borrower's cash reserves after closing, debt-to-income ratio, and overall risk of the loan. The borrower's liabilities should include all installment loans, revolving charge accounts, real estate loans, alimony and child support payments, and all other continuing obligations. In calculating the debt-to-income ratio, the lender must include the monthly housing expense and all other recurring charges extending 10 months or more. Debts lasting less than 10 months must be counted if the amount of the debt affects the borrower's ability to make the mortgage payment during the months immediately after loan closing (this is the underwriter's discretion so if in doubt, ask the underwriter upfront).
If a revolving credit line has an outstanding balance but does not have a minimum monthly payment amount, the monthly payment must be calculated as the greater of five percent of the balance or $10. Revolving debt cannot be paid down to qualify.
What income can be grossed up and when?
If a particular source of regular income is not subject to federal taxes (for instance, certain types of disability and public assistance payments, military allowances, child support, etc.), the amount of continuing tax savings attributable to the non-taxable income source may be added to the borrower's gross income. The percentage of income that may be added may not exceed the appropriate tax rate for that income amount and no additional allowance for dependents is acceptable.
The property seller can contribute up to six percent of the purchase price toward closing costs, prepaids and discount points. Money contributed by a non-profit organization for down payment assistance is not included in the six percent.
Are escrow/impound accounts mandatory on FHA loans?
Yes, an escrow/impound account for taxes and insurance is required.
Can a down payment assistance program (DAP) such as Ameridream, Nehemiah, or Genesis be used?
Yes; however, they are typically only allowed with FHA 203(b) loan programs (regular FHA Fixed Rate), other FHA programs such as FHA 203(k) using DAPs are not allowed. Due to possible termination of approved status from the IRS for Non Profits, files must contain evidence from the IRS Website and the FHA list of approved Non Profits when DPA's are used for closing. Here is the website to check the Non-Profits and the HUD guidelines: www.hud.gov/offices/hsg/sfh/np/irstatus.cfm.
Is there a limit on the percentage of discount points that can be charged?
Per HUD requirements, discount points, origination fees, and other such fees cannot exceed two percent. Keep in mind, only one percent in origination can be charged. If the two percent limit is exceeded, the variation must be based upon actual fees or costs charged to the lender to make the loan.
Yes, some investors allow manufactured homes.
