FHA’s mortgage popularity stems from giving borrowers the chance to own a home with just a 3.5% down payment. While FHA mortgage rates remain low, the upfront and annual mortgage insurance premiums continues to increase. Due to this, many existing FHA borrowers will wait to refinance until they can obtain a conventional mortgage refinance which eliminates at least the upfront mortgage insurance premium. For others, the increased insurance premiums are making it difficult to qualify for the FHA streamline refinance which is a quick and easy process that does not require an appraisal provided there is no cash taken. Under the traditional FHA guidelines for this program, there must a tangible benefit which means that the borrower must realize a mortgage payment reduction of at least 5% in order to receive an approval for the FHA streamline refinance. Even though FHA mortgage rates are down, the increase in these mortgage insurance premiums has made this impossible for many borrowers to realize since the monthly payment is the total of monthly principal, interest and monthly mortgage insurance.

To solve this problem, FHA has expanded the FHA streamline refinance for long term FHA borrowers so that they can indeed refinance. For FHA mortgages that were endorsed prior to June 1, 2009, FHA has changed the upfront and annual mortgage insurance premiums to extremely low levels. For all FHA streamline refinances with no cash out, the upfront mortgage insurance premium is 0.01% and the annual mortgage insurance premium is 0.55%. In addition, the FHA 15 year fixed rate mortgage with a loan to value of 78% or less has no annual mortgage insurance premium.

These changes will now make millions of homeowners eligible for this expanded FHA streamline refinance with no cash out and will drastically reduce the monthly mortgage payment for these FHA borrowers. It is expected that FHA streamline refinances will surge beginning June 11th and beyond since many borrowers have already been submitting applications. Due to this, it is quicker and easier to submit an FHA application for this program online where there are multiple lenders to assist FHA borrowers.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

Many borrowers often wonder when it is possible to stop paying the annual mortgage insurance premium on FHA loans. There are specific rules to terminating this premium which are set by FHA in their guidelines. Annual mortgage insurance premiums that are paid monthly with the mortgage payment are terminated as follows:

-when the term of the mortgage is 15 years or less and the loan to value ratios are 90 percent and above, the annual premium will end when the loan to value reaches 78 percent regardless of the amount of time the loan has been established.
-when the term of the mortgage is more than 15 years, the annual mortgage insurance premium will be terminated when the loan to value ratio reaches 78 percent provided that the borrower has paid the annual premium for at least 5 years.

It is important to know that when mortgages with a term of 15 years or less have loan to value ratios of 78 percent or less at the time of refinancing, they will not be charged the annual mortgage insurance premiums and are considered exempt. Otherwise, although the annual mortgage insurance premium is the same for all FHA streamline refinances, the main difference is that any mortgage above the 15 year term, must pay annual mortgage insurance premiums for a minimum of 5 years. This is not something new since FHA has always had a minimum payment period in effect for long term mortgages.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

The FHA streamline refinance with no cash out will offer lower upfront mortgage insurance premiums and annual mortgage insurance premiums. This is in addition to the low FHA mortgage rates that are available. The upfront mortgage insurance premium will be .01 percent and the annual mortgage insurance premium will be .55 percent. In order to qualify, the borrower must have an existing FHA insured mortgage that was endorsed on or before May 31, 2009. There are currently 3.4 million households with FHA mortgages that meet this endorsement period. In order to qualify for this program, it is stipulated that the monthly mortgage payments must be current. With the FHA streamline refinance, the closing costs cannot be added to the mortgage amount so it is not unusual for lenders to add a premium in order to cover these costs. This refinance program can also be used for existing FHA mortgages on property that is no longer the primary residence of the borrower and is now considered an investment property. There is no income or employment verification required, no bank statement required and no appraisal required which truly makes this process streamlined. On the other hand, there may be overlays in place which differ from lender to lender. By inquiring about this FHA streamline program online, borrowers will have more options presented to them which means an easier transaction that leads to success.

Many existing FHA borrowers are ready to streamline refinance now and have been submitting their information even though the official updated program will not be released until June 11th. Since this program is similar to the Harp 2.0 mortgage refinance program for conforming mortgages held by Fannie Mae and Freddie Mac, it is expected that come June, lenders will become flooded with applications.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

To be considered a commissioned income borrower, more than 25% of the annual income must come from commissions. Borrowers must document this type of income with copies of signed income tax returns or tax transcripts received from the IRS for the last two years. The relevant income will be calculated for the average amount of the previous two years. The most recent pay stubs will also be necessary to show current employment and confirm that commissions are continuing which will be verified by the lender. When commission income shows a decrease from one year to the next, compensating factors are necessary in order to reach and issue an approval status. If commissions were received for more than one year, but less than two years, it must be documented that the income will continue in order to be used for debt to income ratios. When calculating the average income, any unreimbursed business expenses will be subtracted from the gross income.

Any commission income that has been earned for less than one year will not be considered as effective income. There are exceptions such as when a borrower went from salary to commission in a similar position and with the same employer. Since some borrowers receive a portion of regular salary plus commission, the regular salary will always be considered first since this may be sufficient enough for the borrower to qualify without even using the commission income.

Many sources of employment today, especially sales, are commissioned positions. Needless to say, if this income has steadily increased from year to year, it will be easy to determine the amount of income to be used for the mortgage application. Being familiar with FHA mortgage guidelines for commissioned income gives borrowers a better chance to know when to apply for an FHA mortgage in order to receive the best results.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

According to FHA, any borrower who took a short sale agreement on a principal residence in order to take advantage of the declining real estate market, and is seeking to purchase a similar or better property at a reduced price that is within a reasonable commuting distance, is not eligible for an FHA mortgage. In order to be eligible for an FHA mortgage, the borrower must have been current with the mortgage and other installment debts when the short sale took place on their previously owned property. Mortgage payments on the previous mortgage and installment debt payments must have been made on time for a period of twelve months prior to the short sale. The proceeds from the short sale then served as payment in full of their mortgage debt.

If a borrower was in default on their mortgage when the short sale or pre-foreclosure sale took place, they are not eligible for an FHA mortgage for a period of three years from the date of the sale. Under FHA’s pre-foreclosure sale program, the starting period is from the date that FHA paid the claim associated with the pre-foreclosure sale. Under certain circumstances, exceptions to this rule can be made by lenders. An exception is when the default was due to circumstances beyond the borrower’s control, such as a long term uninsured illness or the death of the primary wage earner. The credit report must indicate that there was satisfactory credit before these circumstances took place which ultimately caused the default.

Since many borrowers did indeed take advantage of short sale agreements in the past several years, it is important to know the rules and regulations before looking again to purchase another home. Securing an FHA mortgage after a short sale requires, in many cases, time out from homeownership. For some, the three years stipulation is already approaching. This is a good time for potential home buyers since homeownership affordability is at a high with low home prices and low FHA mortgage rates still available.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

FHA insured mortgages are not available to any non-U.S. citizens who does not have lawful residency. Those who have lawful permanent resident alien status are able to obtain an FHA mortgage and are given the same terms and conditions as those for U.S. citizens. The mortgage application must indicate that the borrower is a lawful permanent resident alien and must back up that claim with evidence of the permanent residency. The USCIS (U.S. Citizenship and Immigration Services) within the Department of Homeland Security provides the necessary evidence of this status. FHA also insures mortgages for non-permanent resident aliens as long as the property will be the principal residence of the borrower. In addition, the borrower must have a valid social security number and be eligible to work in the U.S., which is shown with an Employment Authorization Document (EAD) issued by the USCIS. A social security card is not considered reliable proof of work status and cannot be used for this purpose. When the EAD is set to expire within one and there is a history of residency status renewals, a lender can assume that continuation of the borrower’s status will be given. If there are no prior renewals, it must be determined through information from USCIS if the residency status will continue. Any borrower who lives in the U.S. by virtue of refugee or asylum status granted by the USCIS is eligible to work in the country automatically and does not require an EAD.

With the numerous amounts of lawful immigrants in the U.S., it is important that FHA insured mortgages have these guidelines set in place so that they, too, can purchase a home. These rules have been enforced for many years and have allowed many immigrants, also known as aliens, to enjoy a permanent home here in the U.S.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

Under the past FHA guidelines, if the credit report showed that a borrower was disputing any credit accounts or collections, the mortgage application had to be referred to a DE underwriter for further review. Under the new guidelines, if the FHA mortgage receives an Accept/Approve findings through the AUS system, and if the total single or cumulative balances of the disputed and/or collection accounts total less than $1,000 and finally, if these accounts are two years old from the last date of activity shown on the most recent credit report, then no further action is necessary. In other words, old collections totaling under $1,000 that are accepted through automated underwriting do not have to be paid or submitted for further review. When the amount totals $1,000 or more, borrowers must pay in full, make payment arrangements and show three months of payments or show proof of theft or fraud even if they are old collections.

Most borrowers who have been planning on purchasing a home, have also been working to clean up their credit in recent years. For these borrowers, the latest FHA changes will probably have no affect. Even in the past, lenders have always had their own guidelines in place in addition to FHA guidelines with respect to credit issues and credit scores. When credit underwriting a loan file, FHA DE underwriters have always taken into consideration any credit issues and the amount of collections when making their decision for an approval. Often, borrowers were requested to pay off credit accounts or collections at closing if, upon inspection of the loan file, the underwriter made their determination for approval based on these stipulations.

By updating their credit qualifying guidelines, FHA is just putting into writing what may already be the rule by some individual lenders. The changes are there to protect borrowers from taking on more debt than they can handle. Although FHA mortgages will allow certain credit issues, lenders will still be looking closely to make sure that FHA agrees with their decision to give a borrower an FHA loan approval.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

When the borrower has one or several disputed credit accounts and/or collections with a total balance that is equal to or above $1,000, the accounts must be resolved by payment arrangement or paid in full prior to or at closing. If not paid in full, these payments will be included in the debt to income ratios. If payment arrangements have been made, there must be at least three months of verified payments as per the agreement made with the creditor. Any disputed account or collections that are the result of credit card theft, identity theft or unauthorized use are excluded from the $1,000 calculation. There must be related and appropriate documentation, such as a police report, to substantiate this claim.

When the total amount due on outstanding credit and/or collection accounts is below $1,000 the borrower does not have to pay off the accounts in order to receive approval. It is not considered an acceptable resolution according to FHA to pay down balances on any of these accounts in order to bring the balance below $1,000. FHA requires that court ordered judgments be paid in full prior to FHA mortgage approval. In the case of a court ordered judgment in which the borrower has an agreement to make regular payments and can show the documentation that at least three months of payments have been made, a borrower can continue to pay off the judgment and the payments will be included in the debt to income ratios.

Acceptable documentation to support any resolutions to credit or collection accounts include a letter from the creditor which outlines the terms of the payment arrangements or verifies the payoff of debt, canceled checks or a credit report supplement that verifies the payoff or payment arrangements. It is likely that more borrowers will be cleaning up their credit prior to making an FHA mortgage application once these FHA updates for credit qualifying go into effect.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

Effective April 1, 2012, FHA’s annual mortgage insurance premium will increase .10% for all new FHA case numbers This premium is paid on a monthly basis and is part of the mortgage payment. Effective June 1st, this increase will total 0.35% for new FHA mortgages over $625,500. The FHA upfront mortgage insurance premium is also increasing by 0.75% with all new FHA case numbers issued starting April 1st. While these increases are a big change and additional expense to borrowers, FHA mortgages are still worth undertaking. The annual mortgage insurance premium increase is small and will not overly extend borrowers on a monthly basis which will show through the debt to income ratios. Although the upfront mortgage insurance premium is higher, FHA still allows this cost to be added to the mortgage amount.

When examining FHA mortgages, the benefits that are offered for new and existing borrowers are substantial. Different types of mortgages are available, such as the FHA 203k for properties requiring rehabilitation, FHA energy efficient mortgages, FHA Adjustable Rate Mortgages, FHA Manufactured Home & Lot mortgages, FHA Condominium, FHA Cooperative, and several specialty mortgages for disasters, Indian Reservations, seniors and urban renewal. The FHA down payment requirements are low and the credit approval process is flexible. Borrowers can use regular gifts, bridal registries and even sweat equity towards the down payment. These are in addition to using approved housing grants or loans from local home ownership programs. FHA mortgages are assumable when the property is being sold which makes it much more marketable to potential home buyers, especially if the assumable mortgage has today’s low mortgage rates. The FHA refinance program for borrowers who have FHA mortgages is one of the easiest to obtain and does not require any extensive underwriting or appraisal when it is a “no cash out”. To help borrowers with these and special issues, FHA even offers consumer counseling for specific situations.

FHA has been in existence since 1934 because of its commitment to consumers to provide affordable housing. It still remains a very popular and necessary mortgage entity that is available for low to moderate income families. Without FHA mortgages, many people would not be able to purchase a home. Since no other mortgage type has this many options, the benefits of FHA mortgages still outweigh the higher FHA premium fees that are being implemented.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.

The current concession limit is 6 percent of the value of the home which is, in most cases, contributed by the seller of the transaction. The revised proposal would reduce this to 3 percent of the home’s value or $6,000, whichever amount is greater. According to the proposal, seller concessions at 6 percent of the sales price of the property, which are in currently in place, increases the risk of default. The proposed 3 percent is not an unusual amount since it is the same amount that is currently allowed with conforming mortgages. Although this may sound terrible to many home buyers and real estate agents, the 3 percent maximum will actually only occur on mortgages $200,000 and above. For a $100,000 property value, the concessions will be the maximum of $6,000 which is really 6 percent. The percentage decreases as the amount increases. It is also proposed that the items that are paid for by interested third party concessions exclude payment for items such as homeowner association fees, mortgage protection plans, etc. Concessions are to be used to acquire the property, not payment supplements which are considered inducements to purchase. Acceptable costs to be paid with concessions are closing costs, prepaid expenses, discount points, the upfront mortgage insurance premium and interest rate buy downs. The revised proposal also clarifies the interested third party as seller, real estate agent, builder, developer, mortgage broker, lender and/or settlement company.

The FHA proposal to reduce allowable seller concessions is currently open to discussion until the end of March. After that, HUD and FHA will make the final decision and rules that will be put into effect shortly thereafter.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.