Do Older Homes Qualify For FHA Loans?

A common question about FHA loans involves the age of the home and whether an “older” home is suitable for an FHA guaranteed mortgage. Some FHA loan applicants want to know if a home built in a certain decade is eligible for an FHA mortgage.

It’s an interesting question--does the FHA have any regulations that specify a home’s age as a factor when it’s time for the lender to approve or deny the loan? Look in the FHA loan rules and you will not find any reference that states “a home built before (insert decade here) is ineligible for an FHA guaranteed loan.”

What the FHA does specify are the guidelines that must be followed related to the condition of the property rather than its specific age. The home must meet FHA “minimum property standards” as well as federal, state, and local building code that may apply.

Again, search through the FHA loan rules as described in HUD 4155.1 and you will not find any specific rule, regulation or standard that says how old the property can or must be. Is the home safe? Habitable? Does the age of the home affect the resale value?

That last detail is an important factor to keep in mind. FHA loan rules are concerned with the property’s “remaining economic life”. A lender may deny a loan application for the purchase of a property with an FHA guaranteed mortgage if the property has little economic life remaining. After all, the borrower should be able to sell the property at a reasonable rate as determined by current market conditions at any point during the lifetime of the FHA loan.

Remaining economic life issues can be circumstantial and standards may vary greatly from market to market. Regardless, it’s important to know that an older home is not necessarily without value in the eyes of the FHA or the housing market--and that market does play a part in how the home’s value is determined. It is not safe to assume that older property you’ve had your eye on isn’t a good investment for a home loan, but it’s best to approach older homes knowing there are age-related issues that may need addressing as a condition of loan approval.

To discuss buying your older home, call Broker Michica Guillory of The Guillory Group at (832) 768-1711.

A Little Something About FHA Loans & Credit Scores

 

Many FHA loan applicants have worked hard to build up their credit scores yet aren’t sure whether they can qualify for an FHA loan. A common dialogue from potential buyers about FHA loans goes more or less like this:

“I have a credit score of 536. Can I get an FHA loan? I applied for a conventional loan but could not get approved.”

One thing that’s important to remind borrowers of when it comes to questions like this--some wrongly assume that the FHA is responsible for loaning money. It is not. FHA loan standards are set in two places--one is the FHA loan rulebook, which states that a minimum credit score of 500 is required for consideration. But since the FHA does not lend the money for a home loan, the participating lender’s own credit score requirement is also a factor.

This point is very important. To reiterate: the FHA does not loan money or disburse funds. Instead, it guarantees the home loans which are issued by a participating lender. The lender is responsible for processing, approving or denying the FHA loan applications it receives.

If the borrower does not meet minimum FHA standards, the loan application will be denied. If the borrower meets minimum FHA loan standards, but cannot meet the lender’s additional requirements--which may include more stringent credit or income criteria depending on the loan and the situation--the loan may be denied.

FHA minimum credit scores are listed at 500 and above. Financial institutions can and often do require higher FICO scores. Among many lenders, the accepted basic minimum FICO score is 620 or better.

If you are considering applying for an FHA loan but know your FICO score is lower than 620, contact the FHA directly for a referral to a pre-purchase housing counselor who can give advice on how to improve credit scores and the overall chances of loan approval. Also, if it's not in your budget to hire third-party companies to “repair your credit,” then contact the FHA and ask for a referral to an FHA approved housing counselor on how you can accomplish the same results yourself.

Call the FHA directly for this type of assistance at 1-800 CALL FHA.

 

Then call Michica Guillory of The Guillory Group at (832) 768-1711 when you're ready to buy or sell your home.

BUYER BEWARE: On FHA Loans, Mortgage Insurance To Be PERMANENT

Changes are on the way as the Federal Housing Administration begins implementing new lending policies on April 1. These changes will significantly raise the cost of purchasing a home for anyone borrowing from an FHA-backed lender.

Effective next month, Mortgage Insurance Premiums (MIP) will increase and raise the cost of borrowing for purchasers short on funds for their down payment. MIP rates will increase by about 10 basis points (.10 percent) on most mortgages.  Two months later, on June 3, HUD will increase the minimum time a borrower must pay for mortgage insurance. The biggest surprise to the uninformed will be the change in rules making it impossible for most borrowers to cancel the MIP without refinancing into another loan not administered by the FHA. In other words, the MIP on an FHA loan will be PERMANENT for many.

Under current guidelines, buyers could request that the MIP be eliminated when the loan-to-value (LTV) dropped to 78 percent of the original loan and the annual MIP had been paid for at least 60 months. Most FHA borrowers will find it more difficult to eliminate paying for the insurance in the future. The new changes vary depending on the original terms of the loan. Anyone borrowing greater than 90 percent LTV will be stuck paying MIP for the life of the loan. The only way to eliminate this expense would be to pay off the loan or refinance. Borrowers with an initial LTV between 78 percent and 90 percent may eventually qualify to eliminate MIP, but only after a minimum of 11 years.

FHA backed loans are popular for several of reasons. FHA allows for a 3.5 percent down payment, refinances without appraisal, and its rates are usually low.

In order to avoid the MIP rate increases, home buyers should plan to apply with a lender no later than March 25. Borrowers hoping to avoid the new terms on canceling the insurance should apply by May 24.

Don’t wait before it’s too late to take advantage of today’s low rates.

Sorting through the maze of mortgage options is just another reason to seek professional advice from a qualified and experienced mortgage lender. Depending on your financial situation, there may be other loan products that meet your needs and cost less when everything is taken into account. The lowest mortgage interest rate does not always equal the best deal when all costs are considered.

For more information or to get started with your home search, call Michica Guillory, Broker, at (832) 768-1711.