Questions about FHA Rules

According to the U.S. Department of Housing and Urban Development, “The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.”

Listed below are a few questions on FHA related issues.

According to the Federal Housing Administration, exemptions are granted to landlords who own 1-4 units and reside in one of them, or who own only one unit that is rented out. Do these exemptions still apply in the state of Massachusetts if landlords accept rental subsidies?

In Massachusetts, although all landlords are meant to accept subsidies, very often many of them don’t accept them. The exemption will apply to those landlords who do not accept the subsidy.

In a Federal Housing Administration (FHA) mortgage transaction, when the seller is an investor, what are the maximum real estate commission and appraisal consulting fees that are legally allowed by the FHA?

There are no FHA regulations that are imposed on a sales commission. Also, there are no maximum transaction fees. However, there is a limit on the loan amount and along with an amount of cash that is due at closing. For more information on this, visit:
http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/LENDERS/FHA_MAXIMUM_MORTGAGE_ AND_CASH_NEEDED_CALCULATOR/FHA%20MAXIMUM%20MORTGAGE%20 AND%20CASH%20NEEDED%20CALCULATOR.XLS

I was planning on taking a conventional loan to finance 90% of the amount on a building and signed a contract stating that I’d pay said amount. Later, I decided to take an FHA loan to put 5% down and keep the other 5% for closing expenses. Will I be pressured by the seller to stick with a conventional loan?

Unless it is specifically written in the contract, the seller cannot force you to choose a conventional loan over an FHA loan. Also, if you agree to put down earnest money, the financing method will not affect the amount agreed upon.

I am planning to buy a second home and have a high Debt to Income Ratio (DTI) of 50+. My lender has told me that I can still get an FHA loan but I’d like to know whether there is a rule that says that my DTI cannot be more than 51%.

Your lender may not have the right information. The FHA guidelines on this issue can be viewed at
http://www.fha.com/fha_requirements_debt.cfm

From what you have said, your DTI seems too high. Read more about this at http://www.fha.com/fha_article.cfm?id=195

However, it is possible that you could get up to 50% back-end ratio, or even above, if you have other factors like solid credit, cash reserves, and so on, that could compensate.

I am planning to get an FHA loan and would like to understand the terms “front end” and “back end Debt to Income Ratio”.

Front-end ratio, or the housing expense ratio, is used to understand the exact amount of gross, or pretax, monthly income that will go towards mortgage payments every month.

Back-end ratio or total debt-to-income ratio shows the amount of gross income that is used in paying off debts like mortgage, child support, car loans, credit card bills, alimony, condominium fees, and so on.

FHA loans have helped many first-time homebuyers to realize their dreams and buy a home. An FHA loan also allows buyers to refinance or buy homes with low down payments which are especially useful for low and middle income families. Yet, like any government agency, the FHA has its own rules and regulations.