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Questions about FHA Mortgage Rules

The Federal Housing Administration (FHA) helps low-and middle-income families to buy homes with the help of mortgage loans insured by the FHA. By insuring the loan, a lender’s risks become lowered and it becomes easier for them to grant loans to borrowers.

Listed below are a few questions on FHA mortgage related issues.

I have an FHA mortgage in Maryland. My mortgage balance is higher than my property value. I don’t qualify for a short sale and have not been able to sell for a year. If I walk away from my property, can the lender sue me and try and acquire my wages and other assets?

In Maryland, if you decide to walk away, and the money gained from a foreclosure sale of your property is not sufficient to pay off the balance owed, your lender can sue you for the difference in money owed. Once the court passes a judgment, they can seize your assets, garnish your wages and levy your bank account.

If a borrower has an FHA loan, does the lender have to make a reasonable effort to work with him even if he has defaulted on his mortgage?

The borrower has a contractual obligation to make all payments towards his mortgage as agreed and the lender only needs to make a reasonable effort based on his discretion. There is no legal obligation to do so.

I currently have FHA mortgage insurance on my home loan. As I had to move out of my primary residence and am renting, I cannot afford to pay for both houses. If I default on my loan, can FHA take the money out of my disability check?

You need not worry about your disability check as it is exempt from judgment enforcement. What you should do is review your insurance policy and check the extent of coverage that you have purchased.

If you have a primary residence with an FHA mortgage, can you buy a second property with an FHA 203k?

The Department of Housing and Urban Development has a set of guidelines that usually don’t allow for more than one FHA loan per individual or couple. There are exceptions to this rule.

  1. 1. The first property can be kept and maintained as a rental if the borrower decides to relocate to another neighborhood that is not within reasonable commuting distance.
  2. 2. The borrower can apply for a second loan if the family becomes larger and there is a need for a bigger house. However, in this case, the existing FHA loan needs to be either documented with a current appraisal to show a 75% loan-to-value or less, or paid down.
  3. 3. In special circumstances such as divorce, if the borrower decides to vacate a jointly-owned property while the co-mortgagor chooses to remain in the residence, the borrower can seek a second loan.
  4. 4. The borrower can apply for a second loan if the borrower is a non-occupying, co-borrower on a piece of property that has been bought with the help of an FHA loan. This property could have been purchased as a principal residence for other family members, yet if the borrower has a joint interest in that property as well as in his/her own principal residence, he/she can seek a second loan.

Unless you fulfill one of the above exceptions, in all probability FHA will not insure a second loan.

The FHA has many rules and regulations that govern FHA mortgages. Also the amount of money that you can get from FHA-insured mortgages varies in different counties and different states. As a borrower, you must be aware of how the FHA works and understand the ways in which it can help you with closing costs on your loan and even mortgage insurance.
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