FHA Loans and Your Rights

February 11, 2009

Whether you are applying for an FHA loan to get your first home, seeking an FHA cash-out refinancing mortgage or an FHA refinancing loan, there are certain rights and protections you should be aware of before closing the deal.

The most important right you have in any financial transaction is to know the specific terms and conditions of the paperwork you're signing. If you need help understanding the terms of your FHA home loan, HOPE for Homeowners refinancing, an FHA refinancing loan or any other product, ask your lender to explain the terms in as much detail as you need.

You should never be rushed into signing an agreement for an FHA home loan. Do you fully understand the conditions of your FHA mortgage? There are a number of typical questions many ask:
 

• Who pays the closing costs?
• What is the total amount due every month on my FHA mortgage?
• What are "points"?
• What happens if my FHA mortgage payment is a day or two late? Is there a grace period?
• What may cause my FHA mortgage to go into default? Foreclosure?
• What is the actual cost of my FHA home loan above the amount I am borrowing for the house?

You should have the answers to all these questions and more. Your lender can assist you, but you may need to make an appointment to discuss the answers fully.
In addition to making a fully informed decision about your FHA home loan, you should also be aware of your rights under the Fair Housing Act. No homebuyer can be refused a loan or purchase on the basis of race, creed, or other discriminatory practices.

Most people understand these basic rights under the Fair Housing Act, but there are other rights which apply to all borrowers, whether you apply for an FHA-approved home mortgage or any other type of loan. Did you know it's against federal law to prohibit reasonable modification of an existing home to accommodate disabilities? A housing provider or homeowner's association that tries to block or disapproves reasonable structural repairs or modifications is in violation of HUD and Department of Justice laws.

If you have been approved for an FHA cash-out refinancing loan to make your home wheelchair accessible, for example, you can't be denied any reasonable alteration to create that accessibility. Homeowner's associations that have covenants restricting such modifications are in violation of the law.
Before you decide to apply for an FHA mortgage or FHA refinancing loan, there are questions to ask if modifications or repairs are needed to make a home accessible.
 

• If you pay for the modifications yourself, how will the cost affect your debt-to-income ratio?
• How does the modification affect the resale value of the home?
• Does the home need to be reappraised after accessibility modifications are made?

Not all FHA loan products are affected by these kinds of modifications, but some are. If you have an FHA Hope for Homeowners refinance loan, changes to your property may affect the resale value. When you decide to sell or refinance, the amount of money you pay back to the government under the HOPE equity sharing program may change depending on how such modifications changed the resale cost.

If you are applying for an FHA cash-out refinancing loan to fund your modifications, you may be turned down if you don't meet the right income or debt-to-income ratio guidelines. In these situations, the reasons for the loan are not the issue, but rather the eligibility for the FHA loan. There's no discrimination present if you don't meet the requirements; credit counseling and assistance programs are available to help borrowers assess their creditworthiness before applying for an FHA cash-out refinance loan.

Reputable lenders don't discriminate, but sometimes the actions of a few can create the impression that there's no recourse regarding practices or activities that violate the Fair Housing act. If you suspect your rights have been violated, contact the Department of Housing and Urban Development at 1 800 669 9777, and the Department of Justice at 1-800-896-7743.