Important facts about fha loans by jim stepanian

©2011 Cengage Learning
Chapter 1:
LOANS: GOVERNMENT
FHA, VA, Cal Vet And other loans
that use Real property as collateral
By Jimmy stepanian
12/21/16

 The purpose of this unit is to familiarize the learner with
common types of government financing loan programs where
agency administration of the loan is a federal or state entity.
 Some lenders specialize in only some particular loan
programs (Conventional only, see Ch 3); other lenders offer
broader varieties (Conventional, government & private).
 Federal programs: FHA and DVA
 State program: Cal Vet
 Others: Refinance, Energy Efficient, Small Business
Administration (SBA), first time home buyer (FTHB).
 The mortgage loan broker needs to know as many types of
loans as possible to offer the potential borrower the best
choices and to match the right borrower with the right
investor’s loan funds.
PREVIEW
12/21/16

Ch 4 STUDENT LEARNING OUTCOMES:
1. Differentiate between the government loans:
DVA, FHA, and Cal Vet.
2. List the components of the various government
loans.
3. Identify which loan criteria would be required for
a government loan.
4. Explain the nature of the various loan programs.
5. Describe SBA loan information.
12/21/16

4.1 FHA Loans
 www.fha.gov www.hud.com
 Created by Congress in 1934
 An insurance agency
 FHA is NOT a lender
 Both borrower & property must meet qualification
criteria.
 Buyer must place 3.5% of the sales price into the
transaction, either down payment or closing
costs.
12/21/16

FHA LOAN CHARACTERISTICS
 Less stringent qualifying standards
 Low down payment
 No secondary financing for the down payment
 Financed closing costs
 Mortgage insurance always required
 No Prepayment penalties
 Owner-occupancy required
 Interest rate freely negotiable
12/21/16

FHA Loans in CA
# of Total Loans in CA & US
CA Tops All States with a
10% Market Share of all FHA
Lending in US
(Source: Inside FHA Lending)
Source: HUD
CA Endorsements US Endorsements
12/21/16

Statutory FHA Loan Amount Limits
 Specified by the National Housing Act
 Prior to 1996, loan limits established by Freddie
Mac http://www.freddiemac.com
 2009: Stimulus bill raised loan limit for reverse
mortgages from $417,000 to $625,500.
 High cost areas limit is set at lesser of 95% of
area median sales price, or the statutory ceiling,
which is equal to an amount not to exceed 87%
of Freddie Mac’s conforming loan limit.
www.FNMA.com
12/21/16

FHA LOANS
 Statutory Maximum Loan Amounts
 Vary from one area to another
 Single family $
 Duplex $
 Triplex $
 Fourplex $
www.hud.gov
12/21/16

FHA LOAN TYPES
 FHA 202
 Supportive Housing for the Elderly
 Enacted in 1959 amended in 1990
 Based on development cost limits published in
the Federal Registry.
 Property must be NEW construction, or
 Rehab of existing building.
 Property for low-income, elderly persons for at
least 40 years.
12/21/16

FHA LOAN TYPES
 FHA 203 B
 Standard Program established in 1934
 Minimum investment of 3.5% of sales price
 15 or 30 year loans
 1-4 unit, owner-occupied loan
 Buy downs may be used
 May finance non-recurring closing costs, up-
front MIP (UPMIP) up to 96.5% of appraised
value.
12/21/16

FHA 203 b
 Qualifying ratios:
 Front end: 31%
 Back end: 43%
 FHA rounds down to nearest $50 in whole
dollars for the loan amount.
12/21/16

FHA LOAN TYPES
 203 H
 Disaster victim program
 Fixed rate loan for single family property
 203 K
 No up-front MIP
 Slighter higher interest rate than 203B
 Up to six months payment may be financed
 Must be owner occupied
12/21/16

FHA 207
 Designed to facilitate the contraction or
rehab of manufactured home parks when
spaces are available for rent, not
purchase.
 40 year maximum loan term.
 Repayment is a level annuity monthly plan
with equal monthly payments of principle
with interest.
 Loan limit per home space.
12/21/16

FHA Loan Programs
 FHA 221 (d) (2)
 Established in 1954
 Allows the Dept of Transportation & Commerce to pay
the HUD MIP for service members on active duty.
 FHA 221 (d) (3)
 Designed to assist in financing projects for low- & moderate-
income families, by nonprofit mortgagors.
 New construction or substantial rehab
 Five or more residential units with dining facilities
 FHA 221 (d) (4)
 Designed to provide rental housing for moderate income
families.
12/21/16

FHA loan programs
 FHA 223 (e)
 Enacted in 1968 to purchase or rehab housing in older,
declining urban areas for low- & moderate-income
families.
 FHA 223 (f)
 Authorized by the National Housing Act, amended by
the Housing & Community Development Act of 1994.
 Helps secure financing for existing multi-family rental
housing projects of 8 or more units, at least 3 yrs old.
85% LTV.
12/21/16

FHA loan programs
 FHA 234
 Established in 1961 to finance construction or rehab of
multi-family housing by sponsors who intend to sell
individual units; and, to finance acquisition costs of
individual units in proposed or existing condominiums.
 The project must have 4 or more units.
 FHA 237
 Enacted in 1968 for borrowers with marginal credit.
 FHA 238
 For housing in areas affected by military installations.
12/21/16

FHA 244
 Established in 1974
 A federal mortgage program for graduated
payment loans.
 Made to those expected to have incomes that
rise substantially (recent college grad in high-
paying fields).
 May have negative amortization 5-10 yrs
 Graduated equity mortgages (GEM)
 Must be owner occupied
12/21/16

FHA LOAN TYPES
 245 Plan II
 A graduated payment loan
 Increases 5% annually for 5 years
 Rate usually ¼% above FHA 203B
 Borrower qualified 2% below note rate
 Must be owner-occupied, single family
 245 Plan III
 Note rate ¼% above FHA 203B
 Must be single-family property
12/21/16

FHA ARM LOANS
 FHA 251 ARM:
 An adjustable rate loan
 Limited to 1% per year annual cap
 Limit increase or decrease for life of loan
 Five year lifetime cap
 Requires being owner occupied
 No negative amortization
 Lender must disclose “worst case” scenario
12/21/16

FHA 255 (HECM)
 Home equity conversion mortgage
 Established in 1987 allows older
homeowners to convert their home equity
into spendable dollars.
 Being eligible for social security income at
age 62 qualifies a homeowner for HECM.
ALL borrowers must be 62 or more.
12/21/16

FHA 255 (HECM) loan features
 No credit qualification
 No income restriction
 Pays off all existing loans
 No monthly payment
 Receive monthly cash flow
 No prepayment penalty
 No change in title for home ownership
 Increased equity may provide additional income
 The income is tax free
 The income does not reduce any Social Security payments
 May be used for a home purchase
 Current investment of the home does not have to be disturbed
12/21/16

FHA LOAN TYPES
 Title I
 Home improvement loan
 No appraisal fee required
 No Equity required
 Fixed rate loan
 No prepayment penalty
12/21/16

Energy-Efficient Mortgage (EEM)
 Intended to make the existing home stock more
efficient through installation of energy-saving
improvements.
 The maximum amount of the portion of the EEM
for energy improvements is the lesser of 5% of:
 The appraised value of the property, or
 115% of the median area price for a single family
dwelling, or
 150% of the conforming Freddie Mac limit
12/21/16

Mutual Mortgage Insurance
 MMI is paid
 Monthly at 1 / 2 % of loan ÷ 12
 MIP is paid at loan origination
 One time fee
 An up-front fee
 Rate of 1.50 % of the loan amount
12/21/16

ASSUMING FHA LOANS
 Loan Closed Before 12/15/89
 Assumable by any Buyer
 No Credit Check
 (unless seller wants release for liability)
 No Owner-Occupancy Requirement
Loan Closed On or After 12/15/89
 Due on Sale Clause
 Borrower must meet qualifications
 Credit Check Required
 Buyer Must Occupy Property
12/21/16

FHA INSURANCE ONE-TIME MIP
 1.5% of Base Loan Amount
 Paid in Cash at Closing, or
 Financed Over the Loan Term
Loan Amount
X RATE
One-Time MIP
Loan Amount
+ One-Time MIP
Total Amount Financed
12/21/16

FHA LOANS
 Minimum 3.5% cash investment
 Low cost and High-cost area differences
 Maximum loan amount:
 Closing Costs:
 C redit report
 A ppraisal report
 S ettlement or escrow fee
 T itle insurance (ALTA)
 R ecording fees
 O rigination fee
12/21/16

Borrower “Non-Allowables”
1. Sub-escrow fee
2. Loan tie-in fee
3. Processing fee
4. Underwriting fee
5. Document preparation fee
12/21/16

GNMA
 Government National Mortgage Assn.
 HUD agency
 Borrower pays the mortgage insurance
premium
 Enables buyers with less than 20% down
payment to purchase
12/21/16

Cancellation of FHA MIP
 FHA loan term must be > 15 years
 LTV must be 78% of original loan value if
borrower paid MIP for at least 5 years
 Cannot cancel the MIP on condo or 203k
loan, regardless of LTV
 http://www.hud/gov/offices/hsg/comp/refunds
12/21/16

FHA Streamline loan
(Rate Reduction)
 Must be on an existing FHA loan.
 Purpose is to lower the interest rate & monthly
payment without the costs of obtaining a completely
new loan.
 Does not allow for any cash out
 Costs may be paid in cash or added to the unpaid
loan balance.
 No appraisal required unless financing the closing
costs.
12/21/16

Secondary Residence Housing Ownership Center
(HOC)
 The secondary residence must NOT be a vacation home or
otherwise used primarily for recreational purposes.
 The borrower must obtain the secondary residence because
of seasonal employment, employment relocation, or other
circumstances not related to recreational use of the
residence.
 There must be a demonstrated lack of affordable rental
housing meeting the needs of the borrower in the area or
within a reasonable commuting distance of the borrower’s
employment.
12/21/16

FHA Housing loan programs
 Hope for Homeowners (HOPE)
www.hopeforhomeownersprogram
 30-year, fixed rate program for people at risk of
losing their home due to default and
foreclosure.
 Indian Home Loan Guarantee Program
 Guaranteed loan for Native Americans, tribes,
Tribally Designed Housing Entities (TDHEs) &
Indian Housing Authorities on Indian Land.
12/21/16

FHA and VA Mortgages
(First Mortgage)
Q. Please indicate the type of mortgage
12/21/16

DVA GUARANTEED LOANS
 One to Four Units
 Vet Must be in Owner-Occupied unit
 No Down payment Required
 No Prepayment Penalties
 Maximum Interest Rate
 Fixed rate on 1-4 units
 Graduated payment on single-family unit
 No Mortgage Insurance
 Seller Pays Discount Points
 Buyer Pays 1% Loan Fee, 1.875% VA Funding Fee
 Secondary Financing Permitted
12/21/16

DVA GUARANTEED LOANS
 Buyer Pays 1% Loan Fee, 1.875% VA Funding Fee
This fee varies based on down payment, etc. as follows:
0%down 5%down 10%down
1st
Time User 2% 1.5% 1.25%
2nd
Time User 3% 1.5% 1.25%
May be paid by:
1. Seller
2. the veteran
3. adding the fee to the DVA loan amount
12/21/16

ASSUMPTION on DVA LOAN
RELEASE FROM LIABILITY
 Loan must be current
 Purchaser must have acceptable credit
 Purchaser assumes the obligations in writing
RESTORATION OF ENTITLEMENT
 Loan must have been paid off
 Assumption may be made by a vet:
 Substitutes Entitlement
Closing costs: Allowable or Non-allowable
(settlement/escrow fee)
12/21/16

Veterans Regulated Closing Costs
1. Credit report
2. Appraisal fee for VA-approved appraisal report
3. Recording fees
4. Insurance: Title policy and hazard policy and prorations for
an impound account.
5. VA funding fee
6. Survey, inspection report, or similar veteran-requested
items.
7. Federal Express, Express Mail, or similar service when the
saved per diem interest cost to the veteran exceeds the
cost of the special handling.
12/21/16

DVA ELIGIBILITY REQUIREMENTS
Continuous and Active Service
90 Days Dates
WWII 9/16/40 - 7/25/47
Korean War 6/27/50 – 1/31/55
Vietnam War 8/5/64 – 5/7/75
Persian Gulf War 8/2/90 -
181 Days Dates
Peacetime era 7/26/47 – 6/26/50
Peacetime era 2/1/55 – 8/4/64
Peacetime era 5/8/75 – 9/7/80
24 Months Dates
Peacetime era after 9/7/80
12/21/16

DVA GUARANTY AMOUNTS
Sliding Scale: www.va.gov
Loan Amount Guaranty
Up to $45,000 50% of loan amount
$45,001 - $56,250 $22,500
$56,251 - $90,000 40%
$90,001 - $144,000 $36,000
Over $144,000 $36,000 plus 25% of
amount over $144,000
up to a maximum of
$46,000
No Maximum Loan Amount, But:
Loan may not exceed sales price or
Certificate of Reasonable Value CRV (appraisal)
Most lenders require the guaranty to cover at least 25%
of the loan (so a VA loan over $184,000 is rare)
12/21/16

Other DVA loans
 Rate reduction refinance
 Limited to current unpaid balance plus allowable closing
costs for the new loan
 Standard refinance
 Limited to 90% of CRV
 Equity must equal at least 25% of CRV
 DVA jumbo loan
 Zero down thru Dec 2011
 Up to $1,000,000 using VALoans.com Super Max
program
 DVA EEM loan
 Increases loan amount. (CRVx90%+cost of improvements)
12/21/16

Credit Alert Interactive Voice Response System
(CAIVRS)
 All FHA & DVA loans must be cleared thru
CAIVRS system before loan approval.
 Purpose is to ensure that borrower does
not have more debt.
 A federal government database of
delinquent federal debtors.
12/21/16

CAL-VET FARM AND HOME
PURCHASE PROGRAM State offers Cal Vet Bonds to investors
 State purchases the property with bond funds
 Vet gets a long-term lease and land Contract
 Low, variable interest rate
 Maximum loan amounts
 High loan-to-value (LTV) ratios
 Prepayment penalties during first years
 Secondary financing permitted
 Home must be owner-occupied single-family
 Mortgage loan broker may originate
 http://www.cdva.ca.gov or (800) 952-5326
12/21/16

Small Business Administration (SBA)
 http://www.sba.gov
 Qualifications focus on applicant’s character,
credit and reliability.
 Primary consideration: prompt payments
 Co-signer is allowed
 Significant factor: likelihood that expected
earnings of the business will be sufficient to pay
the loan obligation.
 Rate is usually Prime plus 2-5%
 Term is usually 7 years
12/21/16

Important facts about fha loans by jim stepanian

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