More Related Content Similar to Important facts about fha loans by jim stepanian (20) Important facts about fha loans by jim stepanian1. ©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
2. ©2011 Cengage Learning
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
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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.
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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.
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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
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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
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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
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FHA LOANS
Statutory Maximum Loan Amounts
Vary from one area to another
Single family $
Duplex $
Triplex $
Fourplex $
www.hud.gov
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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.
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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.
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FHA 203 b
Qualifying ratios:
Front end: 31%
Back end: 43%
FHA rounds down to nearest $50 in whole
dollars for the loan amount.
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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
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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.
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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.
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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.
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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.
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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
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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
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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
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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.
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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
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FHA LOAN TYPES
Title I
Home improvement loan
No appraisal fee required
No Equity required
Fixed rate loan
No prepayment penalty
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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
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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
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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
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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
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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
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Borrower “Non-Allowables”
1. Sub-escrow fee
2. Loan tie-in fee
3. Processing fee
4. Underwriting fee
5. Document preparation fee
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GNMA
Government National Mortgage Assn.
HUD agency
Borrower pays the mortgage insurance
premium
Enables buyers with less than 20% down
payment to purchase
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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
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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.
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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.
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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.
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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
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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
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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)
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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.
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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
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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)
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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)
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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.
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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
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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
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