©2011 cengage learning chapter 4: loans: government fha, va, cal vet and other loans that use real...

©2011 Cengage Learning

Chapter 4: LOANS:

GOVERNMENTFHA, VA, Cal Vet And other loans that use Real property as collateral

By Dr. D. Grogan

M.C. “Buzz” Chambers


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


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.


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.


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


FHA Loans in CA# of Total Loans in CA & US

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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


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


FHA LOANS Statutory Maximum Loan Amounts Vary from one area to another

Single family $ Duplex $ Triplex $ Fourplex $

www.hud.gov


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.


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.


FHA 203 b

Qualifying ratios: Front end: 31% Back end: 43%

FHA rounds down to nearest $50 in whole dollars for the loan amount.


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


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.


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.


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.


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.


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


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


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


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.


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


FHA LOAN TYPES

Title I Home improvement loan No appraisal fee required No Equity required Fixed rate loan No prepayment penalty


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


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


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


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


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


Borrower “Non-Allowables”

1. Sub-escrow fee

2. Loan tie-in fee

3. Processing fee

4. Underwriting fee

5. Document preparation fee


GNMA

Government National Mortgage Assn. HUD agency Borrower pays the mortgage insurance

premium Enables buyers with less than 20% down

payment to purchase


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


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.


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.


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.


FHA and VA Mortgages(First Mortgage)

Q. Please indicate the type of mortgage

32.0%

4.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009

FHA VA


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


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. Seller2. the veteran3. adding the fee to the DVA loan amount


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 EntitlementClosing costs: Allowable or Non-allowable

(settlement/escrow fee)


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.


DVA ELIGIBILITY REQUIREMENTS

Continuous and Active Service

90 Days DatesWWII 9/16/40 - 7/25/47Korean War 6/27/50 – 1/31/55 Vietnam War 8/5/64 – 5/7/75Persian Gulf War 8/2/90 -

181 Days DatesPeacetime era 7/26/47 – 6/26/50Peacetime era 2/1/55 – 8/4/64Peacetime era 5/8/75 – 9/7/80

24 Months DatesPeacetime era after 9/7/80


DVA GUARANTY AMOUNTS

Sliding Scale: www.va.govLoan Amount GuarantyUp to $45,000 50% of loan amount$45,001 - $56,250 $22,500$56,251 - $90,000 40%$90,001 - $144,000 $36,000Over $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)


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)


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.


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


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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