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Chapter 4: LOANS: GOVERNMENT

Chapter 4: LOANS: GOVERNMENT. FHA, VA, Cal Vet And other loans that use Real property as collateral. By Dr. D. Grogan M.C. “Buzz” Chambers.

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Chapter 4: LOANS: GOVERNMENT

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  1. Chapter 4: LOANS: GOVERNMENT FHA, VA, Cal Vet And other loans that use Real property as collateral By Dr. D. Grogan M.C. “Buzz” Chambers

  2. 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

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

  4. 4.1 FHA Loans www.fha.govwww.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.

  5. 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

  6. 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

  7. FHA LOANS Statutory Maximum Loan Amounts Vary from one area to another Single family $ Duplex $ Triplex $ Fourplex $ www.hud.gov

  8. 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.

  9. 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.

  10. FHA 203 b • Qualifying ratios: • Front end: 31% • Back end: 43% • FHA rounds down to nearest $50 in whole dollars for the loan amount.

  11. 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. 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.

  13. 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.

  14. 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.

  15. 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.

  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

  17. 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

  18. 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

  19. 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.

  20. 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

  21. FHA LOAN TYPES Title I Home improvement loan No appraisal fee required No Equity required Fixed rate loan No prepayment penalty

  22. 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

  23. 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

  24. 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

  25. FHA INSURANCE ONE-TIME MIP 1.5% of Base Loan Amount Paid in Cash at Closing, or Financed Over the Loan Term Loan Amount Loan Amount X RATE + One-Time MIP One-Time MIP Total Amount Financed

  26. FHA LOANS Minimum 3.5% cash investment Low cost and High-cost area differences Maximum loan amount: Closing Costs: Credit report Appraisal report\ S ettlement or escrow fee Title insurance (ALTA) Recording fees Origination fee

  27. Borrower “Non-Allowables” Sub-escrow fee Loan tie-in fee Processing fee Underwriting fee Document preparation fee

  28. GNMA Government National Mortgage Assn. HUD agency Borrower pays the mortgage insurance premium Enables buyers with less than 20% down payment to purchase

  29. 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

  30. 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.

  31. 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.

  32. 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.

  33. 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

  34. 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

  35. 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)

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

  37. 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

  38. 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)

  39. 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)

  40. 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.

  41. 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

  42. 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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