Ch.19 (A)
FHA Condominium Loans
Another popular program is FHA Condominium Loans which are designed to encourage lenders to offer affordable mortgage credit to those who have non-conventional forms of ownership. Insurance for this type of housing is provided through FHA Section 234(c). The Section 234(c) program insures a loan for 30 years to purchase a unit in a condominium building. The building must have at least four dwelling units and can be made up of detached and semidetached units, row houses, walkups or an elevator structure.
Aspects of FHA loan
As of 2006, the borrower must pay two insurance premiums. The first is the "upfront" Mortgage Insurance Premium (MIP) which is a percentage of the loan amount. The borrower can pay this one-time premium at closing or the charge could be financed with the loan. This premium could be paid by some other party, such as the seller
provides low-down-payment loans to qualified buyers. The Department of Housing and Urban Development (HUD) oversees.
The FHA
was established in 1934 during the great depression to stimulate the housing market in the United States.
The Federal Housing Administration (FHA
FHA Adjustable Rate Loans
Adjustable Rate Mortgage program, which provides insurance for adjustable rate mortgages. When interest rates are high, adjustable rate mortgages keep the initial interest rate on a mortgage low, which allows borrowers to qualify for the financing they need.
FHA Fixed Rate Loans
Although there are many different programs available under FHA insured financing, the most popular is the FHA 203(b) that covers loans on one-to-four-unit owner-occupied dwellings. This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan, which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.
DVA does what in order to make loan acceptable to lenders
agreed to guarantee the top portion of the loan. Since lenders were now protected in the event of a default by the borrower, lenders agreed to loan four times the current DVA Entitlement. The basic entitlement of a DVA loan is $36,000; although some loans are eligible for up to $60,000 if they are over $144,000.
FHA insurance allows
allows borrowers to finance up to 97 percent of the value of their home through their mortgage, down payments can be as little as 3 percent of the total value of the home.
FHA Adjustable Rate Loans
an adjustable rate mortgage can be "streamline refinanced" to a fixed rate mortgage at any time. Streamline refinancing means that the documentation and underwriting is greatly reduced, but closing costs still apply.
The loans FHA provides
are high loan-to-value ratio loans, so it insures the loans in order to make them available to higher risk individuals.
The DVA-guaranteed amount is calculated as
25 percent of the current Freddie Mac conforming loan limit for a single family home. Each year, if the Freddie Mac conforming loan amount increases, the DVA guarantee to a lender also increases. As of January 2016, the Freddie Mac conforming loan was $417,000 in most of the country, so the maximum guarantee would be $104,250. $417,000 x .25 = $104,250
Aspects of FHA loans
Down payments are low. However, the borrower must have cash for a down payment and closing costs. These items cannot be added to the sales price and become part of the loan repayment. The maximum loan fee is 1 percent of the loan amount and is typically paid by the buyer.
can be either fixed-rate 10- to 30-year loans or one-year adjustable loans. The maximum loan term is 30 years or 75 percent of the remaining economic life of the property, whichever is less.
FHA loans
FHA loan facts
FHA requires evidence from a recognized structural pest inspection company that an existing property has no pest infestation. FHA loans are also available to help residents or investors repair or rehabilitate single-family properties. There are no prepayment penalties on FHA loans on one-to-four-family residences. However, the borrower must give 30 days written notice to pay a loan in full before it is due. There is no due-on-sale clause. Original terms of the loan stay the same and cannot change because of a sale.
FHA loan facts
FHA requires that the monthly amounts the borrower pays toward taxes, insurance and MMI be deposited into an escrow or impound account. The lender can charge points and either the borrower or the seller (or both) can pay them. Note: Both interest rates and discount points are fully negotiable between borrower and lender.
Department of Veteran's Affairs (DVA) (Note: We will be using the acronyms DVA and VA interchangeably in this chapter.)
In an effort to make it possible for veterans returning from World War II to purchase a home, the Veterans Administration (VA), now the Department of Veteran's Affairs (DVA), offered the opportunity for veterans to purchase a home with no money down.
FHA loan facts Federal Housing Administration
Loans are assumable, but the rules for assumptions vary depending upon when the loan originated, the type of property, and the specific FHA program under which the original loan was given. The mortgaged real estate must be appraised by an approved FHA appraiser. These appraisals are called "conditional commitments and are good for six months on
The FHA qualifies potential borrowers based on two ratios and the borrowers must qualify under both of these ratios.
Mortgage Payment Expense to Effective Income and Total Fixed Payment to Effective Income
The following veterans are eligible, based on time spent in the service:
The following veterans are eligible, based on time spent in the service: Active-duty veterans discharged during WWII or later, without the status of "dishonorable." Active-duty veterans with at least 90 consecutive days of service during major conflict. Peacetime veterans and active duty personnel with at least 180 days of consecutive service. Enlisted veterans whose service began after 1980 or officers whose service began after 1981 and who have served at least 2 years. Any current active duty serviceperson who has served for 90 consecutive days National Guard and Selected Reserve members who have served for 6 years and Were discharged honorably, OR Were placed on the retired list, OR Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable, OR Continue to serve in the Selected Reserve
Total Fixed Payment to Effective Income
The lender will add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, the lender will divide that amount by the borrower's gross monthly income. The maximum ratio to qualify is 43%.
Mortgage Payment Expense to Effective Income
The lender will take the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and divide that amount by the borrower's gross monthly income. The maximum ratio to qualify is 31%.
FHA Adjustable Rate Loans
The maximum amount of fluctuation in the interest rate in any given year cannot exceed 1 percentage point. In addition, over the life of the loan, the interest rate cannot increase more than 5 percent from the initial rate.
FHA Maximum Loan Amounts
The maximum loan amount allowed varies by geographic area based on a percentage of median house prices for the area with a ceiling calculated as a percentage of the current conforming loan limits. The administration calculates loan limits annually by using a value worth 115% of the median home price in each area. The updated limits kick in on Jan. 1. In South Carolina, the maximum loan amount varies by county. Maximum loan amounts for each geographic area may be found on this page of the FHA website.
Aspects of FHA loan
The second premium, called Mutual Mortgage Insurance (MMI) is a monthly premium that is paid with the monthly principal, interest, taxes, and insurance payment. This is often referred to as PITI + MMI. MMI premiums may be dropped when the remaining loan balance is 80 percent loan-to-value ratio or less.
FHA Adjustable Rate Loans
The terms of the adjustable rate mortgage will be disclosed to the borrower at the time of application. Should the interest rate increase, the borrower will be informed at least 25 days
FHA loan facts
There is no maximum on what the purchase price of the property can be. The borrower can pay more than the appraisal; but the loan will be based on the appraisal amount or the agreed upon sales price, which ever is less. The property must meet the FHA standards for type and construction. FHA also has standards about the quality of the neighborhood. These loans are available for one-to-four family residences and some condominium units. The borrower must occupy the property.
The veteran must provide a Certificate of Eligibility showing
the amount of entitlement available. The entitlement is the maximum number of dollars that DVA will pay if the lender suffers a loss.