Lesson 8: governmental loans

Some additional facts about FHA loans include:

An individual may hold more than one FHA loan. If the buyer has sold a home on which the FHA loan was assumed within the past year, that loan must be current. If the loan was assumed, it must be current and the buyer must be an owner- occupant OR the loan must be reduced to 75 percent of the maximum loan available to the owner-occupant under 203b, according to a new appraisal.

Fees Paid by the Lender All of the following fees must be paid by the lender or seller and may not be allotted to the borrower:

Attorney's fees Brokerage fees Document preparation fees Escrow fees HUD/FHA inspection fees Loan application/processing fees Notary fees T ax service fees

Personal Information

Copy of Driver's License. Copy of Social Security Card. If Applicable: Copy of complete Divorce, Palimony, Alimony Papers. If Applicable: Copy of Green Card or Work Permit. If Applicable: If you own another home(s) there will be further documents needed.

If a Refinance or you own Rental Property

Copy of Note & Deed from current loan. Copy of Property Tax Bill. Copy of Hazard (homeowners) Insurance Policy. Copy of Payment Coupon for current Mortgage. If Applicable: If property is multi-unit, need Rental Agreements.

Some additional facts about FHA loans include:

Escrow of taxes and insurance is required by the FHA. Discount points may be charged, payable by either the buyer or seller. The FHA requires a larger down payment than a VA loan, which requires none. Anyone of legal age and otherwise legally capable of owning property, may obtain an FHA loan. The borrower does not need to be a citizen of the United States (a green card is sufficient). Gifts do not have to come from an immediate family member, although no direct business relationship with the borrower can exist.

The processing stage is comprised of gathering all of the following documents.

FHA Case Number Verifications of Employment Verifications of Deposit Credit Report Escrow Instructions Preliminary Title Reports Appraisal Purchase Contract, Counter Offers, and Transfer Disclosure statements Letters of Explanation Additional supporting documents Any Documents missing from initial loan application

Credit Information

Most recent statements from your bills, indicating minimum payments and account numbers. Name, Address, and Phone number of your landlord, or 12 months cancelled rent checks. If Applicable: Should you have no credit. Copies or your most recent utility bills will be needed. If Applicable: Copy of complete Bankruptcy and Discharge Papers. If Applicable: If you co-signed for a mortgage, car, credit card, etc, need 12 months cancelled checks. front and rear, indicating you are not making payments.

Savings Information

Most recent three months complete bank statements for any and all accounts with all pages. Most recent statement from retirement, 401k, mutual funds, money market, stocks, etc.

Employment Information

Most recent two years complete tax returns with all schedules. Most recent two years W-2's, 1099's, etc. Most recent pay stubs covering one month period. If Applicable: Self-Employed will need Three years Tax Returns and YTD Profit & Loss Statement.

Some additional facts about FHA loans include:

Non-realty items should be specified on a separate document, not the contract. If they are put on the contract, the FHA will assign a value to each item and reduce the appraised value of the property accordingly. (If a Non-Realty Items Addendum is part of the contract, do NOT submit it with the loan application. This reduces any confusion by the lender, and the addendum is a legally binding document on its own.)

The types of improvements that borrowers may make using Section 203(k) financing include:

Structural alterations and reconstruction Modernization and improvements to the home's function Elimination of health and safety hazards Changes that improve appearance and eliminate obsolescence Reconditioning or replacing plumbing; installing a well and/or septic system Adding or replacing roofing, gutters, and downspouts Adding or replacing floors and/or floor treatments Major landscape work and site improvements Enhancing accessibility for a disabled person Making energy conservation improvements

Other Loan Costs

The lender, not VA, sets the interest rate, discount points, and closing costs. These rates may vary from lender to lender

There are some credit issues that you must allow for a certain time (seasoning) to pass before you can qualify for a FHA loan.

Two years from the date of discharge for a Bankruptcy Three years from the date of Foreclosure

Basic FHA Loan Requirements for 2016:

Two years of steady employment, preferably with same employer. Last two years income should be the same or increasing. Credit report should typically have less than two thirty day lates in last two years with a minimum credit score of 580 or higher or in some cases no credit score at all. Bankruptcies must be at least two years old, with good credit since discharge. Foreclosures must be at least three years old, with no 30 day lates credit since. Your new mortgage payment should be approximately 30% of your gross (before taxes) income.

There are four federally defined categories under which individuals and families might qualify as homeless:

1. Literally homeless; 2. Imminent risk of homelessness; 3. Homeless under other Federal statutes; and 4. Fleeing/attempting to flee domestic violence.

Why a Buyer Needs a Home Inspection

A home inspection gives the buyer more detailed information about the overall condition of the home prior to purchase. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home to: Evaluate the physical condition: structure, construction, and mechanical systems; Identify items that need to be repaired or replaced; and Estimate the remaining useful life of the major systems, equipment, structure, and finishes. An appraisal is different from a home inspection. Appraisals are for lenders; home inspections are for buyers.

FHA Appraisal

A loan cannot be taken out to buy a property until that property has been inspected by an appraiser approved by the FHA. Appraisal fees are usually about $375 for a house that is about 2,000 square feet.

Remaining Entitlement

A veteran may hold more than one VA loan. Additional loans are based upon a veteran's remaining entitlement. The remaining entitlement is calculated by subtracting a veteran's used entitlement from the current maximum ($36,000, or $104,250 for certain loans in excess of $144,000).

Restored Entitlement

A veteran's remaining entitlement can be "restored" to him or her under certain conditions. First, if the original VA loan amount is repaid in full or the loan is assumed by another eligible veteran, the first veteran may apply to have her or his entitlement restored and to be treated as though he or she had never used the entitlement for the purposes of new loans. The entitlement cannot be restored if the property it was used for has not been sold, except for a one-time exception.

FHA Credit

Also FHA would typically require that any outstanding collection accounts, judgments, charge off's be paid off in full before closing your loan but not necessarily before "approving" your loan. If you have a "Federal Tax Lien" that is in a repayment agreement, you do not have to pay it off in full but you must be able to qualify with the monthly payment of the repayment agreement. "State Tax Liens" typically must be paid in full prior to closing your FHA loan. Another advantage of FHA loans is that FHA does not require a credit scoring item called a FICO (Fair Issac Company) score. So if you have no credit at all you may still qualify for a FHA loan. If you have some credit you will typically need a minimum middle credit score of 580 to qualify for a FHA loan.

Adjustable Rate Mortgages (ARMs) (Section 251)

An FHA ARM has much of the same appeal over a conventional ARM that a fixed-rate FHA loan has over a conventional fixed-rate loan. That is, FHA ARMs have lower down payment requirements, and lenders consider them safer investments. In addition, ARM borrowers can switch over to a fixed-rate loan without refinancing.

Assuming VA Loans

Anyone, veteran or nonveteran, may assume a VA loan. There is no limit to the number of VA loans an individual may assume.

Savings

As for your savings, FHA is the easiest of all types of loans to qualify. FHA does not require that you have a savings or checking account and the money you will be using for your purchase does not have to be "seasoned" (meaning in the bank for the last three months), like conventional loans.

Section 223(f):

Borrowers can get an FHA loan for the purchase, rehabilitation, or refinancing of existing multifamily housing (such as an apartment complex) under this section. Only an individual or a legal entity designed to hold just one asset may receive one of these loans, and only if the property is at least three years old and has no more than 20 percent of its space devoted to commercial services (such as a restaurant on the ground floor).

Section 245(a)

Borrowers seeking to purchase a single-family dwelling with an FHA- insured, graduated payment mortgage may do so under this section. Graduated payment mortgages of this type are subject to negative amortization because the initial payments are not sufficient to cover the interest due. These loans are attractive to young, first-time borrowers who expect their income to increase and stabilize. For example a dentist that is just opening his office may have limited income now but has an expectation that his or her income will rise.

VA LOAN Cash-Out Refinancing

Cash-out refinancing involves a borrower refinancing his or her existing loan and increasing the principal balance in such a way that her or his home equity is reduced. The basic idea is that the borrower is re-borrowing the money that has been repaid.

Section 245(a)

FHA Growing Equity Mortgages are home loans that are tailored for first time home buyers or young families. These likely homebuyers are often not in a position that would warrant them being able meet the many upfront and monthly costs that are involved. FHA's Section 245(a) enables those who currently have a limited income but expect their monthly earnings to increase, to purchase a home with the help of a Growing Equity Mortgage in which payments start small and increase gradually over time.

FHA Home Improvement Loan - FHA Title 1

FHA insures loans. The money comes from private lenders. FHA has no money. The Federal Housing Administration (FHA) makes it easier for consumers to obtain affordable home improvement loans by allowing loans up to $25,000 without any equity in the home. In other words, the loan can exceed the value of the home. The Title I program insures loans to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property. This program may be used to insure such loans for up to 20 years on either single- or multifamily properties. The maximum loan amount is $25,000 for improving a single-family home or for improving or building a nonresidential structure. For improving a multifamily structure, the maximum loan amount is $12,000 per family unit, not to exceed a total of $60,000 for the structure. These are fixed-rate loans.

Costs Allowable to the Purchaser

HUD allows the following costs to be charged to the purchaser (although they may also be paid by the seller): For all loans: Appraisal fee Credit report Compliance inspection fee for FHA appraisal (limited to $75) Energy efficient mortgage (EEM) report fee Escrow fee (limited to 50 percent of the total amount, and no more than the seller pays) Home inspection fee up to $200 Notary fee Origination fee (limited to 1 percent of the loan amount) Title insurance For refinancing: Beneficiary statement Courier fee Reconveyance fee Wire transfer fee

Education and Outreach Initiative grants (EOI)

HUD awards these grants to groups that educate the public and housing providers about their rights and responsibilities under federal law or state and local fair housing laws that are substantially equivalent to the Fair Housing Act.

Fair Housing Organizations Initiative grants (FHOI)

HUD awards these grants to help build the capacity and effectiveness of non-profit fair housing organizations to continue and enhance enforcement of the Fair Housing Act.

Minimum Investment

In addition to maximum loan limits and the down payment requirements, the FHA has established certain criteria of minimum investment for all insured loans: Borrowers must have a minimum 3.5% down payment on the property. That investment cannot consist of discount points (money paid to buy down the rate of a loan up-front) or prepaid expenses (items paid in advance at closing). The seller can pay the balance of buyer's closing costs, all prepaid and discount/origination points up to a maximum contribution of six percent. No origination fee (usually 1 percent of the loan amount, collected up front to initiate the loan) is required as part of the closing costs. Existing credit policies remain intact for those transactions not previously eligible for high LTV (loan-to-value ratio) financing.

VA Loan Limits

In theory, there is no limit on the amount of a VA loan. However, a veteran is limited to 100 percent of the VA appraised value of the home, plus certain other expenses. Any part of the sale price that is in excess of the home's appraised worth must be paid upfront as a down payment at closing.

credit alert interactive voice response system (CAIVRS). CAIVRS identifies six applicants, as those with:

No cases A claim (that is, a lender's claim on FHA insurance money) A default A foreclosure A Department of Justice judgment Multiple cases

Non-Allowable Costs

Non-allowable closing costs are those that may not be charged to the purchaser but may be charged, for example, to the seller, or be paid with gift funds. They include the following: Buydowns Document preparation fee Flood certification fee Processing fee T ax service fee Underwriting fee

Section 221(d)(3)

Nonprofit sponsors looking to construct, purchase, or rehabilitate multifamily housing for moderate-income families can insure up to 100 percent of the loan amount under this program. There is no maximum loan amount, and loan terms can be up to 40 years.

loan Submission

Once the loan processing has been completed and we have received all needed documents, the loan is then submitted to the investor for underwriting. This part of the process usually takes two days. Day one for the loan to be overnighted from our office to the investor. Day two for the investor to log it into their system and assign it to an underwriter.

loan Underwriting

Once the underwriters have reviewed all of the files provided, they will issue a writing decision. This may be one of the following: Approved - everything is file meets FHA guidelines for final approval Suspended - additional documentation is needed to issue final approval Denied - aspects of the file do not conform to FHA guidelines

Title XI (Section 202)

Section 202 is a program designed to help housing and services designed for the elderly by advancing interest-free federal capital. If the housing constructed remains available to low-income elderly families for at least 40 years, the advanced capital need not be repaid. The amount of capital advanced is dependent upon the number of units, the number of bedrooms in each unit, and whether the structure has elevators.

203(k) Rehab Mortgage Insurance

Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home. Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property.minimum $5000 cost for reconstruction

The Federal Housing Administration (FHA)

The Federal Housing Administration (FHA). FHA created the long term fully amortized loans, making home buying more attractive to consumers. FHA created good qualifying standards for borrowers, lowering risk for lenders, as well as quality appraisal methods, protecting lenders from loss. Borrowers pay a mortgage insurance premium in exchange for the FHA's insurance and may then take out loans with higher LTVs, lower down payments, and longer terms. The only absolute qualification for an FHA loan is that the borrower be a U.S. citizen or hold a green card. A borrower can end up on the list for many reasons, including default on an FHA loan within the past three years or intentional fraud.

Entitlement

The VA guarantees only a portion of the total loan amount, based on the size of the loan and the amount of other guarantees the veteran has outstanding. The amount of the guarantee is otherwise known as a veteran's entitlement. A lender is typically willing to lend four times a veteran's entitlement, if there is no down payment, or four times the sum of the entitlement and the down payment.

Qualifying Ratios

The VA has no housing expense qualifying ratio; only the total debt service ratio is considered, and it must not exceed 41 percent. The VA sets certain standards for determining whether a veteran meets this requirement.

Credit

The VA sets standards for the consideration of applicants' creditworthiness as well. Credit reports must either be three-file credit reports (that is, Equifax, Experian, and TransUnion) or residential mortgage credit reports (RMCRs).

Hybrid ARMs

The VA will guarantee a special kind of adjustable rate mortgage known as a hybrid ARM, which have aspects of both fixed-rate and adjustable rate mortgages. In the specific case of the VA hybrid, the initial interest rate remains fixed for at least the first three years of the loan term and then may vary with the index. All VA-guaranteed ARMs, like all FHA-insured ARMs, use the rate of one-year U.S. Treasury securities (T-bills) for an index.

Qualifying Ratios

The current qualifying ratios for FHA-insured loans are a 29 percent housing expense ratio and a 41 percent total debt service ratio.

Loan Documents

The loan document process is the stage when your loan documents are being prepared by the investor or the Title Company. These loan documents are the legal binding documents to finalize your transaction. They will include some of the following important items to be signed: Note - Promissory Note indicating amount borrowed, interest rate charged, and terms or repayment, and the monthly payment amount. Deed of Trust - this document places the property as security to the loan and note. (recorded with county recorder's office) Closing Disclosure - this document is the itemized break-down of all fees incurred for obtaining the loan.

The underwriter will then issue a written loan approval, with any additional items documents that may need to be provided.

There are two types on conditions: Prior to Loan Documents - These are items that must be provided and reviewed by the underwriter before the loan documents can be requested. Prior to Closing - These are items that must be provided and reviewed by the underwriter and/or loan funder before the loan can close.

Disadvantages of FHA Loans

There is a maximum loan amount on FHA loans, and this can be limiting. The mortgage insurance premiums must either be paid up-front at closing or be financed. Finally, the FHA loan program does not insure loans to investors, only to homeowners. Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront - or, it can be financed into the mortgage—and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA- approved appraiser.

Private Enforcement Initiative grants (PEI)

These awards help nonprofit fair housing enforcement organizations carry out investigations and other enforcement activities to prevent or eliminate discriminatory housing practices.

Advantages of FHA Loans

They typically have a lower down payment, and there is never a prepayment penalty charged for making loan payments earlier than they are due. FHA loans can be assumed by other borrowers; however, since 1986, the assumptor has had to go through the same underwriting process—verification of debts and income, etc.—as the original borrower to prove his or her creditworthiness. Sellers can be held liable for an FHA loan if the person to whom they have sold the house assumes the loan without a test of creditworthiness. Another important advantage of FHA loans is that mortgages can be made on a graduated payment schedule, with low monthly payments that increase over time.

due-on-sale clause.

This clause provides that any transfer of the collateral property's ownership is subject to the lender's discretion. If the lender chooses not to approve such a transfer (and the seller sells the property anyway), the entire loan balance becomes due immediately. This forces the seller to bring a request to the lender for the assumption, which in turn allows the lender to negotiate new terms with the assumer or to deny the assumption.

Section 221(d)(4):

This is like Section 221(d)(3) but designed for for-profit sponsors. This program will insure only 90 percent of the loan amount.

Section 203(b)

This is the FHA's most used program and the subject of most of this lesson. It insures fixed-interest rate loans for owner-occupied, one- to four-family properties. A 203(b) FHA loan requires a 3.5% down payment. The housing to income ratio required is 29% and the total debt ratio 41%. The loans are 15 or 30 year term.Loans that exceed a 78% loan to value ratio require MIP. MIP protects the lender but is paid for by the borrower. There is an upfront MIP fee and an annual fee. FHA loan limits vary by location. Loan limits vary in certain areas because of cost.

Section 234(c):

This program insures loans for the purchase of condominium units. It is available only for condominium projects that have been approved by HUD.

Service

To be eligible for the VA loan program, a veteran must have been discharged other than dishonorably. He or she must have served actively for 90 days or have been discharged due to a service-related disability during the following wartime periods. Similarly, a veteran who has served 180 days of continuous active duty or been discharged for a service-related disability during the following peacetime periods also is eligible. All personnel who are currently active and have been so for 181 days (or 90 days during the Gulf War) are eligible. Spouses of veterans who died in service or from service-related injuries and have not remarried, as well as the spouses of service people missing in action or prisoners of war also are eligible.

Qualifications

VA loans, unlike FHA loans, are available only to a select few. The loans are principally for discharged military personnel with wartime service of a specified duration or certain peacetime service, active-duty personnel, and reservists with six years in the reserves or National Guard. A veteran and his or her spouse (including a common-law spouse) may co-sign a guaranteed loan together. However, an unmarried partner who is a co-borrower with a veteran may not have her or his portion of the loan amount guaranteed by the VA.

Land Loan Financing

VLB provides financing on tracts up to $125,000 with a minimum 5% down- payment and a fixed-rate 30-year loan term. A $325 appraisal and contract service fee is due at the time of application. There is no pre-payment penalty.

Pre-Closing Responsibilities on FHA-Insured Mortgages

When working with borrowers on transactions that rely on FHA-insured mortgages, lenders are required to give buyers the Notice to the Homebuyer form. This form was created as part of the NAR and HUD's joint Homebuyer Protection Initiative; it explains the difference between an appraisal and a home inspection and recommends that buyers obtain an inspection.

FHA loans

are the easiest type of real estate mortgage loan to qualify for. The FHA loan requirement guidelines for loan qualification are the most flexible of all mortgage loans that require less than 5% down payment.

Texas Veterans Land Board (TLB)

giving Texas Veterans the opportunity to borrow up to $125,000 to purchase land at competitive interest rates while typically requiring a minimum 5% down payment for tracts one acre or more.

The Federal Housing Administration (FHA)

is a part of HUD that is charged with increasing homeownership and contributing to building healthy neighborhoods and communities. As part of this mission, the FHA insures private loans made to consumers.

Interest Rate Reduction Refinancing Loan (IRRRL)

is fairly self-explanatory: It is the refinancing of a VA loan such that the interest rate is reduced. However, the VA places certain limits on this refinancing: The new loan balance may not exceed the existing loan balance plus refinancing costs and up to $6,000 in energy efficient improvements. The veteran may not receive cash from the refinancing The new interest rate must be less than the current interest rate, except for VA ARM loans. No more than two discount points may be added to the loan. No certificate of eligibility is required. Unlike with a cash-out loan, the veteran need not have remaining entitlement for an IRRRL: He or she reuses the entitlement for the loan to be refinanced. The veteran need not occupy the property against which the IRRRL is a lien. The VA funding fee is 0.5 percent of the loan amount and may be financed.

Mortgage Insurance Premium

is the FHA's equivalent of private mortgage insurance. Any borrower must purchase the insurance. The FHA insurance is insurance on a private loan. The borrower pays 1.75 percent of the loan amount upfront at closing and an annual premium of 1.35 percent for 30-year loans. This annual amount is divided by 12 and paid monthly along with the PITI payment. The premiums go into an account held by the FHA to repay lost amounts on insured loans in which the borrower defaulted.

The recording process

is when the legal binding loan documents you signed and notarized are taken to the county recorders office for recording. The actual recording is simply, when your documents are time and date stamped by the county recorders office and recognized and filed as an official public document.

The funding of the loan

is when the monies you borrowed are wired to the title/escrow or closing attorney for disbursement. This is when the actual exchange of money is completed.

Section 234(c) Restrictions

o The conversion occurred more than one year prior to the application for insurance. o The potential buyer or co-buyer was a tenant of that rental housing. o The conversion of the property is sponsored by a tenant's organization that represents a majority of the households in the project. o Eighty percent of FHA mortgages in the project must be made to owner- occupants.

HUD's Office of Special Needs Assistance Programs (SNAPS)

supports the nationwide commitment to ending homelessness by providing funding opportunities to nonprofit organizations and State and local governments to quickly rehouse homeless individuals and families.