Real Estate 100 - Chapter 9 - Part II, FHA,VA and CalVet loans and the Secondary Mortgage Markets

What are the advantages of FHA Loans? Chapter 9, Part II

1. The advantages of FHA Loans are: A. Low down payment and the interest rate floats with the market. Any loan fees or points charged by the lender are an item of negotiation and can be paid by the buyer or the seller. B. No prepayment penalty C. Some FHA loans are assumable and does not allow alienation clauses (due on sale clauses). Effective 12/15/89, all assumptions (assumable loans must be approved by the FHA D. The seller gets all cash. Under FHA terms, the high loan-to-value ratio gives the seller all cash E. All property must meet the minimum FHA housing standards.

What is the California Housing Finance Agency (CalHFA) Program? Chapter 9, Part II

1. The CalHFA program is designed to help first time homebuyers acquire a home in California's expensive housing market

How is the CalHFA program financed? Chapter 9 part II

1. The CalHFA program is financed when the state agency sells mortgage revenue bonds to investors and then uses the funds to buy loans from approved lenders to make loans. CalHFA does not make loans directly to borrowers, but instead purchases the loans made by approved lenders. This program does not use any state funds or taxpayer dollars to operate the program.

Does the FHA lend money? Chapter 9, part II

1. The FHA is not a lender and it does not make loans.

What is the Federal Housing Administration (FHA)? Chapter 9, Part II

1. The Federal Housing Administration is a part of the Department of Housing and Urban Development established in 1934− to improve the construction and financing of houses.

What are the advantages of a VA loan? Chapter 9, Part II

1. The advantages of a VA loan are: A. No down payment 100% LTV. No down payment is required to a borrower on loans up to the current maximum loan amount if the borrower pays the VA appraised value for the property. B. No private mortgage insurance C. No prepayment penalty D. Creditworthiness qualification for assumptions: VA loans are assumable, with qualifications by the buyer. This allows the buyer to take over the loan and not pay the costs of obtaining a new loan.

What is a conforming loan? Chapter 9, Part II

1. A conforming loan is a loan that meets the guidelines of Fannie Mae and Freddie Mac

What is a conventional loan? Chapter 9, part II

1. A conventional loan is any non-governmental backed loan

What is a non-conforming loan? chapter 9 part II

1. A non-conforming loan is a loan that does not meet the guidelines of Fannie Mae and Freddie Mac.

What are Cal-Vet Loans? Chapter 9 part II

1. Cal-Vet loans are administered by the State of California, Department of Veterans Affairs, Division of Farms and Home Purchases.

Explain the eligibility of one of CalHFA's 30 ear fixed rate conventional loan program. Chapter 9, Part II

1. CalHFA offers a 30 year fixed rate conventional loan program and here are it's characteristics: A. Below fixed interest rate amortized for 30 years and a maximum loan to value ratio of 100%. Loan original fee cannot exceeed 1 1/2% of the loan amount. PMI required and CalHFA has this coverage for a low fee. B. Sales price cannot exceed CalHFA price limits C. Must be owner occupied, singe family, one unit home, condo, or PUD. Manufactured homes are okay if they meet CalHFA construction standards D. Must be a US citizen, permanent resident or qualified alien E. Must be a first time homebuyer unless home is in a federally designed targeted area that is in need of an infusion of investment F. Must be owner occupied G. Must meet credit, income limits and loan requirements of CalHFA lender or mortgage insurer. H. Must complete the CalHFA homebuyer education counseling and obtain a certificate of completion through an eligibility counseling organization.

What are VA or GI loans thru the Department of Veterans Affairs? Chapter 9, Part II

1. Congress passed the GI Bill of Rights in 1944 providing benefits to veterans, including provisions for making real estate loans. A. THE VA IS NOT A LENDER. However, if there are no approved private lenders located in the area, the VA will make direct loans under certain conditions. B. The VA GUARANTEES A PORTION of the loan, while the FHA insures the loan. C. The VA guaranteed amount is calculated as 25% of the current FHA (Freddie Mac) conforming loan amount. As of 2017, the max Freddie Mac conforming loan is $636,150 x 25% or $159,037.50. D. Most VA approved lenders simply reverse the process and grant a no-money down loan to qualified veterans that is four times the VA guarantee. The maximum VA no-money down loan amount is usually the same as the maximum Freddie Mac conforming loan amount.

What is Fannie Mae and what is it's purpose? Chapter 9, Part II

1. Fannie Mae (FNMA) was established in 1938 and it's main job is to provide a secondary market for mortgages. it is now a private corporation. 2. Fannie Mae gets its money in the capital market by selling notes and bonds so that it can purchase government backed and conventional loans on 1-4 units, PUDS and Condos. It only buys the loans if the loans have been issued using Fannie Mae guidelines.

What program does Fannie Mae (FNMA) have for first time homebuyers? Chapter 9 part II

1. Fannie Mae has a first time homebuyer program called the Community Home Buyer;s Program. it has lower down payment requirements and more generous qualifying ratios.

What is the CalHFA Interest only PLUS Program? Chapter 9 Part II

1. Features of the CalHFA Interest only PLUS program are as follows: A. Conventional loan with a below market fixed interest rate B. 35 year term and interest only loan for first five years. Then payments switch to an amortized loan for the remaining 30 years. Interest rate stays fixed for the entire 35 years. C. LTV ratio is 100% rising to 110 percent under special circumstances. D. Mortgage insurance is required and CalHFA has it at reasonable costs. E. Eligibility requirements as under the regular 30 year conventional loan.

What is Freddie Mac and what is it's purpose? Chapter 9, Part II

1. Freddie Mac was created in 1970 under the Emergency Home Finance Act to provide a secondary mortgage market for savings and loans. But, today, the main function of Freddie Mac is to provide a secondary market for the FHA, VA and conventional loans, 1-4 units, PUDS ad condos. 2. Freddie Mac is a government-charted stockholder owned corporation.

What are the general rules of FHA Programs? Chapter 9, Part II

1. Some general rules of FHA Programs are as follows: A. FHA backed loans will approve loans on owner occupied 1-4 residential units, plannned unit developments, condos and mobile homes. B. Maximum loan fee is 1% of the loan amount and the buyer normally pays the fee. C. MIP (mortgage insurance premium) upfront fees vary by program and is based on the outstanding principal balance D. Maximum term of loan is 30 years or three-quarters of the remaining economic life of the property whichever is less. E. The FHA monthly payment includes principal, interest, 1/12 of the property taxes, hazard insurance, and MIP F. There is NO MAXIMUM purchase price. The buyer can pay more than the FHA appraisal. The loan is based on whichever is lower, the appraisal or the sales price. G. The interest rate on FHA backed floats with the market instead of being fixed by the FHA H. FHA appraisals are good for six months on existing properties and one year on new construction.

What are the general information about Cal-Vet loans regarding terms of the loan? Chapter 9 - Part II

1. General Information about Cal-Vet Loans are as follows: A. Same property standards as FHA and VA. Single family, PUD, Condo or mobile home. Requires both a structural pest control report and a roof inspection. B. Maximum loan amount vary each year C. No money down up to the current maximum VA guarantee loan which is four times the maximum. D. On loans with no VA guarantee otherwise straight Cal-Vet loans is usually two to three percent of the purchase price or appraised value, whichever is lesser. E. Terms of loan is 30 years F. Interest rate is variable and it depends on the costs of the bonds running the program . G. Secondary financing is permitted under special circumstances H. No prepayment penalty to pay off a Cal-Vet loan early I. The veteran must occupy the property J. The monthly payments should include principal, interest and 1/12 of the property taxes and house insurance, K. Title to the property is first conveyed to the Department of Veterans Affairs by the seller. The department then sells the property to the veteran under an installment and contract. The department holds title until the veteran has paid off the loan in full.

What are the general characteristics of a VA loan? Chapter 9, Part II

1. General information on a VA loan is as follows: A. VA will guarantee loans on properties of one to four units, Planned unit developments, condos and mobile homes. B.Within VA guidelines, the interest rate is negotiable between the veteran and the lender. C. The loan origination fee paid by the borrower is negotiable. Prior to 1993, it was 1% of the loan amount D. The funding fee is paid by the borrower for granting the loan. The fund fee usually varies from 2 to 3 percent of the loan amount. The funding fee can be financed by adding it to the loan amount. E. The maximum term is 30 years F. There is no down payment on loans up to the current designated amount. If there is a difference between the appraisal price and the purchase price, the veteran has to come up with that difference. G. There is no maximum loan amount on a VA loan. But, the VA guarantees only a portion of the loan, lenders will limit the amount they will lend on VA loans. Usually, it's four times the guarantee amount. H. The veteran must occupy the property. If multi-unit the veteran must live in one unit I. Monthly payments on the loan should contain the principal, interest one twelfth of the property taxes and insurance J. The VA appraisal is called the Certificate of Reasonable Value (CRV) otherwise known as the current market value K. The VA requires that a report be obtained for a licensed structural pest control. If work is required, it must be done and the veteran must certify that the work was done satisfactorily.

What is Ginnie Mae (GNMA) and what is it's purpose? Chapter 9, part II

1. Ginnie Mae is a wholly owned corporation of the U.S. Government and was created in 1968 when Fannie Mae became a private corporation. 2. Ginnie Mae's duties were management and liquidation of certain mortgages previously aceuqiured by the U.S. Government and special assistance functions including the development of a mortgage backed security program. 3. Now, Ginnie Mae directly and indirectly provides low interest rate loans and encourages people to buy new homes. The real impact is in its mortgage backed security program. This program was established to attract additional monies into the housing market and makes investing in mortgages as simple as as buying stocks and bonds. 4. An investor purchases a pool of mortgages and receives a certificate, no paperwork and no need to examine each mortgage. Ginnie Mae is a federal corporation and its guarantee is backed by the "full faith and credit" of the U.S government. These added funds are made available for real estate borrowers.

What happens if there is a foreclosure under a FHA program? Chapter 9, Part II

1. If a foreclosure occurs under a FHA program, the lender is paid off and the property is taken over by the FHA.

What happens if a foreclosure happens under a VA guaranteed loan? Chapter 9, Part II

1. If a foreclosure occurs under a VA guarantee loan there are two choices which could happen: A. It can pay the lender the loan balance and take over the property B. It can give the lender the property and pay it the amount of the deficiency, if any, up to the maximum amount of the VA guarantee.

What are Jumbo Loans? Chapter 9 - Part II

1. Jumbo loans are loans that exceed the loan limits of Fannie Mae or Freddi Mac.

What does the FHA do? Chapter 9, Part II

1. Loans must be granted under FHA guidelines. 2. The FHA insures the lender against foreclosure loss 3. The FHA collects a fee for this insurance which is called the Mortgage Insurance Premium (MIP). Fees are paid up front in cash or financed as part of the loan. 4. MIP premiums are used to protect the lender against loss in the event of a foreclosure.

What are Portfolio Loans? Chapter 9, - Part II

1. Portfolio Loans will not be sold in the secondary mortgage market but will be held by the lender as an investment.

What is secondary financing? Chapter 9 part II

1. Secondary financing is a loan secured by a second or junior deed of trust. This should not be confused with the secondary mortgage market.

What is Section 203B of the Federal Housing Administration which was created by The National Housing Act of 1934? Chapter 9 Part II

1. Section 203B of the FHA talks about the FHA 203b program: A. Anyone who is financially qualified is eligible B. Loans are available on properties from one to four units C. Max FHA loans vary from county to county D. A buyer's credit history need not be perfect E. Buyer must make the minimum down payment 3.5% but this can come from a gift from a family member or by certain non-profit groups. F. The MIP must be paid up front or financed as part of the loan and the amount of the loan is allowed to exceed the maximum G. FHA permits a borrower to carry more debt than most conventional lenders will allow.

What are some advantages of having a Cal-Vet loan? chapter 9 - Part II

1. Some advantages of having a Cal Vet loan are: A. Low interest rate, inexpensive life and hazard insurance and low closing costs. B. Many brokers have educated themselves on how to complete a Cal-Vet loan paperwork and can help. C. If a private mortgage broker is used, the seller and buyer must pay the brokers fee. The fee cannot be financed as part of the loan.

What are disadvantages of an FHA Loan? Chapter 9, part II

1. Some disadvantages of FHA loans are: A. Low loan amounts - the FHA CAPs the maximum amount of the loan. In CA, houses cost more than the max. B. A lot of red tape and processing time. Those lenders who have pre-approval rights can speed up the FHA process. C. Repairs on existing property must be made before the property is approved for sale. The sellers have to make the repairs.

What are the characteristics of a Cal-Vet Loan? Chapter 9 part II

1. The characteristics of a Cal-Vet Loan are as follows: A. The veteran (buyer) deals directly with this agency. No lender is involved, the state makes the loan to the veteran directly. Money is obtained from the sale of State Veteran Bonds. B. Veteran must have 90 days active duty C. Must have been given an honorable discharge or if still on active duty a Statement of Service verifying the status. Medical discharge is okay if it was service related disability D. Must be owner occupied and can buy a home or a farm E. If loan funds are limited, a preference is only to wartime veterans. Highest priority is given to war veterans with a service connected disability. F. Surviving spouses or registered domestic partners of an eligible veteran, who have not remarried may also be qualified G. A Cal-Vet loan may be used more than once as long as the previous loan has been repaid or awarded in a divorce to a non veteran spouse.

What are the disadvantages of a VA loan? Chapter 9, part II

1. The disadvantages of a VA loan are: A. Seller may need to pay discount points B. There is a lot of red tape and processing time. C. Loans can only be obtained by qualified veterans.

What is the minimum down payment required under FHA? Chapter 9, Part II

1. The minimum down payment under FHA backed loans requires a minimum 3 1/2 percent cash investment based on the sales price or appraisal, whichever is less. The 3 1/2 percent can come from an approved gift and need not be the peron's own personal money. 2. If the person is only making the 3.5% down, he will need to come up with more money to cover the closing costs and must be paid by the seller or some other party. 3. Currently, it used to be that the seller had to pay the closing costs such as tax service fee, termite costs, loan documentation fee, processing fee, flood certificate fee etc. NOW, the payment of non recurring closing costs is negotiable between the seller and the buyer.

What is the purpose of the Secondary Mortgage market? Chapter 9, Part II

1. The purpose of the secondary mortgage market is to shift mortgage funds to areas where they are needed. 2. To generate loan and collection fees

What is the rule of thumb when calculating discount points? Chapter 9, Part II

1. The rule of thumb in calculating discount points is that for each one percent discount (one point) is equal to one-sixth of one percent interest. (Note: in the practices book it says 8 points = 1%)

What is the secondary mortgage market? Chapter 9 part II

1. The secondary mortgage market is where existing real estate loans are bought and sold to other lenders and investors.

What three organizations are designed to stabilize the mortgage market? Chapter 9, part II

1. The three organizations that are designed to stabilize the mortgage market are: A. The Federal National Mortgage Association (Fannie Mae) B. The Federal Home Loan Mortgage Corporation (Freddie Mac) C. Government National Mortgage Association (Ginny Mae)

Who is eligible for a VA loan? Chapter 9, Part II

1. To qualify for a VA loan, here are the requirements: A. Must have a discharge or release that is not Dishonorable B. Must have served a minimum number of days depending on the qualifying wartime and peacetime periods and qualifying active duty dates in the military. C. The National Guard and other military reserves who served at least six years are eligible. D. Spouses of a service member who died while serving or from a service connected disability are eligible. E. Those who served less than the required time but were released or discharged due to a service connected disability are also eligible. F. A veteran can use his other VA loan more than once provided that the prior VA loan has been paid in full.

How does the FHA calculate FHA insured loan amounts? Chapter 9 - Part II

A. FHA calculates the loan amount based on the homes sales price or the FHA approved appraisal, whichever is less. B. As of 1/2017, the maximum loan amount was set at 96.5 percent (or 3.5% down payment). The ceiling the the maximum loan amount is based on the median home prices in various geographical area. In San Mateo, a single dwelling is $636,150, double $814,500, Triplex $984,525 and Quads $1,223.475.