practices lesson 10 FHA insured loans

The one-time premium is sometimes called the ?

"upfront premium." Either the borrower or the seller can pay the one-time MIP in cash at closing. Currently, the MIP is 1.75% of the loan amount.

An FHA borrower must make a minimum cash investment (downpayment) of at least ?

3.5% of the sales price or the appraisal price, whichever is less.

Most FHA loans have ____ terms.

30 year (although 15 year loans are also available.)

Generally, an FHA loan applicant's fixed payment to income ratio may not exceed ?

43%, and his housing expense to income ratio may not exceed 31%. The applicant must qualify under both ratios.

As you know, sometimes a seller agrees to buy down the buyer's interest rate or to pay all or part of the buyer's closing costs. When the sale is financed with an FHA loan, the FHA limits the amount of contributions from the seller (or another interested party, such as a real estate agent) to ?

6% of the sales price or appraised value, whichever is less. Any amount over that limit must be subtracted from the sales price before calculating the loan-to-value ratio and minimum cash investment.

A 3.5% downpayment results in a loan with an LTV of ? Borrowers with credit scores between 579 and 500 (the minimum) are limited to ?

96.5%. However, only borrowers with credit scores of 580 or above are eligible for these high LTV loans. 90% LTV loans and will have to make a 10% minimum cash investment.

Today, the FHA is an agency within the ?

Department of Housing and Urban Development.

all FHA loans require mortgage insurance. The mortgage insurance premiums for FHA loans are called the ?

MIP.

FHA mortgage insurance is required on ?

all FHA loans, regardless of the size of the downpayment. (by contrast private morgage insurance is only required for conventional loans with a LTV ratio over 80%

due-on-sale clauses

allow the lender to demand full payment of the loan if the mortgagor transfers any interest in the property w/o the lender's consent

Theoretically, a billionaire planning to purchase an inexpensive property could qualify for an FHA loan—as long as the loan ?

amount doesn't exceed the maximum and she intends to occupy the home as her primary residence.

For most programs, FHA borrowers pay both a one-time premium and ?

annual premiums.

For an FHA loan the lender first calculates the ?

applicant's monthly "effective income," which is the FHA's term for stable monthly income. Effective income is the applicant's gross income from all sources that can be expected to continue for the first three years of the loan term.

If an FHA loan applicant's income ratios are over the 43% or 31% limit, he might not qualify for an FHA loan. In some circumstances, though, the lender could ?

approve the loan in spite of high income ratios. For example, if the applicant has a conservative attitude toward credit and has at least three months' mortgage payments in reserve after closing, the underwriter could approve the loan even though the applicant's fixed payment to income ratio is over 43%. The FHA income ratios are treated as guidelines rather than inflexible limits.

An FHA loan requires a comparatively small downpayment, and the loan fees and other charges may ?

be lower than they would be for a typical conventional loan.

At closing, an FHA borrower must have enough cash to cover the minimum cash investment, the prepaid expenses, and any discount points he has agreed to pay. No reserves are required. The borrower may use gift funds to help close the transaction. The donor of the gift funds must be the ?

borrower's employer, a close relative, a close friend, a charitable organization, or a government agency.

FHA loans contain due-on-sale clauses, so certain limitations on assumption apply. For example, an FHA loan can generally be assumed only by a ?

buyer who will occupy the property. The lender will review the creditworthiness of the buyer before agreeing to an assumption.

FHA borrowers may also be permitted to borrow money to close the sale if the loan is secured by ? This loan must be from an ?

collateral other than the property being purchased with the FHA-insured mortgage. For example, if the borrowers can borrow money against their car or vacation property, the loan funds may be used to close the sale. independent third party, not the seller or a real estate agent involved with the transaction, and the collateral must actually be worth the loan proceeds.

Various other restrictions apply to secondary financing. For example, the borrower generally must be able to qualify for the ?

combined payment on the primary and secondary loans. Also, the FHA prohibits prepayment penalties and balloon payments that are due within five years.

FHA maximum loan amounts are tied to ?

conforming loan limits for conventional loans and may be adjusted annually.

The qualifying standards for an FHA loan are not as strict as they are for a ?

conventional loan

In addition to an origination fee, an FHA borrow may have to pay ?

discount points as well, depending on the policy of the individual lender.

The Federal Housing Administration was created by the ?

federal government in 1934, during the Great Depression, in order to help people with low and moderate incomes buy homes. The FHA loan program was the primary source of low-downpayment mortgages for most of the twentieth century.

All FHA loans must have a ____ lien position.

first ( that is they must have priority over all other mortgage liens.

An FHA loan can be used for the purchase of a property with up to ?

four dwelling units.

The FHA offers a variety of loan programs, such as ?

home rehabilitation loans and energy efficiency loans. However, the most widely used FHA-insured loan program is the 203(b) program, which is oriented toward helping low- and moderate-income buyers purchase homes.

The FHA does not actually make loans. Instead, it ?

insures loans made by banks and other institutional lenders. In fact, the FHA is sometimes referred to as a giant mortgage insurance agency because its main function is insuring loans.

FHA loans are not available to ?

investors, and so they cannot be used to finance rental properties.

Maximum loan amounts vary from one place to another, because they are based on ?

local median housing costs. An area with expensive housing has a higher maximum loan amount than a low-cost area.

The 203(b) loan program is aimed at ?

low- and middle-income home buyers, so there are maximum loan amounts. However, eligibility is not limited to buyers with incomes under a certain limit.

FHA maximum loan amounts are based on ?

median housing prices.

Borrower-paid closing costs and discount points do not count toward this required ________ investment. Neither do "prepaid expenses," which include interim interest on the loan and impounds for property taxes and hazard insurance.

minimum cash

In addition to the one-time MIP, the FHA also requires an annual premium for most of its loans. This premium ranges from 0.45% to 1.55% of the loan balance, depending on the principal balance, loan term, and the loan-to-value ratio. The annual premium is paid in ?

monthly installments: one-twelfth of the annual premium is added to each monthly payment.

As with any other type of loan, the lender will examine the income, net worth, and credit reputation of an FHA loan applicant, as well as the value of the property she wants to purchase. However, the FHA's underwriting standards are ?

not as strict as the standards used for conventional loans. This makes it easier for low- and middle-income buyers to qualify for a mortgage.

To help qualify for the loan, an FHA applicant may use a temporary buydown, in which the seller or another party pays discount points to reduce the interest rate. But no matter how large the temporary buydown actually is, the FHA will qualify the applicant using the ?

note rate.

FHA borrowers must intend to _____ the property they're financing with an FHA loan as their primary residence.

occupy

An FHA borrower ordinarily may not use secondary financing to ?

pay the required minimum cash investment. This isn't the case, however, if the secondary financing comes from a family member, nonprofit, or a governmental agency, or if the borrower is over 60.

the Mutual Mortgage Insurance Plan, is funded with ?

premiums paid by FHA borrowers. If a lender making an FHA-insured loan suffers a loss because of a loan default, the FHA will compensate the lender for that loss. In exchange for insuring the loan, the FHA regulates many of the loan's terms and conditions.

FHA-insured loans never call for a _____ penalty.

prepayment

The applicant's fixed payments include the proposed monthly housing expense plus all recurring monthly charges. The housing expense includes ?

principal and interest, property taxes, hazard insurance, one-twelfth of the annual premium for the FHA mortgage insurance, and any dues owed to a homeowners association or condominium association. Recurring monthly charges include the monthly payments on any debts with ten or more payments remaining. Alimony and child support payments, installment debt payments, and payments on revolving credit accounts are all included.

Family members are not necessarily required to make a gift of their funds. A close family member could provide the funds as ?

secondary financing to cover the minimum cash investment, as noted earlier.

The borrower also has the option of financing the one-time MIP over the loan term. When the one-time MIP is financed, it is ?

simply added to the base loan amount. The monthly payments are then set to pay off both the base loan and the one-time MIP by the end of the loan term. When the upfront premium is financed in this way, the total loan amount (the base loan amount plus the upfront premium) can't exceed 100% of the property's appraised value.

The FHA-insured loan program is administered by ?

the Federal Housing Administration, and the characteristics of FHA loans are established by the federal government.

There are different loan ceilings for one-, two-,?

three- and four-unit residences.

For an FHA loan, once the lender has determined the applicant's effective income, it then applies ?

two ratios to see if the applicant has enough effective income.The two ratios are the fixed payment to income ratio and the housing expense to income ratio.