Ch. 30 - Government and Conventional Loans

VA Assumptions

-1988. Since then, a purchaser who desires to assume an existing VA loan must qualify with the original lender. -The veteran should request a release of liability from the purchaser that will relieve the veteran from any further liability for the loan

conventional loans vs. government-backed loans.

- Conventional loan(typically uninsured) over Gov-backed Loans; -Advantages; -processing takes less times. -fewer forms and processing can be more flexible -no legal limit on loan amounts -loan refusal, borrowers have other lenders that they can make application to. -much more flexible. DISadvantage; -require higher down payments -carry prepayment penalties

Certificate of Eligibility

-A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan. -showing the amount of entitlement (is the maximum number of dollars that DVA will pay if the lender suffers a loss) available -during WWII or later -at least 90 consecutive days of service major -180 days of consecutive service. -National Guard and Selected Reserve members who have served for 6 years/ honorably/retired etc -The spouse of a Veteran can also apply for home loan eligibility -other organization

Important Aspects of FHA Loans:

-FHA loans can be either fixed-rate 10- to 30-year loans or one-year adjustable loans -Down payments are low. Cash needed. -The maximum loan fee is 1 percent -borrower must pay two insurance premiums 1)Mortgage Insurance Premium (MIP) which is a percentage of the loan amount 2)Mutual Mortgage Insurance (MMI) is a monthly premium that is paid with the monthly principal, interest, taxes, and insurance payment -lender can charge points -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

Other FHA Loan Considerations;

-Maximum Loan Amounts--based on a percentage of median house prices for the area with a ceiling calculated as a percentage of the current conforming loan limits -Fixed Rate Loans--(most popular is the FHA 203(b)) 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. -Condominium Loans--designed to encourage lenders to offer affordable mortgage credit to those who have non-conventional forms of ownership. Provided through FHA Section 234(c). (insures a loan for 30 years)

Federal Housing Administration Loans (FHA)

-established in 1934 during the great depression to stimulate the housing market -provides low-down-payment loans to qualified buyers. -overseen by The Department of Housing and Urban Development (HUD) -the loans provided are high loan-to-value ratio loans, so FHA insures the loans in order to make them available to higher risk individuals. -does not build homes/loan money directly -They insure loans made by approved lending institutions, including qualified mortgage companies, savings and loan associations, and commercial banks. F -protect lenders against any loss they would suffer from a borrower's default.

Funding Fee

-is a percentage of the loan amount charged for the privilege of obtaining a VA loan. -used for administrative costs and to offset losses incurred in cases of default by the borrower -up front or choose to finance it as part of the loan -Funding Fee Exemptions; (The VA has the final say on who is exempt.) --compensation for service-connected disabilities. --Surviving spouses of veterans who died in service

VA-guaranteed financing additional rules;

-must plan to occupy the property. -both incomes = they must either be married or both have VA eligibility. Otherwise, DVA will only guarantee half of the amount of entitlement. -must buy,build,repair,improve,refinance,simulate a home -maximum VA home loan term is 30 years and 32 days. -not require a down payment. -Interest rate and discount points are negotiable -fee cannot exceed 1 percent of loan amount -may be prepaid without penalty. -requires a structural pest report

Department of Veteran's Affairs (DVA)

-offered the opportunity for veterans to purchase a home with no money down. -veterans returning from World War II -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 -DVA-guaranteed amount is calculated as 25 percent of the current Freddie Mac conforming loan limit for a single-family home.

PMI Termination

-payments will terminate once the loan has been repaid to a certain level. -Federal law requires that any loans originated after July 1999 must have the PMI terminated after the borrower: --Has accumulated 22% of equity in the property (loan-to-value ratio is 78%). --Is current with all loan payments.

Section 251 Adjustable Rate Mortgage program

-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. -fluctuation in the interest rate in any given year cannot exceed 1 percentage point and can't exceed 5% initial rate -can be "streamline refinanced" (documentation and underwriting is greatly reduced, but closing costs still apply) to a fixed rate mortgage at any time.

Seller Contributions

-seller can pay all of the VA purchaser's closing costs, including all discount points. -big impact on the amount of cash a veteran must pay out of pocket in order to complete the purchase.

Certificate of Reasonable Value (CRV)

-showing the value of the property to be equal to or greater than the sales price. -valid for six months on existing property and 12 months on new construction. -never greater than the sales price. -DVA will allow loans up to 100% of the CRV. -If the CRV is not equal to or greater than the sales price, the veteran may withdraw from the contract.

Mortgage Payment Expense to Effective Income

-total mortgage payment / gross monthly income. (The maximum ratio to qualify is 31%.) total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) ---divide--- that amount by the borrower's gross monthly income.

80-10-10 financing

-way to avoid having to pay private mortgage insurance -is that the institutional lender provides the traditional 80-percent first mortgage. Then the borrower gets a 10-percent second mortgage and makes a 10-percent cash down payment. -if the borrower absolutely cannot afford a 10-percent down payment but could afford 5 percent down, the loan could be structured as 80-15-5. (pay higher loan fees and a higher interest rate)

Where does the second mortgage come from?

1)Home seller. -- offer 2nd as a way to secure the sale or because they want to get income from the loan. These sellers often offer lower interest rates. Seller carryback mortgages are usually short-term balloon notes that are due and payable three to five years after origination. 2) Institutional lender--a borrower can sometimes get a second mortgage from the same lender who is providing the first mortgage. Sometimes the loan is structured as a home equity loan; other times it may be a conventional second mortgage. It may or may not be a balloon note. If it is fully-amortized, it's usually structured as a 15-year mortgage.

Up to what percent of the CRV will the DVA allow loans? 80 92 96 100

100

Some conventional lenders require insurance, especially if the down payment is below: 10%. 20%. 28%. 32%.

20%.

Loan approval from a conventional lender can take: 30 days or less. 60 days or less. 90 days or less. up to 6 months.

30 days or less.

VA loans secured by farms carry a maximum loan term of: 40 years. 35 years. 30 years. 25 years.

40 years.

A popular way to avoid having to pay private mortgage insurance is through the use of what's known as: 80-10-10 financing. conventional financing. sub-prime financing. 90-10 financing.

80-10-10 financing.

What must a veteran provide that shows the amount of entitlement available when working with the DVA? A Class 1 authorization A Certificate of Eligibility A Validated Certificate A Personal Accreditation

A Certificate of Eligibility

In a VA loan, what document shows approval of the value of the property to be equal to or greater than the sales price?

A Certificate of Reasonable Value (CRV)

What is considered the most common type of loan and is generally viewed as the most secure? A government-backed loan An equity loan A conventional loan A peer to peer loan

A conventional loan

What are the two major reason why the FHA 203(b) loans are most popular?

FHA 203(b) loans allow individuals to finance up to 97 percent of their home loan and 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.

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency. -a borrower can get a conventional loan with a lower down payment by insuring the loan through a private mortgage insurance program (PMI). -A lower down payment means a higher loan-to-value ratio. Lenders need to minimize their risk, so they require additional security in the form of insurance. (from a private mortgage insurance company.)

Private mortgage insurance (PMI) on conventional loans vs. and Mortgage Insurance Premiums (MIP) on Federal Housing Administration (FHA) loans.

PMI: -down payment is less than 20% of the sales price of the home, the lender will require a PMI policy to insure against a default. -Without PMI, people wouldn't be able to borrow as much as they can now. -Without an additional safeguard, lenders would have no incentive to offer loans with down payment requirements as low as 3%. -The larger the loan, the higher the PMI (average = $40- $50 per $100,000 borrowed) MIP: -charges an upfront mortgage insurance premium (UFMIP) that's equal to 1.75% of a home's value for most new mortgages. -A 30-year loan with a loan-to-value less than or equal to 95% is charged 1.30% annually. -A 30-year loan with a loan-to-value greater than 95% is charged 1.35% annually.

How long are FHA conditional commitment appraisals good for?

Six months on existing property and one year on new construction

What are the two most common sources for second mortgages?

The home seller and institutional lenders

What type of financing, that is a benefit of the Section 251 program on adjustable rate mortgages, means that the documentation and underwriting is greatly reduced, but closing costs still apply? Debt financing Equity financing Business financing Streamline financing

Streamline financing

What home loan is the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency? The 241(k) The 212(a) The 245(a) The 203(b)

The 203(b)

What was established in 1934, during the great depression, to stimulate the housing market in the United States? HUD RESPA The Federal Housing Administration The Fair Housing Committee

The Federal Housing Administration

What program insures a loan for 30 years to purchase a unit in a condominium building? The Section 234(c) The Section 203(b) The Section 245(k) The Section 212(b)

The Section 234(c)

What term describes the maximum number of dollars that DVA will pay if the lender suffers a loss? The dispensation The entitlement The withholding The consent

The entitlement

What is a percentage of the loan amount charged for the privilege of obtaining a VA loan called? An origination fee Discount points The funding fee An administrative fee

The funding fee

Why is a conventional 80/20 loan called an uninsured loan?

The mortgage itself provides the only security for the loan.

What are the guidelines regarding prepayment of an FHA loan?

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.

Conventional loans can be insured, with: the FHA. hazard insurance. a private mortgage insurance policy. the government.

a private mortgage insurance policy.

When working with FHA the mortgaged real estate must be appraised by: an approved FHA appraiser. a mortgage lender. an approved underwriter. a conventional appraiser.

an approved FHA appraiser.

A lower down payment means a higher loan-to-value ratio. Lenders need to minimize their risk, so they require additional security in the form of: a payment plan. a warranty. insurance. an affirmation.

insurance.

FHA loans can be either fixed-rate 10- to 30-year loans or: manufactured loans. 30 year adjustable loans. graduated loans. one-year adjustable loans.

one-year adjustable loans.

VA loans were freely assumable prior to March 1988. Since then, a purchaser who desires to assume an existing VA loan must qualify with: the original lender. a title company. a new lender. the Fair Housing Administration.

the original lender.

An approved VA appraiser must issue a Certificate of Reasonable Value (CRV) showing the value of the property to be equal to or greater than: the appraisal. the sales price. the listing price. the pre-approval amount.

the sales price.

The terms of the adjustable rate mortgage will be disclosed to the borrower at: the time of application. the time of purchase. the time of closing. the appraisal completion.

the time of application.

DVA requires a structural pest report from a recognized inspection company. If repairs are indicated, the work must be done and certified by both an inspector and: an appraiser. the veteran. the broker. the mortgage company.

the veteran.

Total Fixed Payment to Effective Income

total mortgage payment + all recurring monthly revolving and installment debt / gross monthly income. (The maximum ratio to qualify is 43%.) 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.