Chpater 2: Sources of Mortgage

What is the Federal Housing Administration (FHA)?

Program that assists homebuyers that are new or have low income.

Are lenders protected in the FHA program?

Yes, FHA is an insurance program, and protects against defaults with the mortgage insurance premiums (MIP).

What is Mortgage Insurance Premiums (MIP)?

The insurance being paid by the borrower (their mortgage payment)

Who approves FHA loans?

Lenders

Do you need to be a citizen to qualify for an FHA loan?

No, citizenship is not required. Social Security and ID are needed though.

What are the general income restrictions for FHA mortgages?

There are no income restrictions, but loan amount for FHA is around $500,000.

How many FHA mortgages can a borrower generally have outstanding at one time?

Only one, but theres exceptions to hardships.

For FHA purposes, what does it mean for a mortgage to be "in default"?

Non-payment of the mortgage by the borrower. Technically, it's more than 30 days past due, including any grace period.

Can investors finance purchases through FHA?

No, its primarily for owner occupied primary residences.

(FHA) Owner occupied purchase transaction (203B)

For borrowers that are going to be living in the home.

(FHA) Owner occupied rate reduction refinance transaction (203B)

Fast-track way for FHA homeowners to lower their interest rate. No pre-qualification and appraisal needed.

(FHA) Owner occupied cash out refinance transactions (203B)

Replace your current mortgage with a new, larger FHA-insured loan and get a portion of your home's equity back as cash. Max 85%. of home value and sic month seasoning required.

What is the "six months seasoning" rule for FHA cash-out refinance transactions?

Limited to homeowners who have had their present mortgage for at least six months.

(FHA) Rehabilitation Mortgages (203K)

Allows you to buy or refinance a home AND include the costs of repairs and renovations into a single mortgage.

What is the minimum cost of rehabilitation for a property to be eligible for an FHA 203k mortgage?

Must amount to at least $5,000

What percentage of a condominium project must be sold for FHA approval?

70% of the project must be sold.

What is an FHA appraisal called?

Conditional Commitment

Whats the usual term for a FHA fixed mortgage?

30 years.

(FHA) When is the monthly Mortgage Insurance Premium (MIP) eliminated?

Loan balance is 78% of the original purchase price. (5 years of premiums paid)

What is the maximum percentage of the sales price that a seller can contribute towards a borrower's closing costs on an FHA mortgage?

6.0%

What are the standard FHA qualification ratios for housing and debt?

(29/41)

Can gift funds be used for the entire FHA down payment?

Yes, all cash may come from a gift from an immediate family member, or someone with a family-type relationship.

What is the department of veteran affairs (VA).

A guaranty programs for veterans. It guaranties a portion of the mortgage amount.

How are the FHA and VA options different?

One is an insurance program, and the other is an guaranty program.

Is there a limit to the number of VA mortgages a veteran can obtain?

No, as long as there is remaining guaranty or eligibility for each mortgage

Whos eligible for a VA loan?

Active duty, honorable discharge, spouses (non remarried), and 6+ years national guard.

What is the maximum loan-to-value (LTV) for VA owner-occupied refinance transactions?

90%

What are VA appraisals called?

Certificates of Reasonable Value (CRV)

is there a mortgage limit for a VA loan?

No, but it limits the guaranty amount (typically 25% of the mortgage)

Can a veteran move into a VA-financed home with literally no cash utilized in the transaction?

Yes, theres no down payment required.

What is the "residual method" of qualification?

subtracting all expected expenses from a veteran's income; if positive, the veteran qualifies.

Are non-owner occupant co-borrowers allowed in the VA mortgage program?

No, they are stricly forbidden in the program.

What is the primary advantage of mortgages financed by state and local bond issues?

They carry below-market interest rates due to the tax-free status of the bonds.

What is a "first-time homebuyer" defined as for state and local bond issue programs?

Someone who has not had any interest in any real estate in the past 3 years.

Are you allowed to refinance a mortgage under state and local bonds?

No, never allowed.

What is a potential financial cost for homeowners participating in state and local bond issue mortgage programs if they sell their property within ten years?

They may be subject to a recapture tax of up to 6.25% of the original loan.

What is the income limitation for borrowers in the Rural Housing Service (RHS) loan program?

Borrowers must have an income at or below 115% of the median income for the area.

What type of properties are financed under the rural housing service?

Residential, owner-occupied properties (not farms).

What kind of financing does the group residental housing (GRH) program provide regarding down payments and mortgage insurance?

It provides 100% financing with no mortgage insurance and no required down payment.

Who qualifies for the rural housing service program?

U.S. citizens with a qualification ratio of 29/41

What are Fannie Mae and Freddie Mac commonly known as?

Government sponsored enterprises (GSEs)

What is the typical maximum Loan-to-Value (LTV) for conventional conforming owner-occupied purchase and rate reduction refinance transactions?

Typically 95% LTV.

What is a conventional conforming mortgage?

Mortgages that meet the lending requirements set by Fannie Mae and Freddie Mac.

What is a balloon mortgage?

Loan that has lower monthly payments for a sett period. after the period you face a large lump sum of money for the remaining balance.

How can you get passed a balloon mortgage?

Either sell the house or refinance.

What is a temporary buy-down?

Program were the seller pays money upfront to reduce the interest rate for the first few years of the loan. Payments after will raise.

What is a growing equity mortgage (GEM)?

Fixed rate mortgage with various payment amounts. Pays principal balance faster, building equity in your home.

For conventional conforming loans, what is the cash-out limit for owner-occupied refinances?

Usually limited to 90% of the value of the home.

What is the minimum down payment requirement for conventional conforming mortgages on owner-occupied transactions?

Minimum is usually 5%. There has been adittions to 0% and 3% being allowed for people that either low income aand high credit.

When is private mortgage insurance (PMI) required for conventional conforming mortgages?

If the downpayment is below 20%

What is the main disadvantage of Lender Paid Mortgage Insurance (LPMI)?

The higher interest rate can never be eliminated from the mortgage payment, even if the LTV of the mortgage eventually drops below 80%.

Under the Homeowner's Protection Act of 1998, when can a homeowner request cancellation of private mortgage insurance?

When the equity of thier property reaches 20% of the present value if more than 5 years have passed.

What are the most common qualification ratios used for conventional conforming mortgages?

28/36

How much of their own cash are borrowers typically required to invest in a conventional conforming purchase transaction?

At least 5% of their own cash.

What are conventional non-conforming mortgages?

Mortgages that exceed Fannie Mae/Freddie Mac conforming loan limits.

What are Jumbo Mortgages?

Mortgages that exceed the loan limits of the GSE’s. Require large down payments.

What is a Non “A” credit mortgage (subprime)?

People who down meet credit requirements and income qualifications. Could also be self employed people.

What do the interest rates and down payments look like for someone who is subprime?

They are usually at a much higher interest rate and require a larger down payment.

What is a "rolling 30" in the context of mortgage delinquencies?

More than one month which is late due to one payment not being on time and the borrower not catching up; it may count as one delinquency.

Can non-owner occupant co-borrowers be used for conventional conforming mortgages?

Only if LTV is lower than 95%

Are second mortgages allowed behind conventional conforming first mortgages?

Yes but previous mortgage may be limited by 80% LTV and a minimum of 10% down may be required.