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Real Estate Finance Ch. 5 - Government Insured Loans
Terms in this set (28)
3 types of Government Insured Loans
- Federal Housing Administration (FHA)
- Veterans Administration (VA)
- Rural Housing Service (RHS)
Federal Housing Administration (FHA) loans
- insures that private lenders capital is protected
-FHA-insured loans allow borrowers to purchase a home with a very low down payment
- from 3 to 5 % of the FHA appraisal value or the purchase price, whichever is lower
- The max. amount of an FHA mortgage varies depending on the average cost of housing in the region.
Veterans Administration (VA) loans
- guarantees the funds provided by lenders (investors)
-These guaranteed loans allow qualified veterans to buy a house with no down payment.
- qualification guidelines for these loans are less strict than for either FHA or conventional loans.
- a buyer should contact the nearest VA regional office to qualify for a certificate of eligibility.
Rural Housing Service (RHS) loans
- offers low-interest and market-rate loans with no or very low down payments to low- and moderate-income home buyers in rural areas and small towns.
- Oregon Department of Veterans' Affairs (ODVA) offers a state veterans' home loan (ORVET)
- additional and distinctively separate benefit from the USDVA (Federal VA) Home Loan Guaranty Program.
- The current maximum loan amount $417,000 or a veteran's remaining eligibility amount if there has been a previous ODVA loan.
Oregon Department of Veterans Affairs (ODVA) Loan Benefits
Interest rates are generally below market.
•Closing costs are limited.
•Loans are serviced by ODVA in Salem, not sold to investors.
•No tax service fee.
•15 to 30-year terms.
•No pricing adjustments for manufactured housing classified as real property.
•Loans may be re-amortized after unscheduled principal reductions of $3,000 or more.
•Up to 100% financing may be available.
•Guaranteed acceptance loan cancellation life insurance available.
•No recapture or prepayment penalties.
•Loans are NOT limited to "first time" home buyers.
Federal Housing Administration - History
- Established 1934
- Created during the depression to create construction jobs, stimulate the housing industry, and help Americans obtain good quality, affordable housing
Federal Housing Administration
The _____________________________ helped the home lending industry by:
1. It established a set of standards concerning the construction and appraisal of property to qualify for FHA insurance.
2. It sets up new standards for qualifying buyers for mortgage insurance.
3. It initiates the long-term amortized mortgage loan, thereby providing lower monthly house payments so that more Americans could own their own homes.
4. The above innovations made it possible to sell mortgages through a national clearinghouse, later to be called the secondary mortgage market.
Mortgage Insurance Premium (MIP)
-changed in 1983 from a monthly premium to a one-time premium payable upfront, with additional changes in 1990.
- enables borrowers to get a home with minimal down payment
- problem - can result in a loan that is greater than the value of the property.
Up Front Mortgage Insurance Premium (UFMIP)
Most mortgages will be subject to an upfront mortgage insurance premium (UFMIP) and an annual premium. The UFMIP is a one-time fee paid to the FHA that may be added to the mortgage and financed.
Down Payment on an __________________ - insured loan:
- less than $50,000, 3 percent down
- $50,000 or more, 3 percent is paid up to $25,000, and the balance is at 5 percent down.
- If the home is less than one year old and not built under FHA specifications, the minimum down payment is 10 percent, unless the property carries a homeowner's warranty (HOW).
How is loan amount determined on a FHA insured loan?
acquisition cost or FHA-appraised value, whichever is lower.
FHA "Acquisition Cost"
purchase price plus the FHA allowable closing costs
FHA Borrowers must have down payment and prepaid expenses from their own funds, with the following exceptions:
1. The down payment may be a "gift" from a blood relative.
2. The money may be borrowed against any collateral to secure the cash needed for down payment and closing costs (understandably, the borrower must qualify for the added debt).
3. The seller may pay all of the closing costs, or the closing costs may be financed by acquisition
Maximum FHA seller contribution on FHA loan
- 5 percent of the sales price.
- If the contribution exceeds 5 percent, the FHA mortgage is reduced dollar for dollar of excess contribution.
FHA buydown program
- offers the buyer a lower rate for the first two or three years
- allowing the borrower to qualify for a higher loan amount.
- The buydown is a seller-subsidized loan
-funds placed in an escrow account by the seller.
FHA insured loan terms
15 or 30 years
Congress passed the HUD Reform Legislation Bill in November 1989, creating a new impact on FHA-insured mortgages. The new rules require the following:
1. any subsequent purchaser must pass a credit check and qualify for the payment prior to title passing or the acceleration (due on sale) clause will be invoked. This substitution of liability to a new debtor is termed novation.
2. New loans issued after December 14, 1989, can only be assumed by a buyer who will occupy the property
3. No new loans will be issued to investors after December 14, 1989,
4. recommend that borrowers use no more than 29 percent of their monthly gross income to make the mortgage payment and no more than 41 percent of their gross income for monthly payment of all debts.
FHA 235 Program
- subsidized lower and moderate income families by reducing their monthly payments through a government subsidy.
- at the current time these loans are no longer available.
FHA 234 Program
- loans for condominiums
FHA 245 Program
- lower payments first 5 years
- for buyers whose income is expected to grow
- results in negative amortization for the first 5 years.
FHA Adjustable Rate Mortgage (ARM)
- Good in an unstable market
- borrower to qualify at 1 percent above the first year rate. - margin, which adds 2 percent to the index, which is the weekly average of one-year Treasury bills (T-bills).
- The maximum the rate can increase is 1 percent per year, and the highest rate the ARM can increase is 5 percent above the first year rate.
FHA Title I Act
- authorized the FHA to insure lending institutions against losses on loans made to finance repairs and improvements to existing structures and to build new structures for nonresidential use.
- liability is limited to 90 percent of the loss on individual loans and to 10 percent of all such loans made by the institutions.
- borrowers must own the property or have a lease expiring not less than six months beyond the maturity of the loan.
- The loan may not exceed $5,000 or have a maturity greater than 7 years and 32 days.
Financing Manufactured Homes (FHA)
- under Title I
- loan term 20 years
- rate negotiated by lender and borrower
VA Loan Eligibility
-minimum of 90 or 181 days active service with an honorable discharge is required, depending on when the individual served.
- covers World War II, the Korean Conflict, Vietnam, and the Persian Gulf War.
- eligibility is valid until used and extends to widows and widowers of veterans who died on active duty if they have not remarried.
- In October 1992 the law was expanded to include members of the National Guard and military reserves who have served a minimum of six years.
- mandatory with VA and FHA loans
- If the lender does not appraise the property for the purchase price, the purchaser need not carry through with the purchase.
Farmers Home Administration (FmHA)
- established in 1946
- to make and insure loans to farmers for construction or repair of farm homes and farm buildings.
- loans in towns and rural areas of up to 20,000 in population.
- limited income and need for housing. T
- loans reviewed periodically, and payments are increased as the borrowers income rises.
- The loans are either made directly by FmHA or made by a private lender with FmHA guaranteeing a certain percentage.
Other Government Loan Programs
- State and Local Loans
- Lease Purchase Mortgage Loans
- Community and Land Trust Mortgage Loans
- Timely Payments Rewards Loans
- Home Equity Conversion Mortgages
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