insures home loans for financing or home repairs. Created by Congress in 1934, the FHA became part of the Department of Housing and Urban Development (HUD) in 1965. It developed minimum property standards (MPS) and standards for new construction to reduce their mortgage risk and to improve housing standards and conditions. The MPS assured that the housing used as collateral for FHA-insured mortgages met minimum requirements for construction quality, safety, and durability. they set the minimum property standards which have been a significant factor in the development of national building codes. VA lenders rely on the VA's Minimum Property Requirements, which are based on an early version of the MPS. Inclusion of the MPS in national and local building codes has been so successful that conventional lenders currently rely on local codes instead of the MPS.
FHA does not make loans. It insures loans to protect the lenders who make the loans. On loans with less than a 20% down payment, the lender is protected in case of foreclosure by mutual mortgage insurance (MMI). The borrower pays the mutual mortgage insurance premiums to the FHA Mutual Mortgage Insurance Fund.
In most of the FHA mortgage insurance programs, the FHA collects two types of mortgage insurance premiums—upfront and annual.
The property must be the borrower's principal residence and located in the United
ypes of Eligible Property
1-4 family owner-occupied residences
Multiplex and individual condominiums
Eligible manufactured homes (must be real property)
The FHA does not require borrowers to have savings or checking accounts. Since the FHA allows the down payment for the purchase to be a gift, the money used for the down payment does not have to be seasoned like conventional loans. In this instance, seasoned means that the money has been in the bank for the previous 3 months. The FHA does not require the buyer to have any reserves or available cash on hand during the closing.
Effective April 9, 2012, the FHA charges an upfront mortgage insurance premium (UFMIP) of 1.75% of the base loan amount. The MIP must be either paid in cash at closing or financed in the mortgage amount. If financed, the UFMIP is added to the base loan amount to arrive at a greater "total" loan amount. The total FHA-insured first mortgage on a property is limited to 100% of the appraised value, and the UFMIP is required to be included within that limit. Any UFMIP amounts paid in cash are added to the total cash settlement amount.
In addition to the UFMIP, the FHA collects an annual insurance premium, on certain mortgages, which the borrower usually pays monthly. The percentage amount of the annual premium is based on the LTV and the term of the mortgage. Currently, on a less than 95% LTV, 30-year loan, the FHA would charge 1.30% per year of the loan amount. For LTVs equal to or greater than 95%, annual premiums are 1.35%.FHA mortgage loans up to 98.15% of the property appraisal value are available.
Therefore, appraisals are performed for the use and benefit of HUD and the lenders involved in FHA transactions, not the borrower. The FHA allows only FHA-approved, licensed appraisers to perform the appraisals because they must check for required FHA items to confirm that the property does not contain any health or safety issues. The FHA emphasizes that an appraisal is not a home inspection and it does not guarantee that a home is without flaws.
Uniform Residential Appraisal Report (Form 1004). This report form is designed to report an appraisal of a one-unit property or a one-unit property with an accessory unit, including a unit in a planned development (PD).
Individual Condominium Unit Appraisal Report (Form 1073). This report form is designed to report an appraisal of a unit in a condominium project or a condominium unit in a planned development (PD).
In addition to home loan programs, the benefits provided include disability compensation, pension, education, life insurance, vocational rehabilitation, survivors' benefits, medical benefits, and burial benefits.It is for veterans, family members, or survivors of veterans.
lenders receive a certificate of guaranty from the VA.
the funding fee for a less than 5% downpayment loan is 2.15%. For second and subsequent use the funding fee for a less than a 5% downpayment loan is 3.30%. The fee is higher the second time because these veterans have already had a chance to use the benefit once.
No down payment (in most cases)
Reasonable loan charges
No PMI or MMI
VA minimum property requirements. All new houses, regardless of when appraised, are covered by either a 1-year builder's warranty or a 10-year insured protection plan.
Variety of loans—fixed-rate, adjustable-rate, GPM, Hybrids
Assumable mortgage if VA approves the consumer's credit. VA loans that
originated prior to March 1, 1988 are fully assumable with no prequalification
for the new purchaser.
No prepayment penalty
the VA allows a lender to charge a 1% origination fee plus reasonable discount points and veterans to pay reasonable and customary charges. These costs are determined by each regional VA office. Any charges not considered reasonable and customary are generally paid by the seller when purchasing a new home or by the lender when refinancing an existing VA loan.
Reasonable and Customary Closing Charges
Appraisal and inspections
Flood zone determination
Title examination and insurance
The entitlement is the maximum guaranty that the VA will provide for the veteran's home loan. With the current maximum guaranty, a veteran who has not previously used the benefit may be able to obtain a maximum VA loan with no down payment depending on the borrower's income level and the appraised value of the property.
The basic entitlement is $36,000 for loans up to $144,000. For loans in excess of $144,000 that are used to purchase or construct a home, the entitlement increases up to an amount equal to 25% of the Freddie Mac conforming loan limit for a single- family home. Currently, the conforming loan limit is $417,000 . This means that qualified veterans can get a purchase loan for those amounts with no down payment. When this limit increases or decreases, the VA guaranty limits also go up or down. However, the maximum VA loan amount is dependent on the reasonable value of the property as indicated on the Certificate Of Reasonable Value (CRV).
THE LENDER ORDERS AN APPRAISAL USING THE REQUEST FOR DETERMINATION OF REASONABLE VALUE FORM. THE APPRAISAL FOR VA LOANS IS KNOWN AS A CERTIFICATE OF REASONABLE VALUE (CRV) and must be issued by a certified VA appraiser. A loan cannot exceed the value established by the CRV. If the value on the CRV is less than the purchase price, the veteran can make up the difference in cash, the seller may reduce the selling price of the home, or the transaction can be cancelled. The seller cannot carry back a second loan for the difference between the sales price and the value indicated on the CRV.These lenders may underwrite and close home loans without prior VA review or APPROVAL.AUTOMATIC AUTHORITY is the authority of a lender to close VA-guaranteed loans without the prior approval of the VA.
If a loan is eligible for automatic processing, VA automatic lenders are approved to use some automated underwriting systems. The two main systems are Freddie Mac's Loan Prospector® and Fannie Mae's Desktop Underwriter®. These systems do not approve or disapprove loans, they merely assign a risk classification, which determines the level of underwriting and documentation needed. The lender must decide whether to approve the loan.