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									 FHA Essentials Training
Presented by: SecurityNational Mortgage Company
      FHA Mission
o Help people realize the
  American Dream of
o Stabilize and revitalize
o Promote economic growth
o Reduce defaults and preserve
       FHA Goals
o Create an educated Consumer
  that can make well-informed
o Enable every American to own
  and build equity in their homes
o Provide homeownership
  opportunities to the underserved
  population (first time
  homebuyers, minorities, and the
FHA Mortgage Insurance Premium
   Protects lenders against mortgage
     loss, this encouraging lender
     fl ibilit in loan approval
     flexibility i l           l
   o Upfront MIP of 1.50% can be
     financed into the mortgage
     fi        d i t th    t
     Monthly ( k P i di
   o M thl (aka: Periodic or
     Annual) MIP must be paid for
     thee greater of 5 years or until
     the loan is paid down to 78%
     Loan To Value
     Loan-To-Value (LTV)
    Benefits of FHA
o No minimum credit score
o Alternative credit history allowed
o No credit history required
o Qualifying ratios are 31/43
  Q     y g                /
o Interest rates below sub-prime
  and many conventional loans
o Automated Underwriting Systems
  may be used to p  process FHA
  loans (using the TOTAL
      Benefits of FHA
  Low Down Payments and Flexible Sources
3% minimum cash investment
o Flexible Source of Funds
   o 100% gift funds
      o Family – can use to pay off debts
        Non profit
      o Non-profit – use ONLY for down payment and costs
   o Secondary financing
      o Instrumentality of government
      o Family
o Seller or third party (i.e. realtor or lender)
  can contribute up to 6% of the sales price
  towards borrower s financing costs
o Down Payment is not required for Disaster
  Victim 203(h) loans
       Benefits of FHA
      FHA is Flexible and Accessible

o       loans are assumable
    FHA l                  bl
o   No seasoning on listed properties
o   No             t
    N prepayment penaltieslti
o   MIP protects lenders against
    mortgage loss
    o Upfront MIP can be financed into the
o Closing costs paid by the borrower:
  those that are reasonable and
  customary for property location area
    Benefits of FHA
o Free Housing Counseling available to
  borrowers from an FHA approved
  Housing Counseling Agency
o Loss Mitigation (LM) tools are
  available to serve borrowers in
  difficulty and danger of foreclosure
  o Mandatory: Lender must use LM before
  o Financial incentives increased for
    servicing lenders to use LM
     o Special Forbearance, Loan Modification,
       Partial Claim
     o Deed-in-Lieu, Pre-Foreclosure Claim
FHA Changes and
Revised Appraisal Protocol
  o FHA has adopted Fannie Mae appraisal
    forms and instructions
         app a sa s performed exactly e
  o FHA appraisals pe o ed e ac y like
    conventional appraisals, with emphasis on
        Sheet Homebuyer s
  o VA Sheet, Homebuyer’s Summary
  o Can switch from conventional to FHA loans
    without another appraisal required (unless
    appraiser is NOT on roster with FHA)
  o Reduced repair requirements
     o Less expensive
     o Faster closings
Revised Appraisal Protocol Cont’d
    o Eliminated requirements for minor
      repairs and deferred maintenance
      o Handrails
      o Cracked windows, doors
      o Tripping hazards
      o Minor plumbing leaks
    o Eliminated automatic standard
      o Flat or unobservable roof
      o Water quality
      o Termite and pest infestation
Revised Appraisal Protocol Cont’d
    o Repairs still required for the following:
       o Safety: Major health and safety items
       o Soundness: Structural problems
       o Security: Value must be sufficient to support
       o Cracked, peeling paint for pre-1978 homes
    o Well/septic distance requirements still apply
       o Appraiser is NOT required to include location and
         distance of well/septic on the sketch or the
       o Appraiser is to include any concerns noted
         relative to well and septic
             d     ill bt i                           d
       o Lender will obtain a survey, if necessary, and
         address/resolve concerns noted by the appraiser.
Property Flipping Rules
         Overview of Eligibility for FHA
         O      i     f Eli ibilit f
             (ML 2006-14) – cont’d
o      re-sales                  91-180 days,
    If re sales occur within 91 180 days
    and exceeded original price by 100%
    or more, then a second appraisal is
o   Seller’s date of acquisition is defined
    as the date of settlement on the
    seller’s purchase of the property
o   Resale Date is the date of execution
    of the sales contract by the buyer that
    will result in an FHA insured mortgage
o   Does not apply to new construction
Modified Closing Costs Protocol
    o FHA rescinded list of allowable/unallowable
      closing costs effective January 27, 2006
      (Mortgagee Letter 2006-04)
    o Only remaining restrictions are on amount of
      loan origination fee and tax service fee
    o Customary and reasonable test still apply
      as do other Federal and state disclosure
      laws, including other applicable laws and
    o Commitment/lock-in fee is now considered
      a closing cost (lock-in agreement
           if i  t          t till b       t db
      specifying terms must still be executed by
      borrower at least 15 days prior to closing)
FHA Connection
FHA Loan Products
   Regular – 203(b)
o FHA most popular program
o Fixed Rate
o Adjustable
  o 1 year: 1% per year, 5% cap
  o 3 year Hybrid: 1% per year, 5% cap
    5, 7
  o 5 7, and 10 year Hybrid: 2% per
    year, 6% cap
o Works will with local
  homeownership programs
Condominiums – 234(c)
o Available for apartment units
  converted to condos (restrictions)
o At least 4 units in the project
o Units can be detached, row-house,
  two or more floors
  t             fl
o Project must be HUD approved
  o Entire complex by HUD staff (list available
       p //    g /       /   /              )
  o Individual unit spot approval by
o 3% cash investment not required
o May benefit veterans who:
  o Have less than full eligibility for VA
  o Are co-borrower with someone
    other than spouse
  o Have eligibility tied to another loan
               g g         y (MIP may be
  o Are re-using eligibility (         y
    less than VA funding fee)
                      G     l

o Repayment of an existing real estate debt from the
          d f              t      th t h th
  proceeds of a new mortgage that has the same
  borrower(s) and the same property
o The borrower does not have to be on the current loan
  to be eligible for an FHA refinance; does have to
  have legal title.
o A valid SSN is required
o Borrower cannot be found on LDP or GSA lists
               tb     h k d      d
o CAIVRS must be checked and, if necessary, resolvedl d
  (Exception: Streamline Refinance)
o Base loan amount cannot exceed the maximum
  (        y)      g g
  (statutory) mortgage limit
o Delinquent mortgages may be refinanced per
  guidelines in Mortgagee Letter 94-30
  Refinances Cont’d
               General (cont’d)
               G     l(    t’d)

           p y                    q
o Current payoff statement is required for
  each loan to be paid from the proceeds of
  the refinance, and for all types of refinances
  (including Cash-Out)
  Only h               ll     id b h b
o O l the costs actually paid by the borrower
  can be financed into the loan (cost paid via
  premium pricing or by the lender must be
o HUD-92900-WE is used to underwrite
  refinance loans
  Address mismatch issues (FHA-to-FHA l
o Add        i    t hi       (FHA t FHA loans)  )
  are to be resolved at case number
    Refinances Cont’d
     CASH-OUT   d             (G     l)
     CASH OUT and NO CASH OUT (General)

o       y
    May be conventional-to-FHA refinance
o   Full document, qualifying loans
o   CAVIRS, LDP, and GSA must be checked
o   May use AUS/TOTAL Scorecard (data must
    be supported by file documentation)
o   Interest Rate, Discount Points, higher fees
    cannot be used to offset poor credit or lower
    mortgage amount
o   Owner occupied properties only
o   Up-front and Monthly MIP applies
o   Required repairs must be completed prior to
 Refinances Cont’d
CASH-OUT and NO CASH-OUT (General)

o Loans acquired less than 1 year prior
  to the refinance transaction have an
    dditi    l   t        l l ti
  additional mortgage calculation.
  Base mortgage amount is the lesser of
  the calculations
o Non-occupying co-borrower not
o Same qualification criteria as a
  purchase transaction.
  Refinances Cont’d
                     CASH OUT

                        g g (base) is
o Maximum allowable mortgage (   )
  lesser of:
  o Statutory limit
  o 85% of the appraised value
     o If owned less than one year, 85% of original sales
     o Junior liens may be subordinated if the Combined
       Loan-to-Value (CLTV) does not exceed 85% of the
             i d l
       appraised value
  o 95% of the appraised value (ML 05-43)
     o   Must have owned property at least one year
     o        doesn’t
         CLTV doesn t apply to subordinated loans
     o   Must be 1 or 2 unit property
     o   Must have made all payments within month due
         during the last 12 months (programmatic
         requirement – applies to AUS files)
  Refinances Cont’d
               CASH-OUT (cont’d)

o Up-front MIP refund credit (FHA-to-FHA
  refinance loans) does not have to be
  subtracted to determine mortgage amount
   o HUD 1 must reflect the refund credit on page 1 for
     the borrower to receive it
   o MIP is paid as an FHA-to-FHA refinance to the
     refunded will be netted to the new loan
      e u ded           e ed o e e oa
o Borrower’s letter of purpose for the cash-out
  is required
                        exceeded,      cash out
o Ratios should not be exceeded as cash-out
  refinances represent a higher risk to the
  insurance fund
  Refinances Cont’d
                NO CASH-OUT

          d          d        ff i i
o Proceeds are used to pay off existing
  seasoned liens
         (             y
o Junior (2nd) liens may be subordinated if the
  CLTV does not exceed the appropriate LTV
o May be used to buy out a co-mortgagor’s
  equity if adequately documented. Borrower
  cannot receive cash back.
o Delinquent taxes/escrow shortfall and late
  fees MAY be financed into the new loan
 Refinances Cont’d
        NO CASH-OUT (cont’d)

o Maximum (base) mortgage amount is
  the lesser of:
  o Maximum (statutory) mortgage limit
  o Appropriate LTV for property area
    applied to appraised value
  o Allowable payoff amount, plus borrower
    paid closing costs and prepaids, and
    reasonable discount points.
  o If owned less than one year, appropriate
    LTV applied to the original sales price
  Refinances Cont’d

o Refinance of a currently insured FHA
  loan for the purpose of lowering the
  principal and interest (P&I) payment
oP        d           dt
  Proceeds are used to pay off theff th
  existing first (FHA insured) lien, along
  with the costs associated with the
o Can be with or without an appraisal
  o May sill be able to finance some/all of
    financing costs even without an appraisal
  o Junior (2nd) liens must be subordinated
    without regard to CLTV
    Refinances Cont’d
       STREAMLINE – GENERAL (Cont’d)

o Repairs may not be included in the loan
o CAIVRS does not have to be checked
o LDP and GSA lists do have to be checked
o                    (i e         Fixed
  Certain loan types (i.e. ARM to Fixed, Fixed
  to ARM, etc.) have additional
o Can add additional borrower without
o Generally cannot delete a borrower without
o May use AUS/TOTAL Scorecard (data must
  be supported by file documentation)
  Refinances Cont’d

  Evidence condomini m appro al req ired
o E idence of condominium approval required
o Investors cannot participate
o The purchase appraisal (even if less than 6 months
  old) cannot be reused
o Transaction, with the added expense of an appraisal,
  must actually benefit the borrower
o ALWAYS start without an appraisal; if necessary, the
  appraisal can be ordered later
o Maximum (base) mortgage amount is the lesser of:
   o Maximum (statutory) mortgage limit
   o Appropriate LTV applied to the appraised value
   o Allowable payoff amount, plus borrower paid closing
     costs and pre-paids, and reasonable discount points.
 Refinances Cont’d

o Maximum (base) mortgage
  amount is the lesser of:
  o Maximum (statutory) mortgage
    Original i    d     t
  o O i i l insured mortgage amount t
  o Allowable payoff amount, plus
    borrower paid closing costs and
    prepaids, and reasonable discount
  Refinances Cont’d
                         Credit Q lif i
            STREAMLINE – C dit Qualifying

o May be done with or without an appraisal
o Must be done when a reduction of term results in
  more than 20% per month increase to the P&I
o Deletion of a borrower will trigger the due-on-sale
o Following an assumption that occurred less than 6
  months previously. [Handbook 4155.1 REV 5,
  Paragraph 1-12 D. 9.]
o Must document credit and capacity (willingness and
  ability) of the remaining borrowers. Required
  documentation and qualification review included
  Verification of Income (VOE or verbal), credit report,
                                           payment to
  computation of acceptable mortgage payment-to-
  income and debt-to-income ratios.
o The maximum mortgage amount is calculated in
  accordance with appraisal status
  Refinances Cont’d
        Allowable Payoff Calculation
             (No Cash-Out and
        Streamline Refinance Loans)

o From the payoff statement:
o Add: Unpaid Principal Balance (UPB), Total
  Interest due, Pre-Payment Penalty (if
  applicable), and 2 months of monthly MIP
    pp       ),                         y
o Subtract any remaining (unused) portion of
  buydown funds, if applicable

  The resulting sum is the “allowable payoff
  amount” and is noted in #10a of the MCAW
FHA Jumbo
       FHA Jumbo
   Check FHA Website for Maximum
         County Loan Amount

o 1-4 Units
o FHA Approved Condos (including
  spot approvals)
o Minimum 620 FICO
o Down Payment Assistance Programs
o 30 Year fixed rate
o All loans are manually underwritten
o All borrowers must have a FICO score
       FHA Jumbo
           Declining Markets
           D li i    M k t

o If the loan amount is > $417 000 and
  the home is in a declining market,
  two full appraisals must be provided
  and the lowest appraised value
  should be used to determine value.
  The second appraisal must be an FHA
          i l b t       dditi   l
  appraisal, but an additional case
  number should not be ordered
       e p ope y s        so /dec      g
o If the property is in a soft/declining
  market, an LTV reduction is NOT
Single Family Basic Loan
o Must be owner-occupants of property as primary
  residence. May have non-occupying co-borrower or
  co-signers (some limitations)
o May not be investors (except HUD REO sales)
o Must be legally able to work in U.S. (citizenship not
o Must have valid Social Security Number
o Must qualify for the mortgage (no minimum income
o No minimum FICO
o Can have only one FHA insured mortgage (some
      y          pp            p
o May be HUD-approved non-profit or g   governmental
o May be one to four units
oM    b              d     d i i
  May be an approved condominium
  o HUD approved, or
  o Lender (spot) approval
o Must meet Minimum Property
  Requirements (MPR)
o May be existing or new construction
  o Appraisal valid for 6 months (existing)
  o Appraisal valid for 12 months (new
    Down Payment
oB               t   k
  Borrower must make a 3% cash   h
  investment into the purchase
o The 3% required investment is based
  on the sales price (SP)
o A portion of the required 3%
  investment (approximately .75%) can
  be satisfied by borrower paid closing

        $150,000;       $149 000
o SP is $150 000; AV is $149,000. 3% is
  applied to the SP of $150,000. The
  required investment amount is $4,500.
Borrower Qualifications
             d bt t b        id   d
         All debts to be considered:

         g     g
Recurring obligations
o Installment loans
o Revolving charge accounts
o Continuing obligations
o Debts <10 months that may impact borrower
  ability to pay mortgage

Contingent liabilities
o Co-signed obligations (Borrower can be
  held         ibl f          t f d bt     th
  h ld responsible for payment of debt if other
  party defaults)
o Good 12 month pay history from other party
  may offset this obligation
  Liabilities – cont’d

Some debts may be excluded
  from ratios:

o 401k/IRA loan payments
o Pa ment deferred for at least 12
  months from closing date (such
  as student loans)
  Liabilities – Cont’d
o All debts reflected on the credit
  report, unless documented as paid in
  full from an acceptable source of
o Debts owned by borrower, but not
  reported to the credit bureau
o Child support or alimony
o Rental properties loss (negative rent
  after mortgage payment and
  maintenance/vacancy factors)
o Housing payment for a non-
  occupying co-borrower
         py g
    Qualifying Ratios
o Are the best available indicator of
  borrower’s ability to afford the mortgage
  3 %     ous g e pe se o gross co e
o 31% - housing expense to g oss income
   Divide total housing payment – including HOA fees,
                             y gross effective income
     taxes, and insurance – by g
o 43% - total debt to gross income (back)
   Divide total monthly payments – total housing
     pay e p us o a o         y deb a d c d
     payment plus total monthly debt and child
     support/alimony payment – by gross effective
o Can be exceeded with strong
  compensating factors
   Compensating factor: Something that mitigates the
     risk indicated by the excessive ratio(s)
o Funds needed to close the loan
o Must be verified prior to approval
  of loan
o Reserves not required
o No “stated” assets. Source must
  be verifiable
  Must     f            t bl
o M t come from an acceptable
                         g/     g /
  o Borrower’s checking/savings/money   y
    market accounts
  o 60% of 401, IRA, etc.
  o Gifts or loans from family members (Must
    document ultimate source)
  o Gifts from non-profit organizations
  o Secondary financing from government
  o Cash from stocks, bonds, investments,
  o Real estate commission (may be gifted
    from relative)
o Basic Mortgage Calculation
  o Lesser of Sales Price (SP) or Appraised
    Value (AV)
    V l
  o Less any inducement or excessive
  o Sum multiplied by appropriate LTV
    (based on property location area)
                 $50,000 SP/AV – use 98.75%
     o Less than $
     o High Closing Cost States – use 97.75%
     o Low Closing Cost States
        o SP/AV between $50,000 and $125,000 – use
        o SP/AV over $125,000 – use 97.15%
Low Closing Cost States
 Arizona      California
 Colorado     Guam
 Idaho        Illinois
 Indiana      New Mexico
 Nevada       Oregon
 Utah         Virgin Islands
        g     Wisconsin
       Web Sites
      HUD’s home page: www.fha.gov

      HUD s
      HUD’s Homeownership Centers:

           FHA Resource Center

          HOC Reference Guide

  HUD forms, handbooks, mortgagee letters:
            h d li    / i/i d      i
Contact Information
      FHA Resource Center
  1-800-CALLFHA (800-225-5342)

HUD-Approved Housing Counseling

   HUD’s Loss Mitigation Center
Thank You!

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