FHA Loans Overview

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Questions and Answers

What is a primary requirement for a borrower to qualify for an FHA-insured loan?

The borrower must have a high credit score above 700.

The borrower must occupy the property as their principal residence within 60 days of closing. (correct)

The borrower must have a down payment of at least 20%.

The borrower must have a maximum income level.

What does the FHA mortgage insurance include that is paid upfront?

Monthly Principal Payments

Upfront Mortgage Insurance Premium (UFMIP) (correct)

Closing Costs

Annual Property Taxes

Which of the following statements is true regarding mortgage insurance for FHA loans?

MIP is paid for the life of the loan for most FHA loans. (correct)

MIP is only required for loans with an LTV of less than 80%.

MIP can be canceled after three years of timely payments.

MIP can be eliminated once the loan balance reaches 90% of the original amount.

What role does the FHA play in the loan process?

It provides insurance on the loans issued by approved lenders. Signup and view all the answers

What is the maximum upfront mortgage insurance premium (UFMIP) percentage for FHA loans?

1.75% Signup and view all the answers

Which federal agency administers the Federal Housing Administration (FHA)?

Department of Housing and Urban Development Signup and view all the answers

What does the MIP rate depend on for FHA loans?

Loan amount, LTV, and loan term. Signup and view all the answers

Which of the following borrowers can qualify for an FHA-insured loan?

Permanent residents with a qualifying work visa. Signup and view all the answers

What is the maximum debt-to-income ratio that underwriters allow for VA loans?

41% Signup and view all the answers

Which aspect is NOT considered when calculating a veteran's residual income?

Loan interest rates Signup and view all the answers

What is the main purpose of VA's Minimum Property Requirements (MPRs)?

Ensure properties are safe, sound, and sanitary Signup and view all the answers

What is the maximum area median income (AMI) percentage for USDA loan eligibility?

115% Signup and view all the answers

Which type of USDA loan does not involve lenders directly?

Section 502 Direct Loans Signup and view all the answers

What is collected upfront at closing for the USDA loan guarantee?

First-year fee for the guarantee Signup and view all the answers

Which of the following statements about USDA loans is incorrect?

USDA loans require a down payment. Signup and view all the answers

What is the role of the Government Underwriting System (GUS) in USDA loans?

To automate the loan approval process for lenders Signup and view all the answers

What is the minimum credit score required by FHA for a 3.5% down payment?

580 Signup and view all the answers

Which of the following costs cannot be included in the FHA loan amount?

Homeowner's insurance premium Signup and view all the answers

Who is eligible for VA loans?

Veterans and active-duty service members Signup and view all the answers

How long must veterans typically serve to be eligible for a VA loan?

181 days of active duty Signup and view all the answers

What occurs if a veteran has used their VA entitlement previously?

They can still qualify with partial entitlement Signup and view all the answers

What is the maximum allowable funding fee for veterans who have previously used the VA benefit?

3.6% Signup and view all the answers

Which of the following is an allowable source for the FHA down payment?

Gifts from relatives Signup and view all the answers

What must a property meet to be eligible for an FHA loan?

It must be free of health and safety hazards Signup and view all the answers

Which entity underwrites VA loans?

VA-approved private lenders Signup and view all the answers

What happens if a veteran does not have full VA entitlement?

They can still qualify, but the loan limit is based on county limits Signup and view all the answers

Which information is NOT analyzed when determining a borrower's capacity to repay an FHA loan?

Geographic location Signup and view all the answers

Which of the following is a job of the appraiser for FHA loans?

Ensure the home is safe and fit for occupancy Signup and view all the answers

With an FHA loan, where can closing costs generally be negotiated?

Rolled-in to the loan amount Signup and view all the answers

Who may waive the VA funding fee?

Certain veterans receiving service-connected disability compensation Signup and view all the answers

What is the minimum down payment required for FHA loans?

3.5% Signup and view all the answers

Study Notes

FHA Loans

FHA loans are insured by the Federal Housing Administration (FHA), part of HUD.
Loans are provided by FHA-approved lenders.
No income limits; borrowers must have sufficient income to repay the mortgage.
Maximum loan amount based on community and conforming limits, reviewed every three years.
Borrowers must occupy the property as a primary residence for at least one year following closing.
Citizens, permanent residents, and qualifying non-permanent residents can qualify.
FHA provides mortgage insurance (MIP): a upfront premium (UFMIP)paid at closing, and monthly payments.
UFMIP is typically 1.75% of the loan amount.
MIP varies based on loan amount, loan-to-value (LTV) ratio, and loan term.
MIP is typically paid for the loan's life.
Minimum credit score is 580 with 3.5% down; 500 with 10% down.
Minimum down payment is 3.5%.
Most closing costs can be financed into the loan.
Down payment sources may include state housing agency grants, documented gifts from relatives, and collateral.
Loans are for one- to four-family dwellings (detached, semi-detached, condos, manufactured homes, under certain conditions).
New construction homes have specific guidelines.
Properties must be free of health and safety hazards; repairs may be required.
Lenders consider borrowers' capacity to repay based on income, employment, housing expenses, and total debt-to-income ratio.
FHA allows higher housing expense and debt-to-income ratios compared to conventional loans.

VA Loans

VA loans are guaranteed by the Department of Veterans Affairs (VA).
Eligibility is based on qualifying U.S. military service (length and type).
Veterans, active-duty service members, and surviving spouses are eligible under specific conditions.
Private lenders underwrite loans and provide financing. VA guarantees up to 25% of the loan in case of default.
VA does not limit the price a veteran can pay for a house but the appraised value must meet the loan amount.
Entitlement is based on service length and previous use, possible restoration.
Partial entitlement allows loans exceeding county limits, based on combined down payment and remaining entitlement.
Loan amount is based on the borrower's VA entitlement.
VA funding fee is a closing cost to offset program costs.
Funding fee varies based on veteran's circumstances and LTV ratio.
Funding fee is waived for specific veterans and surviving spouses (disabled, deceased veteran service, etc.)
VA-approved lenders use published guidelines to underwrite loans (580 minimum credit score.)
Income analysis (debt-to-income ratio, max. 41%), residual income (important to assess family support) is considered.
Residual income calculation is based on net effective income (gross income less taxes, housing, debts).
VA provides Minimum Property Requirements (MPRs) for safety, structural soundness, and property location for property assessment.

USDA Loans

USDA loans are 90% guaranteed by the U.S. Department of Agriculture and used primarily in rural communities.
Eligibility is determined by location (35,000 population or less), determined by a USDA online resource.
Section 502 Direct Loans are provided directly; Section 502 guaranteed are through approved lenders.
USDA loans are used to: purchase, build, repair, renovate, relocate a home.
No down payment required.
Borrower income must be below 115% of Area Median Income (AMI).
Only 30-year fixed-rate mortgages are eligible.
Lenders use GUS (Government Underwriting System).
Borrowers must demonstrate the ability to manage debt.
Annual fee of .35% for the guarantee; first year collected upfront and may be financed.
Renewal fee based on declining principal balance.

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Description

This quiz covers the key features and requirements of FHA loans insured by the Federal Housing Administration. From loan amounts to down payment options, test your knowledge on how these loans work and who can qualify. Perfect for anyone looking to understand mortgage options better.