FHA Mortgage Insurance - Chapter 13 Review

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Questions and Answers

What are FHA mortgage insurance premiums?

Required for all FHA insured mortgage loans, regardless of the down payment.

All of the following statements about the FHA are accurate, EXCEPT:

FHA is part of the Department of Housing and Urban Development (HUD)

FHA helps low and moderate income borrowers to become eligible for FHA insured mortgage loans

FHA protects borrowers by insuring residential mortgage loans (correct)

FHA insures loans that are made by mortgage companies, banks, and savings and loan associations

What does FHA section 203(b) mortgage insurance cover?

The purchase or refinance of an owner-occupied one- to four-family property.

All of the following statements about the FHA up-front mortgage insurance premium (UFMIP) are accurate, EXCEPT:

The UFMIP is paid annually for the life of the loan Signup and view all the answers

What is an annual mortgage insurance premium (AMIP)?

The standard AMIP is 0.85% of the annual outstanding loan balance divided into 12 monthly payments. Signup and view all the answers

All of the following statements about a section 203(b) FHA insured mortgage loan are accurate, EXCEPT:

HUD/FHA sets the interest rate of the loan Signup and view all the answers

What is the purpose of the VA mortgage loan program?

To guarantee mortgage loans for veterans. Signup and view all the answers

All of the following statements about entitlement for VA guaranteed mortgage loans are accurate, EXCEPT:

All honorably discharged veterans are eligible, regardless of the amount of time served Signup and view all the answers

All of the following statements about VA guaranteed mortgage loans are accurate, EXCEPT:

The VA has a set maximum loan amount Signup and view all the answers

All of the following statements about conventional mortgage loans are accurate, EXCEPT:

Conventional loans are generally less risky to lenders than FHA or VA loans Signup and view all the answers

What is Private Mortgage Insurance (PMI)?

Insurance that a borrower pays for to protect the lender from the risks associated with possible default by the borrower. Signup and view all the answers

What is usury?

Charging an interest rate in excess of those established by statute. Signup and view all the answers

The interest for 3 months is $300 on an interest-only, level payment, term loan with an interest rate of 5%. What is the principal balance?

$24,000 Signup and view all the answers

A $24,000 interest-only, level payment, term loan has interest of $200 after 2 months. What is the rate of interest on the loan?

5% Signup and view all the answers

A $24,000 interest-only, level payment, term loan has a rate of 5% and interest due in the amount of $600. How long has the loan been outstanding?

6 months Signup and view all the answers

Study Notes

FHA Mortgage Insurance and Loans

FHA mortgage insurance premiums are mandatory for all FHA-insured loans, independent of down payment; they cannot be canceled and last for the loan’s duration.
FHA is part of the Department of Housing and Urban Development (HUD) and does not directly protect borrowers.
Section 203(b) covers purchases or refinances of owner-occupied, one- to four-family properties.
The Up-Front Mortgage Insurance Premium (UFMIP) is typically 1.75% of the loan amount and paid at closing; it is not an annual fee as commonly mistaken.

Mortgage Insurance Premiums

The Annual Mortgage Insurance Premium (AMIP) is set at 0.85% of the outstanding loan balance, divided into monthly payments.
UFMIP can be covered by the borrower, seller, or third parties; it is not paid annually for the loan term.

VA Mortgage Loan Program

The VA mortgage loan program guarantees loans for veterans, enabling homeownership opportunities.
Eligibility for VA loans requires a certificate of eligibility, but not all veterans qualify regardless of service time.
Veterans can reuse their entitlement if prior VA loans are repaid and there is a maximum entitlement amount based on the veteran's eligibility.

Conventional Mortgage Loans

Conventional loans are generally seen as riskier for lenders compared to FHA or VA loans but typically require higher down payments.
They often carry higher interest rates than government-insured loans and are not backed by any governmental agency.

Private Mortgage Insurance (PMI) and Usury

PMI is insurance that protects lenders from borrower defaults, which borrowers must pay.
Usury refers to the practice of charging interest rates above legally established limits.

Loan Calculations

For an interest-only loan with 5% interest over three months amounting to $300, the principal balance is calculated to be $24,000.
A loan of $24,000 yielding $200 in two months corresponds to an interest rate of 5%.
If a $24,000 loan has $600 in interest at a 5% rate, it indicates the loan has been outstanding for six months.

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Description

Test your knowledge on FHA mortgage insurance premiums and their requirements with this Chapter 13 review quiz. Understand key differences between FHA and conventional loans, and the implications of mortgage insurance. Perfect for anyone studying real estate finance.