Government-Related Loans Overview

Study Notes

FHA, VA, and USDA loans are crucial in the mortgage sector, providing options for various borrowers.
FHA loans insure lenders against borrower default; VA and USDA loans offer guarantees to lenders.

FHA Loans

The FHA itself does not originate loans but insures them, protecting lenders.
Advantages include low down payments (as low as 3.5%) and no prepayment penalties.
Down payment can be a gift from a family member.
Properties must be one-to-four-unit owner-occupied residences.
Borrowers must occupy homes within 60 days of closing and maintain occupancy for at least one year.
Qualifying ratios for FHA loans are set at 31% for housing expenses and 43% for total debt obligations.
Sales concessions capped at 6% of the sales price; late charges up to 4% on principal and interest only.
Maximum loan term extends to 30 years; interest rates are determined by lenders, not FHA or HUD.
Underwriters utilize the Credit Alert Verification Reporting System (CAVRS) to check federal debt repayment history.

TOTAL Credit Evaluation

TOTAL assesses overall creditworthiness based on:
- Credit score
- Monthly housing expenses
- Number of monthly payments in reserve
- Loan-to-value (LTV) ratio
- Loan term

Property Conditions for FHA Loans

Properties must be free from health and safety hazards.
Lenders decide necessary repairs to ensure property eligibility, focusing on:
- Health and safety of occupants
- Security of the property
- Structural integrity

FHA’s “5 Cs” of Underwriting

Credit: Evaluation of the borrower’s credit report.
Capacity: Borrower’s ability to repay based on income.
Cash: Ability to cover down payment and closing costs.
Collateral: The property securing the loan.
Character: Borrower's willingness to repay the loan.

Mortgage Insurance Premium (MIP)

MIP is mandated for all FHA loans, distinguishing it from PMI used in conventional loans.
Initial upfront premium (UFMIP) calculated by multiplying the loan amount by 1.75%.
Monthly MIP is determined similarly, paid in addition to the UFMIP.
UFMIP can be paid in cash or financed; if paid at closing, full payment must be in cash or fully financed.
MIP cancels when LTV reaches 78% for loans after January 1, 2001, provided five years of annual MIP has been paid; financed MIP cannot be canceled.

VA-Guaranteed Loans

Guaranteed by the Veterans Benefits Administration under the Department of Veterans Affairs.
Purpose: Facilitate housing for eligible veterans involved in active military service.
Loans available for owner-occupied single-family homes and multi-family dwellings (up to four units) if the veteran occupies one unit.
The VA does not issue loans, instead guarantees a portion of the loans made by approved lenders.
Maximum guarantee is 25% of the purchase price or sales value.

Description

Explore the essentials of government-related loans, including FHA, VA, and USDA loan options. Understand how these loans work, their benefits, and eligibility requirements. This quiz will delve into key characteristics and guidelines for potential borrowers.