©2011 cengage learning. chapter 8 part ii: fha, va, and cal- vet loans and the secondary mortgage...

Chapter 8Part II: FHA, VA, and CAL-

VET Loans and the Secondary Mortgage Market

California Real Estate Principles


Chapter 8 Part II

1. Discuss the main characteristics of FHA insured, VA guaranteed, Cal-Vet loans and Cal HFA.

2. Define the secondary money market.

3. List the 3 agencies that play a major role in the secondary money market.


Loan TypesConventional loans

Private mortgage insuranceFHA

Government insures loanDVA

Government guarantees loanCal-Vet

California state buys the property and sells it to the Vet on a land contract and long term lease


Federal Housing Administration(FHA)

Government insures NOT makes loan Loan made from lender Requires up-front mortgage insurance premium

UFMIP Requires annual premium fee paid monthly of ½

of 1% of unpaid balance Program

Payments = PITI (insurance) No secondary financing with NEW loan No maximum price but a maximum loan amount 1-4 unit residential dwellings Discount points are negotiable & paid by either

party©2011 Cengage Learning

FHAAdvantages of FHA

Lower down payment (approx. 3.5%)No prepayment penaltyMinimum property standards

Disadvantages of FHA Increased processing time Property requirements may discourage sellers Cost of mortgage insurance decreases

amount of home loan


FHA 203b1. Acquisition cost

(appraisal + some closing cost)

2. 96.5% of acquisition cost to maximum loan allowed

3. Maximum loan is 95% of median home or 75% of FNMA whichever is less

Current maximum in our area is $


Department of Veteran’s Administration (DVA)

DVA guarantees the loan to protect lender Loan information

Interest rate negotiable between borrower & lender

Value determined by Certificate of Reasonable Value (CRV)

Zero down payment allowed Vet must have Certificate of Eligibility (DD214) Vet must occupy the property


DVA Advantages of a DVA loan

No down payment on loans up to the current maximum amount. (Instructor: Give students current amount)

Lower interest rate due to government guarantee No prepayment penalty on loan payoff May be used more than once if old VA loan paid off

and veteran released Disadvantages of a DVA loan

Only a Veteran qualifies May be discount points to entice lender to greater

yield Loans not assumable without credit check and

assumption fee Red tape with government may take longer for

approval©2011 Cengage Learning

SUMMARY VA PROGRAM Loans to owner-occupied qualified veterans

for homes No money down on maximum home loan

amount equal to Fannie Mae loan amount; the current maximum is $________

Interest is determined in the current marketplace

Vet is charged loan and funding fees Vet may use more than once as long as the

former VA loan is paid off or assumed


CAL-VETCalif. Farm/Home Purchase Program

All vets residing in CaliforniaTitle is in the name of the State of CaliforniaTitle passes to vet when state paid offVet gets a long-term lease and land contractLoan brokers may now process the loanVariable rate loanFunds received from sale of bonds


Cal-Vet ProgramLoans to owner-occupied qualified veterans for homes

and farmsMaximum loan amounts vary each year; current

maximum for:Home is $ ___________Farms is $ ___________

Cal-Vet loans guaranteed by VA are no money down to maximum VA approved loans amount; regular Cal-Vet loans require 2-3% down payment

On regular Cal-Vet loans the interest rates are variable with the current rate set at ________ %


Loan Limits - MaximumVA – www.va.gov $________FHA – www.HUD.gov

1 Unit $__________2 Units $__________3 Units $__________4 Units $__________

Cal-Vet(1-800-952-LOAN) $__________FNMA/FHLMC

Single Family $__________Two Units $__________Three Units $__________Four Units $__________


Borrower

Primary Lender in Primary Market

Secondary Market Investors

Flow of funds

Supply & Demand of mortgage credit

Existing loans are

bought and sold


Secondary Mortgage MarketFederal National Mortgage Association

Fannie Mae (FNMA)Issues stock to general publicProvides blended rate mortgagesIssues mortgage-backed securitiesFHA/VA/Conventional 1-4 units


Secondary Mortgage MarketFederal Home Loan Mortgage CorporationFreddie Mac (FHLMC)Issues stock to general publicBuys and resells residential conventional mortgage

loansRequires loan insurance if loan over 80% of appraisal


Government National Mortgage AssociationGinnie Mae (GNMA)

Guarantees securities issued by FHA-approved home mortgage lenders

Review Quiz Chapter 8 1. All of the following are non-institutional lenders,

except:a. credit unionb. Mortgage companyc. life insurance companyd. Pension fund


2. A seller’s financial disclosure statement must be signed by the:

a. buyer

b. seller

c. broker

d. all of the above

Review Quiz Chapter 8 3. The ultimate source of all loan funds is:

a. taxes

b. government spending

c. transfer payments

d. savings


4. A secondary mortgage market is where:a. existing lenders sell to other lenders and investorsb. a seller carries a junior trust deedc. the supply of funds available for real estate loans

is decreasedd. the Federal Reserve tightens mortgage interest

rates

Review Quiz Chapter 8

5. Using the ratio 1/6 difference = 1 point, if the lender wants a VA rate of 8% and the veteran only qualifies for 7.5%, how much would a seller have to pay up front to get the lender to grant a $3,000 loan?

a. $4,000b. $3,700c. $2,800d. $3,600


Review Quiz Chapter 8 6. For gross income purposes, most lenders want the

borrower to have at least a work history of at least:a. 1 yearb. 2 yearsc. 3 yearsd. 4 years


7. Private mortgage insurance (PMI):

a. makes the payments if the borrower gets disabled

b. is paid for by the lender

c. pays the loan off if the borrower dies

d. insures the lender for the top portion of the loan

8. Which of the following types of loans are made only to individuals who are intending to occupy the property as a personal residence?a. VAb. conventionalc. purchase moneyd. jumbo

Review Quiz Chapter 8


Review Quiz Chapter 8 9. Which government program carries a prepayment

penalty if the loan is paid off in less than 5 years?

a. VA

b. Cal-Vet

c. FHA

d. none of the above


10. A loan made by a lender who intends to keep the loan until paid:a. conforming loanb. jumbo loanc. portfolio loand. domestic loan

Answers to Review Quiz Chapter 8 1. C 6. B

2. D 7. D

3. D 8. A

4. A 9. B

5. A 10. D


©2011 cengage learning. chapter 8 part ii: fha, va, and cal- vet loans and the secondary mortgage...

Documents