JODY OBRIEN

FEDERAL HOUSING ADMINISTRATION (FHA) LOANS

RE75R12

CEU OUTLINE

FHA LOANS

• What is a FHA Loan?• Is not a loan from the Federal Goverment• An FHA insured loan is a Federal Housing

Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender.

• FHA insured loans are a type of federal assistance

THE BEGINNINGS

• originated during the Great Depression of the 1930s,• foreclosures and defaults rose sharply, • the intent was to provide lenders with sufficient

insurance. • The National Housing Act of 1934 created the Federal

Housing Administration (FHA), established to increase home construction, reduce unemployment, and operate various loan insurance programs.

THE BEGINNINGS

• Until the late1960s, the FHA served mainly as an insuring agency for loans made by private lenders.

• The role was expanded to the administrator of interest rate subsidy and rent supplement programs.

• FHA subsidy programs were contained in the • Civil Rights Act of 1968 • 1974 the Housing and Community Development Act • 1977 Housing and Community Development Act• 1980 Housing and Community Development Act

BENEFITS

• Lower down payments

• Lower interest rates

• Assumable

• Appraisal process protects borrower

• Less risk for lender

POPULARITY

• “FHA loans have quadrupled since the boom. Half

of FHA’s portfolio was written after 2009. It is

estimated to be ½ of the home loan market. “

• How about you

THE BANK

• FHA approved lenders• http://www.hud.gov/ll/code/llslcrit.cfm

• FHA insures the loan• investigate the applicant and decide that the risk is

favorable, insures the lending institution against loss of principal in case the borrower fails to meet the terms and conditions of the mortgage

THE BORROWER

• Basic FHA loan requirements.• Two Years of steady employment, preferably with

same employer. • Last two years Income should be the same or

increasing. • Bankruptcy's must be at least two years old, with

perfect credit since discharge.

• Foreclosure's must be at least three years old, with perfect credit since. Exceptions…

THE BORROWER

• Foreclosures• Exception to the three year limit• “The lender may grant an exception to the three-

year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.”

THE BORROWER

• Mortgage payment should be approximately 30% of

gross (before taxes) income.

• Ratio is 31 percent to 43 percent.

• Income documentation

• No income limit“When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their

• income• assets• liabilities

THE BORROWER

• Credit report should typically have less than two thirty

day lates in last two years

• Minimum credit score of 620 or higher.

• Credit may be higher

depending on the lender

THE BORROWER

• Down Payment• 3.5%• Gift

• employer, • relative or • a nonprofit or government agency that offers

down payment assistance

• Closing Cost• 6%• Can be paid by Seller

THE BORROWER

• Co-Borrower• non occupant co-

borrower (such as a parent) and

• allows the loan to be assumed by one borrower later with no re-write.

THE PROPERTY

• Principle Residence• Single Family• Multi Family• Condo

• Approved• Recertification every year• Not detached• No Right of First Refusal

THE PROPERTY

• Appraisal Processadditional requirements designed to insure that any major repairs that will be needed within two years are identified and completed before the closing

• Reasonable Valueand• Safe• Sanitary• Structurally Sound

• Approved Appraisers https://entp.hud.gov/idapp/html/apprlook.cfm

THE PROPERTY

• What are they looking for?• Identify any chipping, peeling or cracked lead-

based paint - interior and exterior• Verify there are no issues with water damage or

drainage• Insure proper ingress and egress (18") from all

buildings to the lot line.• Test for a properly working heater and, if present, air

conditioner• Test for adequate water pressure and no water

leaks• Validate every bedroom has exterior access

THE PROPERTY

• Test for a working oven hood/fan (carbon monoxide danger)

• Verify a minimum 60 amp electric box• Test for working electric outlets in every room• Identify any exposed wiring or missing electric box

cover plates• Verify roof vents are screened and a maximum of

three layers of roofing material• Complete a head and shoulder inspection of attic

and crawl space

THE PROPERTY

• Head off trouble:

• Inform the Home Inspector of FHA financing

• Have Fire Department inspection as early as possible

THE PROPERTY

• HOMES UNDER 2 YEARS OLD• These homes require additional investigation,

including: checking with the airport commission for location in airport noise zones and “runway clear zones”; check engineered fall distances and easements for electric, cell, radio, microwave, etc. towers; looking for gas tanks within 300 ft; etc.

• Homes under 1 year of age have even more checks.

THE LOAN

• Loan limitshttp://www.fha.com/lending_limits_state.cfm?state=MASSACHUSETTS• Mortgage Insurance Premium MIP

• upfront mortgage insurance premium (UFMIP) of 1.75% and• an annual mortgage insurance premium (MIP) of up to

1.50%. • New June 2013

NEW MIP RULES

• June 2013

THE LOAN

The FHA loan rulebook also adds that the loan officer or underwriter, “evaluates the four C’s of credit to determine a borrower’s creditworthiness.” • credit history

• capacity to repay • cash assets available to close the mortgage • collateral.

GRANTS, ASSISTANCE & PROGRAMS

• Housing Counseling - HUD sponsors housing counseling agencies throughout the country that can provide advice on buying a home, renting, defaults, foreclosures, and credit issues.

• http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=MA

GRANTS, ASSISTANCE & PROGRAMS

• Grants and Assistance - Owning a home is a big part of the American Dream. Here are some resources that can help you buy, maintain and keep your home

• http://www.hud.gov/local/ma/homeownership/buyingprgms.cfm

GRANTS, ASSISTANCE & PROGRAMS

203(k)This program is described on the FHA/HUD official site as a home loan guaranty for the purpose of helping “homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to financethe rehabilitation of their existing home.”

GRANTS, ASSISTANCE & PROGRAMS

Streamlined 203(k)•structural alterations and reconstruction•modernization and improvements to the home’s function•elimination of health and safety hazards•changes that improve appearance and eliminate

obsolescence•reconditioning or replacing plumbing; installing a well

and/or septic system•adding or replacing roofing, gutters, and downspouts•adding or replacing floors and/or floor treatments•major landscape work and site improvements•enhancing accessibility for a disabled person•making energy conservation improvements

Jody O’BrienThe RE/Education Company

Committed to Professionalism in Real Estate through Education

Blogwww.reeducator.wordpress.comPresentationwww.slideshare.net/ReEducationCompanySocial Mediawww.twitter.com/reeducatorwww.youtube.com/msreeducatorwww.facebook.com/reeducatorwww.linkedin.com/in/reeductor

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