California Real Estate Finance Bond, McKenzie, Fesler & Boone Ninth Edition

1. California Real Estate FinanceBond, McKenzie, Fesler & BooneNinth Edition Chapter 6 Government-Backed Financing

2. Objectives After completing this chapter, you should be able to: List the main advantages and disadvantages of FHA-insured loans. Identify the guidelines governing FHA loans. Explain the key features of DVA-guaranteed loans. List the main characteristics of the Cal-Vet loan system. Outline the CalHFA first-time home buyer program.

3. Outline Federal Housing Administration Department of Veterans Affairs Cal-Vet Loans California Housing Finance Agency Program (CalHFA)

4. Federal Housing Administration Part of Department of Housing and Urban Development (HUD) Goals Provide affordable financing Create increased homeownership Upgrade property standards Introduced Fully amortized loans Low down payment loans Low interest rates Mandatory collection of taxes and fire insurance premiums Minimum property standards Standards for qualifying owner-occupant borrowers

5. What Does the FHA Do? • Does not make loans • Insures lenders in event of foreclosure • Introduced risk-based pricing model using • Credit scores • LTV ratios • Terms of the loan • UFMIP • Approves property • Approves qualifications of borrower • Charges borrower Mortgage Insurance Premium (MIP) • Lump sum • Monthly payments (.5 or.55 X loan amount) • Monthly Mortgage Insurance (MMI) • Pays lender if foreclosure • Takes title

6. Advantages of FHA Loan (Slide 1 of 2) Low down payment Loan fee is 1% Secondary financing is allowed if total does not exceed FHA max Max term is 30 years or 75% of remaining life of property Monthly payments must include PITI & MMI (principal, interest, taxes, insurance & Monthly Mortgage insurance)

7. Advantages of FHA Loan (Slide 2 of 2) No maximum purchase price, but loan based on appraisal Interest and discount rates are negotiable Borrower must occupy property Appraisals (“conditional commitments”) good for six months Sellers may pay up to 3% of loan closing costs for buyer Direct Endorsement (fast qualifying) 3.5% down payment may be a gift No prepayment penalty 640 minimum FICO

8. Maximum loan amounts Based on lower of sales price or appraised value Borrower must have 3.5% investment in property Includes down payment Nonrecurring closing costs Loan origination fee Appraisal fee Credit report fee Title Escrow fees Max loan varies by county, but could be$729,750

9. FHA Programs Section 203(b) Section 245(a) Over 18 1 – 4 units U.S. citizen (not required) or resident alien Max for single family varies by county Owner occupied Property >1 year old or restrictions Adjustable Rate Loan Five different options

10. Section 203K Rehabilitation Mortgage FHA Programs Construction/take-out loan Add together “as-is” value plus rehabilitation cost plus 10% reserve

11. Department of Veterans Affairs Guarantees Loans (www.homeloans.VA.gov) But only a part 25% of Freddie Mac conforming loan As of December 2009, $417,000 So lender guarantee equals $104,250 So most lenders will loan $417,000 For a Maximum No Down Payment DVA-Guaranteed Loan If foreclosure Pay lender and take back property Pay max on guarantee and leave property with lender

12. Department of Veterans Affairs Loan Advantages • No down payment • No-No loan • Seller pays closing costs • Qualify based on • Ratio • Residual • “PMI” premium can be included in loan • Possible assumability • But vet is still liable • Rating factor worksheet • Job stability • Credit history • Debt ratio • Balance available for support (residual) • Liquid assets (reserves) • Appraisals (Certificates of Reasonable Value (CRVs)) protect veteran

13. Dispelling Some Myths Red tape and processing time reduced Habitability standard Some seller paid closing costs Discount points paid by buyer

14. DVA Eligibility Discharge not dishonorable Service During a time period For a length of time Unremarried spouses On active duty Fill out DVA Form 26-1880 to get Certificate of Eligibility Shows entitlement (max $$$) Full entitlement restored if original loan paid and property sold But could purchase another home if the original property has been refinanced, but only once

15. DVA General Info (Slide 1 of 2) Type of property 1 to 4 units Interest rates Negotiable Loan origination fee <1% of loan Term of loan 30 years max or remaining life Down payment None Maximum loan Related to Fannie Mae or Freddie Mac Owner occupied

16. DVA General Info (Slide 2 of 2) Monthly payments include PI only Appraisal (Certificate of Reasonable Value (CRV)) usually at sales price Secondary financing allowed If interest and terms similar to first Termite, wet rot, dry rot, and fungus report needed on all buildings Closing costs Seller pays Use Internet (Lender Appraisal Processing Program) for underwriting

17. Cal-Vet Loans (Slide 1 of 3) Similar to DVA with slight variations Ninety days active duty Honorable discharge Various service periods

18. Cal-Vet Loans (Slide 2 of 3) Owner occupied, single family dwelling Max loan as of March 2010, $521,250 No down payment if guaranteed by DVA 3% down if straight Cal-Vet loan 30 year terms Interest rate varies, but lifetime cap of ½% over starting rate Secondary financing permitted Covered by Disaster Indemnity (floods & earthquakes) <62 years old must carry life insurance which terminates at age 70 Monthly payments are PITI including disability & life Receive title under land contract of sale (DVA of CA holds title until loan paid in full) No refinancing available Pay off old, eligible for new

19. Cal-Vet Loans (Slide 3 of 3) Advantages Low interest rates Inexpensive insurance Low closing costs Disadvantages Lack of refinancing Shortage of funds If unmarried, no joint tenancy

20. California Housing Finance Agency Program (CalHFA) First time homebuyers Agency sells mortgage revenue bonds to investors Uses proceeds to buy loans from lenders 30 year Fixed Rate Interest Only Plus

21. 30 Year Fixed Rate Conventional Loan Program LTV 100% Origination fee <1.5% Mortgage insurance required Max loan depends on county Owner occupied single family Manufactured homes allowed U.S. citizen, permanent resident, qualified alien First time homebuyer Income max depends on county

22. Interest Only PLUS Program(temporarily discontinued in 2009) Below market fixed interest rate 35 year term Interest only for first five years Remainder amortized over 30 Mortgage insurance required Property and borrower eligibility identical to 30 year Fixed Rate Program See www.calhfa.ca.gov

23. Questions and Comments?