Introduction To FHA Origination

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This is geared towards Loan Officer education. Not intended for public distribution. If you are a Loan Officer please contact me for more information and materials.

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Introduction To FHA Origination

  1. 1. Introduction to FHA Origination An Overview of FHA Loan Origination
  2. 2. Topics of Discussion  Introduction to FHA  Fundamentals of Loan Origination  FHA Loan Limits  Borrower Eligibility  Property Eligibility  Documentation  Marketing FHA Loans
  3. 3. Introduction to FHA Lending
  4. 4. Historical Information – Created by Congress in 1934 – Provides Mortgage Insurance – No cost to taxpayers
  5. 5. Benefits of FHA Loans  Low Investment  Flexible underwriting  Assumable
  6. 6. Basic FHA Terms  Direct Endorsement  Base Loan Amount  Minimum Investment  Mortgage Insurance Premium - MIP
  7. 7. FHA Resources  WWW.Hudclips.org  Handbook 4155.1 – Credit Analysis  Home Ownership Centers – HOC  Mortgagee Letters
  8. 8. Fundamentals of Loan Origination
  9. 9. Frequently Used FHA Loan Programs  Identified by Section Number – Section of the Act  Most widely used – 203(b) – 234(c) – 251
  10. 10. Special HUD Programs  203(k)  Energy Efficient Mortgage (EEM)  Good Neighbor Next Door
  11. 11. Occupancy  Owner occupied only unless: – Secondary residence if approved by HOC – Rare investment properties – Non-Profit Organizations – State and Local Agencies
  12. 12. Who is Eligible?  Individuals only  Permanent/Non-permanent Resident Aliens  Military Personnel  Living Trusts
  13. 13. Maximum FHA Insured Properties  A borrower cannot own more than one HUD- insured property unless: – Relocation – Increase in family size – Splitting jointly-owned property – Non-occupying co-borrower
  14. 14. FHA Loan Limitations
  15. 15. Maximum Mortgage Amount - Purchases  Lesser of statutory limit or LTV limit  3.5% Minimum Investment  Add up front MIP to Mortgage Amount
  16. 16. Statutory Loan Limits  https://entp.hud.gov/idapp/html/hicost1.cfm
  17. 17. Allowable Closing Costs  Borrower must invest 3.5%  Standard borrower closing costs  Seller contribution to 6%
  18. 18. Mortgage Insurance Premium  Upfront Fee may be financed into loan amount  Monthly renewal fee added to the monthly PITI  MIP can be canceled  A portion may be refundable
  19. 19. Total Mortgage Amount  Base Loan Amount  + Upfront MIP______  = Total Loan Amount
  20. 20. Transactions that Affect the Mortgage Amount  Identity-of-Interest  Non-occupying co-borrower  Properties under construction  Other
  21. 21. Non-Occupying Co-Borrowers  Two or more borrowers – one non-occupant  One Unit Property Only  “Kiddie Condo”
  22. 22. 3-4 Unit Properties  Must be self-sufficient  Rental income based on appraiser’s estimate  Projected rent used as gross income  3 months PITI reserves required
  23. 23. Borrower Eligibility
  24. 24. Eligibility for Federally-Related Credit FHA requires three “reports” to ensure borrower eligibility  HUD Limited Denial of Participation (LDP)  U.S. General Services Administration’s “List of Parties Excluded from Federal Procurement and Non-Procurement Programs” (GSA List)  HUD’S Credit Alert Interactive Voice Response System (CAIVRS)
  25. 25. Credit Report  Three repository merged credit report (TRMCR) or (RMCR)with at least two FICO scores  A credit report is required for a non-borrowing spouse if the borrower lives in or the property is located in a community property state.  Non-traditional credit is acceptable if borrower has no traditional credit or FICO scores.
  26. 26. Credit Analysis  Credit History  Bankruptcies  Collections/Judgments
  27. 27. Liabilities  Installment and revolving debt  401K payments  Deferred student loans  Alimony  Co-signed obligations
  28. 28. Income Analysis  Full or alternative documentation  Raises  Non-taxable “grossed up” 125%
  29. 29. Funds to Close  Earnest Deposit  Checking & Savings Accounts  Gifts  Other
  30. 30. Gift Funds  Must be acceptable source  Gift letter  Proof of receipt
  31. 31. Secondary Financing  Document Approval  Copies of the executed Note and Security Instrument  No cash back to borrower  Acceptable sources include: – Government Agencies - CLTV can exceed 100% – Non-Profit Agencies― approved by HOC – Other organizations and private individuals  See the 4155.1 for other sources
  32. 32. Qualifying the Borrower  TOTAL Scorecard  AUS vs Manual  Ratios  Qualifying Interest Rates
  33. 33. Compensating Factors  Reserves  Large Down Payment  Same Housing Payment
  34. 34. Property Eligibility
  35. 35. Eligible Properties  1-4 unit residential properties only  PUDS  Condos  Manufactured Homes  Flipping Rule
  36. 36. New Construction Loans  Proposed Construction  Under Construction  Existing Less Than 1 Year Old
  37. 37. New Construction -Manufactured Homes  Permanent foundation meets FHA guidelines  Move directly from the factory  Inspection by a Certifying Engineer
  38. 38. Appraisal Requirements  FNMA appraisal forms used  Case number follows property  Appraisal can be no older than 120 days at closing for existing properties and 180 days for new construction
  39. 39. Declining Markets  Purchases  Refinances  Second Appraisals
  40. 40. Refinances
  41. 41. Cash-Out Refinances  Max 85% LTV  Full Qualifying Credit Packages/Appraisals  12 Month Seasoning for First  Mortgagee Letter 2009-08
  42. 42. No Cash Out Refinances  Full credit qualifying credit package  Appraisal  Pay off seasoned Home Equity  Buy out co-borrower
  43. 43. Streamline Refinances  Refinance existing FHA mortgages only  Rate and term only  No maximum CLTV (Combined Loan-to- Value)  Evidence of cash to close not required
  44. 44. Types of Streamline Refinances  Streamline with no appraisal  Streamline with appraisal  Streamline with credit qualifying
  45. 45. Streamline Without Appraisal  Owner-Occupied  Second Home & Non-Owner Occupied – The only type of refinance available – Maximum base loan amount is the principal balance of the existing loan only.  Up Front MIP is added to the Base Loan Amount to arrive at the Total Loan Amount
  46. 46. Streamline With Appraisal  Owner-occupied or approved non-profit only  Max LTV is 97.75%
  47. 47. Credit-Qualifying Streamlines  Requirements  Full income and credit package  No appraisal
  48. 48. Creating Your FHA Market
  49. 49. Marketing FHA Loans  First Time Homebuyers  Borrowers with less than stellar credit  Borrowers with little to no cash  Borrowers with high ratios  Borrowers who require assistance to qualify  Borrowers with ARM loans
  50. 50. Submission Documentation
  51. 51. FHA Disclosure/Form Requirements  HUD/VA Addendum to URLA (92900-A)  Amendatory Clause/Real Estate Certification  Important Notice to Homebuyers  Informed Consumer Choice Disclosure Notice  For Your Protection Get a Home Inspection  Notice to Homeowner  Energy Efficient Disclosure  FHA ARM Disclosure Worse Case Scenario
  52. 52. General Requirements  Age of Documents  Faxed/Internet Documents  Certified Sales Contract
  53. 53. FHA Resources All FHA resources listed below may be found on HUD’s web site at http://www.hudclips.org.  Handbook 4155.1 Rev. 5 - Credit  Handbook 4150.2 - Appraisal  Home Ownership Centers (HOC)  Mortgagee Letters  FHA Find Answers
  54. 54. Happy Selling!

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