The document outlines educational courses approved for credit by the California Department of Real Estate, emphasizing that such approval does not endorse the course sponsors' views. It provides historical context about the Federal Housing Administration (FHA), its goals, and the differences between FHA and conventional loans, including credit guidelines and loan requirements. Additionally, it includes refinancing options and resources for distressed homeowners and mentions the application of FHA loans for buying and rehabilitating homes.

1. These courses are approved for Credit by the California Department of Real Estate.
However, this approval does not constitute an endorsement of the views or opinions
which are expressed by the course sponsor, instructor, authors, or lecturers. This material
is for educational purposes only. In no way should any statements or summaries be used
as a substitute for legal or tax advice. It is your responsibility to know and understand
DRE rules and regulations concerning licensing and educational requirements. We will be
pleased to help answer your questions, but the DRE is the final authority - contact them at
916-227-0931 or visit the DRE’s website at www.dre.ca.gov

2. Menu
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3. History of the Program
The National Housing Act of 1934 created the
Federal Housing Administration, which was
established during the Great Depression when the
rates of foreclosures and defaults rose sharply.
Foreclosures
Defaults
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4. History of the Program
This program allowed lower income Americans the
ability to afford homes while at the same time
being a self supporting government backed loan
that allowed banks to lend without the worry of
major default
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5. Help people realize the “American FHA Mission Revitalize Communities
Stabilize and
Dream” of homeownership
Promote Economic Growth Reduce Defaults/Preserve Neighborhoods

6. FHA Goals
Educate Consumers to make informed choices
Enable individuals to: Simplify the home buying process:
Own homes Remove regulatory barriers
Build equity in their homes
Embrace innovative financing: Provide homeownership and home
Down Payment Assistance retention opportunities to under
Silent seconds deserved, such as:
First time homebuyers
Minorities
Elderly

7. FHA Myths
 Too complicated
 Too much paperwork
 Too expensive for seller
 Higher rates
 Mortgage insurance cannot be removed
 Takes too long to close
 Doesn’t benefit the buyer
 Doesn’t benefit the seller
 You have to have money to close
 Conventional is always a better loan
 Buyer can’t understand the loan
 Government gets involved
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8. Conventional vs. FHA Loans
Conventional FHA
Two months reserves No reserve requirement
Minimum 3% down with heavy 3.5% Down Payment
Restrictions on FICO , ratios, reserves
Heavy restrictions on Gifts Gift funds allowed, encouraged
No non-occupant Co-borrowers Non-occupant co-borrowers allowed (kiddie condo)
Have Higher qualifying standards
Tiered pricing based on FICO Pricing tiered less severely than Conventional
Up to $5k medical collections can be unpaid
Collections are AUS driven If AUS does not allow
ARMS with caps of 5%/2%/5% ARMS with caps of 1%/5%
ARMS qualify at 2% above note rate ARMS qualify at note rate
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9. Conventional vs. FHA Loans
Conventional FHA
Private MI required (over 80% LTV) Government insured
Must have DU/LP approval Loan can be manually approved
4 years out of Chapter 7 2 years after Chapter 7
2 yrs. after payoff on Chapter 13 1 yr. of on-time payments after Chapter 13
7 yrs. after Foreclosure (3 yrs with
3 yrs. After Foreclosure
Extenuating circumstances)
Minimum 2 yrs after a short sale Possible to purchase one day
After a short sale*
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10. FHA Flexible Credit Guidelines
Minimum FICO score is 640*
Minimum time after a Chapter 7 Bankruptcy is 2 years (12 Mos minimum with extenuating
circumstances-see below)
Minimum time period after a Chapter 13 bankruptcy is one year from creditor settlement date with
proof of on time payments for that year
On Short Sale, it is possible to purchase a home one day after closing*
If little credit history is available, alternative credit can be used. Payments
on items such a car insurance, Utility bills or Cell phones can be used
to create the credit required
Minimum time period after a foreclosure is 3 years, unless extenuating circumstances:
Death of wage earner
Serious Illness
Consumer Credit Counseling –must have paid payments on time for 12 mo.
*In some exceptional cases, a score lower than 640 may be acceptable
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11. Down Payment Sources
• Borrower must make a 3.5% cash investment*
• Borrower’s documented liquid assets (IRA’s or 401K)
• Gift from Relative
• Gift from Charitable organization, union, public agency,
employer or public entity
• Secured Loan

12. Gift Funds
Acceptable Donors (Donor must show evidence of funds):
Relative
Close friend w/clear interest in borrower
Borrower’s employer or labor union
Charitable or Non-Profit organization
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13. Mortgage Insurance
Government Insured
Since the Government insures the loan, in a declining market there is less effect on
appraisals being chopped than conventional loan insured by a private MI company.
FHA only insures mortgages.
Up Front MI (UFMIP) Monthly MI
To reduce the cost of monthly MI, an upfront
cost of 1.0% of the loan amount is added to the The monthly Mi amount to be paid is calculated by
cost of the loan. This cost is usually financed* taking the base loan amount and multiplying it by
Example: Purchase price is $200,000 .0090
$200k x (.965)=$193,000 (base loan amt.) $193,000 x (.00115)/12 - $184.96 per month.*
$193,000 x (1.01) = $194,930
This is the final loan amount, including financed,
up front MI. *UFMIP changed to 1.0% and monthly
MI.115% 4-18-2011
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14. Additional Concerns
Property must be owner occupied only! No 2nd homes or investment properties
Borrower must be a legal resident and must have a valid SS# (T.I.N acceptable)
Except for certain circumstances, only one FHA Loan is allowed per family
Title can be held in inter vivos trust
Available products-203(b) & 234 (c)
30 year Fixed
15 year Fixed
1,3,5,7 and 10 year ARM’s
3-2-1 Buydown
2-1 Buydown
Loan Limit – In San Diego County – $546,250
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15. Additional Concerns
Can only have one FHA loan at any time with the following
exceptions:
Relocation
Increase in family size
Vacating a jointly owned
property
Non-occupying co-borrower
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16. Condominiums 234 (c)
Subdivision must be FHA approved
Spot approval no longer available
Do NOT trust MLS data-verify approval with a
reputable Loan Officer
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17. Underwriting
• 4155.1 – Mortgage Credit Analysis
• 4155.2 – Lender’s Guide
• 4060 –Mortgage Approval Handbook
• National Reference Guide
www.hud.gov./offices/hsg/sfh/ref/fhaintro.cfm
• 245 CFR – Parts 200-499 (Code of Federal Regulations)
• Mortgagee Letters
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18. Investor Overlays
Underwriting
• HVCC
• Not Credit Score dependent
• Derogs in last 12 months, with poor credit
• Cash saved at home
• Commissions from Sale- Family member or Realtor/borrower
• Secondary Financing
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19. Essential Qualities of an FHA Borrower:
Underwriting
A demonstrated ability to repay their debts and
obligations
Documentation of income to
meet the debts and obligations
The ability to close the transaction
Sound and acceptable assets
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20. Underwriting
Criteria: FHA’s four C’s
• Character (credit)
• Capacity (income)
• Capital (reserves)
• Collateral (value)
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21. Qualifying Notes
2 Years
employment/se
lf employment
Must be stable
Must continue
for at least 3
years (Alien
Visa)
Other verified
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22. Guidelines for Converting Principal Residence to Rental
Implemented to avoid “Buy and Bail”:
Both current and new Borrower can document 75%
payments will be LTV or lower in Current
counted against the Transaction must clearly Principal Residence
borrower’s debt ratios, illustrate purchase is NOT
and; for investment purposes
Relocation – employer
Downsizing or upgrading
Location
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23. Non-Purchasing Spouse
Credit obligations of the spouse must be included and will be
factored in with borrowers credit obligations (debt ratio) and
used to determine the financial capabilities of the borrower.
Non-Purchasing spouse disclaims
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24. Appraisal Valuation Conditions
These Valuation Conditions
and protocol help the
appraiser evaluate the
standards required by the
General Acceptability Criteria.
The criteria are described
below. It is helpful &
facilitates the process if the
following items are addressed
prior
to the appraiser viewing
the property.
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25. Manufactured Housing
Must have HUD ID tag (s) Can only have been moved from
factory to subject home site once;
Must have been manufactured or factory to dealership lot to home site
>June 15, 1976 once (cannot be moved from one home site to
another)
Must be taxed as
real property Must have engineer’s certification
that permanent foundation
meets FHA guidelines
Can purchase land
and home with one loan

26. Refinancing
Streamline Refi without an appraisal:
Maximum loan amount based on :
1. Current principal balance. This is a change that is effective November 1,
2009, and makes it much harder to accomplish a streamlined refinance with
costs built in. A very significant recent change.
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27. Refinancing
Streamline Refi
No credit required
Can be with or without an appraisal
Restrictions on loan amounts
Refund partial old MIP and finance new MIP
95% Cash out Refi, reduced to 85% after 4-1-09
Must own house >12 months
Cash out for any purpose
Co-borrower can be added for qualifying (must occupy)
Limited to 1-2 unit properties, including Manufactured
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28. Options for the distressed FHA Homeowner
Loss Mitigation/Foreclosure Prevention Tools:
• Forbearance
• Loan Modification
• Partial Claim
• Short Sale-FHA PFS
• Deed in Lieu
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29. 2 Types of 203(k) Loans
Streamlined Standard
Most common Known as Rehabilitation/Renovation Mortgage.
Less Common – Much more comprehensive
Intended to facilitate uncomplicated construction project
improvements
$5k minimum for repairs, but allows
Allows up to $35,000 to be used after closing for for all but one foot of the foundation
repairs, which can be part of to be torn down.
the improved value (no minimum threshold)
Requires a consultant
No General Contractor or drawings required Maximum mortgage is lesser of:
Does not allow for structural improvements and 1.Maximum FHA limit, or;
must use licensed and bonded
Sub-contractors* 2.As-Is Value plus cost of rehab, or:
*Subs must take ½ draw, finish the job, then get the other 1/2. 3.110% of “after improved” appraised value
Controlling the elements of the 203(k) process leads to a successful closing.
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30. 203(k) Streamline
Examples of eligible
work under 203(k)
streamline:
Repair/Replace:
1.Roofs, gutters,
downspouts
2.Heating,
ventilation
3.Plumbing,
electrical systems
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4.Flooring

31. 203(k) Streamline
Examples of ineligible work
under 203(k) streamline:
1. Pool & equipment
2. Structural improvements requiring
drawings, a general contractor or
layered work
3. Relocation of a load bearing wall
4. New construction For more information
5. Room additions on the 203(k) program
6. Repair of structural damage visit:http://www.hud.
7. Work not deemed easily gov./offices/hsg/sfh/2
completed in 6 months 03k/203k--df.cfm
8. Additional living units (if allowed
by zoning)
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32. 203 (k)
Setting Expectations
• Underwriting Renovation Loans is a
two part process:
 Expect conditions from both the
credit underwriter and the
Renovation Lending Dept. And
not necessarily at the same
time. This
product is not
for everyone.
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33. 203 (k)
Setting Expectations
• Prepare ALL parties involved:
 Inform Realtors that you are
applying for renovation financing
 Be aware of the close of escrow
date
 Inform contractors of the 10%
holdback of draws
 Manage your borrowers (buyers)
 Allow for longer closing
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34. VA Loans
Also known as “Government”, but quite a bit different than FHA
100% financing with no monthly MI to $700,000
Funding Fee (per Circular 26-11-12, as of October 1, 2011,
with less than 5% down payment):
1.40% - Active or first time use
1.65% - Active Reserve or Guard Duty
2.80% - Subsequent Use (until October 1, 2012)
Appraisal must be performed by VA approved appraiser

35. VA Loans
What Fees can the Veteran NOT pay?
The following list provides examples of items that cannot be charged to the veteran as
"itemized fees and charges."
1. Lender's appraisals (reviews) 12. Notary fees
2. Lender's inspections, except in construction loan 13. Commitment fees or marketing fees of any
cases secondary purchaser of the mortgage and
3. Loan closing or settlement fees preparation and recording of assignment of
mortgage to such purchaser
4. Document preparation fees
14. Trustee's fees or charges
5. Preparing loan papers or conveyance fees
15. Loan application or processing fees
6. Attorney's services other than for title work
16. Fees for preparation of truth in lending disclosure
7. Photographs
statement
8. Interest rate lock-in fees
17. Fees charged by loan brokers, finders or other
9. Postage and other mailing charges, stationery, third parties whether affiliated with the lender or
telephone calls, and other overhead not
10.Amortization schedules, pass books, and 18. Tax service fees
membership or entrance fees
19. The veteran cannot pay for appraisals requested
11.Escrow fees or charges a.k.a. Loan closing or by parties other than the veteran or lender.
settlement fees
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36. Where to Get More Information
3 ways to get the facts:
1. ONLINE
 http://www.fhaoutreach.gov/FHAFAQ/
 FHA’s online resource center, open 24/7
2. E-MAIL
 Info@fhaoutreach.com
3. PHONE
 (800) CALLFHA – (800) 255-5342
 TDD: (877) TDD2HUD – (877) 833-2483
 Open Monday-Friday, 8am to 8pm ET
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37. Where to Get More Information
Other Important Phone Numbers:
• HUD Approved Counseling Agencies
 (800) 569-4287
• Loss Mitigation
 (888) 297-8685
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38. Where to Get More Information
Other Websites with information:
• HUD Home Page
 http://www.hud.gov or, http://www.espanol.hud.gov
• HUD Knowledge Base
 http://answers.hud.gov
• Real Estate Broker/Agent Page
 http://www.hud.gov/groups/brokers.cfm
• HUD Contractor Page
 http://www.hud.gov/offices/hsg/sfh/reo/mm/mminfo.cfm
• HUD Forms, Handbooks, Mortgagee Letters, etc.
 http://www.hudclips.org
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