California Real Estate Principles 10 1 Edition Chapter

California Real Estate Principles, 10. 1 Edition Chapter 9 Part II: FHA, VA, and CAL-VET Loans and the Secondary Mortgage Market © 2016 On. Course Learning

Chapter 9 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 Types • Conventional loans – Private mortgage insurance • FHA – Government insures loan • DVA – Government guarantees loan • Cal-Vet – California state buys the property and sells it to the Vet on a land contract and long term lease

Federal Housing Administration (FHA) v Government insures NOT makes loan v Loan made from lender v Requires up-front mortgage insurance premium UFMIP v Requires annual premium fee paid monthly of ½ of 1% of unpaid balance v Program v Payments = PITI (insurance) v No secondary financing with NEW loan v No maximum price but a maximum loan amount v 1 -4 unit residential dwellings v Discount points are negotiable & paid by either party

FHA • Advantages of FHA – Lower down payment (approx. 3. 5%) – No prepayment penalty – Minimum property standards • Disadvantages of FHA – Increased processing time – Property requirements may discourage sellers – Cost of mortgage insurance decreases amount of home loan

FHA 203 b 1. 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 (VA) v VA guarantees the loan to protect lender v Loan information v Interest rate negotiable between borrower & lender v Value determined by Certificate of Reasonable Value (CRV) v Zero down payment allowed v Vet must have Certificate of Eligibility (DD 214)

VA • • Advantages of a VA loan v No down payment on loans up to the current maximum amount. (Instructor: Give students current amount) v Lower interest rate due to government guarantee v No prepayment penalty on loan payoff v May be used more than once if old VA loan paid off and veteran released Disadvantages of a VA loan v Only a Veteran qualifies v May be discount points to entice lender to greater yield v Loans not assumable without credit check and assumption fee v Red tape with government may take longer for approval

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-VET Calif. Farm/Home Purchase Program • • All vets residing in California Title is in the name of the State of California Title passes to vet when state paid off Vet gets a long-term lease and land contract Loan brokers may now process the loan Variable rate loan Funds received from sale of bonds

Cal-Vet Program • Loans to owner-occupied qualified veterans for homes and farms • Maximum 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 - Maximum • VA – 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 $_____

Flow of funds Borrower Existing loans are bought and sold Primary Lender in Primary Market Secondary Market Investors Supply & Demand of mortgage credit

Secondary Mortgage Market Federal National Mortgage Association Fannie Mae (FNMA) – Issues stock to general public – Provides blended rate mortgages – Issues mortgage-backed securities – FHA/VA/Conventional 1 -4 units

Secondary Mortgage Market Federal Home Loan Mortgage Corporation Freddie Mac (FHLMC) – Issues stock to general public – Buys and resells residential conventional mortgage loans – Requires loan insurance if loan over 80% of appraisal Government National Mortgage Association Ginnie Mae (GNMA) v Guarantees securities issued by FHA-approved home mortgage lenders