융자지식 257- GOVERNMENT-FHA LOANS
융자지식 257- GOVERNMENT-FHA LOANS
4.4 FHA LOANS
Federal Housing Administration (FHA) is a loan insurance program created by the Homeowners Act of
1934 to provide borrowers with an opportunity for affordable financing by allowing them to obtain
financing with a minimal down payment. FHA is NOT an institutional lender; therefore, it does not
lend money. Instead, the FHA insures lenders will receive 100% of the loan balance due, should the
borrower default on their mortgage.
In 1965, the FHA became a part of the Department of Housing and Urban Development (HUD).
Advantages of FHA loans include low down payments, no prepayment penalties, and fee limits on
closing costs. For purchases involving an FHA loan, the property must be an owner-occupied, one-tofour-unit residence.
FHA Credit Score and Down Payment Requirements
The amount a borrower will need for a down payment will depend on their credit score based on the
following:
• Minimum credit score of 580 – Down payment: 3.5%
• Credit score 579 to 500 – Down payment: 10%
• Credit Score below 500 – Not eligible for FHA Financing
4.5 FHA GUIDELINES AND BENEFITS
● FHA Occupancy – The borrower must occupy the property within 60 days after closing to be
compliant with the terms of the note and mortgage and plan to occupy the property for at
least one (1) year.
● Assumable – FHA loans are assumable, meaning a new buyer may take over the payments of
the existing mortgage holder, subject to approval of the loan servicer and HUD credit
guidelines. The process of releasing the original borrower and substituting the new mortgagor
is known as novation.
● FHA Qualifying Ratios – In general, in order to obtain an FHA loan, the monthly mortgage
payment cannot exceed 31% of the borrower’s income (front-end ratio) and must have total
monthly debt obligations of no more than 43% (back-end ratio) of his or her income.
● Seller concessions – Sales concessions are limited to 6% of the sales price, or else they are
treated as inducements to purchase, which results in reduction of the mortgage.
● FHA mortgage payments are due on the 1st and are late after the 15th of the month.
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● The maximum late charge is 4% of the P&I Only.
● No prepayment penalties
● The maximum allowable term on FHA/VA loans is 30 years.
● Loan amounts reviewed every three years. For example, The Federal Housing Administration
has updated its new schedule of loan limits for 2020, with most areas in the country set to
experience an increase. The national loan limit for one-unit homes will be $510,400 in 2020,
up from $484,350 this year. The lenders set the interest rates, not FHA or HUD.
● Appraisal Requirements. The appraiser is required to follow HUD/FHA guidance and comply
with the Uniform Standards of Professional Appraisal Practice (USPAP) when completing
appraisals of property used as security for FHA-Insured mortgages.
● Anti-“Flip” Policy – FHA financing is not available if a borrower is purchasing a home from a
seller that recently bought the property within the past 90 days and is currently reselling it.
Any sales during this timeframe are considered a “flip”. If the property is sold between 91-180
days after acquisition and the price increase is 100% or more of the acquisition price, a second
appraisal is required at the lender’s expense.
4.6 FHA MORTGAGE INSURANCE PREMIUMS (MIP)
All FHA loan programs require mortgage insurance. FHA mortgage insurance protects the lender or
investor against default by the borrower for the life of the loan. There are two types of mortgage
insurance premiums: Upfront mortgage insurance premiums (UFMIP) and monthly mortgage
insurance premiums. FHA requires borrowers to pay upfront mortgage insurance premium (UFMIP)
of 1.75% of the loan amount. This amount can be paid at closing or financed into the loan.
● The UFMIP is calculated by multiplying the loan amount by a factor and then collecting that
amount at closing.
● It can be paid by the borrower or the seller (for the borrower). The FHA UFMIP is currently
1.75% of the loan amount for ALL forward mortgages and either 0.5% or 2.50% for HECM
(reverse) mortgage transactions, depending upon the amount advanced in the first 12 months
after closing.
● Monthly MIP is calculated by multiplying the base loan amount by a factor, then dividing by 12.
● The borrower pays the MIP as part of the monthly mortgage payment, along with principal,
interest, taxes and insurance (PITI).
4.7 FHA TOTAL SCORECARD
FHA has an automated underwriting system that compares borrowers’ profiles to other similar
borrowers’ profiles in a database. This system is called Total Scorecard. Depending on the
performance of borrowers in the database, the score card will recommend loan approval or denial.
The FHA scorecard is integrated with the Fannie Mae and Freddie Mac automated underwriting
vehicles.
FHA’s “5” C’s of Underwriting:
1 Credit – evaluated by looking at the borrower’s credit report
2 Capacity – refers to the borrower’s “ability” to repay the debt based on sufficient income
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3 Cash – refers to borrower’s ability to make the required down payment, pay for closing cost,
required reserves, etc.
4 Collateral – the property being mortgaged as security for the loan
5 Character – borrower’s willingness to repay the debt (different than the borrower’s “ability”
to repay the loan
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