SHORT
INTRODUCTION TO CALIFORNIA REAL ESTATE PRINCIPLES,
© 1994 by Home Study, Inc. dba American Schools
Educational Objectives: Learn
about Private Mortgage Insurance, Government Mortgage Insurance, FHA, FHA Insurance, Section 203(b), Graduated Payment Mortgage, VA,
CAL-VET, R. E. TERMS
GLOSSARY, INDEX.
Private
mortgage insurance is insurance on conventional loans indemnifying the lending
institution against default on the mortgage by the borrower (mortgagor). It
serves to reduce the risk taken by the investor. Insured conventional loans are
more salable in the secondary mortgage market than are uninsured ones.
The
mortgage industry has traditionally considered 80% loans (those requiring 20%
down payment) to be "safe." This view has been held on the assumption
that a borrower with at least 20% of the value of the property coming out of
his/her own pocket would be less likely to allow the "investment" to
be wiped out by foreclosure.
In
addition, private mortgage guaranty companies have believed that, in the case
of 80% loans, even if there is a foreclosure, the sale of the property will
probably generate enough funds to cover 80% of the appraised price.
Loans
that have less than 20% down payments are generally considered more
"risky." in these cases, lenders will normally require the borrower
to purchase private mortgage insurance. Both "Fannie Mae" and
"Freddie Mac" require mortgage insurance on any loan they purchase in
the secondary market that has a less than 20% down payment.
Private
mortgage guaranty companies have made a significant contribution to the
achievement of the so-called "American Dream" of home ownership by
insuring mortgages of less than 20% down payment. Home buyers may now be able
to qualify for 90% or even 95% loans with the purchase of mortgage insurance.
Development
of Mortgage Insurance
Private
mortgage insurance seems to have originated during the middle 1880's in New
York. It was an outgrowth of a broad interpretation of New York state statutes
dealing with title insurance. By the early 1900's New York became the first
state allowing the insuring of mortgage debt and allowing insurance companies
to trade in mortgages.
In
the beginning this was an unregulated activity which was characterized by
several unsound business practices such as poor credit practices and failures
to maintain adequate reserves. This apparent house of cards fell with the bank
holiday of 1933 and the subsequent liquidation of virtually all mortgage
guaranty companies.
Government
Mortgage Insurance/Guaranty
In 1934 the
National Housing Act was passed. This act established the Federal Housing
Administration and established the Mutual Mortgage Insurance Fund. This was the
beginning of the federal government's involvement in mortgage guaranty
insurance.
The
Mutual Mortgage Insurance Fund was designed to be a self supporting insurance
system that avoided many of the poor business practices of its predecessors.
The Fund collects premiums which are held in reserve and claims by lenders are
paid from that reserve.
The
amount of guaranty on the loan depends on the loan amount and whether the
veteran used some entitlement previously. The amount a veteran may borrow depends
on maximum loan amounts, the borrower's income level and the appraised value of
the property.
Non-Government
Mortgage Insurance
The
private mortgage insurance industry was revived in the middle 1950's with the
establishment of the Mortgage Guaranty Insurance Corporation (MGIC). MGIC
insures only the top 20% of the loan. This represents the major risk portion of
the investment.
MGIC
helped encourage the passage of legislation that helps prevent the mistakes
experienced by the first mortgage guaranty insurance companies. It operates on
sound business practices and insurance principles.
Since
the early 1960's several additional mortgage guaranty insurance companies began
operations. These companies also operate under sound insurance principles and
business practices.
REGULATION
OF MORTGAGE GUARANTY INSURANCE
The regulation of mortgage guaranty insurance
covers three major areas of importance:
1.
Sometimes called the "Monoline Rule," mortgage guaranty insurance
companies are restricted to writing only mortgage guaranty insurance. This
"rule" does not prevent "monoline" companies from either
owning other insurance companies or being owned by one.
2. Mortgage guaranty insurance has a
mandated limit on the amount of business the company can write. This is usually
called "exposure ratio." Exposure ratio, in this case, means the
insurance company's liability may not exceed 25 times the total of its surplus
and contingency reserve.
3. The "contingency reserve"
is designed to protect the insurance company from loss during the contraction
phase of the business cycle. It is mandated that mortgage insurance companies
set aside one half of each premium dollar earned.
The mortgage
insurance companies must also meet requirements placed upon them by the Federal
Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage
Association (Fannie Mae). Obviously, the secondary mortgage market is
interested in underwriting policies, claims procedures, and other financial
requirements. These requirements have served to help standardize the mortgage
insurance business.
Another stabilizing influence On the
mortgage insurance industry is provided by the bond rating agencies. They do
not "regulate" the mortgage insurance companies, but their criteria
for rating mortgage-backed securities include operating and financial standards
for the mortgage insurers.
Underwriting
Underwriting is the process of selecting
and classifying risk. Underwriting mortgage insurance means selecting those
mortgages with the lower apparent risk and spreading acquired risk among risk
classifications.
Mortgage insurance underwriting involves
qualifying the various lenders, verifying information and checking the
conditions in areas where the mortgages are insured.
The first step in mortgage insurance
underwriting is the issuance of a master policy to accepted lenders. These
lenders will usually be state or federally regulated, have demonstrated good
management ability, use approved appraisers and may be required to have a
specific company size.
The mortgage insurance companies will
monitor the master policy holders for:
1. loss experience
2. rejections of applications submitted
3. spot checks of credit reports and
appraisals
Master policy holders receive applications
for mortgage insurance coverage on individual mortgages normally from lenders.
The mortgage insurance company will require the following documents to be
submitted with the application:
1. mortgage insurance application
2. credit report
3. employment verification
4. any deposit requirement verifications
5. loan application
6. appraisal report and property
photograph
Each application for mortgage insurance
is evaluated on an individual basis. Specifically, the underwriter is looking
for evidence that either the borrower or the property has characteristics that
may cause the loan to go into default.
Claims
The mortgage insurance companies' master
policies generally require lenders to report delinquencies. It also requires
the lenders to begin foreclosure proceedings if there are continued
delinquencies.
When a mortgage insurance company
receives a claim, it will either pay 20% to 25% of the total claim or pay the
entire claim and take title to the property.
In recent years and in selected cases,
mortgage insurance companies will meet with the borrower who has financial
difficulties to discuss his/her personal finances. The counselor will help the
borrower examine his/her total obligations and, if possible, make some
recommendations in spending patterns that may help the borrower avoid default
on the loan. In these cases, the counselor may bring in the lender and together
with the borrower begin a repayment plan. Obviously, in these cases, the
mortgage insurance company and the lender will monitor the case closely.
Reserve Requirements
Mortgage insurance companies retain a
specific portion of each premium dollar in the reserve fund. In addition, any
investment earnings of the reserve fund become a part of the reserve fund.
There are two reasons the mortgage
insurance company reserve funds have been effective. First, the company does
not "earn" the premium funds during the first year of the policy.
Rather, the company "earns" the premium over the life of the mortgage
insurance policy. Second, the investment income of the company tends to
increase and helps support the fund during adverse phases of the business cycle.
Mortgage insurance companies are required
to keep three general types of reserves.
1. The contingency reserve is discussed earlier.
2. The "loss reserve" is for
delinquent loans and claims.
3. The "unearned premium
reserve" is that amount of premium that has been collected but has not yet
been "earned".
Coverage
Virtually all mortgage guaranty companies
will issue policies of qualified properties and borrowers on one to four family
principal resident units where the loan to value ratio is not more than 95% of
the appraised value.
Some mortgage guaranty companies will
issue policies on a second or leisure home. In these cases, the company will
generally require the loan to value ratio not exceed 80%.
Mortgage insurance does not assume the
entire risk for the lender. Rather, the insurance company assumes only the
primary risk.
While the amount of the mortgage
insurance may vary, it is typically 20% of the loan amount. For example, if the
sales price of the house is $100,000 and the borrower applies for a 90%
conventional loan, private mortgage insurance will be 20% of the loan amount or
PMI coverage will be for $18,000.
$100,000
X .90 =$90,000 (9O% loan)
$90,000 X .20 (PMI coverage) = $18,000
(amount of PMI coverage)
In the event of foreclosure, the lender
may have the expenses of unpaid property taxes, hazard insurance, interest,
attorney fees and the costs of selling the foreclosed property.
PRIVATE
MORTGAGE INSURANCE PREMIUM
Most
mortgage guaranty companies charge a "one-time" fee when the loan is
made and a recurring fee which is called a "renewal premium." These
are frequently added to the borrower's monthly payment.
The
"one-time" mortgage insurance premium fee is normally charged to the
borrower at the closing. This fee may be one-half of one percent of the loan
amount. However, mortgage guaranty insurance companies do have rate charts
available and these should be referred to for accurate, current premium rates.
To
figure one-time PMI premium on a $100,000 sales price with a 90% loan:
$100,000
sales price X .90 = $90,000 loan amount
$90,000
loan amount X .005 (one time fee) = $450 PMI due at closing
To
figure the renewal premium on the same example:
$90,000
(loan amount) X .33% (.0033) (an average rate) = $297 annual premium
$297
annual premium divided by 12 months = $24.75 monthly premium
NOTE:
The above are for educational example purposes only. To find actual rates,
please obtain a mortgage guaranty insurance company's rate chart. The above are
for a 30 year, fixed interest rate loan. Other rates exist for ARM's and other
kinds of loans.
Benefits
of PMI Coverage
For
the lender:
1. The
PMI insurance allows the lender to make 90 to 95 per cent loans and to sell
these loans in the secondary market.
2. With
the ability to make higher loan-to-value ratio loans, the amount of possible
loans is expanded.
3. The
lender can secure an additional amount of security for the loan at no extra
cost.
4. The
processing time and the issuance of the insurance commitment is usually faster
from a PMI company than the FHA.
For
the borrower:
1. The
borrower has the ability to purchase a home with a conventional loan with as
little as 5 percent down payment.
2. With
the need for less money down, the borrower can buy a home sooner and sometimes
larger than expected.
3. The
processing time for the insurance commitment is usually faster than with the
FHA.
4. The
payment of the insurance premiums is for a shorter period than FHA.
GOVERNMENT
MORTGAGE INSURANCE
The Federal Housing Administration (FHA)
does not make mortgage loans but insures mortgage loans to protect lenders. The
insurance protection enables lenders to provide financing when there is a very
high loan-to-value ratio. This means that the loan amount is very high in
comparison to the property value, thereby requiring only a small down payment
to be made by the borrower. The amount of insurance protection to the lender is
always sufficient to protect the lender from financial loss in the event of a
foreclosure sale.
The Federal Housing Administration (FHA)
insures loans made by lenders in an effort to make available housing to low-
middle income homebuyers. There are a number of different programs available
that have downpayment requirements. The 1990 National Affordable Housing Act
limited the amount of buyer's closing costs that could be financed to 57% .
This limitation is effecting on these FHA programs; 223e ("regular
program"), 223e (inner city properties), 234c (Condominiums), 245 (GPM/GEM)
and 251 (Adjustable Rate) mortgages. Loan programs that are not covered by the
57% rule are 203K, 221d1 and 203V. The following are brief summaries of
selected programs.
FHA 203b Program
This is the original and still the basic
FHA program. This program provides for insuring loans for the purchase or
construction of one-to-four-family dwellings. The loan amounts are based on the
FHA appraised value of the property plus the FHA estimate of the borrower's
closing costs, if the borrower is paying these costs. If the seller is to pay
all or part of the closing costs for the buyer, the amount paid by the seller
will not be included in the total.
This program requires 3% down on the
first $25,000 and 5% down on the amount in excess of $25,000). The FHA has implemented
two formulas that must be calculated to determine the actual FHA loan amount.
It is possible that the 57% rule will be eliminated soon allowing the buyer to
include 100% of the buyer's closing costs in the calculation of the maximum
mortgage amount. This change would make this program more attractive to first
time homebuyers or borrowers with limited resources This program requires the
payment of a one-time mortgage insurance premium (LA x .5 /12). The monthly
mortgage insurance premium became effective on July 1, 1991, on purchase
transactions. This requirement is currently under review by HUD/FHA and may be
eliminated in the future.
FHA 203b Modestly Priced Dwellings
This program reduces the downpayment for
homebuyers on those properties where the loan-to-value is the lesser of
(1) appraised value plus the allowable
percentage of closing costs or
(2) the sales price of the property
plus closing costs and/or rehabilitation of the property to 3% of whose value
is less than $50,000.
The loan is included in the 57% rule and
does have both onetime and monthly MIP required.
FHA 203b Co-mortgagor Program
When there are two or more borrowers, but
one will not occupy the property as a principal residence, the maximum mortgage
is limited to 75% LTV. However, maximum financing is available for borrowers
related by blood (parent-child, siblings, etc ) or for unrelated individuals
that can document evidence of a family type, longstanding and substantial
relationship not arising out of the loan transaction. HUD will not object to
legitimate transactions where the non-borrower assists in the financing of the
property, such as a parent assisting children with the purchase of their first
home or a college student to purchase a house near campus. This arrangement may
not be used by non-occupant borrowers to develop a portfolio of rental
properties.
FHA 203K Program
The FHA 203K loan program is a program
that enables a borrower to purchase (or refinance) a property and include in
the permanent loan the purchase price (or existing balance) plus any
rehabilitation work required to bring the property up to the minimum property
standards There is a minimum amount of acceptable rehabilitation of $5,000
required. The repair/rehabilitation work is escrowed for at the time of closing
with the completion of the work required within 180 days after closing. This
program is not covered by the 57% rule and requires only monthly mortgage
insurance. The FHA allows the mortgage lender to collect a supplemental
origination fee on this program and there are some additional loan processing
costs.
FHA Secondary Residence Loans
The FHA will allow a purchaser to obtain
a loan on a secondary residence. The maximum mortgage available under this
program is 85%.To be eligible for a secondary residence. a borrower must
document that there is not affordable rental housing that meets the needs of
the family within a reasonable commuting distance to work. The secondary
residence must not be a vacation home or otherwise be used for recreational
purposes The borrower must obtain a secondary residence because of season
employment, employment relocation or other circumstances not related to
recreational use. The determination about the acceptability of a secondary
residence will be made by the local HUD office.
FHA 203V Program
For veterans with a Certificate of
Veteran Status., the veteran is not required to put the 3% down on the first
$25,000 providing the prepaids total $200.00 or more. The veteran is required
to put the 5% down on the balance of the sales price which again must be the
lesser of the acquisition cost or appraised value plus allowable percentage of
closing costs. This program is not covered by the 57% rule. This loan program
does include both the one-time MIP and the monthly mortgage insurance program
FHA Identity of Interest Transactions
Properties that are sold with an Identity
of Interest have a maximum mortgage amount of 85% . Identity of Interest is
defined as a transaction between family members, business partners or other
business affiliation. However, maximum financing is available under the
following circumstances:
- A family member purchasing another
family member's principal residence.
- An employee of a builder purchasing
one of the builder's new homes or models as a principal residence.
- Current tenants purchasing the
property that they have rented for at least six months preceding the sales
contract.
- Sales by corporations that transfer
employees out of an area, purchase the transferred employee's home and then
resell to another employee.
FHA 221d2 Program
This loan is targeted toward low-moderate
income homebuyers who have limited resources to purchase a home. The program
allows the borrowers to finance 97% of the sales price (lesser of sales price
or appraised value) plus buyer's closing costs (not covered by 57% rule) plus
prepaids. This allows the borrower a high loan amount thereby reducing the cash
assets required for closing The borrower(s) must still pay the prepaids and
closing costs, but has an increased loan amount, thereby reducing the
downpayment. To be eligible for this program the borrowers must be a ''family
unit" which is defined as "Not less than two persons related by
blood, marriage or operation of law, who occupy the same unit. " However,
any persons who are 6'' years of age or over, or who are handicapped persons
who have physical impairments which are expected to be of continued duration
which impedes their ability to live independently shall be eligible for this
program.
Note: There is a requirement on this
program that a letter or certificate from the city/county health department be
provided showing that the property being purchased meets the minimum health
standards.
Income Qualifying Guidelines
For FNMA conventional loans, ratios using
income and housing expense/obligations are used to determine whether the
borrower will be able to meet the expenses involved in home ownership. Ratio
guidelines may be exceeded as long as there are documented factors to justify their
use. The ratio used on fixed rate mortgage for the housing ratio (principal,
interest, taxes, hazard insurance, mortgage insurance and subordinate
financing) is 28% for all loans. This ratio is calculated using the gross
monthly income (3 years or longer) for all borrowers divided into the monthly
housing expense. The second ratio includes the projected house payment plus any
obligations extending 10 months or longer divided by the gross monthly
effective income and is 36%.
FHA uses the gross effect income method
in qualifying homebuyers. This method is like the process described in the FNMA
Conventional qualifying above except that the ratios used on FHA loans are:
- Mortgage Payment Expenses to
effective income should not exceed 29% without sufficient compensating factors.
- Total Fixed Payment (obligations
with a remaining payment period of more than six months) to be effective income
should not exceed 41% without significant compensating factors.
One other consideration that should be
considered is that FHA allows properties that qualify as Energy Efficient (EEH)
to have ratios that are 2.0% higher on both the Monthly Payment Expense and
Total Fixed Payment ratios.
Mortgage
Insurance Premium (MIP)
For
many years, a mutual mortgage insurance of 1/2% was added to the contract rate.
If the contract rate was 9 1/2%, the MMI would add another 1/2%, bringing the
actual payment rate to 10%. Currently, a single Mortgage Insurance Premium
(MIP) is assessed at closing. This may be 3.8% of the loan. The MIP may be paid
in cash at closing, in which case the MIP will be exempt from the loan to value
ratios and maximum loan value, and the loan must be rounded down to $50
multiples Alternately, the MIP may be totally financed with the loan and the
loan is simply rounded down to $1 multiples. The lender, however, must send the
entire MIP payment to the regional HUD office within 15 days of closing.
MORTGAGE
CREDIT ANALYSIS
The
purpose of mortgage credit analysis is to determine the borrower's ability and
willingness to repay the mortgage debt, and thus, limit the probability of
default or collection difficulties.
The
borrower's ability to repay the debt is measured by:
1.
History of stability of employment and income.
2.
The projected increase in the borrower's housing expense from the present
housing expense
ash
reserves following loan closing.
4.
Other non-mortgage obligations.
The
borrower's willingness to repay the debt is measured by his/her history of
paying habits, including any payments 30 or more days late, judgments,
collections, bankruptcies, foreclosures? or other derogatory information.
The
acceptability of credit risk is determined by analyzing each borrower's credit
history, stability and adequacy of income to support the mortgage and other
obligations, and assets to close the transaction. n
Borrower's
Basic Eligibility
HUD
will insure mortgages made to qualifying individuals, state and local
government agencies, and qualifying non-profit organizations. Eligible investor
loans may not be insured solely in the name of a business entity, except on
streamline refinances.
Co-borrowers
take title to the property and obligate themselves on the mortgage note. Similarly,
HUD will also permit a cosigner with no ownership interest in the property
(does not take title) to execute the loan application and mortgage note and,
thus, become liable for repayment of the obligation. The cosigner's income,
assets, liabilities, and credit history are included in the determination of
creditworthiness
Neither
a co-borrower nor a cosigner may be a party that has an interest in the
transaction, such as the seller, builder, real estate agent, etc. Exceptions
may be granted if the seller and co-borrower/cosigner is a family member of the
occupant owner.
An
individual signing the loan application must not be otherwise ineligible for
participation. The occupying borrower must sign the security instrument and
mortgage note.
Unless
otherwise exempted, any non-occupying co-borrowers or cosigners must have a
principal residence in the United States.
Citizenship
of the United States is not required for eligibility. However, the subject
property must either occupying borrower's principal residence or, if an
eligible secondary residence or investment property, the 's principal residence
must be located in the United States. The borrower must also have a social
security
Non-purchasing
spouses: If required by state law in order to perfect a valid and enforceable
first lien, the non-purchasing spouse may be required to either sign the
security instrument or documentation evidencing that he or she is relinquishing
all rights to the property. If the non-purchasing spouse executes the security instrument
for such reasons, he or she is not considered a borrower for HUD purposes and
need not sign the loan application.
Military
personnel are considered occupant owners and eligible for maximum financing if
a member of the immediate family will occupy the property as a principal
residence even if the service person is stationed elsewhere.
Living
trusts are eligible for HUD mortgage insurance as long as the individual
borrower remains beneficiary and occupies the property as a principal
residence. One or more individuals and the trust must appear on all security
instruments and mortgage notes, and the lender must be satisfied that the trust
provides the lender with a reasonable means to assure that it is notified of
any subsequent change of occupancy or transfer of beneficial interest.
Credit
History
Past
credit performance serves as the most useful guide in determining the attitude
toward credit obligations that will govern the borrower's future actions. A
borrower who has made payments on previous or current obligations in a timely
manner represents reduced risk. Conversely, if the credit history, despite
adequate income to support obligations, reflects continuous slow payments,
judgments, and delinquent accounts, strong offsetting factors will be necessary
to approve the loan.
Late
or slow payments: When analyzing the borrower's credit record, it is the
general pattern of credit behavior that must be examined rather than isolated
occurrences of unsatisfactory or slow payments. A period of financial
difficulty in the past does not necessarily make the risk unacceptable if a
good payment record has been maintained since. When delinquent accounts are
revealed, the lender must determine whether the late payments were due to a
disregard for, or an inability to manage, financial obligations, or to factors
beyond the control of the borrower.
Derogatory
credit information must be explained by the borrower in writing. While minor
derogatory information occurring two or more years in the past does not require
explanation, significant indications of derogatory credit, including judgments
and collections, and any other recent credit problems, require sufficient
explanation from the borrower. The borrower's explanation must make sense and
be consistent with other credit information in the file.
While
collection accounts indicate the borrower's regard for credit obligations and
must be considered in the analysis of creditworthiness, HUD does not
arbitrarily demand these be paid off as a condition for loan approval.
Conversely, court-ordered judgments must be paid-off before the mortgage loan
is eligible for insurance endorsement.
Credit
history not established. For those borrowers who choose not to use credit or
have not yet established credit, the lender must develop a credit history from
rent verifications, utility payment records, or other means. However, neither
the lack of credit history nor the lifestyle of the borrower may be used as a
basis for rejection
Recent
debts: The lender must ascertain the purpose of any recent debts as the
indebtedness may have been incurred to obtain part of the required cash
investment on the property being purchased.
Projected
increase in obligations: The projected increase in the borrower's housing
expense from the present housing expense must be carefully analyzed. When the
new housing expense will significantly exceed the previous housing expense, and
the borrower has not exhibited an ability to accumulate savings or otherwise
manage financial affairs, strong compensating factors must be present to allow
for borrower approval. The projected mortgage interest deduction on the
borrower's federal income tax return, while beneficial to the borrower, is
neither a compensating factor nor may it be included in the analysis.
Previous
marriage foreclosure: A borrower whose previous residence or other real
property was foreclosed on or has given a deed-in-lieu of foreclosure within
the previous three years is generally not eligible for an insured mortgage.
However, if the foreclosure was the result of extenuating circumstances beyond
the borrower's control (such as the death of the principal wage earner, loss of
employment due to factory closing, reductions-in-force, etc., or serious
long-term illness) and the borrower has since established good credit, an
exception may be granted. Extenuating circumstances do not include the
inability to sell a house when transferring from one area to another.
Bankruptcy:
A Chapter 7 liquidation bankruptcy will not disqualify the borrower if at least
two years have passed since the bankruptcy was discharged he borrower has
re-established good credit or has chosen not to incur new credit obligations,
and has demonstrated an ability to manage financial affairs. An elapsed period
of less than two years may be acceptable if the borrower can show that the
bankruptcy was caused by extenuating circumstances beyond his or her control
(such as the death of the principal wage earner, loss of employment due to
factory closing, reductions-in-force, etc., or to serious long-term illness,
and has since exhibited an ability to manage financial affairs and the
borrower's current situation is such that the events leading to the bankruptcy
are not likely to recur.
A
borrower paying off debts under Chapter 13 of the Bankruptcy Act may also
qualify if
1.
One year of the pay-out period has elapsed and performance has been
satisfactory; and
2. The
borrower receives court approval to enter into the mortgage transaction.
Credit
Eligibility Requirements
In
addition to the credit analysis described above, a borrower must be rejected
for any of the following reasons:
1.
Suspensions and debarment: A borrower suspended, debarred, or otherwise
excluded from participation in the Department's programs is not eligible for a
HUD-insured mortgage. The lender must examine HUD's "Limited Denial of
Participation List" and the government-wide General Services
Administration's "List of Parties Excluded from Federal Procurement or
Nonprocurement Programs." If the name of any party to the transaction
appears on either list, the application is not eligible for mortgage insurance.
An exception is made when a seller appears on the LDP list and the property
being sold is the seller's principal residence.
2.
Delinquent Federal debts: If the borrower is presently delinquent on any
Federal debt (e.g. VA-guaranteed mortgage, HUD Section 312 Rehabilitation loan
or Title I loan, Federal student loan, Small Business Administration loan,
delinquent Federal Taxes, etc.) or has a lien, including taxes, placed against
his or her property for a debt owed to the United States, the borrower is not
eligible until the delinquent account is brought current, paid or otherwise
satisfied, or a satisfactory repayment plan is made between the borrower and
the Federal agency owed and is verified in writing. Tax liens may be eligible
for inclusion in a refinance in some cases.
3.
HUD's Credit Alert Interactive Voice Response System (CAIVRS): Lenders must
screen all borrowers using CAIVRS. If CAIVRS indicates the borrower is
presently delinquent or has had a claim paid within the previous three years on
a loan made or insured by HUD on his or her behalf, the borrower is not
eligible.
Exceptions
to this may be granted under the following situations:
1. Assumptions: If the borrower sold
the property, with or without "release of liability" to a mortgagor
who subsequently defaulted and it can be established that the loan was not in
default at the time of assumption, the borrower is eligible.
2. Divorce: A borrower may be eligible
if the divorce decree or legal separation agreement awarded the property and
responsibility for payment is to the former spouse. However, if a claim was
paid on a mortgage in default at the time of the divorce, the borrower is not
eligible.
3. Bankruptcy: When the property was
included in a bankruptcy that was caused by circumstances beyond the borrower's
control (such as the death of the principal wage earner, loss of employment due
to factory closing, reductions-in-force, etc. or serious long-term illness),
the borrower may be eligible.
If
the lender has reason to believe the CAIVRS message is erroneous or must
establish the date of claim payment, it must contact the local HUD Field Office
for instructions on documentation to support the borrower's eligibility. The
local HUD offices can provide information regarding when the three-year writing
d has passed or that the social security number in CAIVRS is an error.
Additionally, HUD Field Offices can de instructions to lenders regarding
processing requirements for non-Title Il defaults and claims.
Effective
Income
The
anticipated income and the likelihood of its continuance must be established.
Income from any source that cannot be verified, is not stable, or will not
continue may not be used in calculating the borrower's income ratios.
1. Stability of income: While HUD does
not impose an arbitrary minimum length of time borrower must have held a
position to be eligible, the lender must verify the most recent two full years'
worth of employment. If a borrower's employment history indicates he or she was
in school or in the military during any of this time, the borrower must provide
evidence supporting this. The borrower must also explain any gaps in employment
of a month or more. Allowances for seasonal employment, such as is typical in
the building trades may be made.
To
analyze the probability of continued employment, lenders must examine the
borrower's past employment record, qualifications for the position, previous
training and education, and the employers confirmation of continued employment.
A
borrower who changes jobs frequently within the same line of work, but
continues to advance in income, may be considered favorably.
2. Salaries, wages, and other forms Or
effective income: The income of each borrower to be obligated for the mortgage
debt must be analyzed to determine whether it can be expected to continue
through the first five years of the mortgage loan. If the borrower intends to
retire during this period the effective income will be the amount of retirement
benefits, social security payments, etc. No inquiry may be made regarding
possible future maternity leave.
In
most cases, borrower income will be limited to salaries or wages. Income from
most other sources, provided it is properly verified by the lender, can be
included as effective income.
A. Overtime and bonus income: Both may be
used to qualify if the borrower has received such income for the past two years
and will in all likelihood continue to do so. The lender must develop an
average of bonus or overtime income for the past two years and the employment
verification must state that overtime or bonus income will continue.
Additionally,
an earnings trend must also be established for either source of income. If
either type of income shows a continual decline, the lender must provide a
sound rationalization for including the income for borrower qualifying. If
bonus income varies significantly from year-to-year, a period of more than two
years must be used in calculating the average income.
B. Part-time income: Part-time income,
including employment in seasonal work, may be used in qualifying if the
borrower has worked the part-time job uninterrupted for the past two years and
will continue to do so. Seasonal employment (e.g. umpiring baseball games in
summer, working at a department store during the Christmas shopping season) is
considered uninterrupted and may be used in qualifying if the borrower has
worked the same job for the past two years and expects to be rehired during the
next season. Income from part-time positions that do not meet these
requirements should be considered as a compensating factor only.
C. Military income: In addition to base pay,
military personnel may be entitled to additional for ns of pay. Income from
variable housing allowances, clothing allowances, flight or hard pay, rations,
and proficiency pay is acceptable provided its continuance is verified. An
additional consideration may be the tax-exempt nature of some of these items.
D. Commission income: commission income must
be averaged over the previous two years. The borrower must provide his or her
last two years tax returns along with a recent pay stub. Individuals whose
commission income shows a decrease from one year to the next require
significant compensating factors to allow for loan approval.
E. Retirement and Social Security
Income: Such income requires verification from the source such as the former
employer or the Social Security Administration or through Federal tax returns.
If any benefits expire within approximately five years, it must be considered a
compensating factor.
F. Alimony, Child Support or
Maintenance Payments: Income in this category may be considered as effective if
such payments are likely to be consistently received for approximately the
first five years of the mortgage. The borrower must provide a copy of the
divorce decree or legal separation agreement and evidence that payments have
been made during the last twelve months. Acceptable evidence of regularity of
payments includes cancelled checks, deposit slips, tax returns, court records,
etc. Periods less than twelve months may be acceptable provided payor's ability
and willingness to make timely payments can be documented by the lender.
G. Notes Receivable; A copy of the note must
be presented to establish the amount and length of payment. The borrower must
also provide evidence these payments have been received consistently for the
last twelve months which may include deposit slips, cancelled checks, or tax
returns.
H. Interest and dividends: Interest and
dividend income may be used provided documentation such as tax returns or
account statements support a two-year history of receipt. This income must be
averaged over the two years. Any funds derived from these sources and required
for the cash investment must be subtracted before the projected interest or
dividend income is calculated.
I. Mortgage Credit Certificates
and Differential Payments: If the employer or government entity subsidies the
mortgage payments, either through direct payments or through tax rebates, these
payments can be considered as acceptable income if verified in writing. Either
type of subsidy may be added to gross income before calculating gross ratios.
They may not be used to directly offset the mortgage payment.
J. VA Benefits: Direct compensation,
such as for a service-related disability, is acceptable subject to
documentation from the Department of Veterans Affairs. Education benefits, used
to offset education expenses, are not acceptable
K. Government Assistance Programs: Income
received under a welfare program, unemployment income, workman's compensation,
payments for foster children, etc., is acceptable subject to documentation from
the paying agency provided the income is expected to continue approximately
five years. If not expected to last approximately five years, the income is
considered a compensating factor.
Unemployment
income requires a two-year documentation of its receipt and reasonable
assurance of its continuance. This may be appropriate for individuals employed
on a seasonal basis, such as farm workers, resort area employees, etc.
L. Rental Income: Rent received from
properties owned by the borrower may he acceptable, subject to proper
documentation. Income from roommates, etc., in a single-family property to be
occupied as the borrower's primary residence, is not acceptable. Rent received
from the additional units in a multiple-unit property are acceptable. Rental
income from "boarders" is acceptable only as a compensating factor
and only when provided by a relative and adequately documented by the lender.
M. Automobile Allowances and Expense Account
Payments: Only the amount by which the borrower's automobile allowance or
expense account payments exceed actual expenditures may be considered as
income. The borrower must provide IRS Form 2106, Employee Business Expenses,
for the previous two years to establish the amount of income that may be added
to gross income, along with verification from the employer these payments will
continue. If these calculations show a loss that amount must be treated as a
recurring debt. Additionally, the borrower's monthly car payment must be
treated as a recurring debt. It may not be offset by the car allowance.
N. Trust Income: Income from trusts may be
used if guaranteed, constant payment will continue for approximately five years
and adequately documented. Documentation requirements include a copy of the
Trust Agreement or other trustee's statement confirming amount, frequency of
distribution, and duration of payments. Funds from the trust account may also
be used for the required cash investment with adequate documentation.
O. Non-taxable Income: If a particular
source of income is not subject to Federal taxes (e.g. certain types of
disability payments, military allowances, etc.), the amount of continuing tax
savings attributable to the non-taxable income source may be added to the
borrower's gross income. The percentage of income that may be added may not
exceed the appropriate tax rate for that income amount and no additional
allowances for dependents is acceptable. The lender must document and support
the adjustments made (i.e. the amount the income is "grossed-up") for
any non-taxable income source.
P. Projected Income: Projected or
hypothetical income is not acceptable for qualifying purposes. Exceptions are
permitted for income from cost-of-living adjustments, performance raises,
bonuses, etc., verified by the employer and scheduled to begin within 60 days
of loan closing.
Self-employed
borrowers
A
borrower with a 5% or greater ownership interest in a business is considered
self-employed for mortgage loan underwriting purposes.
Income
from self-employment is considered stable and effective if the borrower has
been self-employed for two or more years. The high incidence of failure during
the first few years of a new business require the following for individuals
employed less than two years:
1. Between one and two years: An
individual self-employed between one and two years must have at least two years
previous successful employment, or a combination of one year of employment and
formal education or training, in that or a related occupation to be eligible.
2. Less than one year: The income from
borrowers self-employed less than one year may not be considered as effective
income.
Documentation
Requirements
1. Signed and dated individual tax
returns, plus all applicable schedules, for the most recent two years.
2. Signed copies of federal business
income tax returns for the last two years, with all applicable schedules, if
the business is a corporation, an "S" corporation, or a partnership.
3. A year-to-date profit-and-loss
statement and balance sheet, along with evidence of quarterly tax payments.
4.
A business credit report on corporations and "S" corporations.
BORROWER
LIABILITIES
Types
of Liabilities
A. Recurring liability The borrower's
liabilities include all installment loans, revolving charge accounts, real
estate loans, alimony, child support, and all other continuing obligations. In
computing the debt-to-income ratio, the lender must include the monthly housing
expense, and all other additional recurring charges, including payments on
installment and revolving accounts extending six months or more, alimony, child
support or separate maintenance payments, etc. If there are any young children
in the family, the borrower must provide information regarding child care
expenses or satisfactory evidence no expenses are incurred; any monthly
expenses must be included as "recurring charge in the ratio computations.
Debts lasting less than six months need not be counted unless the amount of the
debt seriously affects the borrower's ability to make the mortgage payment
during the month immediately after loan closing.
B. Contingent liabilities: A contingent
liability exists when an individual would be held responsible for payment of a
debt should another party jointly or severally obligated default on that
payment. Unless the borrower can provide conclusive evidence that there is no
possibility the debt holder will pursue debt collection against him or her
should the other party default, the following rules regarding contingent
liability apply:
1.
Co-signed obligations: If the borrower is a co-signer on a car loan, student
loan, or any other obligation, contingent liability applies unless (a)
statements from both parties show the co-signer has not made payments on the
loan over the past twelve months are provided and the borrower furnishes
evidence attesting to this fact; or (b) there was a divorce and the borrower's
ex-spouse was given the responsibility for payment of the obligation as part of
a legal separation or divorce settlement.
2. Borrower/Co-borrower
on a Mortgage: When a borrower is obligated on an outstanding HUD-insured,
VA-guaranteed, or conventional mortgage secured by a property which has been
sold or traded within the last five years without a release of liability, or is
to be sold on assumption without a release of liability being obtained,
contingent liability must be considered unless:
a.
There was a divorce and the borrower's ex-spouse was awarded both the property and
responsibility for payment of the mortgage as part of a legal separation or
divorce settlement; or
b. The
borrower was transferred by his or her employer and is covered by a home sale
guarantee plan; or
c. An
appraisal or closing statement from the sale of the property supports a value
that results in a 75 percent loan-to-value ratio, i.e., the outstanding balance
on the mortgage loan (minus any upfront MIP, if applicable) cannot exceed 75%
of the appraised price; or
d. The
property sold had a HUD-insured mortgage and was sold to an owner-occupant.
Proof that the property was sold to an owner-occupant must be obtained.
C. Projected Obligations: If a debt payment,
such as a student loan, is scheduled to begin within twelve months of the
mortgage loan closing, the lender must include the anticipated monthly
obligation in the underwriting analysis. Similarly, balloon notes that come due
within one year of loan closing must be considered.
D. Obligations Not To Be Considered:
Obligations not to be considered as a debt, nor subtracted from gross income,
include federal, state and local taxes, FICA or other retirement contributions
such as 401(k)s, commuting costs, union dues, open accounts with zero balances,
automatic deductions to savings accounts, and other voluntary deductions.
Borrower
qualifying
Debt-to-Income
Ratios: Ratios are used to determine whether the borrower can reasonably be
expected to meet the expenses involved in home ownership, and otherwise provide
for the family.
The
lender must compute two ratios:
A. Mortgage Payment Expense to Effective
Income: If the total mortgage payment (principal, interest, taxes, insurance,
payments for any acceptable secondary financing, and any additional required
escrows or payments such a homeowners association dues, does not exceed 29% of
gross effective income, the relationship of the mortgage payment to income is
considered acceptable. A ratio exceeding 29% may be acceptable if significant
compensating factors are presented. Typically, for borrowers with limited
recurring expense, greater latitude is permissible on this ratio than the total
fixed payment ratio.
B. Total Fixed Payment To Effective Income:
If the total mortgage payment and all recurring charges does not exceed 41% of
gross effective income, the relationship of total obligations to income is
considered acceptable. A ratio exceeding 41% may be acceptable if significant
compensating factors are presented.
Compensating
Factors
Compensating
factors that may be used in justifying approval of mortgage loans with ratios
exceeding the guidelines above include those listed below. These must be
described in the "remarks" section of the HUD-92900WS.
A. The borrower makes a large downpayment
toward the purchase of the property of at least 10%.
B. The borrower has demonstrated a
conservative attitude toward the use of credit and ability to accumulate
savings.
C. Previous credit history shows that the
borrower has the ability to devote a greater portion of income to housing
expenses.
D. The borrower receives compensation or
income not reflected in effective income, but directly affecting the ability to
pay the mortgage.
E. There is only a small increase of
10% or less in the borrower's housing expense.
F. The borrower has substantial cash
reserves after closing of at least three months PITI.
G. The borrower has substantial non-taxable
income (if no adjustment is made previously in the ratio computations).
H. The borrower has potential for increased
earnings, as indicated by job training or education in the borrower's
profession.
The Servicemen's Readjustment Act of 1944
(the GI Bill) was passed to provide benefits of World War II veterans. It has
since been amended to include veterans of Korea, Vietnam and Desert storm.
More than 28.8 million veterans and
service personnel are eligible for VA financing. Many of these people have used
their veterans' loan benefit before, but may now be able to buy homes with VA
financing again using remaining or restored loan entitlement.
Before arranging for a new mortgage to
finance a home purchase, veterans should consider some of the advantages of VA
home loans:
- No downpayment is required in most
cases.
- No maximum loan amount, except the
loan may not exceed the VA-established reasonable value of the property.
- Lower interest rates (which are fixed
for the life of the loan).
- No monthly mortgage insurance premium
to pay.
- Limitation on buyer's closing costs.
- An appraisal which informs the buyer of
property value
- Thirty year loans with a choice of
repayment plans:
Traditional
fixed payment (monthly payments stay the same for the life of the loan);
graduated Payment Mortgage (low initial
payments which gradually rise to a level payment starting in the sixth year);
and
In
some areas, Growing Equity Mortgages (gradually increasing payments with all of
the increase applied to principal, resulting in an early payoff of the loan.)
- For most loans for new houses,
construction is inspected at appropriate stages to ensure compliance with the
approved plans, and a 1-year warranty is required from the builder that the
house is built in conformity with the approved plans and specifications. In
those cases where the builder provides an acceptable 10-year warranty plan,
only the final inspection may be required.
- An assumable mortgage, subject to
VA approval of the assumer's credit.
- Right to repay loan without penalty.
- VA performs personal loan servicing
and offers financial counseling to help veterans avoid losing their homes
during temporary financial difficulties.
What Is a VA-Guaranteed Loan
These loans are made by a lender, such as
a mortgage company, savings and loan or bank. VA's guaranty on the loan
protects the lender against loss if the payments are not made, and is intended
to encourage lenders to offer veterans loans with more favorable terms. The
amount of the guaranty on the loan depends on the loan amount and whether the
veteran used some entitlement previously. With the current maximum guarantee, a
veteran who has not previously used the benefit may be able to obtain a VA loan
up to $184,000 depending on the borrower's income level and the appraised value
of the property. The local VA office can provide more details on guaranty and
entitlement amounts.
Uses for a VA Loan
- To buy a home, including townhouse
or condominium unit in a VA-approved project.
- To build a home.
- To simultaneously purchase and improve
a home.
- To improve a home, including
installation of solar heating and/or cooling system or other weatherization
improvements.
- To refinance an existing home loan.
- To buy a manufactured home and/or lot.
Eligibility
Veterans with active duty service, that
was not dishonorable, during World War Il and later periods are eligible for VA
loan benefits. World War II (September 16, 1940 to July 25, 1947), Korean
conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964
to May 7, 1975) veterans must have at least 90 days of service. Veterans with service
only during peacetime periods and active duty military personnel must have had
more than 180 days of active service. Veterans of enlisted service which began
after September 7, 1980 or officers with service beginning after October 16,
1981, must in most cases have served at least two years.
For the Persian Gulf Conflict, reservists
and National Guard members who were activated on or after August 2, 1990,
served at least 90 days and were discharged honorably are eligible. VA regional
office personnel may assist with eligibility questions.
Remaining Entitlement
Veterans who had a VA loan before may
still have "remaining entitlement" to use for another VA loan. The
current amount of entitlement available to each eligible veteran is $36,000.
This was much lower in years past and has been increased over time by changes
in the law. For example, a veteran who obtained a $'5,000 loan in 1974 would
have used $12,500 guaranty entitlement, the maximum then available. Even if
that loan is not paid off, the veteran could use the $23,500 difference between
the $12,500 entitlement originally used and the current maximum of $36,000 to
buy another home with VA financing. An
additional $10,000, up to a maximum entitlement of $46,000 is available for
loans above $144,000 to purchase or construct a home.
Most lenders require that a combination
of the guaranty entitlement and any cash downpayment must equal at least 25
percent of the reasonable value or sales price of the property whichever is
less. Thus in the example, the veteran's $23,500 remaining entitlement would
probably meet a lender's minimum guaranty requirement for a no downpayment loan
to buy the property valued at and selling for $94,000. The veteran could also
combine a downpayment with the remaining entitlement for a larger loan amount.
Restoration of Entitlement
Veterans can have previously-used
entitlement "restored" to purchase another home with a VA loan if:
- The property purchased with the
prior VA loan has been sold and the loan paid in full, or
- A qualified veteran-transferee
(buyer) agrees to assume the VA loan and substitute his or her entitlement for
the same amount of entitlement originally used by the veteran seller. Remaining
entitlement and restoration of entitlement can be requested through the nearest
VA office by completing VA form 26-1880.
Five Steps to a VA Loan
1. Apply for a Certificate of Eligibility.
A veteran who
does not have a certificate can obtain one by making application on VA Form
26-1880, Request for Determination of Eligibility and Available Loan Guaranty
Entitlement to the local VA office.
2. Decide on a home the buyer wants to
buy and sign a purchase agreement.
3. Order an appraisal from VA.
Most VA regional
offices offer a "speed-up" telephone appraisal system. Call the local
VA office for details.
4. Apply to a mortgage lender for the
loan.
While the
appraisal is being done, the lender (mortgage company, savings and loan, bank,
etc.) can be gathering credit and income information. If the lender is
authorized by VA to do automatic processing, the loan can be approved and
closed without waiting for VA's review of the credit application. For loans
that must first be approved by VA, the lender will send the application to the
local VA office, which will notify the lender of its decision.
5. Close the loan and the buyer moves in.
VA Appraisal - Certificate of Reasonable
Value
The CRV (certificate of reasonable value)
is based on an appraiser's estimate of the value of the property to be
purchased. Because the loan amount may not exceed the CRV, the first step in
getting a VA loan is usually to request an appraisal. Anyone (buyer, seller,
real estate personnel or lender) can request a VA appraisal by completing VA
Form 26-1805, Request for Determination of Reasonable Value. After completing
the form, it can either be mailed to the Loan Guaranty Division at the nearest
VA office for processing or an appraisal can be requested by telephone from the
Loan Guaranty Division for assignment of an appraiser. The local VA office may
be contacted for information concerning its assignment procedures. The
appraiser will send a bill for services to the requester according to a fee
schedule approved by Veto simplify things, VA and HUD/FHA (Department of
Housing and Urban Development/ Federal Housing Administration) use the same
appraisal forms. Also, if the property was recently appraised under the HUD
procedure, the HUD conditional commitment can usually be converted easily to a
VA CRV. The local VA office can explain how this is done.
Application
The application process for VA financing
is no different from any other type of loan. In fact, the VA application form
is the same as that used for HUD/FHA loans. The mortgage lender verifies the
applicant's income and assets, and obtains a credit report to see that other
obligations are being paid on time. If all is well and the appraised value of
the property is enough to cover the loan needed, the lender, in most instances,
can then close the loan under VA's automatic procedure. Only about 10 percent
of VA loan applications have to be submitted to a VA office for approval before
closing.
Requirements for Loan Approval
To obtain a VA loan, the law requires
that:
- The applicant must be an eligible
veteran who has available entitlement.
? The loan must be for an eligible
purpose.
- The veteran must occupy or intend
to occupy the property as a home within a reasonable period of time after
closing the loan.
- The veteran must be a satisfactory
credit risk.
The income of the veteran and spouse, if
any, must be shown to be stable and sufficient to meet the mortgage payments,
cover the costs of owning a home, take care of other obligations and expenses,
and have enough left over for family support.
An experienced mortgage lender will be
able to discuss specific income and other qualifying requirements.
Costs of Obtaining a VA Loan
- A funding fee of 1.25% must be paid
to VA by all but certain exempt veterans. A down payment of 5% or more will
reduce the fee to 0.75% percent and a 10% downpayment will reduce it to 0.50%
.This fee does not have to be paid in cash, but may be included in the loan.
- No commission or brokerage fee may
be charged to the veteran buyer.
- Reasonable closing costs may be
charged by the lender. These may not be included in the loan.
Veterans may not be charged discount
points except for loans
(1) Refinance an existing home loan on
property owned and occupied by the veteran;
(2) Repair, alter or improve a home;
(3) Build a home on land purchased from
someone other than the builder; or
(4) Buy a home from a seller who VA
determines is legally precluded from paying discount points.
(The following is reprinted by permission
from the CalBRE Reference Book, p.379-384)
CALIFORNIA
VETERANS FARM AND HOME PURCHASE PROGRAM
Eligibility Requirements
Applicant must have served at least 90
days on active duty unless discharged because of a service-connected
disability. At least one day of active duty must have been during a qualifying
war period.
Military service solely for the purpose
of processing, physical examination or training does not qualify.
Loan Fees
A loan origination fee of $430 is charged
on Cal-Vet loans, $25 of which must be paid at time of application and is
non-refundable. The balance is collected at the close of escrow. Property taxes
and insurance premiums as appropriate are also collected at the close of
escrow. Appraisal fees are not included in the loan origination fee and must be
paid by the applicant at the time the appraisal is performed.
There are no income restrictions or
purchase price limitations on Cal-Vet loans funded with General Obligation
Bonds.
To qualify for Revenue Bond funding, a
veteran must be a "first-time homebuyer", defined as one who has not
owned an interest in his/her principal residence for the past three years, or
must be purchasing a property in a federally-designated "targeted
area", generally defined as an area of low income or chronic economic
distress.
Qualifying Maximum Loan
Properties Amount. Single family homes,
including condominiums and townhouses $125,000; Working farm producing
sufficient income to provide loan and tax payments $200,000.
In addition to the $5,000 which may be
approved for solar energy heating devices, $5,000 more may be approved for
structural modifications necessitated by the disability of the veteran or a
member of the veteran's immediate family residing in the Cal-Vet property.
Where the purchase price is $35,000 or
less, the Department may loan 97% of its appraised value of the property. Where
the purchase price is greater than $35,000, the Department may loan 95% of its
appraised value of the property, but in no event may the loan be more than the
purchase price or the maximum stated above, whichever is less.
On farm properties, the loan amount
cannot exceed 95% of the Department's appraised value which is based upon net
income from agricultural production. Secondary Financing from Other lenders
The Department may consent to secondary
financing to be obtained by the veteran from another lender to supplement the
amount of the Cal-Vet loan. The total amount of secondary financing when
combined with the Cal-Vet loan cannot exceed 90% of the Department's appraised
value of the property. A Subordination Agreement must be obtained from the
secondary lender. The Department also consents to interim financing for
bridging the time-gap of sometimes up to 6 months necessary to process the
application.
Rate and Term
The Cal-Vet interest rate on loans for
single family dwellings, condominiums, farms and mobilehomes affixed to land is
currently 8%. The interest rate for mobilehomes in parks in 9%, and has always
been 1% higher than the rate for single family dwellings.
Most loans are based upon a 25-year
maximum repayment period though the legal limit is 40 years.
Prepayments
A loan may be paid in full at any time.
If a loan is repaid, in whole or in part, within five years of its date, the
purchaser shall pay an additional sum as a prepayment penalty or service charge
on the contract in an amount equal to the payment of six month's advance
interest on the amount prepaid in excess of 20 percent of the original loan
amount.
The transfer, assignment, encumbrance or
rental of Cal-Vet property is prohibited without the written consent of the
Department of Veterans Affairs.
The reader of this chapter should be
warned that above numbers, whether they refer to maximum loan amounts or
percentage rates are subject to change.
(End of from the CalBRE Reference Book excerpt)
Loan Terms Comparison Table
|
FHA |
VA |
CAL-VET |
|
Loan
|
1-4 units |
1-4 units |
single
|
|
Eligible |
resident |
US veteran |
Cal-Vet |
|
Maximum
|
1 unit
|
none by
|
$125,000 |
|
Downpayment |
3% of 1st |
loan
|
3% up to
|
|
Interest
|
market |
imposed |
state-
|
|
Prepayment
|
none |
none |
6 mo. pmt
|