FHA Loans “Back to the Future”

1. FHA Loans“Back to the Future” Note: Virtually all single family FHA mortgage lending is done through Direct Endorsement, which enables an FHA-insured mortgage to be processed as rapidly as other mortgages.

2. What FHA Loans Offer • New Purchase Financing • Adjustable Rate Mortgages • Fixed Rate Mortgages • Buy-downs • Refinances • Streamline Refi’s • Cash-out Refi’s

3. FHA Loan Limits by AZ County Listing of FHA single family mortgage limits. Limits are updated constantly.

4. FHA-Loan Officer Facts • Must get 1003 AND addendum to URLA signed at initial application • Must obtain evidence/proof of social (Picture ID) • Must use FHA Approved Appraiser • Must obtain an FHA case # through FHA Connection (https://entp.hud.gov/clas/index.cfm) • Real Estate certification must be signed by buyer, seller, and selling real estate agent • The amendatory clause of the sales contract must be executed • AVOID the brain damage of FHA new construction loans

5. FHA-Processor Facts • Loan Package must contain a completed Mortgage Credit Analysis Worksheet (MCAW) • Must check CAVIRS (FHA connection) • Must obtain an FHA case # (FHA connection) • Must obtain Termite Report • Run through DU/LP on web • Must check LDP/GSA list for all parties involved in transaction

6. Other Fun Facts • FHA does not publish a rate sheet the investor determines the rate • Full Doc Only (no stated programs) • Qualifying ratios are 31/43 • ARMs qualify at 1% over the start rate, buy downs at note rate • Debts of non-purchasing spouse must be included in borrower’s qualifying ratios (separate credit reports) • Can do 95% cash out with 12 month seasoning and no lates • Only one FHA insured mortgage per borrower at a time • Can be underwritten manually or automated

7. More Fun Facts • Does not have a minimum credit score but most lenders do • Traditional credit not required-can develop acceptable non-traditional credit sources • Max 6% seller contribution • Borrowers may not pay a tax service fee or Loan Origination Fee > 1%

8. FHA-Good Neighbor Next Door Law enforcement officers, pre-K through 12th grade teachers, firefighters, and EMTs can contribute to community revitalization while becoming homeowners through HUD’s Good Neighbor Next Door Sales Program HUD offers incentives in the form of a discount of 50% from the list price of the home. In return you must commit to live in property for 3 years as your sole residence. How the Program Works Eligible single family homes located in revitalization areas are listed exclusively for sale through the Good Neighbor Next Door Sales Program. Properties are available for purchase through the program for FIVE days. www.hud.gov/offices/hsg/sfh/reo/goodn/gnndabot.cfm

9. Upfront & Annual MIP For mortgages with terms more than 15 years UPFRONT LTV Ratio Premium Years 1.5% All LTV’s .50% Until 78% LTV For mortgages with terms 15 years or less UPFRONT LTV Ratio Premium Years 1.5% 89.99 & under None N/A 1.5% 90.00 & over .25% Until 78% LTV

10. FHA Appraisals • Search for & order appraisals through FHA connection • Lender can select from appraiser list • FHA no longer requires minor property deficiencies to be corrected • Termite reports REQUIRED in AZ • Value/Conditions not final until appraisal issued by U/W https://entp.hud.gov/idapp/html/apprlook.cfm

11. FHA New Purchase Loans • Easier to Qualify FHA insures your mortgage so lenders are more willing to give loans with lower qualifying requirements • Less than Perfect Credit Credit problems are easier to qualify for on an FHA loan, BK is allowed after 2 years with re-established credit • Low Down Payment As low as 3% down payment. 100% gift permitted for down payment/closing costs/PP • Costs Less Competitive interest rates because the loans are insured by the Federal Government

12. FHA Streamline Refinance FHA “streamline” refers only to the amount of documentation and u/w that needs to be performed by lender and does not mean there are no costs involved in the transaction. The basic requirements of a streamline refi are: • Mortgage to be refi’d must already be FHA insured • Mortgage to be refi’d must be current • The refi is to result in lowering of borrower’s monthly PITI payments • No cash may be taken out on mortgages refi’d using streamline process

13. FHA Streamline Refinance (Cont’d) Lenders offer streamline refi’s in several ways: 1. Some offer “no-cost” refinances by charging higher interest rate. From this premium, lender pays any closing costs incurred on the transaction 2. May include the closing costs in the new mortgage amount only if there is sufficient equity in the property, as determined by an appraisal 3. May be done w/o an appraisal but new loan cannot exceed original loan amount. Only investment properties may be refinanced w/o an appraisal.

14. FHA Streamline Refinance (cont’d) • Must be an FHA insured loan with same borrowers & same property • Cash to close does not need to be verified • Do not need to check CAVIRS but MUST check LDP/GSA • Can shorten term of loan as long as payment does not increase more than 20% • Can go from ARM to fixed as long as payment does not increase more than 20% • Individuals can be added to title w/o credit review • Subordinate financing may remain in place regardless of total indebtedness of property • If appraisal value is such that borrower would be better advised as if no appraisal has been made then appraisal may be ignored • Order FHA Refi Authorization (FHA Connection) MIP REFUND

15. FHA Cash-out Refinance • Borrower must have history of making payments on time • Any subordinate financing may remain in place as long as it is subordinated on title • Borrower cannot be late or in default of any federal debt • Max 95% LTV • Property must have been occupied by borrower as primary residence for at least 12 months • Must have an appraisal and must credit qualify

16. Summary & Other Options FHA Loans • Max Loan $263,150 • Still paying 3-4% YSP • Old School Documentation • Source Large deposits • GAP Letters • Credit Letters • BK Discharge & Schedule • VOE & Pay stub • W2’s Note: FHA is also looking at doing: • True 100% • Risk based MIP • Max Loan Amount to equal Fannie / Freddie • **Another option is our My Community