FHA loans 2017 Test Answers

FHA loan limits establish a maximum amount that consumers can borrow, and loan limits differ by area to reflect regional variations in housing prices.
Loan limits are established in the National Housing Act as the lesser of:

• 115% of the median home price for an area, or
• 150% of the conforming loan limit of $424,100

Loan limits are divided into:

• The ceiling: 150% of the conforming loan limit = $636,150
• The floor: 65% of the conforming loan limit = $275,665

For areas between the ceiling and floor, loan limits are computed by multiplying an area’s median home price by 115%.
The source of funds for FHA insurance is not taxpayer dollars, but insurance payments made by FHA borrowers.
UFMIP is due at closing and must be paid in full with cash or by financing the entire premium.
In all transactions, regardless of the borrower’s credit score or DTI ratio, the cost of UFMIP is 1.75% of the loan amount.
Reference to HUD’s MIP chart is required to calculate the cost of Annual MIP, which is based on:

• Initial LTV of the loan
• Loan term 
• Base amount of the loan, which does not include the cost of financing UFMIP

FHA loans are qualified mortgages.  FHA will not insure loans with points and fees that exceed the 3% limit.  HUD does not limit the DTI ratio for FHA qualified mortgages to 43%.
HUD extends a conclusive presumption of compliance to loans with APRs that do not exceed the average prime offer rate by more than (Annual MIP + 1.15 percentage points).
HUD extends a rebuttable presumption of compliance to loans with APRs that exceed the average prime offer rate by more than (Annual MIP + 1.15 percentage points).

 Funds collected from the payment of UFMIPs and Annual MIPs are deposited into the Mutual Mortgage Insurance Fund (MMIF).

FHA will not insure loans with points and fees that exceed:

1. 2% of the total loan amount
2. 1.5% of the total loan amount
3. X 3% of the total loan amount
4. 1% of the total loan amount  

What is the UFMIP required for FHA borrowers?

1. 5% of the median home value in the area
2. 1.75% of the base loan amount
3. 2% of the value of the property
4. 3.5% of the purchase price

Correct. The UFMIP required for FHA borrowers is 1.75% of the base loan amount.

origination of FHA loans begins with the completion of the Uniform Residential Loan Application (URLA) and the HUD/VA Addendum to Uniform Residential Loan Application, which is available through the HUD website.  addendum includes a Lender’s Certification, which requires lenders to verify certain information provided and steps taken during the application process. The addendum also includes a Borrower’s Certification, which requires borrowers to attest that information provided to the lender is accurate and complete

One of the advantages of FHA loans is that loan applicants can qualify for them with lower credit scores than those required for conventional mortgages.  In the conventional mortgage market, a consumer must have a credit score of at least 620 to be eligible for mortgage credit. FHA loans are available to consumers with credit scores in the 500s; loan applicants with credit scores of less than 500 are not eligible for an FHA loan.

HUD refers to the credit score used in the evaluation of an application for an FHA loan as a “minimum decision credit score” (MDCS). The MDCS refers to the credit score when only one score is reported, or if multiple reports provide the same score. When reported scores are different, the MDCS is:

• The middle score if three scores are reported
• The lowest score if two scores are reported
• The lowest score if there are multiple applicants and they have different scores
• With a credit score of 580 or above, a loan applicant is eligible for maximum financing, which is 96.5% of the Adjusted Value of the home that will secure the loan. For loan applicants with credit scores that are between 500 and 579, the loan-to-value ratio is limited to 90%.
• HUD limits contributions by sellers and other parties with a financial interest in a transaction to 6% of the sales price of a home. When contributions exceed 6%, they are regarded as inducements to purchase, which will “…result in a dollar-for-dollar reduction to the purchase price when computing the Adjusted Value of the Property before applying the appropriate Loan-to-Value (LTV) percentage”

 

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MIP Plus 1.15 Percentage Points

The CFPB’s threshold for qualified mortgages that are subject to a rebuttable presumption of compliance is an APR that exceeds the APOR for a comparable transaction by 1.5 percentage points or more (for first-lien transactions).  FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of the Annual MIP plus 1.15 percentage points.   Therefore, the threshold that defines the difference between FHA loans that are subject to a conclusive or rebuttable presumption of compliance is higher than the threshold that the CFPB established.  As a result of this higher threshold, HUD’s qualified mortgage rule extends safe harbor qualified mortgage status to more loans.

FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of:

1. The UFMIP plus 2.25 percentage points
2. X The Annual MIP plus 1.15 percentage points
3. The Annual MIP plus 3 percentage points
4. The UFMIP plus 2 percentage points

EXEMPT

The HUD rule exempts FHA reverse mortgages, which are known as home equity conversion mortgages (HECMs), from requirements to meet qualified mortgage standards. HUD’s rule also exempts transactions exempted by the CFPB. These exempt transactions include:

• Bridge loans with terms of 12 months or less, including loans used to finance the purchase of a new dwelling while the borrower is trying to sell his/her current home
• Bridge loans for the initial construction of a new dwelling
• Construction phases of 12 months or less of a construction-to-permanent loan
• Loans made by a housing finance agency (agencies that have authority to make loans pursuant to the Housing and Community Development Act of 1992)
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