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”

 

HELOC Balloon Due?

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HELOC ballon due?

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Our goal is simply to ensure that you have the best mortgage for your current situation and future goals. It may be time to review your current mortgage if: You are experiencing ever-increasing payments on your home equity line of credit (HELOC) You currently have a HELOC that will be adjusting in the coming months You have changing needs that requires you to sell your current home and find a new one That’s where a mortgage review comes in. It can help you uncover more options and opportunities. It’s complimentary, and you’ll never be pressured into making a change. By reviewing your current situation you may find out if now is a good time to refinance or sell and buy a new home. We are committed to providing options for your individual situation!

Call today to schedule your complimentary mortgage review!

C.G. Caroline Gerardo Barbeau Loan Officer NMLS #324982, CA Mobile: 949-784-9699 eFax: 855-833-4303 949 South Coast Dr Suite 240 Costa Mesa, CA 92626 CarolineGerardo@eaglehm.com carolinegerardo.eaglehm.com

Eagle Home Mortgage of California - Company NMLS #252392. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. RMLA #4130443; Certain restrictions apply. This is not a commitment to lend. Applicants must qualify. Equal Housing Lender. Models/Lifestyles shown do not reflect any ethnic/racial preference. ©2017 Eagle Home Mortgage of California. Eagle Home Mortgage and the Eagle logo are U.S. registered service marks of Lennar Corporation and/or its subsidiaries.

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)
• 
  

Qualified Mortgages

With the publication of its Qualified Mortgage Rule (QM Rule) in January 2013, the CFPB established qualified mortgage standards for conventional mortgages.  Eleven months later, HUD finalized a rule for FHA qualified mortgages.  In the preamble to its rule, HUD stated that all Title II loans and other FHA loan products should be defined as qualified mortgages.  HUD based this statement on the fact that FHA loans do not include risky features such as negative amortization, and on its longstanding guidelines that have “…always required lenders to determine a borrower’s ability to repay a mortgage…” (78 Fed. Reg. 238, p. 75215). The CFPB and HUD rules for qualified mortgages both became effective in January 2014.

 HUD’s rule for FHA qualified mortgages must begin with a discussion of the CFPB’s Qualified Mortgage Rule because the rules are interrelated. Both rules are intended to give lenders the incentive to base lending decisions on “…a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms…” (15 U.S.C. §1639c(a)). Standards for determining repayment ability are set forth in the CFPB’s Ability to Repay Rule (ATR Rule), and HUD has incorporated these standards into its rule.

Even though it maintained that FHA loans were already in compliance with the general requirements for qualified mortgages, HUD issued a rule that more closely aligns its standards with those established by the CFPB. The HUD rule incorporates definitions, points and fees limitations, and standards for determining repayment ability that are found in the QM Rule (24 C.F.R. §201.7).
The CFPB’s QM Rule offers lenders a presumption of compliance with the ATR Rule when they make loans that meet particular product feature prerequisites and underwriting requirements. The product feature prerequisites for conventional qualified mortgages are:

• A loan term that does not exceed 30 years
• Points and fees that do not exceed 3% of the total loan amount
• No periodic payments that increase the principal balance (i.e. no negative amortization)
• No interest-only loans or other products that permit the deferral of payments of principal
• No balloon payments (with some exceptions)

The underwriting requirements for conventional qualified mortgages include:

• A maximum debt-to-income ratio of 43%
• Verification of the borrower’s income and assets
• Calculation of regular and substantially equal periodic payments that will repay the mortgage by the end of the loan term
• Qualified mortgages may have either a conclusive or rebuttable presumption of compliance with the ATR Rule.  Those that have a conclusive presumption of compliance are known as “safe harbor qualified mortgages.” These are mortgages that are not higher-priced mortgage loans.  If a loan is a higher-priced mortgage, it is subject to a rebuttable presumption of compliance.
• After completion of its rule making process to define FHA qualified mortgages, HUD finalized a rule that extends a conclusive presumption of compliance and safe harbor qualified mortgage status to any Title II FHA-insured single-family mortgage that meets the points and fees limitations of the CFPB’s QM Rule and that has an APR that does not exceed the average prime offer rate by more than the sum of the Annual MIP plus 1.15 percentage points for a first-lien transaction.
  The HUD rule extends a rebuttable presumption of compliance to FHA-insured single-family mortgages that:
  
  • Meet the points and fees limitations established under the CFPB’s QM Rule, and
  • Have an APR that exceeds the average prime offer rate by more than the sum of the MIP plus 1.15 percentage points
  • HUD has adopted the CFPB’s definition of “points and fees” that is found in Regulation Z, which defines the term to include:
    
  • Compensation paid by a consumer or by a creditor to a mortgage loan originator
  • Most items included in the finance charge
  • Real estate-related fees that are not reasonable, those for which the creditor receives compensation, or those that are paid to an affiliate of the creditor
  • Premiums paid at or prior to consummation for optional credit insurance products or insurance that names the creditor as the beneficiary
  • The maximum prepayment penalties that may be charged under the loan terms (note, however, that FHA loans may not legally include prepayment penalties)
  • HUD has stated that it will no longer insure single-family homes that have points and fees that exceed the CFPB’s limit for qualified mortgages (24 C.F.R. §203.19(b)(1)). As a result of this rule, single-family mortgages insured under Title II of the National Housing Act may not exceed the following amounts, which are adjusted annually for inflation:
    
  • 3% of the total loan amount for a loan of $100,000 or more
  • $3,000 for a loan of $60,000 or more but less than $100,000
  • 5% of the total loan amount for a loan of $20,000 or more but less than $60,000
  • $1,000 for a loan of $12,500 or more but less than $20,000
  • 8% of the total loan amount for a loan of less than $12,500
  • higher-priced mortgage loan, which is defined as a loan with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction by 1.5 or more percentage points for a first-lien covered transaction 
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