Chapter 7 HOW TO USE GOVERNMENT-INSURED LOANS TO FINANCE REAL ESTATE PURCHASES AND SALES Flashcards
1
Q
What is the goal of this chapter?
A
To provide a solid working knowledge of government-insured loans for real estate purchases and sales.
2
Q
What are the two main categories of loans discussed in this chapter?
A
- Federal Department of Housing and Urban Development-sponsored programs (HUD)
- U.S. Department of Veterans Affairs (VA)
3
Q
What type of insurance does Section 203(b) provide?
A
Federal mortgage insurance for homeownership and construction financing.
4
Q
What is the maximum mortgage amount insured under Section 203(b)?
A
Varies across the country; calculated at 125% of HUD published median prices with a floor of $271,050 and a ceiling of $729,750.
5
Q
Who is eligible to apply for FHA mortgages?
A
Any person able to meet the cash investment.
6
Q
What is the purpose of Section 203(h) mortgage insurance?
A
To assist major disaster victims in rebuilding or buying another home.
7
Q
What feature does Section 203(h) offer to borrowers?
A
No down payment is required; eligible for 100 percent financing.
8
Q
What does Section 203(k) insure?
A
Loans to finance the rehabilitation or purchase and rehabilitation of one-to-four family properties.
9
Q
What is the aim of the Single-Family Property Disposition Program (Section 204(g))?
A
To dispose of one-to-four family FHA properties to expand homeownership opportunities.
10
Q
What areas does Section 223(e) target for mortgage insurance?
A
Older, declining urban areas.
11
Q
What is the mortgage insurance for condominium units under Section 234(c)?
A
Federal mortgage insurance to finance the purchase of individual housing units in condominiums.
12
Q
What does the Graduated Payment Mortgage (Section 245(a)) allow?
A
Households with limited income to buy a home sooner with gradually increasing mortgage payments.
13
Q
What is a key feature of Adjustable Rate Mortgages (Section 251)?
A
The interest rate and monthly payment may change during the life of the loan.
14
Q
What is the Home Equity Conversion Mortgage Program (Section 255)?
A
Allows borrowers aged 62 and older to convert home equity into income or a line of credit.
15
Q
What types of payment options are available under the Home Equity Conversion Mortgage Program?
A
- Tenure
- Term
- Line of credit
- Modified tenure
- Modified term
16
Q
What is the maximum loan amount for manufactured homes under Title I?
A
$48,600 for a manufactured home; $64,800 for a manufactured home and lot.
17
Q
True or False: The HUD programs discussed are subject to frequent changes.
A
True
18
Q
Fill in the blank: The maximum mortgage amounts for FHA loans are calculated at _______ of the HUD published median prices.
A
125%
19
Q
What is required for a borrower to qualify for a Graduated Payment Mortgage?
A
Expectation of rising income.
20
Q
What does FHA stand for?
A
Federal Housing Administration.
21
Q
What is the maximum loan amount for a manufactured home under Title I?
A
$48,600 for a manufactured home, $64,800 for a manufactured home and a suitably developed lot, and $16,200 for a developed lot.
22
Q
What is the maximum loan term for manufactured home loans?
A
15 to 25 years, depending on the type of loan.
23
Q
Who can apply for a Manufactured Homes Loan Insurance under Title I?
A
Any person able to make the cash investment and the loan payments.
24
Q
What is the maximum loan amount for property improvements on single-family homes?
A
$25,000.
25
What is the maximum loan term for property improvement loans on manufactured homes classified as real property?
15 years.
26
What is the objective of HUD's housing counseling program?
To help homebuyers, homeowners, and tenants improve their housing conditions and meet their responsibilities.
27
What professions are eligible for the Good Neighbor Next Door program?
Law enforcement officers, teachers, firefighters, and emergency medical technicians.
28
What discount do participants in the Good Neighbor Next Door program receive on homes?
50 percent discount from the list price.
29
What is required for a borrower to be eligible for an Energy Efficient Mortgage?
A 3 percent cash investment in the property based on the sales price.
30
What is the purpose of Insured Mortgages on Hawaiian Home Lands?
To provide loans to native Hawaiians to purchase homes on Hawaiian homelands.
31
What is the primary goal of FHA's mortgage insurance for Native Americans?
To increase the availability of mortgage credit to Native Americans living on Indian land.
32
What type of housing does the Supportive Housing for the Elderly program aim to expand?
Housing with supportive services for the elderly.
33
What is the maximum loan term for loans on apartment buildings under Property Improvement Loan Insurance?
20 years.
34
What is the purpose of the Assisted-Living Conversion Program (ALCP)?
To provide grants to convert dwelling units into assisted-living facilities for the frail elderly.
35
What type of repairs does the Emergency Capital Repairs Program cover?
Substantial capital repairs needed to rehabilitate or modernize aging structures.
36
What is the minimum number of spaces required for a manufactured home park to qualify for federal mortgage insurance?
Five or more spaces.
37
What is the primary focus of the Mortgage and Major Home Improvement Loan Insurance for Urban Renewal Areas?
To finance mortgages for housing in urban renewal areas.
38
What types of projects are eligible for mortgage insurance under Section 221(d)(3) and (4)?
Multifamily rental or cooperative housing for moderate-income households.
39
What distinguishes Section 221(d)(3) from Section 221(d)(4)?
Section 221(d)(3) may insure up to 100 percent of replacement cost for public and nonprofit mortgagors, while Section 221(d)(4) insures only up to 90 percent.
40
What does HUD's Section 223(f) program insure?
Mortgages on existing multifamily projects.
41
True or False: HUD provides housing counseling through approximately 1,700 HUD-approved counseling agencies.
True.
42
What types of mortgagors are eligible for Section 221(d)(4) mortgages?
Profit-motivated sponsors.
## Footnote
This section specifies that unlike other programs, this one targets profit-oriented entities.
43
What is the minimum number of units required for a project to qualify for HUD insurance under Section 207/223(f)?
Five units.
## Footnote
This applies to existing multifamily projects that do not require substantial rehabilitation.
44
What age must individuals be to occupy units in projects insured under the Mortgage Insurance for Housing for the Elderly (Section 231)?
62 years or older.
## Footnote
This program is specifically designed for elderly or handicapped individuals.
45
Under Section 232, what type of facilities does HUD insure mortgages for?
Nursing homes, intermediate care facilities, board and care homes, and assisted living facilities.
## Footnote
These facilities must accommodate 20 or more patients requiring skilled nursing care.
46
What is the purpose of Supplemental Loans for Multifamily Projects (Section 241)?
To pay for improvements or additions to existing HUD-insured projects.
## Footnote
This includes hospitals, nursing homes, and group-practice facilities.
47
What type of hospitals are eligible for mortgage insurance under Section 242?
Acute care hospitals.
## Footnote
This includes both large urban hospitals and small rural hospitals.
48
What is the risk-sharing arrangement under Section 542(b)?
50/50 risk sharing between HUD and Fannie Mae or Freddie Mac.
## Footnote
This program allows for sharing the mortgage insurance premium on multifamily housing.
49
What is the main objective of the Mark-to-Market Program?
To preserve long-term low-income housing affordability.
## Footnote
It restructures FHA-insured or HUD-held mortgages for eligible multifamily projects.
50
Fill in the blank: The Self-Help Housing Property Disposition program makes surplus federal properties available for _______.
self-help housing for low-income persons.
## Footnote
Residents must contribute labor toward construction or rehabilitation.
51
What does the Project-based Section 8 program assist with?
It assists low- and very low-income families in obtaining decent housing.
## Footnote
This program makes up the rent difference for eligible tenants.
52
What is the main goal of the Urban Revitalization Demonstration (HOPE VI) program?
Eradication of severely distressed public housing.
## Footnote
It encourages partnerships with private entities for affordable housing.
53
What types of activities can be funded through the Indian Community Development Block Grant (ICDBG) Program?
Housing rehabilitation, community facilities, infrastructure improvements, and job opportunities.
## Footnote
Funds cannot be used for government facilities or new housing construction unless by an eligible nonprofit.
54
What does Title VI guarantee for tribal housing activities?
Loans for financing eligible affordable housing activities.
## Footnote
It allows tribes to issue obligations with HUD guarantees.
55
Who is eligible for home loan guarantees under Section 184?
Indian families, Indian housing authorities, and Indian tribes.
## Footnote
This program aims to provide access to private mortgage financing.
56
What is the purpose of the loan guarantee program established under Section 184?
To provide access to private mortgage financing to Indian families, Indian housing authorities, and Indian tribes that could not otherwise acquire housing financing due to the unique legal status of Indian lands.
57
Who is eligible for loan guarantees under Section 184?
Indian families, Indian housing authorities, and Indian tribes.
58
What types of housing can loans guaranteed under Section 184 be used for?
* Constructing single-family housing
* Acquiring single-family housing
* Refinancing single-family housing
* Rehabilitating single-family housing
59
What does the Fair Housing Act of 1968 prohibit?
Discrimination in housing based on race, color, religion, sex, national origin, disability, or familial status.
60
What are some actions prohibited by the Fair Housing Act?
* Denying housing
* Offering different terms to applicants
* Refusing to rent or sell
* Using discriminatory advertising
* Falsely denying housing availability
61
What must multifamily dwellings of four or more units be designed for since March 13, 1991?
To be accessible to people with disabilities.
62
What can individuals do if they believe they have been discriminated against under the Fair Housing Act?
File a complaint with any HUD office within one year after the alleged discrimination.
63
What does HUD assure through its programs for fair housing and equal opportunity?
Equal opportunity to participate in and benefit from HUD-assisted programs without regard to race, color, national origin, disability, or age.
64
What does Ginnie Mae guarantee in the mortgage-backed securities programs?
The timely payment of principal and interest on securities issued by private lenders backed by pools of FHA, VA, RHS, and PIH mortgage loans.
65
What is a key feature of Ginnie Mae I Mortgage-Backed Securities?
All mortgages in a pool are fixed-rate, single-family mortgages with the same interest rate.
66
What is the minimum pool size for Ginnie Mae I securities?
$1 million.
67
What distinguishes Ginnie Mae II Mortgage-Backed Securities from Ginnie Mae I?
It allows one or multiple lenders to pool mortgages in the same pool and permits a wider range of mortgage interest rates.
68
What is the minimum pool size for Ginnie Mae II securities?
* $250,000 for multi-lender pools
* $1 million for single-lender pools
69
What is a Real Estate Mortgage Investment Conduit (REMIC)?
A type of pay-through bond characterized by a multiclass or multitranched serialized structure.
70
What are stripped mortgage-backed securities (SMBS)?
An investment type that allows investors to manage MBS prepayment risk by isolating and combining various interest only (IO) and principal only (PO) cash flow components.
71
What is required for a dealer to participate in the Ginnie Mae Multiclass Securities program?
* Apply and be approved
* Meet minimum capital requirement of $250 million
* Demonstrate good standing with structured transactions
* Represent structural integrity under cash flow scenarios
* Comply with Ginnie Mae's regulations
72
True or False: Ginnie Mae's obligations are backed by the full faith and credit of the United States government.
True
73
What must have been issued within the preceding 12 months to demonstrate compliance?
A structured transaction with Fannie Mae or Freddie Mac
## Footnote
This is a requirement for entities seeking to engage with Ginnie Mae.
74
What does Ginnie Mae require from an issuer regarding cash flow scenarios?
Represent the structural integrity of the proposed issuance and indemnify Ginnie Mae for breaches
## Footnote
This ensures that the issuer can meet financial obligations under various scenarios.
75
What is the purpose of the FHA's Housing in Military Impacted Areas program?
Provides federal mortgage insurance for housing in areas affected by military installations
## Footnote
However, there has been little activity in recent years.
76
What does the Growing Equity Mortgage Insurance program allow homeowners to do?
Apply scheduled increases in monthly payments to the outstanding principal balance of a mortgage
## Footnote
This significantly shortens the mortgage term.
77
What type of housing does the FHA's Multifamily Rental Housing program provide insurance for?
Construction or rehabilitation of a broad cross-section of rental housing
## Footnote
Section 221(d)(4) is generally used for privately owned new construction and substantial rehabilitation.
78
What is the status of the Mortgage Insurance for Single-Room Occupancy Projects program?
Has not been used in recent years without subsidies
## Footnote
The more active program is Section 8 Moderate Rehabilitation Single Room Occupancy.
79
What type of assistance does the Congregate Housing Services program provide?
Federal grants to eligible housing projects for the elderly and disabled
## Footnote
There has been no activity in recent years except for extending previously funded grants.
80
What does the Flexible Subsidy program do?
Provides federal aid for troubled multifamily housing projects and capital improvement funds
## Footnote
No new commitments are being made.
81
What is the purpose of the Section 8 Moderate Rehabilitation Program?
Assists very low-income families in obtaining decent, safe, and sanitary housing
## Footnote
This is done in privately owned, rehabilitated buildings.
82
What does the Section 8 Moving to Work Demonstration program aim to achieve?
Promote self-sufficiency among assisted families and increase housing choice for low-income households
## Footnote
This program allows public housing agencies to design and test innovative solutions.
83
What does the Doctoral Dissertation Research Grant Program provide?
Competitive grants to PhD candidates for completing dissertations on HUD-related research issues
84
What is the eligibility requirement for a VA loan?
You must be an eligible veteran with available home loan entitlement
## Footnote
This is a crucial requirement for obtaining a VA loan.
85
What is a key feature of VA loans regarding down payments?
No down payment is required unless specified by the lender or if the purchase price exceeds the appraised value
## Footnote
This makes VA loans more accessible for veterans.
86
What does VA guarantee regarding the property condition?
VA guarantees only the loan, not the condition of the property
## Footnote
It is advised to seek a qualified inspection before purchasing.
87
What must a veteran do to arrange for a VA guaranteed loan?
Find a suitable property, apply for a loan, and present discharge or separation papers
## Footnote
This also includes obtaining a Certificate of Eligibility.
88
What is required for a VA loan approval regarding the property?
The loan must be for an eligible purpose and the purchase price should not exceed the appraised value
89
True or False: The VA can compel a builder to correct construction defects.
False
## Footnote
The VA's authority is limited to suspending the builder from the VA Loan Guaranty program.
90
What is the requirement regarding the veteran's income for VA loan approval?
Must have enough income to meet new mortgage payments and cover home ownership costs
## Footnote
Family support needs must also be considered.
91
What is a VA guaranteed loan?
A loan made by private lenders that is guaranteed by the VA to protect against loss if the borrower fails to repay the loan.
92
How much is the VA guaranty for home loans?
Up to 50 percent of a home loan up to $45,000, with varying amounts for loans over $45,000.
93
What is the maximum guaranty for loans over $144,000?
The lesser of 25 percent of the loan amount or $89,912.
94
Is $36,000 the biggest loan a veteran can obtain?
No, veterans can borrow up to the reasonable value of the property or purchase price, plus the funding fee.
95
What is the maximum VA loan amount?
There is no maximum VA loan amount, but lenders typically limit no-down-payment loans to $359,650.
96
Must a VA guaranteed loan be repaid?
Yes, it is not a gift and must be repaid.
97
Does the VA make loans directly to veterans?
Yes, but only to Native Americans on trust land or to supplement grants for specially adapted homes.
98
What are the eligibility requirements for VA financing based on wartime service?
Must have served at least 90 days on active duty and been discharged under other than dishonorable conditions.
99
What periods are considered peacetime service for VA eligibility?
July 26, 1947, to June 26, 1950; February 1, 1955, to August 4, 1964; May 8, 1975, to September 7, 1980.
100
What is required to obtain a Certificate of Eligibility?
VA Form 26-1880 must be completed and submitted with discharge papers.
101
What service is not eligible for VA financing?
World War I service and Active Duty for Training in the Reserves or National Guard.
102
Can veterans with World War I service qualify for any other loan benefits?
Yes, they may qualify for a HUD/FHA veterans' loan.
103
How much entitlement does each veteran have?
Originally $2,000, now up to a maximum of $36,000 or $89,912 for certain loans.
104
Does VA home loan entitlement provide cash to the veteran?
No, it only relates to the amount guaranteed against loss.
105
Can a veteran get used entitlement back to use again?
Yes, unused entitlement can be restored for future use.
106
Fill in the blank: The VA guarantees loans made by _______.
[private lenders such as banks, savings and loan associations, or mortgage companies]
107
True or False: A veteran's home loan entitlement expires.
False
108
What is the maximum amount of VA home loan entitlement available?
$36,000
## Footnote
This amount can be higher for certain loans over $144,000.
109
Does VA home loan entitlement provide cash to the veteran?
No, it relates only to the amount VA will guarantee against loss.
110
What conditions must be met for a veteran to get used entitlement back?
The following conditions must be met:
* The property has been sold and the loan paid in full
* A qualified veteran-transferee must agree to assume the loan balance
* The veteran must have repaid the prior VA loan in full
* Any loss suffered by VA must be repaid in full
* Must apply for restoration using VA Form 26-1880.
111
What is 'remaining entitlement' in the context of VA loans?
Remaining entitlement is the amount of entitlement available to veterans who have previously used part of their entitlement.
112
What is the maximum guaranty on a VA loan when multiple veterans acquire property together?
The guaranty may not exceed the lesser of 40 percent of the loan amount or $36,000.
113
True or False: A veteran can join with a nonveteran to obtain a VA loan.
True, but the guaranty is only based on the veteran's portion.
114
What is required for a veteran to refinance a previous VA loan at a lower interest rate?
The veteran must still own and occupy the property securing the previous VA loan.
115
What types of properties can VA-guaranteed financing be used for?
VA financing can be used for:
* Buying a home
* Buying a townhouse or condo in an approved project
* Building a home
* Repairing or improving a home
* Buying a manufactured home
* Refinancing a manufactured home loan.
116
What is the VA funding fee?
A fee that veterans must pay at loan closing, which can be included in the loan.
117
What closing costs are regulated by the VA for a VA loan?
VA regulates costs such as:
* VA appraisal
* Credit report
* Survey
* Title evidence
* Recording fees
* 1 percent loan origination fee.
118
Fill in the blank: The maximum loan amount for a Graduated Payment Mortgage may not exceed the reasonable value of the property or the _______.
[purchase price]
119
What must veterans do if they want to apply for state benefits related to housing?
Contact state officials or the local VA regional office for information.
120
What is the consequence of not meeting the requirements for entitlement restoration?
Veterans may still have remaining entitlement to use for another VA loan.
121
What is the role of the VA in determining the reasonable value of a property?
VA establishes the reasonable value, which affects down payment requirements.
122
What document must be completed to request the restoration of entitlement?
VA Form 26-1880, 'Request for a Certificate of Eligibility.'
123
What must happen if a VA loan goes to foreclosure?
Any loss suffered by VA must be repaid in full before entitlement can be restored.
124
True or False: The issuance of a certificate of eligibility guarantees approval of a VA loan.
False, the veteran must still qualify based on income and credit.
125
What counties and cities are under the jurisdiction of VARO Washington, DC?
Arlington, Fairfax, Loudoun, Prince William, Spotsylvania, Stafford counties; Alexandria, Fairfax, Falls Church, Fredericksburg
126
What is the address of the VA Regional Office in Seattle, WA?
915 Second Avenue, Seattle, WA 98174
127
Which counties are under the jurisdiction of VARO Portland, OR?
Clark, Klickitat, Skamania
128
What is the address of the VA Regional Office in Huntington, WV?
640 4th Avenue, Huntington, WV 25701
129
What is the address of the VA Regional Office in Milwaukee, WI?
Building 6, 5000 West National Avenue, Milwaukee, WI 53295
130
What is the address of the VA Medical and Regional Office Center in Cheyenne, WY?
2360 East Pershing Boulevard, Cheyenne, WY 82001
131
How do government services and benefits help investors?
They provide insurance and lending programs to help buy and sell properties, especially for those without large down payments.
132
What are the main government loan programs for single-family homebuyers?
VA and FHA loan programs
133
What should you consider when choosing a mortgage broker for government loans?
The broker should be knowledgeable about government programs and specific types of loans.
134
What are the two factors to consider for each loan program?
1. How it helps buy a property 2. How it can be used to sell a property
135
True or False: Government programs provide loans.
False
136
What does the government do in relation to loans?
Insures a portion of the loan to reduce risk for lenders.
137
What is the mortgage insurance premium (MIP)?
A premium paid by the buyer to insure the loan, which can be financed or paid partially in cash.
138
What is the significance of loan discounts in VA loans?
Discounts adjust the yield to the lender and increase the actual percentage earned above the contract rate.
139
What does the entitlement refer to in VA loans?
The insured amount, not the loan amount.
140
What is required for a veteran to qualify for a GI loan?
A reasonable income and credit history to repay the loan.
141
List some data needed for any VA mortgage application.
* Veteran and spouse’s name and current address
* Entitlement amount
* Entitlement certificate
* Employment verification
* IRS 1040 for last two years
* All sources of income
* Bank account details
* Loan information
* Credit card numbers
* List of major assets
* Total loan payments
* Details on unusual expenses
142
What costs can veterans/buyers pay when obtaining a VA loan?
* Veteran’s lawyer
* Title insurance
* Survey
* Credit report
* Appraisal
* Repairs
* Funding fee
143
What costs are veterans/buyers not allowed to pay?
* Discount (points)
* Photographs
* Preparation of deed
* Surtax on deed
* Assignment of mortgage
* Mortgage satisfaction
* Recording of mortgage satisfaction
* Inspections
144
What is a significant disadvantage for sellers when using VA or FHA loans?
The waiting period while the buyer undergoes approval.
145
True or False: The seller is responsible for paying up to 4% of the loan amount in costs.
True
146
What is the advantage of using FHA programs for sellers?
It expands the marketplace for the property, attracting buyers who may not qualify for conventional loans.
