UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES Chapter Objectives Differentiate conventionally insured, a FHA insured, and a VA guaranteed mortgage Qualification requirements for the above mortgage types

Classification of Mortgage Loans Conventional mortgages Insured conventional mortgages FHA insured mortgages VA guaranteed loans

Insured Conventional Mortgage Loans Private Mortgage Insurance (PMI) Loans that have a LTV > 80% The loan in excess of 80% of the property (LTV) is usually covered under the policy Private insurance companies

FHA Insured Mortgage Loans FHA- Federal Housing Administration Insures the lender 100% against any default FHA created in 1934 to stabilize housing industry FHA charges a premium FHA loans usually have lower loan limits

VA Guaranteed Mortgage Loans Department of Veteran Affairs VA provides guarantees to lenders for loan losses The guarantee usually equals or exceeds 25% of loan amount

The Underwriting Process- Income Employment Working spouse Rentals Alimony or child support Commissions Self employment Bonuses

The Underwriting Process- Income Continued Dividends or interest Retirement annuity Social security Public assistance

The Underwriting Process- Other Conditions Borrower assets Credit history Estimated housing expense Other obligations and debt

Affordability Ratios Payment to income Total obligations to income PITI/ gross income equals or is less than 28% Total obligations to income PITI plus other obligations/ gross income equals or is less than 36% Percentages vary with kind of loan program

Closing Costs- Financing Loan application Credit report fee Loan origination Attorney fees Appraisal fees Fees for survey

Closing Costs- Financing Continued Loan documentation fees Discount points Prepaid interest

Closing Costs- other Property taxes, prorations and escrow accounts Mortgage insurance Hazard insurance Title insurance Pest inspection Real estate commissions Statutory costs

Real Estate Settlement and Procedures Act (RESPA) Consumer information Advance disclosure of settlement Title insurance Prohibition of kickbacks and referral fees Uniform settlement statement Advance inspection of settlement statement Escrow deposits

Federal Truth in Landing (FTL) Effective cost of mortgage credit (since 1968) Commercial real estate transactions excluded APR is the most important required disclosure ARMs and determining APR is more difficult