1. California Real Estate Principles, 10.1 Edition
Chapter 9
Part II: FHA, VA, and CAL-VET Loans and the Secondary Mortgage Market

2. Chapter 9 Part II
Discuss the main characteristics of FHA insured, VA guaranteed, Cal-Vet loans and Cal HFA.
Define the secondary money market.
List the 3 agencies that play a major role in the secondary money market.

3. Loan Types Conventional loans FHA DVA Cal-Vet
Private mortgage insurance
FHA
Government insures loan
DVA
Government guarantees loan
Cal-Vet
California state buys the property and sells it to the Vet on a land contract and long term lease

4. Federal Housing Administration (FHA)
Government insures NOT makes loan
Loan made from lender
Requires up-front mortgage insurance premium UFMIP
Requires annual premium fee paid monthly of ½ of 1% of unpaid balance
Program
Payments = PITI (insurance)
No secondary financing with NEW loan
No maximum price but a maximum loan amount
1-4 unit residential dwellings
Discount points are negotiable & paid by either party

5. FHA Advantages of FHA Lower down payment (approx. 3.5%)
No prepayment penalty
Minimum property standards
Disadvantages of FHA
Increased processing time
Property requirements may discourage sellers
Cost of mortgage insurance decreases amount of home loan

6. FHA 203b Acquisition cost (appraisal + some closing cost)
96.5% of acquisition cost to maximum loan allowed
Maximum loan is 95% of median home or 75% of FNMA whichever is less
Current maximum in our area is $

7. Department of Veteran’s Administration (VA)
VA guarantees the loan to protect lender
Loan information
Interest rate negotiable between borrower & lender
Value determined by Certificate of Reasonable Value (CRV)
Zero down payment allowed
Vet must have Certificate of Eligibility (DD214)
Vet must occupy the property

8. VA Advantages of a VA loan
No down payment on loans up to the current maximum amount. (Instructor: Give students current amount)
Lower interest rate due to government guarantee
No prepayment penalty on loan payoff
May be used more than once if old VA loan paid off and veteran released
Disadvantages of a VA loan
Only a Veteran qualifies
May be discount points to entice lender to greater yield
Loans not assumable without credit check and assumption fee
Red tape with government may take longer for approval

9. SUMMARY VA PROGRAM
Loans to owner-occupied qualified veterans for homes
No money down on maximum home loan amount equal to Fannie Mae loan amount; the current maximum is $________
Interest is determined in the current marketplace
Vet is charged loan and funding fees
Vet may use more than once as long as the former VA loan is paid off or assumed

10. CAL-VET Calif. Farm/Home Purchase Program
All vets residing in California
Title is in the name of the State of California
Title passes to vet when state paid off
Vet gets a long-term lease and land contract
Loan brokers may now process the loan
Variable rate loan
Funds received from sale of bonds

11. Cal-Vet Program
Loans to owner-occupied qualified veterans for homes and farms
Maximum loan amounts vary each year; current maximum for:
Home is $ ___________
Farms is $ ___________
Cal-Vet loans guaranteed by VA are no money down to maximum VA approved loans amount; regular Cal-Vet loans require 2-3% down payment
On regular Cal-Vet loans the interest rates are variable with the current rate set at ________ %

12. Loan Limits - Maximum VA – www.va.gov $________ FHA – www.HUD.gov
1 Unit $__________
2 Units $__________
3 Units $__________
4 Units $__________
Cal-Vet( LOAN) $__________
FNMA/FHLMC
Single Family $__________
Two Units $__________
Three Units $__________
Four Units $__________

13. Note Note Flow of funds Borrower Existing loans are bought and sold
Primary Lender in Primary Market
Note
Secondary Market Investors
Supply & Demand of mortgage credit

14. Secondary Mortgage Market
Federal National Mortgage Association
Fannie Mae (FNMA)
Issues stock to general public
Provides blended rate mortgages
Issues mortgage-backed securities
FHA/VA/Conventional 1-4 units

15. Secondary Mortgage Market
Federal Home Loan Mortgage Corporation
Freddie Mac (FHLMC)
Issues stock to general public
Buys and resells residential conventional mortgage loans
Requires loan insurance if loan over 80% of appraisal
Government National Mortgage Association
Ginnie Mae (GNMA)
Guarantees securities issued by FHA-approved home mortgage lenders