The document provides an overview of Federal Housing Administration (FHA) loans. It discusses how FHA loans originated during the Great Depression to provide lenders with insurance and increase home construction. Today, FHA loans offer benefits like lower down payments and interest rates. They have become very popular, estimated to be about half of the home loan market. The document outlines the process for obtaining an FHA loan, including the requirements for borrowers, approved lenders, eligible properties, and various FHA programs that provide grants and assistance.

1. FEDERAL HOUSING
ADMINISTRATION (FHA) LOANS
RE75R12
JODY OBRIEN

2. CEU OUTLINE

3. FHA LOANS
• What is a FHA Loan?
• Is not a loan from the Federal Goverment
• An FHA insured loan is a Federal Housing
Administration mortgage insurance backed
mortgage loan which is provided by a FHAapproved lender.
• FHA insured loans are a
type of federal assistance

4. THE BEGINNINGS
• originated during the Great Depression of the 1930s,
• foreclosures and defaults rose sharply,
• the intent was to provide lenders with sufficient
insurance.
• The National Housing Act of 1934 created the Federal
Housing Administration (FHA), established to increase
home construction, reduce unemployment, and
operate various loan insurance programs.

5. THE BEGINNINGS
• Until the late1960s, the FHA served mainly as an
insuring agency for loans made by private lenders.
• The role was expanded to the administrator of
interest rate subsidy and rent supplement programs.
• FHA subsidy programs were contained in the
•
•
•
•
Civil Rights Act of 1968
1974 the Housing and Community Development Act
1977 Housing and Community Development Act
1980 Housing and Community Development Act

6. BENEFITS
• Lower down payments
• Lower interest rates
• Assumable
• Appraisal process protects borrower
• Less risk for lender

7. POPULARITY
• “FHA loans have quadrupled since the boom. Half
of FHA’s portfolio was written after 2009. It is
estimated to be ½ of the home loan market. “
• How about you

13. THE BANK
• FHA approved lenders
• http://www.hud.gov/ll/code/llslcrit.cfm
• FHA insures the loan
• investigate the applicant and decide that the risk is
favorable, insures the lending institution against loss of
principal in case the borrower fails to meet the terms and
conditions of the mortgage

14. THE BORROWER
• Basic FHA loan requirements.
• Two Years of steady employment, preferably with
same employer.
• Last two years Income should be the same or
increasing.
• Bankruptcy's must be at least two years old, with
perfect credit since discharge.
• Foreclosure's must be at least three years old, with
perfect credit since. Exceptions…

15. THE BORROWER
• Foreclosures
• Exception to the three year limit
• “The lender may grant an exception to the threeyear requirement if the foreclosure was the result
of documented extenuating circumstances that
were beyond the control of the borrower, such as
a serious illness or death of a wage earner, and
the borrower has re-established good credit since
the foreclosure.”

16. THE BORROWER
• Mortgage payment should be approximately 30% of
gross (before taxes) income.
• Ratio is 31 percent to 43 percent.
• Income documentation
• No income limit
“When determining the creditworthiness of borrowers,
coborrowers, or cosigners, the underwriter considers
their
• income
• assets
• liabilities

17. THE BORROWER
• Credit report should typically have less than two thirty
day lates in last two years
• Minimum credit score of 620 or higher.
• Credit may be higher
depending on the lender

18. THE BORROWER
• Down Payment
• 3.5%
• Gift
• employer,
• relative or
• a nonprofit or government agency that offers
down payment assistance
• Closing Cost
• 6%
• Can be paid by Seller

19. THE BORROWER
• Co-Borrower
• non occupant coborrower (such as a
parent) and
• allows the loan to be
assumed by one borrower
later with no re-write.

20. THE PROPERTY
•
•
•
•
Principle Residence
Single Family
Multi Family
Condo
•
•
•
•
Approved
Recertification every year
Not detached
No Right of First Refusal

21. THE PROPERTY
• Appraisal Process
additional requirements designed to insure that any
major repairs that will be needed within two years are
identified and completed before the closing
• Reasonable Value
and
• Safe
• Sanitary
• Structurally Sound
• Approved Appraisers
https://entp.hud.gov/idapp/html/apprlook.cfm

22. THE PROPERTY
• What are they looking for?
• Identify any chipping, peeling or cracked leadbased paint - interior and exterior
• Verify there are no issues with water damage or
drainage
• Insure proper ingress and egress (18") from all
buildings to the lot line.
• Test for a properly working heater and, if present, air
conditioner
• Test for adequate water pressure and no water
leaks
• Validate every bedroom has exterior access

23. THE PROPERTY
• Test for a working oven hood/fan (carbon
monoxide danger)
• Verify a minimum 60 amp electric box
• Test for working electric outlets in every room
• Identify any exposed wiring or missing electric box
cover plates
• Verify roof vents are screened and a maximum of
three layers of roofing material
• Complete a head and shoulder inspection of attic
and crawl space

24. THE PROPERTY
• Head off trouble:
• Inform the Home Inspector
of FHA financing
• Have Fire Department
inspection as early as
possible

25. THE PROPERTY
• HOMES UNDER 2 YEARS OLD
• These homes require additional investigation,
including: checking with the airport commission for
location in airport noise zones and “runway clear
zones”; check engineered fall distances and
easements for electric, cell, radio, microwave, etc.
towers; looking for gas tanks within 300 ft; etc.
• Homes under 1 year of age have even more
checks.

26. THE LOAN
• Loan limits
http://www.fha.com/lending_limits_state.cfm?state=
MASSACHUSETTS
• Mortgage Insurance Premium MIP
• upfront mortgage insurance premium (UFMIP) of 1.75% and
• an annual mortgage insurance premium (MIP) of up to
1.50%.
• New June 2013

27. NEW MIP RULES
• June 2013

28. THE LOAN
The FHA loan rulebook also adds that the loan officer
or underwriter, “evaluates the four C’s of credit to
determine a borrower’s creditworthiness.” • credit
history
• capacity to repay
• cash assets available to close the mortgage
• collateral.

29. GRANTS, ASSISTANCE & PROGRAMS
• Housing Counseling - HUD sponsors housing
counseling agencies throughout the country that
can provide advice on buying a home, renting,
defaults, foreclosures, and credit issues.
• http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?
webListAction=search&searchstate=MA

30. GRANTS, ASSISTANCE & PROGRAMS
• Grants and Assistance - Owning a home is a big
part of the American Dream. Here are some
resources that can help you buy, maintain and
keep your home
• http://www.hud.gov/local/ma/homeownership/bu
yingprgms.cfm

31. GRANTS, ASSISTANCE & PROGRAMS
203(k)
This program is described on the FHA/HUD official site
as a home loan guaranty for the purpose of helping
“homebuyers and homeowners to finance both the
purchase (or refinancing) of a house and the cost of
its rehabilitation through a
single mortgage or to finance
the rehabilitation of their
existing home.”

32. GRANTS, ASSISTANCE & PROGRAMS
Streamlined 203(k)
•structural alterations and reconstruction
•modernization and improvements to the home’s function
•elimination of health and safety hazards
•changes that improve appearance and eliminate
obsolescence
•reconditioning or replacing plumbing; installing a well
and/or septic system
•adding or replacing roofing, gutters, and downspouts
•adding or replacing floors and/or floor treatments
•major landscape work and site improvements
•enhancing accessibility for a disabled person
•making energy conservation improvements

33. THANK YOU FOR ATTENDING
Jody O’Brien
The RE/Education Company
Committed to Professionalism in Real Estate through Education
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