California Real Estate
Principles, 10.1 Edition
Chapter 9
Part II: FHA, VA, and CAL-VET Loans and the Secondary
Mortgage Market
© 2016 OnCourse Learning
Chapter 9 Part II
1. Discuss the main characteristics of
FHA insured, VA guaranteed, CalVet loans and Cal HFA.
2. Define the secondary money
market.
3. List the 3 agencies that play a
major role in the secondary money
market.
Loan Types
• Conventional loans
– 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
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

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
FHA 203b
1. Acquisition cost
(appraisal + some closing cost)
2. 96.5% of acquisition cost to maximum loan
allowed
3. Maximum loan is 95% of median home or
75% of FNMA whichever is less
Current maximum in our area is $
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
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
SUMMARY VA PROGRAM
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•
•
•
•
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
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
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 ________ %
Loan Limits - Maximum
• VA – www.va.gov
$________
• FHA – www.HUD.gov
– 1 Unit
$__________
– 2 Units
$__________
– 3 Units
$__________
– 4 Units
$__________
• Cal-Vet(1-800-952-LOAN) $__________
• FNMA/FHLMC
– Single Family
$__________
– Two Units
$__________
– Three Units
$__________
– Four Units
$__________
Flow of funds
Borrower
Existing loans are
bought and sold
Primary Lender in Primary Market
Secondary Market Investors
Supply & Demand of mortgage credit
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
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