 Personal Finance PowerPoint Presentation. FHA Single Family Title II. Prepare to get financially fit by practicing personal finance. Most of this information can be found at Investopedia FHA Single Family Title II, which you can find online. Take a look at the references, resources, continue your research from there. This is by Matt Ryan Webber, published April 22, 2022. FHA Single Family Title II and FHA Single Family Title II is a type of mortgage. So if you're a home purchaser, clearly usually we cannot put all the money down up front, therefore have to deal with some kind of financing, some kind of loan that will be involved. This is going to hopefully expand some of the options for certain people that FHA Single Family Title II. Specifically, it is a mortgage issued by the Federal Housing Administration, the FHA, under Title II of the National Housing Act of 1934 for a single family. These mortgage loans were designed to encourage lenders to issue mortgages during the Great Depression, but they still form a large part of the mortgage market today. So during the time of the Great Depression, clearly there was an economic downturn, there was a whole lot of laws and whatnot. It's kind of like the regulatory bodies, the government were kind of waving their arms like a drowning person, just doing everything at that point in time. So there's a whole lot of new regulations that go into play, and some of those are still kind of around today. From an economic standpoint, there's a lot of debate as to whether or not those regulations had an impact, whether they helped the people they were trying to help ease the pain or helped get us out of the depression. There's, you know, debate, a lot of debate, clearly towards the end of the Great Depression, there was a war which kind of changed the whole dynamic of things at that point in time. So anytime there's government intervention, just note from an economic standpoint, there's still kind of questions as to whether it's not it's helping the people that it's turning out or it's trying to help, and sometimes if you look at it closely, you'll see at least in the long run, it can actually harm the people it's trying to help. For example, if you look at mortgages, for example, then you usually have two people involved. You've got the bank who's trying to make money on the interest. You've got the person who needs the loan so that they can get the money for the seller, the seller you can think of as a separate person. Then we, the prom buyer is going to deal with the seller too. But with regards to the loan, you've got someone that needs a loan. You've got the financial institution that would like to give the loan as long as the loan can be paid back. Then, however, we also have the third kind of component here, which is either regulations, government regulations, or kind of government more active kind of intervention in the process like selling like a secondary market kind of situation like a Fannie Mae or Freddie Mac. Anytime the government intervention comes in, you can imagine that they're going to try to ease the pressure in some way so that there's going to be more mortgages or loans that are going to go out to specific individuals, possibly individuals more in need. But you can imagine a situation and we've seen situations where they ease up just the ability to be approved for a loan, which means that more people might be taking out loans who otherwise couldn't afford the loans because now they're being approved for the loans because they lessen the risk to the bank, which can actually have detrimental impacts because people can pick up loans that are kind of over their heads. So you've got to be careful whenever this kind of government stuff goes into play. It could have adverse consequences, but so we want to be aware of the pros and cons as we're considering these kind of things. So you can't apply for Title II loans directly from the FHA. Instead, you'll need to find a lender that offers mortgage loans that are FHA backed through Title II programs. So they're still going through the lender. The lender has the capacity to be issuing these kind of loans. So you want to look them out specifically if you think they're going to be something that could be applicable to your particular circumstances. So the application process is similar to that of a standard mortgage loan, though the lender will check to be sure that the home you're buying meets Title II requirements. And this article will take you through the history of Single Family Title II mortgage loans, how you can qualify for one and how to apply for one. Understanding the FHA Single Family Title II mortgage loans, both Title II mortgages and the Federal Housing Administration, the FHA itself, were created by the National Housing Act of 1934. So in those depression years at that time, the Great Depression was at its peak. And by 1933, as many as 1,000 homeowners were defaulting on their mortgages every day. Fully half of the mortgages in the U.S. were in arrears, so they weren't getting their payments up. Because of the risk of default, banks were very hesitant to lend money on mortgages. So clearly, crash in the housing market, you got a downward spiral happening at that point in time. Banks are not going to be looking to invest more in the mortgages at that time because their confidence is clearly out of low. So most required a 50% down payment. So we're talking normally these days 20%, we got a 50% down payment and full repayment within 5 years. 30 years? No, 5 years. 50% up front 5 years. We want our money back. Whoa! Through the National Housing Act, the federal government encouraged banks to issue mortgages by insuring lenders against default. So now the government's going to put some insurance on. What does that do to the market? Well, now the bank has basically shifted some of the risk from the bank to the government. What does that make the bank do? Well, the bank can now make money or take more risky kind of investments than they otherwise would if they were having all the risk. And if there's a problem, then they're going to get, you know, you could say bailed out would be the current not so favorable term of it. They're going to get support from the government. So now you've got this shifting of risk going on, which again, it doesn't eliminate the risk. That's the kind of thing to understand here. There's still the risk there. It's just now who's bearing the risk and then what's going to be the inevitable consequence of that happening. Banks are going to react to that in an obvious way. They're going to make more loans that are possibly more risky than they would have otherwise done if they were handling the risk themselves. If they borrow or defaulted, the FHA would pay the lender a specific claim amount. So now the FHA is going to be responsible for, to some degree, the shortfalls in the events of defaults. Again, risk going away from the lender, which causes kind of some problems at the same time as possibly some benefits. So two types of loan programs were created. You got Title I's loan allowed homeowners to borrow money to rehabilitate their house. Title II loans, the type we're discussing here are the buying property. They're for buying property. There are several types of property that qualify such as single family homes, condominiums, manufactured homes and trailers. The home must have a permanent foundation, meet minimum size requirements based on the residence type and the structurally sound and fit for a family residence. There have been some changes since 1935, which you would expect. Yeah, I would think it's kind of a long time. The FHA became part of the Department of Housing and Urban Development HUD. So they've transformed into HUD here in 1965. Well, HUD guarantees some loans on its own, namely Section 184 loans, which are available only to the Native Americans. It is FHA to which most single family home buyers typically look. Today, most single family Title II mortgages are issued through the 203B Mortgage Insurance Program. How to get a single family Title II mortgage? Since they're insured by the government against a borrower defaulting on the mortgage, Title II loans are a very low risk proposition for the mortgage lender. So again, benefit to the lender. Usually the lender, like usually in a market, you got two people involved here. You got the two people involved, and they're taking on the risk of that kind of negotiation now. You got the third person involved kind of balancing out some of that risk. That's how the benefits are trying to be manifested. They're not magic. The government is taking on risk, which is going to cost them. And it's also going to lead to behaviors that are quite obvious for the bank, which means they're going to give out more loans, which they otherwise wouldn't, which are more highly risky. So this means the FHA Title II loans, whether for a single family home or another type of property, have favorable conditions for consumers whose credit history are less than perfect. So now they can give loans out to people that they would not otherwise give loans out to due to their credit history not being great, because again, some of that risk is being mitigated by the government. So Title II loans are designed for borrowers who may not be able to access enough cash for a big down payment and who have a lower than average credit score. In general, borrowers who find that an FHA loan is much easier to obtain than a standard mortgage. So again, and some people could legitimately be in that case, obviously if your credit score is below, it might not even be your fault or you might be a perfectly good person that would pay back the loan and so on and so forth. But it's going to be, of course, difficult to get a loan under those those circumstances or more difficult. You could still get a loan, but you might not get the most favorable terms. So then you've got this this option here. So but again, you can see why the bank of course would have their normal, you know, standard stuff. So again, the risk, you got this risk issue. So individuals who have gone through bankruptcy or foreclosure are eligible for an FHA loan, depending on how much time has passed and whether good credit has been reestablished with an FHA title. To you can borrow up to 96.5% of the value of the home. What that's amazingly high. Usually it's like around 80% because you got to put the 20% down. No big, big thing here. So this means that you'll need to make a down payment of up to 3.5%. So you can see here from the bank's perspective, normally they wouldn't do this, you know, because normally they would be skeptical on someone's credit score not being, you know, as high as they would want. And if their credit score wasn't as high as they as they would want, what would they probably do to compensate? They would want more money down, not less money down, right? So you got two things that could pretty heavily increase the risk. Why would the bank do that? Because again, the government's taking on some of that risk. So you'll need you'll need a credit score of at least 580 to qualify for that though. If your credit score falls in the 500 to 579 range, you can still get an FHA loan as long as you make a 10% down payment. There are some other differences between the FHA Title II loan and a standard mortgage. All FHA borrowers must pay a mortgage insurance premium, the MPI to the FHA and upfront payment as well as an annual payment. Borrowers pay 1.75% of the loan balance along with annual MIPs, which are paid monthly based on the total value of the loan. Borrowers who can put down 10% or more pay these premiums in 11 years for 11 years. Anyone who makes a down payment of less than 10% must make these premium payments for the duration of their mortgage. So you've got the mortgage insurance, which is going to be an added kind of cost. You can see why the mortgage insurance would would be playing a role in this case due to the risk involved. So you can't apply for a Title II loan directly from the FHA. Instead, look for a lender that offers this type of mortgage. So you've got to shop around for the lenders that would have the capacity to give you an FHA loan. Your lender will check that you qualify for a Title II loan. What is an FHA loan? Federal Housing Administration FHA loans include those issued through Title II are guaranteed by the government and designed for homeowners who may have lower than average credit scores and are able to come up with enough money for a more substantial down payment. FHA mortgages are issued by FHA approved lenders. Do I qualify for an FHA Title II loan? To apply for a Title II loan, you need to be able to prove two years of steady employment or stable income. That's not what I asked. I asked, do I qualify? Yes or no? Yes or no? They're not going to give me a yes or no. Anyway, to qualify for a Title II loan, you need to be able to prove two years of steady employment or stable income and no past due federal liens such as student loans or tax debts. Any court judgments against you must be paid and all child support must be current. Your credit must have been stable or improving for at least the previous 12 months and any bankruptcy filing must have been discharged for at least 24 months. Any foreclosures on your past must be at least three years ago and you must have at least 12 months of on-time rent or lease payments. Is an FHA loan a good option for me? Here they go. It should just say yes or no down here, but no. They give me all this up. They're going to just babble on about it. Yes or no question. So it depends on your circumstances. Of course it does. A Title II loan may be easier to qualify for than a standard mortgage. So clearly that's going to be part of the circumstances here, part of the rationale for it being in existence. It might be easier to qualify for, especially for people with limited or poor credit history. On the other hand, other government sponsored mortgage loan options may be available for you. There are two other types of government agency issued loan programs. The US Department of Veterans Affairs, the VA loans and the US Department of Agriculture, the USDA loans. So it's important to research all potential options. So you got the standard loans where that's between A and B and you leave C out of it, that being the government as much as possible. And then you've got the government loans where C comes in hopefully to help out and mitigate the risk to be beneficial to the borrower which could be good and you can compare and contrast those things. But just remember that there are some adverse kind of components to it as well. So you want to make sure that you're going in knowing what the options are and then you're making the decision as to how much you would want to take out on a loan, how much can be afforded and which option would be optimal. So the bottom line, an FHA single family Title II is a type of mortgage. Specifically, it is a mortgage insured by the FHA under Title II of the National Housing Act of 1934 for a single family. These loans were created by the National Housing Act of 1934. Title II loans are a very risk-low proposition for mortgage lenders. That's the point. The government mitigating the risk from the lenders meaning the lenders will act as you would expect them to act, giving out more loans so they can make more money by getting more interest and not having to worry about the risk of the fact that they're lending money to people that they otherwise would not be doing so because of the high risk and the higher level or likelihood of a default, meaning they're loaning more money than possibly people might be able to pay back in their normal judgment if they were taking on all the risk. So just do your own budgeting on that. And if you can't pay it back, your own budgeting says so, then could be a good option because the government ensures them against a borrower defaulting on the mortgage. This means FHA Title II loans, whether for a single family home or another type of property, have favorable conditions for consumers with less than perfect credit histories. You can't apply for a Title II loan directly from the FHA. So you don't just go to the FHA to get a Title II and say, hey, give me a Title II FHA. You got to go to a lender. Instead, you look for a lender that offers this type of mortgage. Your lender will check that you qualify for the Title II loan. The home you buy must meet Title II requirements.