financing secrets of a millionaire real estate investor.pdf

3 / Understanding the Mortgage Loan Market 29
Confusion of Terms
Some mortgage professionals will use the expression
“conventional” to mean “conforming,” and
vice-versa. So, when a mortgage broker says that
“you’ll have to go with a nonconforming loan,” the
loan documentation may still have to substantially
conform with FNMA guidelines. In fact, even loans
that do not conform with FNMA or conventional
standards are underwritten on FNMA “paper” (the
actual note, mortgage, and other related documents).
Lenders do this with the intention of eventually
selling the paper, even if it may begin as a
portfolio loan.
Federal Housing Administration Loans
HUD is the U.S. Department of Housing and Urban Development,
an executive branch of the federal government. The Federal Housing
Administration (FHA) is an arm of HUD that administers loan programs.
HUD does not lend money but rather insures lenders that make
high LTV loans. Because high LTV loans are risky for lenders, the FHAinsured
loan programs cover the additional risk. Not all lenders can
make FHA-insured loans; they must be approved by HUD.
The most common FHA loan program is the 203(b) program,
designed for first-time homebuyers. This program allows an owneroccupant
to put just 3 percent down and borrow 97 percent loan-tovalue.
This program is for owner-occupied (noninvestor) properties,
but investors should be familiar with the program because they may
wish to sell a property to a buyer who may use the program.
The two most common HUD loans available for investors are the
Title 1 Loan and the 203(k) loan.