Section 220. FHA plus program

A. Notwithstanding anything to the contrary herein, the authority may make loans secured by second deed of trust liens ("second loans") to provide downpayment and closing cost assistance to an eligible borrower or borrowers who are obtaining FHA loans secured by first deed of trust liens. Such first deed of trust liens must be financed by the authority; provided that the authority may, in its discretion, permit such first deeds of trust to be financed by other lenders, subject to such terms and conditions as the executive director shall determine to be necessary to protect the financial integrity of the FHA plus program. Second loans shall not be available to a borrower or borrowers if the FHA loan is being made under the FHA buydown program or is subject to a step adjustment in the interest rate thereon or is subject to a reduced interest rate due to the financial support of the authority.

B. The second loans shall not be insured by mortgage insurance; accordingly, the requirements of 13VAC10-40-120 regarding mortgage insurance shall not be applicable to the second loan.

C. The requirements of 13VAC10-40-110 regarding calculation of maximum loan amount shall not be applicable to the second loan. In order to be eligible for a second loan, the borrower or borrowers must obtain an FHA loan for the maximum loan amount permitted by FHA. The principal amount of the second loan shall not exceed 5.0% of the lesser of the sales price or appraised value, or such lesser percentage as may be determined by the executive director to protect the financial integrity of the FHA plus program.

In no event shall the combined FHA loan and the second loan amount exceed (i) the sum of the lesser of the sales price or appraised value plus closing costs and fees to be paid by borrower or (ii) the authority's maximum allowable sales price. The sum of all liens may not exceed 100% of the cost to acquire the property. The cost to acquire the property is the sales price plus allowable borrower paid closing costs, discount points and prepaid expenses.

Verified liquid funds (funds other than gifts, loans or retirement accounts) in an amount not less than 1.0% of the sales price must be: (i) contributed by the borrower or borrowers towards closing costs or prepaid items; (ii) retained by the borrower or borrowers as cash reserves after closing; or (iii) contributed and retained by the borrower or borrowers for the purposes of clauses (i) and (ii), respectively. The FHA-insured first mortgage when combined with the FHA plus second mortgage and any other liens may not result in cash back to the borrower.

D. If the authority is not making the FHA loan secured by the first deed of trust lien, the authority may require that, as a condition of financing the FHA plus loan, the FHA loan secured by the first deed of trust lien meet the authority's requirements applicable to FHA loans. With respect to underwriting, more stringent requirements or criteria than those applicable to the FHA loan may be imposed on the second loan if the executive director determines such more stringent requirements or criteria are necessary to protect the financial integrity of the FHA plus program.

E. The second mortgage loan shall be assumable on the same terms and conditions as the FHA loan.

F. No origination fee or discount point shall be collected on the second loan; provided, however, that the authority may charge an origination fee and/or a discount point in an amount determined by the executive director to be necessary to compensate the authority for originating, processing, and closing the FHA plus loan, if the first deed of trust is to be financed by another lender.

G. Upon approval of the applicant or applicants, the authority will issue a mortgage loan commitment pursuant to 13VAC10-40-170. The mortgage loan commitment will include the terms and conditions of the FHA loan and the second loan and will set forth additional terms and conditions applicable to the second loan. Also enclosed in the commitment package will be other documents necessary to close the second loan.

Historical Notes

Derived from VR400-02-0003 § 2.17, eff. July 16, 1985; amended, Volume 02, Issue 03, eff. October 15, 1985; Volume 02, Issue 10, eff. January 21, 1986; Volume 02, Issue 18, eff. May 20, 1986; Volume 03, Issue 03, eff. December 10, 1986; Volume 03, Issue 23, eff. August 10, 1987; Volume 04, Issue 14, eff. March 16, 1988; Volume 05, Issue 03, eff. October 19, 1988; Volume 05, Issue 12, eff. March 1, 1989; Volume 05, Issue 21, eff. July 1, 1989; Volume 06, Issue 10, eff. January 16, 1990; Volume 07, Issue 10, eff. January 16, 1991; Volume 07, Issue 23, eff. July 18, 1991; Volume 08, Issue 06, eff. December 1, 1991; Volume 08, Issue 17, eff. April 23, 1992; Volume 09, Issue 20, eff. July 1, 1993; Volume 10, Issue 15, eff. March 16, 1994; Volume 10, Issue 21, eff. June 21, 1994; Volume 11, Issue 19, eff. June 1, 1995; Volume 15, Issue 12, eff. January 28, 1999; Volume 19, Issue 12, eff. January 24, 2003; Volume 19, Issue 25, eff. August 1, 2003; Volume 25, Issue 21, eff. June 5, 2009.

Statutory Authority

§ 36-55.30:3 of the Code of Virginia.