101 Mortgage Questions Flashcards
What is the minimum down to buy a duplex as an investor? As a primary residence?
Any 2, 3, or 4 unit property, when bought as investor requires 25% down. If buying a duplex as primary residence (live in one of the units)- 15% down minimum for conventional, 3.5% for FHA. 3 and 4 units are always 25% down, no matter if primary or investment on conventional. FHA allows 3.5% down as long as no cosigner on multi unit properties.
Is VA educational income eligible as income?
No, va educational income is not considered eligible income.
Can I use a credit card to make my monthly mortgage payment?
No, credit cards are not allowed. Can typically pay with check, over the phone, online, automatic payments.
If a seller has gone delinquent on a mortgage, can a relative get a loan and buy the home off the delinquent seller?
This is called a “bail-out” and does not meet underwriting guidelines. If underwriting knows family is buying from family- they will always want a mortgage rating to ensure this is not a bailout.
Do I need to put my spouse on the loan?
Many times the question comes up if we should put a non-working spouse on the loan. If someone does not have income, they won’t help the file qualifying wise- but they can help potentially get a little lower mortgage insurance by having 2 people on the loan. If the non-working spouse has lower credit- it can cause the interest rate to be higher or if they have debt that is under just them- it can hurt the debt to income ratio. If you don’t put a spouse on the loan- the title company can always help add them to title later on.
How much will my credit score affect my mortgage insurance?
On FHA and USDA- none- same mortgage insurance. On conventional- big time. 760 and higher- lowest rate and then goes down in 20 point increments.
When there are two (or more) borrowers with different credit scores- who’s score do we use?
The lowest middle credit score.
Can I refinance my current home (as a primary residence) with the intent to move out in a month or two, rent it out, and buy another investment property.
We get asked this quite a bit and it can put you in a tricky situation. The challenge is when someone refinances their home as a primary residence, they are signing documents that state they “intend” to live in that home for at least a year. When they are refinancing knowing full well they are moving out in the next month or so, technically they are committing loan fraud- and so are you if you knowingly help them. It’s not that they absolutely have to live in the home a year- it just comes down to intent. Jobs change, families change, fights with neighbors, etc happen which can cause someone to want to move before the year is up and if something like this happens before the year is up, I believe they have in best efforts fulfilled their “intent.”
If someone has had a Conventional, VA, USDA, or FHA loan in the past- are they eligible again?
The loan in the past doesn’t really matter (except for VA). The question is on the new loan. Conventional doesn’t matter as long as they can qualify for the new loan, regardless of what loans they currently have or have had in the past. VA matters when they currently have another VA loan- usually need that old VA loan paid off prior (or close on the same day when talking a buy/sell). FHA doesn’t like 2 FHA loans out at the same time (one will need at least 15-25% equity). USDA does not allow you to own another home at the time of purchase.
Which loan program does not allow someone to own another home at the time of purchase?
USDA
Do we have to count an ex spouse’s debt.
If we can show clearly on divorce decree that ex has been awarded the debt- then we have a chance of not having to count it. Otherwise, if it’s still showing on your borrower’s credit- probably have to count.
When can we not have to count an ex-spouse’s debt when showing on our borrower’s credit?
When the divorce decree clearly spells out the debt has been assigned to the ex. Sometimes I’ve had an underwriter come back wanting proof ex has made said payment for 12 months.
What if someone else (or a business) pays someone’s monthly debt.
Typically if we can prove another entity has made the last 12 months payments- either through cancelled checks or bank statements- good chance to omit that debt.
How long must we prove a business has paid the monthly debt to exclude?
12 months
How do we calculate payments on Student Loans?
Payments on student loans are calculated differently depending on the type of loan. If FHA or USDA- always use 1% of the outstanding balance- regardless if a payment shows or not (unless you can show a lessor fully amortized payment). With conventional, if a payment is showing on credit- use that payment. If zero and Fannie- go with 1%. If zero and Freddie- go with .5%. On VA- if payment is deferred for at least 12 months and can prove- omit debt. Otherwise times the balance by 5% and divide by 12.
For student loans, what payment do we always use for FHA and USDA loans?
1%. For student loans, what payment do we always use for conventional loans?
Do we do (stand alone) 2nd mortgages?
We do not do stand alone 2nds. Once in a while we’ll do a simultaneous second- typically when we do the first to the maximum conventional conforming limit and then the 2nd for the rest. We have one outlet that will actually allow 5% down with this option but I prefer the 10% down option. (Refer to UCCU, America First, or Mountain America Credit Union.)
What if a client wants to waive escrows (taxes and insurance paid monthly)?
If going with a government loan (FHA, USDA, VA)- not an option. If conventional, need at least 20% down to waive escrows. On conventional, if ltv is between 60.1 to 80%- typically have a quarter point hit to pricing to waive escrows.
Which loan programs do not allow you to waive escrows?
USDA, FHA, VA
On conventional, how much down minimum/equity must someone have to waive escrows? What does that hit us if less than 40% down/equity?
20% and .25% to the pricing.
What if it’s a residential home on a farm?
If we are talking a home and a large garden- should be fine. But if actually doing farming work- not eligible for a residential loan.
Can we lend on farms and ranches?
No, we only do residential type loans.
Can a lender increase premium pricing and do a rebate back to the client?
No, lender can only pay for actual closing costs and prepaids and not a penny more. No cash back to client.
What is premium pricing?
Where we the lender increase the interest rate and use the extra premium to cover part or all of buyer’s closing costs?
What does “Sourced and Seasoned” mean.
Seasoned means the money has been in the bank for at least 60 days or 2 months bank statements. Nothing needed at that point. Sourced is for money that shows up in the bank account in the last 60 days. For FHA, any deposits over 1% of the loan amount or for conventional- over half their monthly income- that deposit will need to be sourced.
What does “sourced” mean?
Sourced means if the money in the bank account showed up within the last 60 days- we have to prove where it came from if it’s over 1% of the loan amount on FHA or 1/2 someone’s monthly income on conventional.
What does “seasoned” mean?
Seasoned means the money has been in the bank account for at least 60 days (and we then don’t care where it came from)
Can the seller pay closing costs for the buyer?
Yes, up to 6% on government loans, 3% for conventional, and up to 2% for investment properties. This is interested party contributions so contributions total from the seller and the agent cannot exceed these amounts.
How much can interested parties (seller and realtor) pay in closing costs for buyer?
VA, USDA, FHA- up to 6%. Conventional- up to 3% except for investment property which is 2%.
When is homebuyer education required?
On home ready and home possible mortgages. Reverse mortgages. A couple of the Utah Housing programs require.
What 3 loan programs require home buyer education?
HomeReady/HomePossible. Reverse mortgages. A couple of Utah Housing.
Can we use subordinate financing (like a 2nd mortgage)?
Yes, on occasion, though rare, we will do a 2nd mortgage to help out with the transaction.
When do we do 2nd mortgages?
We have a couple of options on combos- 1st and 2nds. Never do stand alone 2nds.
How is a borrower eligible for Home Ready or Home Possible (3% down and lower mortgage insurance)
Must take a homebuyer class (Fannie’s costs $75, Homepossible is free) and have less than 80% of AMI in qualifying income. Can be used to purchase a home or do a rate/term refinance. Unsure if it can be used on a cash-out refinance.
What are the 2 criteria to be eligible for HomeReady and Home Possible?
Must make under 80% of AMI (around 5,000-5,500 depending on the area) and take a home buyer class.
What are the benefits of HomeReady and HomePossible?
3% down. Lower MI when less than 10% is put down. No hit to pricing on credit scores between 680 and 739. Does not have to be a first time home buyer.
Can a loan officer pick the appraiser or talk to the appraiser.
Per federal regulation, a borrower nor loan officer cannot choose the appraiser. LO cannot talk to the appraiser. Buyer and agent can talk to the appraiser.
What if someone is buying a property with multiple parcels.
As long as the other parcels are not buildable- this should be fine. If any of the other properties can be built on- will have trouble getting a residential loan.
Can someone buy a property in the name of an LLC and get a residential loan?
No, residential loans are for people only. Only excepton is a trust. However, if going the trust route- I want the clients to buy the home in their name and do the loan- and then deed the property into the trust afterwards.
Which type of refinance has the higher rate- rate/term or cash out?
Cashout refinances almost always have a higher interest rate than a rate/term refinance. (Except on VA which is the same rate)
If someone is getting divorced and will keep the home, but has to refinance for cash-out to pay off the ex- is this a cash out or rate/term refinance.
In this special case, you may be able to run it as a rate/term.
How much cash can someone receive back on a refinance and still be a rate/term refinance?
On conventional, typically the lesser of 2% of the loan amount or $2,000.
How is the value of the home calculated on a refinance?
Typically through the appraisal. Exception on FHA- must have owned the home at least a year. If not owned at least a year- then lesser of the current appraised value or value they bought the home for.
How is the value of the home calculated on a purchase?
Lesser of the purchase price or appraised value.
If someone has owned the home for less than a year, can I use the new appraised value as value?
Conventional- typically yes. FHA- client must have owned the home at least a year before being able to use new appraised value as value.
How long must someone own a home to do a cash-out refinance?
6 months. (unless we are doing a special program called delayed financing where we can show they paid their own cash for the home- then can start as soon as 1 day after owning the home. Price as cash-out. Another exception is if someone acquired the property through inheritance or divorce)
How long must someone own a home to do a rate and term refinance?
1 day. You can start the loan process the day after they take title.
On purchases, can extra money be added to the loan for repairs and improvements.
On most loans no. Only on the FHA 203k or conventional renovation loan.
If borrowers are not married, can they be on the same application.
Only married borrowers can be on the same application. Unmarried needs to be on their own separate application and separate credit reports. (Although while pre-approving- I always put them on the same application and pull one credit report. Then once we start the file i split them up, drop one off the existing credit report and pull a second credit report for the other)
What absolutely must the loan officer do when sending the file.
Make sure the loan officer signs the exact day the file is sent, without fail. Client doesn’t have to sign within 3 days- just needs to receive- although we don’t like starting the file until fully signed. Also, always, always, always make sure mortgage insurance is entered correctly if applicable.
What happens if I don’t send the file in the 3 days
You have a dead deal and must start over.
How long does a loan officer have to send a disclosure package to a client once the file is triggered?
3 days
If a self-employed borrower did not file taxes last year, is that a problem.
If before April 15th, not a problem- get previous two years tax returns, P&L for previous year and year to date. If after April 15th but before October 15th, same as before- but also get proof of extension and any required taxes are paid. If after October 15th, previous years taxes must be complete.
What is the deal about FHA appraisals.
If someone does an FHA appraisal on a home- that appraisal sticks with the home for 4 months so if the sale falls through and another FHA borrower comes along- that FHA borrower must use the old appraisal if it’s within 4 months.
How long are appraisals good for?
Typically 4 months.
Can we use a POA (power of attorney).
Yes, if a borrower will not be available for signing, a poa can be acceptable. Have title work it up and get it to the underwriter prior to final approval. Make sure closing and title knows about it. Make sure borrower at least esigns or handsigns initial application. Cannot do POA on both initial and final docs.
Can the purchase contract include a rent back agreement.
If buying investment, no problem. If buying owner occupied, buyer must occupy within 60 days from note date so rent back (or tenants occupying) must terminate within 60 days from settlement. Don’t do if going Utah Housing.
What must I be aware on the declarations.
Make sure they are not in a lawsuit. Make sure they have not had a bankruptcy or foreclosure in the last 7 years. Make sure they are a US citizen or at least a permanent resident alien. If not US citizen- make sure they are here legally and have the ability to get a loan. (Some visas like a student visa (F1) do not qualify someone for a mortgage). H1B visas do work- just need letter from employer they will continue to sponsor. DACA does not work for FHA but can for conventional (if C33 code in middle of employment authorization document- they are DACA). If have employment authorization card and have over a year remaining- should be fine. If less than a year- typically need a history of renewal.
If someone is on the purchase contract, but not on the loan, what must happen?
Typically we get an addendum removing whoever is not on the loan from the purchase contract.
If someone pays off some credit card debt, how long does it take credit to update?
Anywhere from 1-4 weeks. I typically give it 3 weeks if we are kind of in a hurry and 4 weeks if we are not in a hurry to repull credit.
What is a rapid rescore?
If we need to quickly fix something on credit, we can get documentation of said item, submit it to our credit company at about $120 per tradeline and they can update. Takes about a week and then we can repull a new credit report.
What if I need to order a new credit score within 30 days?
Credit scores are locked for 30 days. If someone has done something to improve credit (such as paid off credit card debt)- must call Factual Data to “release” the credit scores. Phone number at top of credit report.
How long is a credit report good for?
Per SHM policy. Credit reports are good for 90 days. If won’t close before day 90- need new credit report. Be sure to hit “Order new credit report” in encompass since it defaults to “import/reissue old one.”
What are the rules on counting seasonal income?
Need to show 2 year history and likelihood to continue and should be able to count the income.
What are the rules on counting 2nd job income?
Typically client must show they’ve worked 2 jobs side by side (can be different jobs) for the past two years. May be able to make work with just one year of side by side work.
What is someone just went to a 1099, commission or piecerate job?
Will need to be on at least a year, underwriter’s typically want to see two years. Might be able to get loan with less time if can clearly show client has worked for same pay with different employer for at least 2 years.
Are capital gains eligible income?
Possibly. Have to show 2 years of receipt and likely to continue for 3 years. The challenge with capital gains is it’s from the sale of an asset. Once the asset is sold, typically there is no likelihood of continuance.
Is pension income eligible?
Yes, just need to show it will continue for 3 years typically through a letter from the pension company and show current receipt through 2-3 months of bank statements. Yes, just need to show it will continue for 3 years typically through a letter from the pension company.
What is an appraisal waiver? How can I ensure my client gets one? How does it work?
Just like everything else in this digital age, appraisals are all data. Most appraisal right now are a manual comparison of data. An appraiser inspects a home, and then manually searches and finds similar homes that have sold, compares and contrasts the differences and derives a value. Every appraisal submitted to Fannie Mae or Freddie Mac, is also submitted as a data file, so they have millions and millions of sales data to compare. So if a purchase price can be supported by data they already have they will issue an “appraisal waiver” this means an appraisal will not be required. Right now appraisal waivers are pretty random. But as they gather more data, we should see this more frequently. This appraisal waiver is issued when automated underwriting is ran. It’s great for the client because it saves them having to pay for an appraisal. And it’s great for the people involved in the transaction because it’s one less thing that can go wrong.
Can I use a reverse mortgage to purchase a home?
Yes, and it’s a great option for most people over the age of 62. It’s pretty simply; the amount you put down to not ever have to make a payment on the home gradually decreases the older you get. As a rule of thumb, if you bought a home with a reverse mortgage at the age of 62 you would need around 60% down to not ever have to worry about making a payment again. That amount you need for a down payment decreases every year you’re over 62.
What happens when rates move after my client is locked? (up or down)
This is tricky situation for lenders. When a borrower decided to lock in there rate they are taking a risk for better or worse. If rates suddenly rise, a lender would never come back to a borrower telling them they won’t be able to honor their locked rate any longer. For that same reason when rates drop it’s very difficult, and extremely costly to lower the rate for a borrower after they decided to lock. However most lenders will have a policy in place that if there’s significant market movement a borrower will have an option to lower their rate. This always comes at a steep cost to the lender.
What is a doctor’s loan, how is it different from a regular loan?
A doctors loans is for medical professionals, it allows you to obtain financing not offered to the general public. A few features of a doctors loan are:
- Finance up to 97% of a home, up to $650k loan amount with a subsidized rate
- Exclude student debt from qualification
- Easily allow for future income, if a contract with a hospital is signed. Even if they haven’t received a paycheck yet
What are my options for renovation lending? (FHA, and Conventional)
When it comes to renovation lending you’re going to be using a FHA 203k loan, or a conventional HomeStyle Renovation. Both are similar in that you can buy a home that needs repairs, get a bid on the repairs from a licensed contractor, and order an appraisal as if those repairs were completed. As long as the repairs increase the value to where you need it for typical financing 96.5%-97% or less. You’re then able to close on your loan, and finance those repairs into the purchase price. You can also use them for a home you already own, to do re-modeling, or even upgrades like an in-ground pool, or outdoor gourmet kitchen.
What if someone wants to use the equity in their home to buy solar panels?
This is actually a really cool option. Normally if you’re pulling cash out of your home you pay a higher rate, and you’re capped at 80% of your home’s value. BUT – if you’re pulling cash out of your home to buy solar for your home, you get a lower rate (no hit for cash out), and can use up to 97% of your home’s value. That’s huge, and most times the cheapest way to finance your panels. Most solar companies will also give you a 15-20% cash discount for doing it that way, rather than using typical solar financing.
What if the Solar panels are leased, how does that effect their mortgage financing?
If the solar panels are leased, and that lease won’t be paid off at closing by the sellers, the buyer would need to assume that lease. Because there are so many different variations of lease plans when it comes to solar the most accepted calculation to determine a monthly payment for debt-to-income purposes is adding the total amount the buyer will pay over the life of the lease, and dividing that by the months remaining on the lease. However, that is only needed on a conventional mortgage. On an FHA loan, where the buyer is assuming the sellers lease that payment is not calculated into the DTI. It is treated like a utility payment. That’s pretty cool.
What happens when solar panels are on a home? Is there value associated with them? Do comps need to have solar?
Contrary to what most people who sell solar will tell you, your solar panels will not add dollar for dollar value to your home. Although we are starting to see more appraisers give some value (I’ve seen anywhere from $5k-$20k) and that is simply because there are more comps now that have solar panels. When you’re selling a home with solar panels, the comps that are used don’t necessarily need to have solar panels, but generally you won’t get any value from them if comps aren’t found.
Must the client really download the appraisal at least 3 business days before closing?
Yes, we have to have proof client received the appraisal at least 3 business days before settlement.
When can I change fees or interest rates on a mortgage once I’ve disclosed?
You can always lower interest rate, loan amount, or fees. Safest thing to do is always send out an LE and COC change of circumstances but not always needed when reducing. Must ALWAYS SEND OUT LE AND COC when increasing. Only on valid change of circumstances can you increase something. Valid examples. Appraisal comes in lower which increases the ltv and increases the mortgage insurance. Get back the COE (certificate of eligibility on VA) and find out they are reserves and not regular military. Client wants a lower interest rate so you have to increase the origination fee to obtain. Client has a collection or something derogatory that lowers their interest rate and puts them into a higher rate. It has to be beyond the LO’s control. Simply misquoting is not grounds for raising the rate or fees. LE AND COC MUST ALWAYS BE SENT OUT WHEN INCREASING AND SENT OUT AT LEAST 1 BUSINESS DAY BEFORE CD IS ISSUED.
What’s the fastest we can legally close a mortgage.
7 business days. Business days typically include Saturday.
What are considered rescission days for refinance?
Every day except for Sundays and federal holidays. 3 days for rescission, fund on fourth day. Assuming no federal holidays- if close on Monday, fund on Friday. Close on Tuesday or Wednesday, fund on Monday. Close on Thursday, fund on Tuesday. Close on Friday- fund on Wednesday.
What are considered business days for CD?
Saturdays are included in 3 days. Sundays and holidays are not included. Assuming no federal holidays in between: If CD issued on Monday- close on Thursday. Issued on Tuesday- close on Friday. Issued on Wednesday or Thursday- close on Monday. Issued on Friday- close on following Tuesday.
What is the definition of a 2nd home.
A 2nd home is a home a client will occupy for part of the year. Cannot be a rental. Little known fact, guidelines state if parent is buying the home for kids, that is technically considered an investment property.
Can I rent out rooms or the basement if I owner occupy the home.
Yes- as long as client owner occupies the home (and doesn’t have a utah housing loan)- we don’t care if they rent a portion. However, if single family unit- don’t plan on counting any of the rental income to help qualify (except for HomeReady that might allow with 12 months history)
How far away must a 2nd home be from a primary residence?
Underwriters want to see the 2nd home at least 50-100 miles away or in a make sense area like a resort.
