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Julies Study Deck > Assets 101 > Flashcards

Assets 101 Flashcards

1
Q

What is Credit?

A

The borrowers willingness to repay a loan.

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2
Q

What is a borrower’s Capacity?

A

Their ability to repay a loan based off of the amount and stability of their income.

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3
Q

What is Capital?

A

what things the borrowers have that can be turned into cash quickly. So savings, retirements, stocks, bonds, 401k, etc.

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4
Q

What is Collateral?

A

what things the lender can take from the borrower that have value enough to cover the loan amount if the borrower isn’t able to pay the loan back

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5
Q

Deferred Maintenance

A

maintenance that an h.o ignored long enough that it caused the house to ‘disrepair’.

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6
Q

Are Capital and Assets the same thing?

A

Yes!

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7
Q

What are the Required Assets/$ the borrower needs for a loan/to close on a home? (5 things)

A

Down Payment, Earnest $, Closing Costs, Prepaids, Reserves

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8
Q

Earnest Money. What is it? When does it happen? Where does it go?

A

WHAT: $ put down to say you’re serious about purchasing and to give sellers confidence in you and to possibly
take off-market while appraisal and inspections happen.
WHEN: Happens when you sign purchase agreement/sales contract.
WHERE: $ will go into an escrow account until closing is final. Then it can go towards down payment, closing costs, or back to the buyers. Depends on what buyer and seller agree on.

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9
Q

What happens to earnest money if deal goes south?

A

all depends on contract signed. did contract have contingincies that allowed buyer to back out and get $ back? did it lock buyer $ in no matter what? that’s why contract is so important

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10
Q

What are the things that are paid in Prepaids costs? (4 things)
Are they the same as closing costs?

A

NOT the same.

upfront cash payments to cover initial escrow deposit, h.o insurance premium, real estate property taxes, mortgage interest

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11
Q

When are prepaids..paid?

Where does the prepaid amount get placed?

A

Paid at closing
Goes into an escrow account.
The lender will then go into escrow to pay off the payments that would usually go into borrowers’ monthly mortgage payment.

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12
Q

Who requires an escrow account for prepaid costs from the borrower? Under what circumstances would they want the buyer to have this account?

A

The Lender can require it if the loan covers more than 80% of the value of the home.

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13
Q

What are Reserves?

A

$ left over a mortgage transaction that the buyer has to pay off unexpected emergencies

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14
Q

What is homeowner insurance premium?

A

amount buyer pays yearly to keep their insurance policy active

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15
Q

How are Reserve Requirements determined? who determines the amount? (4 factors)

A

the feds lol

depends on:
Transaction (purchase loan vs. refinance)
Occupancy (is home primary residence, 2nd residence, or investment property)
# of units
# of other financed properties
what AUS says
Investor requirements

THE GREATER THE RISK/AMOUNT BORROWED THE MORE WILL BE REQUIRED TO HAVE IN RESERVES

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16
Q

Name the general Asset types (8 types)

A 
Cash
Cash Equivilant
Physical
Non Physical
Liquid 
Fixed
Equity
Fixed Income
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17
Q

What are Cash/Cash Equivilant Assets? 3 examples?

A

any cash on hand or in accounts that can be withdrawn/used

checking, savings, money market, certificates of deposit (CD)

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18
Q

What’s a CD?

A

Certificate of Deposit!

many financial institutions (banks and credit unions) that offer clients a percentage of interest on $ that the client agrees to leave in their account for a set period of time. considered a conservative investmant.

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19
Q

What are Physical Assets? Give 3 examples.

If using physical assets to qualify for a loan, when will those physical ass. need to be sold by?

A

anything that you can touch that can be sold for money to help qualify borrower for mortgage loan. Must be sold before home is closed.

property, cars, jewelry, art, boats

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20
Q

What is a Non Physical/Intangible Asset? Name 3 kinds.

A

non-physical assets that have a monetary value since they represent potential revenue.

royalty on a song, patent, copyright, companies brand

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21
Q

What are Liquid Assets? name 3 kind

A

non physical asset you can instantly convert into cash

stocks, etfs(exchange traded funds), bonds

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22
Q

What are Physical Assets? Give 3 examples

A

physical assets that would take some time to turn to cash

antiques, real estate, furniture

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23
Q

What are Equity Assets? Give 3 examples

A

any ownership in any buisness

through stocks, mutual funds, retirement accounts

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24
Q

What are Fixed Income Assets? Give 3 examples

A

money that pays investor more money for long period of time (at least a year)

mortgage backed securities, treasury bonds, government bonds

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25
Q

What is a Verification of Deposit (VOD)?

A

form signed by financial insitution verifying borrower account balance and history

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26
Q

what are some things to look for when evaluating the finances in borrowers’ bank statements? (3 things)

What do you do about the things you see?

A

VOD form

if current balance is significantly higher than the usual balance (ask borrower why)

if account opened in last 90 days (ask where they got the funds to open this account)

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27
Q

What is a Depository account?

A

account borrower can deposit money in (checking/savings account)

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28
Q

what are things to look for when reviewing a depository account? (2 things)

A

must have all pages of the bank statement even if the last page is blank

make the ending balance from page 1 is the same as the starting balance on page 2 (continuity)

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29
Q

when evaluating online transaction history, what should we look for? (3 things)

A

time period
last 4 acct #
borrower info should match the 1003 that borrower gave us

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30
Q

what are online documentation requirements? 2 things (docs downloaded from the internet/faxed)

A

name of depository/investment instutution

url/fax banner at top of document

31
Q

what is ‘Sourcing Funds’

A

finding where funds came from (where is the source)

32
Q

What 2 deposits from the borrower and 1 account type of borrower should we pay close attention to and determine where the funds came from?

Why?

A

Earnest $ deposit

Large Deposits

New accounts

because source might be another loan and we have to make sure that loan is applicable/liable to use in THIS loan

if $ not loable we can’t count towards total assets

33
Q

What would be considered a Large Deposit?

A

one huge (or multiple small ones that make up huge) deposit that is greater than 50% of what the borrower regular qualifying income is

34
Q

Do refis usually need documentation/explanation for a large deposit?

A

nope!

35
Q

Do purchase loans usually need documentation/explanation of large deposits?

A

Yes, if the large deposit is needed to to be part of the total assets inorder to complete transaction.

36
Q

what can a lender do if a borrower want a purchase loan but doesn’t want to explain where a large deposit came from?

A

must not include that large deposit as total assets

37
Q

what documentation is needed to determine the value of stock or mutual fund?

A

most recent quarterly account statement OR

stock certificate

38
Q

If borrower only has a stock certificate as proof of stock purchase, how would you determine the value of that asset?

A

you would look up the published stock price of that stock as of the loan application date and use that value as their asset

39
Q

what do I need to pay attention to when evaluating a mutual fund of a borrower?

A

if there are multiple people on the mutual fund to only be looking at the borrowers name and their assigned assets in the fund

40
Q

do i need to use every asset the borrower has for their loan?

A

nope! if i don’t need every asset the borrower has then I don’t need to include all of it which also means less work for me!

41
Q

how is the value of a bond determined?

A

value determined by original purchase price of bond

42
Q

when evaluating value of a bond when is the only exception in which you wouldn’t use the original purchase price to determine the bond value?

A

redemtion value if it is documented

43
Q

Define Vested

A

portion available to borrower RIGHT NOW to use/access because they’ve waited a certain amount of time that was determined by whoever was giving them those assets

44
Q

What is a Vested Stock Option?

A

stocks that a borrower that to wait a certain amount of time inorder to get full rights/access to those stocks. the time was determined by who ever was giving those stocks to that person

45
Q

how do I document Vested Stocks? (3 things)

A

statement that list # of options

the options price

the calculation of gain the borrower receives depending on what option they chose and what the conditions were for that option

46
Q

What are the 5 main different kinds of Retirement accounts?

A 
IRA (individual retirement account)
SEP (simplified employee pension plan)
Keogh
401k
403b
47
Q

what is a traditional IRA? vs traditional 401k?

A

traditional=pay for taxes when you withdraw $ at retirement

individual retirement account
set up by individual usually at financial institution. more self directed in investment options.

401k cap to put $ into account is much lower. limited to investment options that the company gives you

48
Q

what is a SEP IRA?

A

Simplified Employee Pension plan

usually for person who self employed but can also be set up by employer to employee so employer can deposit $ there for them

money that goes in is not taxed at the moment but when it gets withdrawn u need to pay taxes

can put way more $ in SEP than in traditional IRA

49
Q

how does Roth change a traditional IRA/401k account? difference between both roth account? (hint: difference is in withdrawal penalties)

A

the $ put in is $ that comes from your paycheck (which means taxes have already been paid on those dollars) which means don’t have to pay taxes when you withdraw $

roth ira: can withdraw any time without penalty

roth 401k: can’t withdraw any time. must have $ in there for 5 years min.

50
Q

what is 403b retirement account?

A

non profit version of 401k

51
Q

what is a Keogh plan?

A

retirement plan for self employed or unimcorporated business (not yet granted formal corporate status) usually for someone that has really high income

funds can be accessed by 59.5 years

more admin burdens and higher up keep costs but contributions limits are higher

52
Q

can you withdraw from traditional ira for a mortgage loan?

up to how much can you withdraw? any penalties?

can you withdraw for someone else? who?

A

yes if first time home buyer (you and spouse haven’t owned home in past 2 years)

$10k withdraw for life time.
won’t need to pay 10% penalty but will need to pay income tax

can also withdraw if money is going to family that is 1st time home buyer

53
Q

can you withdraw from Roth ira for a mortgage loan?

up to how much can you withdraw? any penalties?

how much can you withdraw once you’ve reached capacity of deposits in account? does it have to be for 1st time home buyers? any penalties on this?

A

yes if you’ve had account for at least 5 years

can withdraw a sum equal to contributions made
tax and penalty free

can at any time for any reason as long as account had for 5 years

$10k after reached cap only if 1st time home buyer. no penalties

54
Q

can you withdraw from 401k for a mortgage loan?

up to how much can you withdraw? any penalties?

A

can take out LOAN 50% of total or $50k

no taxes or penalties

55
Q

when evaluating retirement account, what things do I need to know/documentation do I need to verify it? (5)

A

o Most recent statement or VOD(deposit)
o Ownership of account must be verified
o Confirmation that account is vested AND
o Allows for withdrawals regardless of employment status
Is borrower making a loan withdrawal? Is that allowed in their circumstance?

56
Q

If using Retirement funds for Reserves, what do I need to make sure of?

A

That borrower has full access to that $ to withdraw when they need to/have to

57
Q

Sale of Real Estate Property.

How do I calculate the asset value of property sold?
What is the name of the document that I can use instead of calculating that will tell me the asset value?

What’s one more thing I need to make note of when evaluating this?

A

need to estimate the Net Proceeds (Calculate 90% of listing/sale price of pending property then Subtract all associated liens on pending property) OR use
Closing Disclosure

does borrower have other people that have partial ownership of land? or is it just borrower? will assets value need to be split or does borrower get all of it?

58
Q

Business Assets.

Who determines if using assets of the business will negatively affect the business?

What questions should be asked to determine the effects?

Why would we not use business assets?

A

Me - the lender

Not the CPA (certified public accountant)

ask if using the business assets will affect if the business if able to be profitable afterwards. b/c if no income coming from business that affects borrowers income and would probably disqualify them

In that case we don’t want to use business asset

59
Q

why is mortgage interest a part of borrowers prepaid costs?

A

its the interest acquired from the moment the borrower was approved for the loan to when they have to finally pay for their first mortgage payment

60
Q

Are PPP loans and Small business association loans an eligible source of funds for a business?

A

nope! so keep eye on in business accounts and make sure to not include in assets total

61
Q

What are the two types of gifts?

A

Gift from nonprofit (grant)

Personal Gifts

62
Q

What two type of Personal gifts can be given?

A

Funds

Equity

63
Q

How do I verify gifts?

A

Gift letter

64
Q

What must a gift letter contain? (7 things)

A 
donor name
donor address
donor phone number
donor relationship to borrower
amount of gift
date of gift
saying gift doesn't need to be repayed
65
Q

Who can gift letters come from? (5)

A 
blood
marriage
adoption
legal gaurdianship
fiances/domestic partners
66
Q

What is Gift Equity?

Where is it identified/documented?

A

When seller agrees to give mortgage price UNDER market value = gives buyer equity for free/as gift

identified on closing disclosure (CD) / usually also on Purchase/Sale agreement/contract

67
Q

Wedding Gifts. How does Freddie Mac require from these? 3 things

A

primary residence of newlyweds

marriage liscence or certificate

VOD within 90days of marriage event (verification of deposit of gifts)

68
Q

Wedding Gifts. How does Fannie Mae view and require of these? 2 requirements

A

views as Large Deposit

Requires
Borrower letter of explanation (LOX)
Wedding Invitation

69
Q

Does an investment property allow gifts to be a qualifying asset?

A

nope!

70
Q

Does a 2nd home transaction allow gifts?

A

yes

71
Q

The gift givers can not be considered an interested party in the transaction. Give an example of this.

A

A mother (who is also the loan officer of the transaction) wants to give a gift. Now allowed!

72
Q

Can gifts be used towards reserves?

A

usually no

73
Q

what are other acceptable asset types in a loan? (10 total) name 5

A 
life insurance
corporate relocation
sale of personal assets
income tax refunds
employer assistance
grants
inheritance
asset based loan
lottery winnings
IPCs interested party contributions

Julies Study Deck (3 decks)

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