Assets 101 Flashcards
What is Credit?
The borrowers willingness to repay a loan.
What is a borrower’s Capacity?
Their ability to repay a loan based off of the amount and stability of their income.
What is Capital?
what things the borrowers have that can be turned into cash quickly. So savings, retirements, stocks, bonds, 401k, etc.
What is Collateral?
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
Deferred Maintenance
maintenance that an h.o ignored long enough that it caused the house to ‘disrepair’.
Are Capital and Assets the same thing?
Yes!
What are the Required Assets/$ the borrower needs for a loan/to close on a home? (5 things)
Down Payment, Earnest $, Closing Costs, Prepaids, Reserves
Earnest Money. What is it? When does it happen? Where does it go?
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.
What happens to earnest money if deal goes south?
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
What are the things that are paid in Prepaids costs? (4 things)
Are they the same as closing costs?
NOT the same.
upfront cash payments to cover initial escrow deposit, h.o insurance premium, real estate property taxes, mortgage interest
When are prepaids..paid?
Where does the prepaid amount get placed?
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.
Who requires an escrow account for prepaid costs from the borrower? Under what circumstances would they want the buyer to have this account?
The Lender can require it if the loan covers more than 80% of the value of the home.
What are Reserves?
$ left over a mortgage transaction that the buyer has to pay off unexpected emergencies
What is homeowner insurance premium?
amount buyer pays yearly to keep their insurance policy active
How are Reserve Requirements determined? who determines the amount? (4 factors)
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
Name the general Asset types (8 types)
Cash Cash Equivilant Physical Non Physical Liquid Fixed Equity Fixed Income
What are Cash/Cash Equivilant Assets? 3 examples?
any cash on hand or in accounts that can be withdrawn/used
checking, savings, money market, certificates of deposit (CD)
What’s a CD?
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.
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?
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
What is a Non Physical/Intangible Asset? Name 3 kinds.
non-physical assets that have a monetary value since they represent potential revenue.
royalty on a song, patent, copyright, companies brand
What are Liquid Assets? name 3 kind
non physical asset you can instantly convert into cash
stocks, etfs(exchange traded funds), bonds
What are Physical Assets? Give 3 examples
physical assets that would take some time to turn to cash
antiques, real estate, furniture
What are Equity Assets? Give 3 examples
any ownership in any buisness
through stocks, mutual funds, retirement accounts
What are Fixed Income Assets? Give 3 examples
money that pays investor more money for long period of time (at least a year)
mortgage backed securities, treasury bonds, government bonds
What is a Verification of Deposit (VOD)?
form signed by financial insitution verifying borrower account balance and history
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?
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)
What is a Depository account?
account borrower can deposit money in (checking/savings account)
what are things to look for when reviewing a depository account? (2 things)
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)
when evaluating online transaction history, what should we look for? (3 things)
time period
last 4 acct #
borrower info should match the 1003 that borrower gave us