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Mortgage > Basics > Flashcards

Basics Flashcards

1
Q

What is the difference between a fixed rate mortgage and an adjustable rate mortgage (ARM)?

A

Fixed Rate:
- Rate and payment remain the same over the entire term or length of the loan

Adjustable Rate Mortgage:

  • The rate and payment remained fixed for an introductory period after which the rate and payment may periodically adjust up or down.
  • Many Adjustable rate mortgages (ARMs) will start with a lower interest rate than fixed rate mortgages than adjust once the introductory period is over.
  • The introductory period could be a few months or a few years . For instance a 5/1 ARM the rate and payment are fixed for the initial 5 year period. Then after that they may adjust up or down every year until the end of the loan term.
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2
Q

Benefits of 30 year fixed rate mortgage

A
  • Same interest rate and payments for the life of the loan
  • More affordable monthly payments by stretching out the repayment of the loan over a longer period.
  • Flexibility in paying off mortgages as you can add to your monthly payment or make extra payments to pay off the loan quicker
  • More house for the mortgage. Lower payments mean you can afford a more expensive home.
  • Easier to qualify since they are smaller payments
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3
Q

Who is a 30 year fixed rate mortgage right for

A
  • someone planning on living in the home for more than 10 years
  • Have a job and regular income
  • Want consistent monthly mortgage payments
  • Someone who wants a larger home but wants a lower monthly payment
  • Someone who wants more flexibility in household budget.
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4
Q

How does a 30 year fixed rate mortgage compare to the interest rate of a 15 year fixed mortgage

A

a conventional 15 year fixed rate mortgage typically has a lower interest rates than a 30 year loan

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5
Q

Who is a 15 year fixed rate mortgage right for?

A
  • Someone interested in a short term mortgage with low interest rate
  • Someone with a good job and steady income
  • Someone with a large amount of savings for a down payment.
  • Someone who is older home buyer and wants to be debt-free when they retire.
  • Someone who wants to pay off their home quickly
    Someone who wants to build home equity and save money. Monthly payments will be higher but you are building home equity more quickly as you pay down the principal of the loan.
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6
Q

A mortgage refinance might be an option choice for some one if what?

A
  • they are looking to get a better interest rate
  • Looking to lower monthly payments and free up someone room in budget
  • Looking to shorten the term of their mortgage to save money in the long run.
  • or someone looking to take cash out of their home equity to pay off debt, renovate your home or extra cash for what ever you need.
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7
Q

Why might some one refinance their mortgage to take cash out of their home equity?

A
  • Pay off debt
  • Home renovations
  • Extra cash for whatever they need
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8
Q

Even a modest reduction in interest rate can trim your monthly payment. The significance of such savings will depend on what factors?

A
  • Income
  • Budget
  • Loan amount
  • closing cost
  • Change in interest rate
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9
Q

What are some important factors to consider when determining if a mortgage refinance is the right thing to do?

A
  • Credit score since this will determine which refinance options are available to you
  • Current monthly mortgage payment
  • Want consistent monthly mortgage payments
  • Value of your home since this will impact ability to refinance especially if your goal is to cash out of your home equity.
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10
Q

A FHA home loan is what?

A

A mortgage insured by the Federal Housing Administration (FHA)

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11
Q

A FHA loan is insured by the Federal Housing Administration. Who is an a FHA loan designed for?

A
  • Designed for low-to moderate income borrowers and requires a lower minimum down payment
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12
Q

What are the FHA loan requirements

A
  • Credit scores and down payments:
    If below 580 then a 10% down payment is required. If credit score is above 580 then a 3.5% down payment is required
  • Legal resident of the United states with valid SSN and over age of 18
  • Steady income and proof of employment with current employer for at least 2 years
  • Low debt-to-income ratio. Less than 43%
  • Mortgage Insurance Premium required
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13
Q

What are the features of an FHA loan?

A
  • Down payment as low as 3.5% if credit score is above 580 if not then a 10% down payment is required.
  • More lenient credit restrictions than conventional loans
  • Gift funds accepted for down payment and closing costs
  • Fixed rate and adjustable rate mortgage (ARM) options available
  • Flexible qualification guidelines. Some of the above conditions can be worked around to still qualify with higher interest rates or down payment options
  • 203(k) renovation loan option to buy a fixer-upper to get the financing for both the home and the repairs. Sometimes also referred to as a renovation or rehab loan or FHA construction loan since it allows you to finance and make necessary repairs in one transaction. This may require credit score of 620 which is similar to qualifications of conventional loan.
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14
Q

What is a a 203 (k) renovation loan option

A
  • it is a FHA option
  • allows for the financing of a fixer upper and for the repairs. All in one transaction
  • Sometimes also called a renovation or rehab loan or FHA construction loan
  • Minimum credit score of 620 might be required which is similar to the qualifications for a conventional loan
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15
Q

What are indicators that a FHA loan may be right for someone?

A
  • First time home buyer
  • Currently renting and want to purchase a home
  • Buyer with a lower credit score
  • Want a small down payment option
  • Want to refinance a high-cost mortgage
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16
Q

VA mortgage loans offered by the department of Veterans affairs help service members, veterans, and eligible survivng souses buy homes. A VA loan offers what?

A
  • less restrictive credit guidelines

- low down payment options

17
Q

What are VA loan requirements?

A
  • Active duty military member or veteran meeting length-of-service requirements
  • Unmarried spouse of veteran who died in service or from service-connected disability
  • You are a spouse of a service member missing in action or prisoner of war
  • You are a surviving spouse in receipt of Dependency and Indemnity compensation (DIC) benefits in cases where the veterans death was not service-connected
  • Not defaulted on a home loan in the past year
  • Not declared bankruptcy within the last two years
  • Have satisfactory credit, sufficient income, and a valid certificate of Eligibility (COE)
  • The home is for your own personal occupancy.
18
Q

What are VA loan features?

A
  • No down payments required. Up to 100% financing
  • No monthly PMI (Private Mortgage Insurance)
  • More lenient credit restrictions. Credit score from 620 +
  • Seller concessions allowed up to 4%
  • Competitive interest rates
  • 0% Funding fee for VA disability
  • Variety of loan terms available
  • Refinance an existing VA guaranteed or direct loan for the purpose of a lower interest rate.
19
Q

What does PMI stand for

A

Private Mortgage Insurance

20
Q

A 203 (k) rehabilitation also known as a renovation loan is a simple solution for providing a single long term loan with either fixed or adjustable rates that cover home purchase and renovation. This loan is not based on the current price of the home but what?

A

The projected value after specific renovations and repairs are made.

21
Q

What are the differents type of 203(k) rehabilitation loans

A

a)
203(k) limited loan
- Provides up to $35K for renovations
- Major structural repairs aren’t eligible

b) 
203(k) standard loan
- Renovations must cost at least 5K
- Major structural repairs are eligible.
- Must hire a HUD consultant to oversee the renovation process.
22
Q

What type of renovations are eligible with a 203(k) rehabilitation loan?

A

HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards.

  • Structural alterations and reconstruction
  • Modernization and improvements to the home’s function
  • Elimination of health and safety hazards
  • Changes that improve appearance and eliminate obsolescence
  • Reconditioning or replacing plumbing; installing a well and/or septic system
  • Adding or replacing roofing, gutter and downspouts
  • Adding or replacing floors and/or floor treatments
  • Major landscape work and site improvements
  • Enhancing accessibility for a disabled person
  • Making energy conservation improvements
23
Q

What is the purpose of a Jumbo loan

A

Purchase more expensive homes

24
Q

Why does a Jumbo loan often cost more?

A

each year size limits are set aside for loans that will be bought from lenders. These agencies thus wont buy jumbo loans so they need to be sold on the secondary market thus often making the mortgage higher than the cost of a conforming mortgage

25
Q

What is a conforming mortgage loan limit typically?

A

$484,350 and $726,525 in high cost areas.

26
Q

What are the features of jumbo loan?

A
  • Finance larger homes of the local conventional conforming limits up to $2 million
  • 20% down payment
  • 15 years or 30 year fixed rate options
  • 5/1 ARM option
  • Purchase and refinance options, including cash-out refinance
  • Interest only loan options
  • Allows for primary residence, second or investment property.
27
Q

Characteristics that might indicate that a jumbo loan is right for you.

A
  • Buying home that exceeds conforming limits in your area. More than $484,350 and $726,525 in high cost areas
  • Have excellent credit and significant savings for a down payment
  • You have a significant amount of wealth and want to purchase an expensive home
  • Want to buy home in a high cost area
  • Want to purchase a second home or investment property
  • Want a house with a pool and three car garage
28
Q

What is a USDA mortgage loan?

A

is a mortgage program offered by the U.S Department of Agriculture (USDA) for rural home buyers.

Offers mortgage programs with no down payment and generally favorable interest rates to rural home buyers who meet the USDA’s income eligibility requirements.

29
Q

Who are USDA loans designed for?

A

Families in rural areas.

30
Q

What are the USDA loan requirements?

A
  • home being purchased is a primary residence and in an eligible USDA area. Most rural areas and many developing suburban communities close to large cities meet this requirement
  • Have U.S. citizenship or permanent residence
  • Minimum credit score of 640
  • Have job and dependable income
  • No late payments or collections in the past 12 months.
31
Q

What are USDA loan features

A
  • No down payment as government typically finances 100% of home price
  • low interest rate options
  • more lenient credit restrictions. Minimum score of 640
  • Eligible for first time or repeat buyers
  • Eligibility for many property types . Single family homes to eligibly condominium properties
32
Q

How to determine if a USDA loan may be a good option?

A
  • Want to move to rural area
  • Don’t have $ for down payment
  • Low credit score but want to buy a home. Minimum credit score of 640.
33
Q

a reverse mortgage lets you do what?

A

Borrow against your home equity. Instead of asking payments to the lender, you receive money from the lender. The money you receive and the interest charged on the loan are increases the balance of your loan each month.

34
Q

What are the requirements for a reverse mortgage?

A
  • 62 or older
  • must own the home outright or have low balance on your current mortgage
  • home is your primary or principal residence
  • Have to get HUD conseling before incurring any cost associated with loan.
35
Q

Reverse mortgage features

A
  • Borrowers maintain title and ownership
  • Proceeds are not subject to personal income taxation.
  • Give you access to your home equity
  • Choose how you receive payments. Lump sum, monthly payments or line of credit (or all three).
36
Q

Can someone get a reverse mortgage if they have an existing mortgage?

A

Yes. If your house isnt paid off, the proceeds you receive from the reverse mortgage must first be used to pay off any existing mortgage. This is the most common reason most homeowners 62 years and older take out a reverse mortgage.

37
Q

If someone takes out a reverse mortgage will the lender own there home

A

No. Homeowners still retain title and ownership to their homes during the life of the loan and can choose to sell the home at any time. As long as the borrower continues to live in and mantain the home and property taxes and homeowners insurance are paid the loan cannot be called due.

38
Q

Are there restrictions on how reverse mortgage proceeds may be used?

A

No can be used for virtually any purpose and borrowers should be cautious of lenders attempting t o cross sell other products.

Mortgage (2 decks)

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