Ch 9 Flashcards
Preapproval
The process is essentially the same as if the buyer had already selected a house; the only difference is that there isn’t property for the lender to appraise.
Prequalified vs preapproved
Prequalified:
Preapproved:
loan underwriting standards aka _______
Qualifying standards
Qualifying standards / loan underwriting standards
Criteria that a lender will use to qualified buyer for a loan
Loan underwriters a.k.a. ____
Credit underwriters
Loan underwriting is the process a _____ goes through to evaluate the buyer and the property to determine whether the proposed loan would be a good risk
Lender
The lender has employees called ____ (aka ____) who carry out the underwriting process and decide whether to except or reject the loan application
Loan underwriters;
Credit underwriters
2 risks the lender assumes every time a loan is made:
1) The risk that the _____ will not pay off the loan as agreed; and
2) The risk that, if the loan is defaulted on, the property will be worth __(more or less)__ than what the ____ owes the ____
1) Borrower
2) less;
Borrower;
Lender
To evaluate the lenders risk, the underwriter tries to answer two questions during the underwriting process:
1) Can the borrower be expected to make the ___ loan payments on time, based on his _____ financial situation
2) If the borrower defaults will the _____ property generate enough money in a _____ sale to pay off the loan balance?
1) monthly;
Overall
2) security;
Foreclosure
The underwriters evaluation of the property is based on a(n) ____
Appraisal
T/F: The appraisal process is Similar to the process used to price property, but it’s also more rigorous
True
T/F: Lenders me establish their own qualifying standards
True
What are the major secondary market agencies
Fannie May and Freddie Mac
Conventional loans that don’t meet the standards set by Fannie Mae and Freddie Mac are referred to as ____ loans
Nonconforming
T/F: Lenders want to be able to sell their loans on the secondary market
True
Why are nonconforming loans more difficult to sell?
Non-conforming loans don’t need the standards set by it’s major secondary market agencies (Fannie Mae and Freddie Mac)
While 1)_____ vary/varies, the 2)____ is/are basically the same no matter what type of loan the buyer has applied for
a) Underwriting process
b) Qualifying standards
1) Qualifying standards
2) Underwriting process
An ____ can analyze the borrowers loan application and credit report and provide a recommendation for or against approval
Automated Underwriting System
AUS is an acronym for ____
Automated Underwriting System
T/F: Then ounces of a loan application can be completely automated
False
The information or lender uses to evaluate the buyers complete financial situation can be broken down into the following three basic categories:
1)
2)
3)
1) Income
2) Net worth
3) Credit History
borrower’s gross employment income plus other income that is reliable and likely to endure = _____
Stable monthly income
To be considered stable monthly income, alone applicants income must be of a high ____, and it must also be ___
Quality;
Durable
T/F: Government agencies are considered a very dependable source of income
True
Income is considered ___ if it can be expected to continue for a long period of time
Durable
Durable income typically includes:
1) Wages from permanent employment;
2) Disability benefits; and
3) Interest on established investments
As a general rule, a loan application should have continuous employment for at least ___ years in the same field
2
T/F: Special training or education can make up for minor weaknesses in job history
True
Ex: Recently finishing college or leaving the Armed Forces
T/F: Changing jobs to advance ones career as a good sign; Changing jobs persistently without any advancement will likely be seen as a problem by the lender
True
T/F: Self-employment income is considered as durable and dependable as other types of employment income
False
Lenders are more reluctant to count self employment income as stable monthly income
When will a lender count the income of a self-employed buyer who has been in business for a short time
1) If the buyer has a history of employment in the same field; and
2) If the buyer can document a reasonable chance for success based on market feasibility studies and pro forma financial statements
When can bonuses, commissions and part-time earnings be considered stable monthly income?
If they’ve been a regular part of a loan applicant’s overall earning pattern for at least 1 year (Preferably 2 years)
Preapproval letter
The lender will issue a preapproval letter that commits the lender to loaning the buyer up to a specified maximum amount once the buyer has selected a house.
T/F: A real estate agent can pre-approve a buyer
False
Only a lender can preapprove a buyer
T/F: The maximum loan amount is the maximum amount that a buyer may spend on a property.
False
To determine the maximum a buyer may spend, add the amount the buyer has available for a downpayment to the maximum loan amount available.
Lender’s risks:
1)
2)
1) Borrower might default
2) Property might not provide adequate security for loan
Lenders’ risks are reduced by using ___
Underwriting standards
Underwriting standards are applied to both the ___ and the ____
Loan applicant;
Property
T/F: Techniques used in the appraisal process or more rigorous than those used in the comparative market analysis process
True
For the most part, lenders use uniform underwriting standards established by the two major government-sponsored enterprises that buy loans from lenders, ___ and ___
Fannie Mae
Freddie Mac
To evaluate a mortgage loan applicant, the lender examines the information included in the loan application, plus additional information acquired from a ____ and ____
Credit report
Verification forms
In looking at a loan applicant’s income, a lender goes through a two-step process:
1)
2)
1) monthly income
2) is the monthly income enough to make the required mortgage payments for the proposed loan
(and still have enough money for the applicant’s other monthly expenses)
Two characteristics, ___ and ___, determine whether income is good enough to be considered stable monthly income
Quality
Durability
Requirements for analyzing income:
1)
2)
3)
1) quantity
2) quality
3) durability
Income ____ refers to the reliability or dependability of the source.
Quality
Stable monthly income is income from a ___ source.
reasonably reliable
___ = (refers to) reliability
Quality
According to Fannie Mae, stable monthly income is ___ years
3
Income expected to continue for a reasonable period of time = ____
Durable
Examples of ____ income include wages from permanent employment, permanent disability benefits, and interest on established investments.
Durable
T/F: Permanent disability benefits does not count as durable income
False
The most common source of stable monthly income is income from ____ employment.
Permanent
For an applicant to be considered as having stable monthly income, the applicant should be employed in the same field for at least ___ years
2
Fannie Mae = 3
Increase in ___ and/or ___ are 2 acceptable reasons for changing jobs in a short period
Salary
Responsibilities
A real estate pro forma report details a property’s projected NOI (aka ____) and ____ projections using its current and potential rental income and operating expenses
Net Operating Income
Cash flow
a document that helps investors evaluate a property’s potential profit = ____
Pro forma
2 main supporting docs for self-employed applicants: 1) 2) Other supporting docs: 3) 4) 5)
1) Feasibility studies
2) Pro forma financial statement
3) Client list
4) new contracts
5) tax records
Primary employment income = ___ or ___
Regular wages
base salary
secondary types of employment income:
1)
2)
3)
1) bonuses
2) commissions
3) part-time employment income
When might secondary types of employment and can be used to qualify for a loan?
When they are in established part of an Applicant’s earnings history
Income that counts as stable monthly income: 1) 2) 3) 4) 5) 6) 7) 8)
1) Employment income
2) Pensions
3) social security
4) Alimony / spousal maintenance (if the payments are reliable
5) child support
6) public assistance
7) investments
8) rental Income
T/F: if alimony payments are made sporadically and the applicant has not taken action to compel the ex-spouse to make the payments, the lender will not count alimony as stable monthly income
True
child support constitutes stable monthly income only if:
1)
2)
3)*
1) a court decree requires the payments and
2) payment has been regular
3) the child is not close to the age of majority*
T/F: If the child is over the age of 16, the lender probably won’t count the child support payments
True*
The book says 15…???
Ex income from public assistance =___ and ____
Welfare
Food stamps
The _____ prohibits lenders from discriminating against loan applicants because any of their income is from a public assistance program.
Equal Credit Opportunity Act
T/F: If public assistance payments (such as welfare and food stamps) are expected to continue for a sufficient period of time, the lender must consider the payments stable monthly income.
True
Income from investments, such as __ or ___, can also be considered stable monthly income.
Stock dividends
Interest on a savings account
When will income for investments not be considered as part of the applicant’s income
if the applicant has to sell the stock or use the money in the savings account to make his downpayment or to pay for closing costs
Lenders typically follow the practice of only including ___% of an applicant monthly rental income
75%
Unacceptable income
1)
2)
3)
1) Unemployment income
2) family members’ earnings
3) temporary employment
When might temporary income be considered to be acceptable income by a lender
When a person goes from one temporary job to the next and therefore has work all the time (and has for multiple years)
T/F: Long-term temporary employment might be considered acceptable self-employment income
True
T/F: lenders only consider the stable monthly income of the loan applicant (and his/her spouse)
True
