☑️ Chapter 4: Conventional Loans

Question 1

Conventional Loans and Financing:
Conventional financing refers to real estate that is paid for or financed with a conventional loan one that is usually made by a bank or institutional lender and that is NOT ______ or guaranteed by a government entity or agency, such as FHA or VA. Conventional loans may be conforming loans or nonconforming loans.

Answer 1

A. insured

Question 2

Conventional Loans and Financing:
Most conventional loans conform to guidelines set by ______, such as Freddie Mac and Fannie Mae, so that they may be sold in the secondary market.
When a loan meets the criteria necessary to be sold in the secondary market, it is considered a ______ loan.

Answer 2

A. government-sponsored entities (GSEs)
B. conforming

Question 3

Conventional Loans and Financing:
Fannie Mae and Freddie
Mac are under the
________ of the Federal Housing Finance Agency.
Just under half of all residential mortgages are handled as _______ financing. That percentage can certainly change depending on market conditions or consumer trends.

Answer 3

A. conservatorship
B. conventional

Question 4

Conventional Loans & Financing:
Traditional Conventional
Loan Features:
Traditional conventional loans are typically long-term, fully amortizing, fixed-rate mortgage loans. The SAFE Act defines a ______ loan as any loan other than a 30-year fixed-rate fully amortizing loan.
Therefore, a traditional loan is a ______-year fixed-rate fully amortizing loan. This is the type of loan with which borrowers are most familiar.

Answer 4

A. Non-Traditional
B. 30 Year

Question 5

Conventional Loans & Financing:
30-Year Repayment-Term:
Loan repayment terms may be characterized as either short- or long-term. While today’s mortgage loans are most commonly long term, having total payments amortized over a 30-year period; lenders do offer mortgage loans with 15-year and 10-year terms.
• Loans with longer repayment terms offer LOWER monthly payments that result in HIGHER total interest paid over the loan term.
• Conversely, loans with shorter repayment terms have HIGHER monthly payments that result in LOWER interest paid over the loan term.
• Borrowers who select SHORTER-term loans have lower interest rate than they would receive with a LONGER-term product.
For a mortgage loan to fall under the category of a _____ loan, it must have a 30-year loan repayment term. Long-term loans today LIMIT borrowers to terms of a maximum of __ years.

Answer 5

A. traditional conventional
B. 30 years

Question 6

Conventional Loans & Financing:
30-Year Repayment-Term:
A mortgage with a _____ payment plan is a version of a fixed-rate mortgage SET UP like a standard 30-year conventional loan, which calls for regular monthly payments determined by a monthly payment amortization schedule but for which payments are made every TWO weeks instead of ONCE a month.
REMEMBER: Loans with bi-weekly payment structures are usually paid off in about ____ to _____ years instead of 30 years, depending on the interest rate charged. The HIGHER the interest rate, the LOWER the _______ term of a loan when utilizing a bi-weekly payment plan.

Answer 6

A. bi-weekly payment plan
B. 22 to 26 years
C. repayment

Question 7

Conventional Loans & Financing:
Full Amortization:
______ is the reduction of the balance of the loan by paying back some of the principal owed on a regular basis. Amortizing loans have payments applied to _______. A fully amortizing loan is one for which the total payments over the life of a loan pay off the entire balance of principal and interest due at the end of the term. This is also known as _____.

Answer 7

A. Amortization
B. Principal and Interest (as opposed to interest-only loans with payments only applied to the interest on the loan)
C. Self-liquidating

Question 8

Conventional Loans & Financing:
Full Amortization:
In an amortization schedule for a $100,000 fully amortizing loan with a 5% fixed interest rate with a repayment term of 30 years. EARLY in the loan term, the payments mostly go toward paying _____ instead of the loan principal. As the loan balance is slowly being REDUCED , there is less principal to charge interest on, So more and more of the borrower’s monthly payments are paid toward ______. At the end of the 30-year term, with a fully amortizing loan, the ending balance is _____.

Answer 8

A. interest
B. principal
C. zero

Question 9

Conventional Loans & Financing:
Full Amortization:

Question?
_____-Year Fixed-Rate Fully
Amortizing Loan:
Beginning Balance: $100,000
Monthly Payment: $537
Total Interest Paid Over Life Of The Loan: Less Interest Is Paid Each Year.

Vs.

_____-Year Fixed-Rate Fully Amortizing Loan
Beginning Balance: $100,000
Monthly Payment: $791
Interest Paid Over Loan: Early in the loan payments go toward paying interest instead of principal. When there is less principal to charge interest on, the borrower’s monthly payments are also paid toward principal.

Which Is The 15-Year and Which Is The 30-Year Fixed-Rate Fully Amortizing Loan?

Answer 9

A. 30 Year
B. 15 Year

Question 10

Conventional Loans & Financing:
Full Amortization:
When you compare the 30-year repayment term with a 15-year repayment term for the same $100,000 fully amortizing loan, the monthly payment is HIGHER; the amount paid toward interest is significantly LOWER; and the ending balance after 15 years is still ______.
The borrower’s _____deduction also declines more quickly in a ____-Year loan because LESS interest is paid each year as the principal is paid SOONER.

Answer 10

A. Zero
B. income tax
C. 15 Year

Question 11

Conventional Loans & Financing:
Full Amortization:
Loans categorized as ___ can have a schedule with PARTIAL, NO, or NEGATIVE amortization where the loan term ends before the entire debt balance is paid off.
• A nontraditional loan that has a schedule with _____ amortization is also known as an interest-only loan.
• Loans with a _____ amortization schedule allow a borrower to make payments that do not pay any principal and only partially pay interest that is accruing. Although there are still loan products available today that have the capacity for negative amortization, only ______ mortgages, available only to senior citizens, present it as a main feature.

Answer 11

A. Non-Traditional
B. NO
C. Negative
D. Reverse

Question 12

Conventional Loans & Financing:
Fixed Interest Rate:
Rate types are primarily classified as fixed or adjustable (variable). Within those classifications, there are sub-classifications, such as _____ loans, which INCORPORATE aspects of BOTH fixed and adjustable rates.

Answer 12

A. hybrid

Question 13

Conventional Loans & Financing:
Fixed Interest Rate:
Traditional conventional mortgage loans are _____loans. These loans have _____, that remain constant for the duration of the loan but the payments do not. Of course, the biggest advantage is that a borrower does NO need to worry that will increase.
For example, in an interest-only payment mortgage, the borrower may have a period of reduced payments for a specified time, and then the payments would increase to fully amortize the mortgage loan by the end of the term; however, the interest rate itself would _____ change.

Answer 13

A. interest rates
B. interest rates
C. never

Question 14

Conventional Loans & Financing:
Conforming versus Nonconforming Loans:
Conforming loans meet Fannie Mae/Freddie Mac standards and, therefore, can be sold on the secondary market. Conforming conventional financing has traditionally used the following qualifying guidelines:
• ____% total housing expense ratio
• ____% total debt-to-income ratio
Remember that a borrower must typically qualify under both ratios. In addition, note that borrowers should have a minimum of _____ months of reserves on deposit. However, for some lenders, these guidelines may be less rigid when automated underwriting is used.

Answer 14

A. 28%
B. B
C. two

Question 15

Conventional Loans & Financing:
Conforming versus Nonconforming Loans: Nonconforming loans, do not
meet the standards of the secondary market and therefore cannot be sold to _____ or _____. However, there are other secondary market investors to whom nonconforming loans can be sold.
Lenders that exercise the option of keeping loans in their portfolio (mostly banks and S&Ls) can, within the limits of the law, deviate from the standards set by secondary markets.

Answer 15

A. Fannie Mae or Freddie Mac

Question 16

Conventional Loans & Financing:
Conforming versus Nonconforming Loans:
There are two main reasons why a loan would be classified as nonconforming. What is this reason?
• A loan is NON-CONFORMING if the ______ of the loan EXCEEDS the maximum loan amount established by the _____ for Fannie Mae and Freddie Mac conforming mortgage loan limits.

Answer 16

A. Size of the Loan - jumbo loans
B. Federal Housing Finance Agency (FHFA)

Question 17

Conventional Loans & Financing:
Conforming versus Nonconforming Loans:
There are two main reasons why a loan would be classified as nonconforming. What is this reason?
• MLOs may see a borrower who does not meet the minimum standards established by Fannie Mae/Freddie Mac classified by the ________ quality of the borrower. This might be someone who has had a credit problem in the past. This would be a ____ or ____ borrower.

Answer 17

A. Credit Quality
B. B or C borrower

Question 18

Conventional Loans & Financing:
Conforming versus Nonconforming Loans:
Annually the _____ adjusts the Fannie Mae and Freddie Mac conforming loan limits based on the average U.S. home price. These conforming loan limits will be covered in detail later in this course.

Answer 18

Federal Housing Finance Agency (FHFA)

Question 19

Conventional Loans & Financing:
A-Minus Conventional Loans:
In order to meet the increasing consumer demand and limit the loss of market share to subprime nonconforming lenders, many lenders instituted an A-minus conventional loan program. This loan program allows a borrower with a less than perfect _____, limited money for _____, or a higher _____ ratio to get a loan that could be sold on the secondary market. It is important to note that the final interest rate and fees are determined based on the risk factors present in the loan. This type of loan is, again, _____ in today’s mortgage market.

Answer 19

A. credit history
B. down payment
C. debt-to-income
D. rare

Question 20

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Fannie Mae offers:
• ______ - This mortgage loan includes innovative income flexibilities that can help customers qualify for an affordable mortgage with a down payment as low as ____%. Mortgage insurance coverage is lower for example: _____ for LTVs >90% to 97% compared with standard requirements.

Answer 20

A. HomeReady®
B. 3%
C. 25%

Question 21

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Fannie Mae offers:
• ________ - This loan lets borrowers finance improvements, renovations, or repairs to a home at the time of purchase or as a refinance transaction. Maximum LTV (1-unit owneroccupied) is up to _____%.
• For Purchase: Limited to ____% of the LESSER of the purchase price AND renovation costs, OR the “as-completed” APPRAISED value.
• For Refinance:
Limited to ____% of the “____” appraised
value.

Answer 21

A. HomeStyle® Renovation
B. 97%
C. 75%
D. 75%
E. as-completed

Question 22

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Fannie Mae offers:
• _______% LTV Options - Fannie Mae EXPANDS credit for eligible borrowers and supporting sustainable homeownership by providing 97% LTV financing options that help lenders better serve first-time homebuyers.
______-rate mortgages with a maximum term of 30 years and ARMs are eligible but restrictions apply.

Answer 22

A. 97% LTV Options
B. Fixed-rate

Question 23

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Freddie Mac offers:
• _______ - This mortgage offers more options and credit FLEXIBILITIES to help VERY LOW-INCOME borrowers to attain the dream of owning a home, including a down payment requirement of as LOW as ___%. Mortgage insurance coverage requirements are REDUCED for LTV ratios above ____%.

Answer 23

A. Home Possible®
B. 3%
C. 90%

Question 24

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Freddie Mac offers:
• ________ - This mortgage has a LOW down payment option that serves the needs of many FIRST-TIME homebuyers, along with NO cash-out refinance borrowers, including a down payment requirement of as little as ____%. Standard ____% mortgage insurance coverage is REQUIRED for LTVs > ____%.

Answer 24

A. HomeOne®
B. 3%
C. 35%
D. More Than 95%

Question 25

Conventional Loans & Financing:
Conventional Loan Products:
Fannie Mae and Freddie Mac have standardized products for the mortgage loans that they purchase.
Freddie Mac offers:
• _______ - This solution addresses a gap in the market for lenders looking for a robust, CONVENTIONAL offering to support RENOVATION financing and provide cost-effective solutions for borrowers.
MAXIMUM LTV ratio (1-unit primary) is:
• ___% (FRM/ARM)(Fixed-Rate Mortgage)
• FTHB (First Time Home Buyer) if:
> ___% HomeOne® only
> ___% Home Possible® only

Answer 25

A. CHOICERenovation®
B. Greater than 95%
C. Greater than 95%
D. Greater than 97%

Question 26

Conventional Loans & Financing:
Conventional Loan Programs:
Conventional loan programs can be classified by the PERCENTAGE of ______ PAYMENT that the borrower pays to acquire the loan. As we review “typical” loan programs and “typical” down payments with private mortgage insurance (PMI), remember that some lenders offer high LTV loans where _____ is NOT necessary, but fees or rates may be _____ and also conditions and standards imposed.

Answer 26

A. down
B. PMI
C. higher

Question 27

Conventional Loans & Financing:
Conventional Loan Programs: 80% LTV Conventional Loan:
The ______ refers to the amount of money borrowed (the loan amount of a first mortgage) compared to the value of the property. Lenders use LTV to determine how much they are willing to loan on a given property based on its value. The lender will always use the LOWER of the appraised value or the sales price to protect its interest. The LOWER the ____, the HIGHER the borrower’s ____ PAYMENT, which means the loan is more ______.
For example, for years, the _____ was the standard so, for a house with a sales price of $200,000, the most a borrower could borrow would be:

$200,000 x 0.8 (or 80%)
= $______ loan amount

NEXT: Subtracting the loan amount from the sales price indicates that the borrower would need a down payment of $________.

Answer 27

A. loan-to-value ratio (LTV)
B. LTV
C. down payment
D. Secure
E. 80% conventional loan
F. $160,000
G. $40,000

Question 28

Conventional Loans & Financing:
Conventional Loan Programs: Higher LTV Loans:
Loans with an LTV higher than 80% are possible because of a combination of ____ and _____.
The qualifying standards for HIGHER LTV loans tend to be more stringent, even when the loan is _____ through PMI. These loans may also have a HIGHER _____, call for HIGHER loan _____ fees, or impose additional conditions and standards.
Most conventional loans over 80%, as well as all FHA and VA loans, require the property to be ______-occupied as a condition for obtaining the loan. There may be exceptions to these guidelines for specific programs or investors.

Answer 28

A. PMI
B. secondary financing
C. insured
D. interest rate
E. origination
F. owner

Question 29

Conventional Loans & Financing:
Conventional Loan Programs: Higher LTV Loans:
80% to 95% Conventional Loan:
A _____% LTV loan REQUIRES _______-occupancy of the property and the down payment must be made from personal cash _____ and/or allowable ____ funds.

Answer 29

A. 95% LTV
B. OWNER
C. cash reserves
D. Gift

Question 30

Conventional Loans & Financing:
Conventional Loan Programs: Higher LTV Loans:
97% Conventional Loan:
A 97% LTV loan is offered under “______” and “______” with RELAXED underwriting guidelines regarding sources of down payment, income, underwriting, and credit standards.
Borrowers utilizing these loan programs do NOT need to be FIRST-TIME HOMEBUYERS, but they MUST meet certain income limit requirements.
The ____ website shows the maximum income limits for a specific property address to assist the originator in offering this loan product to the consumer.

Answer 30

A. Home Ready (FNMA)
• Fannie Mae
B. Home Possible (FHLMC)
• Freddie Mac
C. Fannie Mae / FNMA

Question 31

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
_____ is offered by private companies to insure lenders against losses suffered due to borrower default on a non-government insured/guaranteed loan. Although mortgage insurance has been around since the late 1800s, the modern form of PMI began in the late 1950s and gained popularity during the 1960s and 1970s. Prior to that time, lenders of conventional loans would only lend 80% of the value of a property, assuming that a 20% down payment was a significant investment and would motivate borrowers to keep mortgage payments current. Currently, Fannie Mae and Freddie Mac, are the largest purchasers of conventional mortgage loans, BOTH REQUIRE _____ insurance for home loans with LESS than _____% down payment OR refinances with less than _____% in EQUITY.

Answer 31

A. Private mortgage insurance (PMI)
B. mortgage insurance
C. 20% down
D. 20% in equity

Question 32

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
For loans with LTVs above ____%, lenders generally require mortgage insurance as protection from the risks of borrower default. This may take two forms:
• _____ Mortgage Insurance: occurs when the lender will accept HIGHER risk in exchange for charging the borrower a HIGHER interest rate.
There is NO policy of insurance and NO additional monthly expense for the loan.

Answer 32

A. 80%
B. Lender-paid mortgage insurance (LPMI)

Question 33

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
For loans with LTVs above ____%, lenders generally require mortgage insurance as protection from the risks of borrower default. This may take two forms:
• ______ paid mortgage insurance: is a policy purchased from a mortgage loan insurance company (chosen by the lender) and PAID as part of the monthly loan payment BY the BORROWER.

Answer 33

A. 80%
B. Borrower-paid mortgage insurance (BPMI)

Question 34

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI is NOT required for mortgage loans with at loan-to-value ratios (LTV) of ___% or less.

Answer 34

A. 80%

Question 35

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
How Private Mortgage Insurance Works:
When insuring a loan, the _____ shares the _____, but only PART of the risk. The insurer does not insure the entire loan amount but rather a portion of the outstanding loan balance plus delinquent interest, and certain additional expenses associated with default and subsequent foreclosure.
The amount of coverage can vary but is typically _____ of the UNPAID loan BALANCE; however, the PMI coverage may be as LOW as ___% and as HIGH as ____%.

Answer 35

A. mortgage insurer
B. lender’s risk
C. 20% to 25%
D. 6%
E. 35%

Question 36

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
How Private Mortgage Insurance Works:
After an auction and sale of the property, the proceeds may NOT be ____ for a lender to reclaim all losses for the outstanding principal balance, foreclosure expenses, and other costs. The lender can then file a claim with the _____.
If the lender is NOT fully compensated by the insurance, the lender may be able to pursue a _____ against the borrower for any losses, depending on state statutes. This is referred to as ______.

Answer 36

A. sufficient
B. PMI insurer
C. deficiency judgment
D. recourse

Question 37

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
How Private Mortgage Insurance Works:
EXAMPLE: $18,000 is the maximum amount a lender can claim as a loss and collect from the PMI insurer.
NOTE: There MUST be BOTH a borrower DEFAULT and a loss of collateral VALUE at the time of sale to make a claim for ______ against the PMI insurer.
If there is a DEFAULT and a trustee/sheriff’s SALE but NO LOSS, there is NO _____ against the PMI insurer.
Example: 20% Coverage on a 90% LTV Loan for Loan Amount

$100,000 • Total Sale Price
x .90 • 90% LTV
=$_______ • 90% Loan Amount
x. .20 • 20% PMI Coverage
=$_______ • PMI Policy Amount

• Total Sale Price =
i. $100,000
a. Down Payment: 10%
b. Coverage: 18%
- 20% of Loan Amount
c. Exposure: 72%
- 80% of Loan Amount

Answer 37

A. payment
B. claim
B. $90,000
C. $18,000

Question 38

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI: Monthly Premiums:
Mortgage insurers may offer one or all the following options for paying mortgage insurance:
• _____ premium - a monthly insurance premium that’s required to cover the cost of the premium.
• _____ premium - an upfront and yearly insurance premium that’s required for any Federal Housing Administration (FHA) home loan
• _____ premium - borrowers pay part of the mortgage insurance as a lump sum at closing and the other half as part of the monthly payments.
• _____ premium - you pay mortgage insurance upfront in a lump sum.
The traditional way insurers charge mortgage insurance is with ______ -paid monthly insurance premiums, often referred to simply as PMI. Each month, the payment is RENEWED and added to the PITI payment as a ______. Each insurer provides PMI _____ cards that are used to determine the monthly premium.

Answer 38

A.
1.Monthly
2. annual
3. split-premium mortgage insurance
4. single-premium mortgage insurance (SPMI)
B. borrower-paid monthly insurance premiums
(BPMI)
C. Renewal
D. rate cards

Question 39

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI:
Additional Premium Payment Options:
• _____ : Rather than paying monthly mortgage insurance premiums, premiums can be renewed and remitted annually. The rate is generally higher in the initial year and reduced for the renewal years. Annual premiums are usually less than monthly payments made over a ____ -month period.

Answer 39

A. Annual Premium
B. 12 Month

Question 40

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI: Additional Premium
Payment Options:
• _____ : As an alternative to monthly premiums and annual premiums, borrowers may also choose to pay a one-time, a non-refundable fee at _____ covering the initial ______ months of the PMI as well as the _____ premium, which is added to the borrower’s monthly mortgage payment.
This premium combines the annual premium and monthly premium options. Although it is NOT commonly used, it may be a BENEFICIAL plan for a borrower whose ____ ratio would be a little too HIGH if a monthly premium were used.

Answer 40

A. Split Premium
C. closing
D. 12 months
E. renewal
F. DTI

Question 41

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI: Additional Premium
Payment Options:
• _____ : Some PMI insurers offer a ONE-time mortgage insurance premium with NO renewal fee.
Combining the ____ premium and ______ premium into one payment allows the borrower to FINANCE the PMI premium. When the PMI premium is financed, monthly payments may still be LOWER than if the renewal premiums are added to the regular monthly PITI payment.

Answer 41

A. Single Premium
B. initial
C. renewal

Question 42

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI Cancellation:
Once the increased risk of loss from borrower default has been reduced which is when the loan-to-value ratio is reduced to ____% or less, mortgage insurance has fulfilled its purpose. In the past, many lenders did not cancel PMI, even when the risk was reduced. _______ Act of 1998 requires lenders to AUTOMATICALLY cancel PMI when a home has been paid down to ____% of its original value or has attained ____% equity based on the original value, assuming the borrower is NOT delinquent.

Answer 42

A. 80%
B. The Homeowners Protection Act of 1998 (HPA)
C. 78%
D. 22%

Question 43

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI Cancellation:
The law has some exceptions, such as for ______ units, _____-occupied homes, mortgages on _____ homes, and second ______. As is often the case, though, the law sets a minimum, but the market moves the bar higher.
Fannie Mae and Freddie Mac:
• Adopted rules that apply the 78% cancellation rule to all of their mortgages, even those closed before
HPA’s mandated date of July 1999.
• Expanded the rules to cover ______ properties and second homes.
• Will consider the PRESENT VALUE of the home, NOT just the ORIGINAL value as required by the law. This effectively ______ PMI more quickly, assuming the home APPRECIATES. Most lenders also follow these guidelines.

Answer 43

A. multi-family
B. non-owner -occupied
C. second
D. mortgages
E. investment
F. cancels

Question 44

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI Cancellation:
The law also says that for loans closed after July 29, 1999, lenders must drop PMI coverage at a borrower’s request if these conditions are met:
• The borrower provides at the lender’s request a new lender-approved appraisal that shows that the loan has been paid down to _____% or less or attained _____% equity of the home’s current value.
• The borrower shows a history of timely repayment over the past ____ months.
• The borrower may also be asked to provide the lender with CERTIFICATION that the equity of the mortgagor in the residence securing the mortgage is UNENCUMBERED by a ______ lien.

Answer 44

A. 80%
B. 20%
C. 12
D. subordinate

Question 45

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI Cancellation:
Fannie Mae and Freddie Mac also apply these rules to all loans but can require up to _____ years of seasoning called the OUTSTANDING _____ on the loan before the rules apply.
Whether through automatic or borrower-requested PMI cancellation, the lender terminates the policy and reduces the monthly mortgage payment by the _____ amount. NOTE: that the law and Fannie Mae/Freddie Mac rules do NOT apply to any _____, ______, or _____ premium paid.

Answer 45

A. five
B. outstanding age
C. PMI
D. upfront
E. government-insured
F. one-time PMI (sIngle)

Question 46

Conventional Loans & Financing:
Private Mortgage Insurance (PMI):
PMI Cancellation:
Underwriting PMI in
Declining Markets:
Most PMI insurers have guidelines for considering the risks of insuring loans in markets where property values are declining. While every company has its standards, the result is often that the loan is put in jeopardy.
For example, some PMI insurers may simply _____ to offer mortgage insurance in these markets, FORCING the borrower to come up with a 20% down payment; or an insurer may RAISE the premiums for _____ in those markets, which could make the loan too EXPENSIVE for the borrower.
NOTE: When PMI is required for conforming adjustable-rate mortgages, the lender must provide the REQUIRED PMI Cancellation Disclosure Notices at ______.

Answer 46

A. refuse
B. PMI
C. Loan Consummation

Question 47

Conventional Loans & Financing:
Secondary Financing:
______ is when a buyer borrows money from another source to pay part of the purchase price or closing costs. This is another way a borrower can get a conventional loan without a 20% down payment.
With secondary financing, it may be the ______ who carries the extra financing. In effect, the seller extends credit to the borrower just as if the money had been borrowed from a _____ institution.

Answer 47

A. Secondary financing
B. seller
C. lending

Question 48

Conventional Loans & Financing:
Secondary Financing:
When underwriting a loan that will have secondary financing, the primary lender will include the secondary financing payment as part of the borrower’s _____ and consider the total _____ borrowed when determining the ______.

Answer 48

A. monthly housing expense
B. Loan amount
C. combined loan-to-value

Question 49

Conventional Loans & Financing:
Secondary Financing:
It is important to recognize that _____ which is debt financing in which the lender is NOT the FIRST party lien position due to be repaid by the borrower and can be MORE than simply a second mortgage. Borrowers may have other additional JUNIOR LIENS, such as with a ______ assistance program or even a third or fourth _____.
Secondary financing may be:
• ____ amortized
• ____ amortized
• ____ - Only
An MLO must consider ALL _____ financing, NOT only the primary financing when evaluating a borrower’s ability to repay and qualify for loans.

Answer 49

A. subordinate financing
C. down payment assistance
D. mortgage
E. Fully
F. Partially
G. Interest-only
H. subordinate

Question 50

Conventional Loans & Financing:
Secondary Financing:
Combined Loan-to-Value (CLTV):
The _____ is the PERCENTAGE of the property value borrowed through a COMBINATION of more than one loan, such as a FIRST mortgage and a SECOND mortgage home equity loan. The CLTV is calculated by ADDing ALL _____ and dividing by the home’s ____ or ____, whichever is LOWER.

Answer 50

A. combined loan-to-value (CLTV)
B. loan amounts
C. appraised value or purchase price

Question 51

Conventional Loans & Financing:
Secondary Financing:
Combined Loan-to-Value (CLTV):

CLTV Calculation Example:
A buyer purchases a property valued at $100,000 with two loans:
A first mortgage loan for $80,000 and a second mortgage loan for $10,000:
• $80,000 + $10,000
= $90,000
÷ $100,000
= 90% CLTV

Remember that the loan-to-value ratio considers only the _____ mortgage and, if that was the example, that number would be only:
$80,000 ÷ $100,000 = 80% LTV meaning that this borrower would NOT be REQUIRED to have ____.

NOTE: Both ____ and ____ can be used to determine the amount of _____. Therefore, a borrower with 90% CLTV has _____% equity in the property.

Answer 51

A. first
B. PMI
C. loan-to-value (LTV)
D. combined loan-to-value
(CLTV)
E. 10% equity

Question 52

Conventional Loans & Financing:
Secondary Financing:
Secondary Financing Conditions:
For conventional loans, the primary lender will often insist on certain conditions with secondary financing from any source. Although individual lenders may impose additional or different specific conditions, the following are typical examples:
• _____: The first mortgage cannot exceed ____% LTV and the CLTV cannot exceed ____%.
• _____: The term of the SECOND loan cannot EXCEED ____ years or be LESS than ____ years.
• _____: The INTEREST RATE on a second mortgage could be ____ or _____.
NOTE: A borrower cannot have an ______ rate mortgage on BOTH the first mortgage and the second mortgage.

Answer 52

A. LTV and CLTV
a1. 80%
a2. 95%
B. Loan Terms
b1. 30 Years
b2. 5 Years
C. Interest Rate
c1. fixed
c2. adjustable
I. adjustable rate

Question 53

Conventional Loans & Financing:
Secondary Financing:
Secondary Financing Conditions:
For conventional loans, the primary lender will often insist on certain conditions with secondary financing from any source. Although individual lenders may impose additional or different specific conditions, the following are typical examples:
• ________: The second mortgage must be payable in FULL or in PART at ANY time without _____ the borrower for paying the debt EARLY.
• ______: Although payments must be due on a regular basis, they do NOT have to be _____. Secondary finance payments can be; bi-weekly, monthly, quarterly, semi-annually, or ANY other regular schedule. Payments can FULLY or PARTIALLY amortize the debt, or pay INTEREST-ONLY.
• ______: Payments on the SECOND mortgage must, at least, BE ____ to the payments of INTEREST on the loan. Loan balances CANNOT grow because of _______ interest it is NOT ALLOWED. No BALLOON payments.

Answer 53

A. No Prepayment Penalty
a1. penalizing
B. Regularly Scheduled Payments
b1. monthly
C. No Negative Amortization
c1. equal
c2. deferred interest

Question 54

Conventional Loans & Financing:
Secondary Financing:
Secondary Financing Conditions:
For conventional loans, the primary lender will often insist on certain conditions with secondary financing from any source. Although individual lenders may impose additional or different specific conditions, the following are typical examples:
• _____: The borrower must be able to ____ payments on BOTH the first and second mortgages. This means that the primary LENDER on the FIRST mortgage will count ____ mortgages when qualifying the borrower for the mortgage debt.
• _____: Most primary lenders require secondary financing to have a ______ CLAUSE to ensure that the ______ lender’s lien will take PRIORITY, even if the SECOND mortgage is ____ first.

Answer 54

A. Ability to Qualify
a1. afford
a2. both
B. Subordination Clause
C. Subordination Clause
c1. primary
c2. recorded

Question 55

Vocabulary:
Reduction of the loan balance by paying back, on a regular basis, some of the principal as well as interest owed.

Answer 55

A. Amortization

Question 56

Vocabulary:
A plan in which payments are
made every two weeks instead of once a month.

Answer 56

A. Bi-Weekly Payment Plan

Question 57

Vocabulary:
A loan that meets the criteria necessary to be sold in the secondary market.

Answer 57

A. Conforming Loan

Question 58

Vocabulary:
Any bank or savings association also includes any credit union.

Answer 58

A. Depository Institution

Question 59

Vocabulary:
The relationship between the unpaid principal amount of the mortgage and the appraised value (or sales price, if lower) of the property.

Answer 59

A. Loan-to-Value (LTV)

Question 60

Vocabulary:
A loan that does not meet Fannie Mae/Freddie Mac standards and, thus, cannot be sold on the secondary market.

Answer 60

A. Non-Conforming Loan

Question 61

Vocabulary:
Insurance offered by private companies to insure a lender against default on a loan by a borrower when there is a loss of value in the repossessed collateral value.

Answer 61

A. Private Mortgage Insurance (PMI)

Question 62

Vocabulary:
When a buyer borrows money from another source to pay part of the purchase price or closing costs.

Answer 62

A. Secondary Financing

Question 63

Vocabulary:
Debt in which the lender is not the first party due to be repaid by the borrower. In mortgage lending, a second mortgage or home equity loan would be subordinate financing to the first mortgage debt.

Answer 63

A. Subordinate Financing

Question 64

Vocabulary:
A 30-year fixed-rate fully amortizing loan.

Answer 64

A. Traditional Mortgage Product

Question 65

Chapter 4:
Chapter Quiz:
1. A loan that is repaid with periodic payments of both principal and interest so that the entire loan amount is paid in full at the end of the loan term is a(n):
A. annualized loan.
B. conventional loan.
C. fully amortizing loan.
D. partially amortizing loan.

Answer 65

C. fully amortizing loan. - When a mortgage loan has periodic payments that pay both principal and interest payments so that the loan is paid in full at the end of the term, it is known as a fully amortizing loan.

Question 66

Chapter 4:
Chapter Quiz:
2. Which statement about 15-year mortgages is FALSE?
A. Higher interest rates are usually charged.
B. There is an earlier loss of interest deduction for income tax purposes.
C. They have higher monthly payments.
D. They result in less interest owed.

Answer 66

A. Higher interest rates are usually charged. - A shorter-term loan, such as a 15-year loan, poses less of a risk to a lender. Therefore, because the risk is lower, lenders charge a lower interest rate for these loans.

Question 67

Chapter 4:
Chapter Quiz:
3. You are pre-qualifying buyers for a conventional loan on a house with a purchase price of $160,000. The buyers state they don’t want to pay PMI on the loan.
In that case, what is the maximum loan amount they can receive (assuming no lender-paid PMI)?
A. $32.000
B. $128,000
C. $136,000
D. $144,000

Answer 67

B. $128,000 - A loan without PMI requires an LTV of 80% or a down payment of 20%. With a sales price of $160,000 and a loan to value of 80%, the loan amount will be $128,000.

Question 68

Chapter 4:
Chapter Quiz:
4. Which type of mortgage is NOT insured or guaranteed by the government?
A. conventional mortgage
B. FHA mortgage
C. rural home mortgage
D. VA mortgage

Answer 68

A. conventional mortgage - A loan that is not government-insured or guaranteed is known as a conventional mortgage loan.

Question 69

Chapter 4:
Chapter Quiz:
5. PMI must be canceled:
A. any time the borrower requests it.
B. only if the lender is satisfied that the borrower is no longer a credit risk.
C. when a home has been paid down to 78% of its original value and the borrower is current.
D. whenever a new appraisal is ordered, regardless of the value.

Answer 69

C. when a home has been paid down to 78% of its original value and the borrower is current.
- The Homeowner’s Protection Act requires a mortgage lender to cancel PMI when the loan-to-value reaches 78% of the original value of the mortgaged property.

Question 70

Chapter 4:
Chapter Quiz:
6. Lenders are often willing to charge lower interest rates for 15-year mortgages because the:
A. borrower is always a better risk.
B. interest rate is fixed for a longer period of time.
C. loan funds will be repaid more quickly.
D. loan qualifications are much more stringent.

Answer 70

C. loan funds will be repaid more quickly. - A shorter-term mortgage loan will have a lower interest rate because the lender will have their funds returned sooner.

Question 71

Chapter 4:
Chapter Quiz:
7. A buyer is paying $200,000 for a house. He makes a $30,000 down payment, gets a first mortgage for $160,000, and a second mortgage to cover the balance. What is his CLTV?
A. 70%
B. 75%
C. 80%
D. 85%

Answer 71

D. 85% - The first mortgage amount is $160,000.
The second mortgage amount is the sales price minus the first mortgage and the down payment amounts:
$200,000 - $190,000
($160,000 first mortgage + $30,000 down payment) = $10,000.
$160,000 + $10,000 = $170,000, which is the sum of all liens on the property.
$170,000 ÷ $200,000 (sales price) = 85% CLTV.

Question 72

Summary: _____ loans are not insured or guaranteed by a government agency. _____ conventional loans are long-term, fully amortizing, and have a fixed-rate. An ______ loan has payments that are applied to both principal and interest. A fixed-rate, fully amortizing loan has regular payments that are substantially EQUAL in amount that fully _____ the debt at the end of the term.

Answer 72

A. Conventional loans
B. Traditional conventional
C. amortizing
D. retires

Question 73

Summary: Conventional loans may ONLY have __ or __-year terms. Conventional loans must either be _____ or _____, to be sold on the secondary market. A ____ -year loan retires SOONER and SAVES interest, but requires HIGHER payments. A ____ payment plan loan structure allows the borrower to make the equivalent of _____ extra monthly payment each year, so the BALANCE is paid faster and LOWERS ______.

Answer 73

A. 15 or 30 Year
B. conforming or nonconforming
C. 15 Year
D. bi-weekly payment
E. one
F. interest

Question 74

Summary: Conforming loans meet Fannie Mae/Freddie Mac standards and can be sold on the secondary market.
Qualifying standards are 28% for the _______ ratio and 36% for the ______ ratio.

Answer 74

A. housing expense ratio
B. total debt-to-income ratio

Question 75

Summary: _____ loans do NOT meet conforming loan Housing and Total Debt-To-Income standards and CANNOT be sold to Fannie Mae/Freddie Mac, but may be sold on the _____ market to other buyers.
Non-conforming can be due to ______ quality or loan size ( _____ loans exceed Fannie Mae/Freddie Mac maximum loan amount).

Answer 75

A. Non-Conforming loans
B. secondary
C. credit
D. jumbo

Question 76

Summary: An 80% conventional loan means the loan-to-value ratio (LTV) is ______ of the appraised value or sales price of the property, whichever is less.
Interest rates and fees may be higher when the borrower has a HIGHER _____ and PMI is then ______. Loans with LTV above 80% generally require the property to be ______-occupied.

Answer 76

A. 80%
B. LTV
C. Mandatory
D. owner-occupied

Question 77

Summary: Private mortgage insurance (PMI) INSURES lenders against borrower default, compensates lenders for a LOSS of ______ VALUE in the event of DEFAULT, and shares PARTIAL RISK (upper part) with the lender. PMI is usually paid as a monthly premium; however it can also be paid as an _____ premium, _____ premium, and a _____ premium. Federal law says that loans must cancel the PMI when LTV is ___% of original property value and the borrower is NOT _____, or if the borrower REQUESTS and the LTV is ____% of the current appraised property value.

Answer 77

A. collateral
B. annual premium
C. split premium
D. single premium
E. 78%
F. delinquent
G. 80%

Question 78

Summary: Secondary financing is when the buyer borrows money for ____ of the purchase price or closing costs. To determine the ______ when there is more than one loan add all loan amounts and divide by the home’s appraised value or purchase price, whichever is lower.
Typical conditions for secondary financing include:
• Borrower must make a ____% down payment
• Term of the second loan must be ___ to ___ years
• No _____ penalty
• Scheduled payments due on a _____ basis
• No _____ amortization
• Borrower must be able to afford mortgage payments on ____ the first and second mortgages
• Required _______ clause

Answer 78

A. part
B. combined loan-to-value ratio (CLTV)
C. 5%
D. five to 30
E. prepayment
F. regular
G. negative
H. BOTH
I. subordination

Question 79

Summary: A SECOND mortgage can be fully amortizing, partially amortizing with a balloon payment, or interest-only with a balloon payment.
1. ______ amortization is when payments are scheduled as if the loan term is LONGER (e.g., 30 years), but the balance is due SOONER (e.g., 5 years).
2. _____ amortizing and _____ loans have SMALLER payments than fully amortizing loans, so they may help a borrower qualify. Such loans generally have payments that are REGULAR and ____ (if FIXED) or ______ regularly (if ADJUSTABLE) with a final, larger BALLOON payment at the END of the term that will fully RETIRE the debt. One lender can provide BOTH loans at ______ interest rates.

Answer 79

A. Partial
C. Partially
D. interest-only
E. equal
F. recomputed regularly
G. different