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Real estate > Chapter 7- Residential Financing > Flashcards

Chapter 7- Residential Financing Flashcards

1
Q

FHA - Federal Housing Administration is overseen by who?

A

HUD

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2
Q

History of FHA loans

A

1) FHA insures loans doesn’t give them.
2) Increases home ownership by encouraging lenders to lend.
3) US citizenship is not required.

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3
Q

Types of FHA Title programs.

A

1) Title 1, Title ll and title lll.

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4
Q

Title 1 FHA loan

A

Home improvement loan.

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5
Q

Title ll

A

Purchase, construction or refinance.

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6
Q

Title lll

A

Fannie Mae- Government started to purchase Title l and Title ll loans from lenders. Enticing because they can earn fees to sell loans and start over the loan process.

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7
Q

Explain FHA Insurance

A

Benefits the lender and paid for by the borrower.

UFMIP- Up front Mortgage Insurance- Paid for upfront

Paid for Monthly- Called MIP - Get yearly, paid monthly.

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8
Q

Maximum loan amount for FHA

A

Set country to country by congress.

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9
Q

Procedure to obtain an FHA loan

A

Go to primary lender- Bank

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10
Q

Conditional Commitment- ( Appraisal Process) for FHA loan.

A

1) Repairs required- comes from appraiser.
2) Amendatory Clause- (Escape Clause)- The borrower may cancel if appraisal is below sales price.
3) Valid for 120 days-stays with the property.
4) Only for single family or up to 4 multi-family.
5) Home inspection form must be delivered to FHA borrowers.

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11
Q

Qualifications of borrowers for FHA loan

A

Four C’s

1) Cash- down- 3.5 % minimum and can be gifted not borrowed.
2) Credit- Good not perfect.
3) Collateral- House needs to be turn key and no repairs needed.
4) Capacity- Will they qualify now and in the future.( Base salary, no commission or bonuses. (Unless can show a history.)

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12
Q

Qualifying ratio for FHA loans

A

1) PITI (divided) monthly gross income=Front End

2) Monthly obligations+PITI (divided by) Monthly gross income= back.

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13
Q

Is a co-Mortgagor (signer) allowed for FHA loan?

A

Yes

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14
Q

Assumption policies for FHA loans

A

1) Assumption with qualifying- Must qualify.

2) Novation-original borrower will be replaced

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15
Q

Firm Commitment

A

a commitment by the FHA to insure a mortgage on certain property- FHA approved.

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16
Q

Requirements of a FHA loan (203b)- Title ll loan.

A

(Purchase, construction or refinance)

1) Owner has to occupy the home.
2) No pre-payment penalty.
3) Discount points can be paid by buyer or seller ( Negotiated)
4) Max seller contribution-6% of sale price.
5) Interest rates set by market-negotiated.
6) Loan origination fee-Lenders profit on new loans.
7) Borrower cant pay termite fees or tax service fees.

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17
Q

What do lenders do for FHA loans

A

Can approve FHA loans without send to FHA. Speeds up the process. Approve to FHA standards.

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18
Q

FHA 203K ( Title ll ) is for?

A

Homes that need repair.

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19
Q

Home Equity conversion loan (Reverse Mortgage)

A

Lender pays borrower based on equity.

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20
Q

Qualifying criteria for Reverse Mortgage

A

62+ years
No loan or lots of equity.
Someone retired can have stable income.
Stays in home and proceeds are tax free.

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21
Q

Disadvantages of Reverse Mortgage

A

Higher fees and equity goes down.

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22
Q

History of VA loans

A

Increase home ownership of veterans

1) GI Bill of Rights
2) Guarantees lender up to 25%.

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23
Q

Procedures to obtain a VA-Guaranteed loan

A

4- C’s ( Certificate of Eligibility- From Primary Lender

1) Cash- Little as 0% down, can be gifted not borrowed.
2) Credit- doesn’t have to be good.
3) Collateral- Has to be move in ready- turn key.
4) Capacity- Borrower ability to qualify now and in the future.

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24
Q

VA Eligibility

A

2 years of service after 1980
90 days if deployed to war zone.
0 if disabled.

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25
Q

Types of properties that qualify with VA loan

A

Up to 4 multi-family units.

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26
Q

Qualifying ratio for VA loans

A

PITI (divided by) Monthly gross income.

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27
Q

Requirements of VA loan

A

1) Owner occupied
2) No maximum loan amount- max guarunttee
3) No pre-payment penalty.
4) factors used to determine- down payment, number of loans, Reserves, Guards, disabled.
5) Discount points- negotiable-vets can pay points.
6) Max seller contribution- 6% of sale.
7) Interest rates set by market
8) vets/non-vets can assume loan.
9) Once get guarantee commitment (approval certificate) Can only get again if paid off or paid by veteran.

28
Q

VA guarantee to lender

A

25% of loan to max of 106,025 ?

29
Q

How many VA loans can you have?

A

1 at a time.

30
Q

Conventional loans

A

Any loan from a primary lender- banks get money from depositors and lends out. Non government backed.

31
Q

Types of conventional loans

A

Conforming

Non-conforming

32
Q

Conforming

A

Conforms to Fannie May (FMNA) and Freddie Mac (FHLMC)

33
Q

Non-Conforming

A

Does not conform to Fannie May and Freddie Mac.

34
Q

Loan amounts on Conforming and Non-Conforming loans (Conventional)

A

Up to 100%- based on market conditions.

35
Q

Purpose of qualified Mortgage with conventional loans

A

Provides lenders with set qualification guidelines.

36
Q

Application of conventional loans

A

Residential, purchase, refy or new construction

37
Q

Who regulates conventional loans

A

CFPB-Consumer Financial Protection Bureau.

38
Q

Ability to repay

A

Rules a lender on conventional loan uses to qualify a borrower.

39
Q

Loan- to -Value ratio

A

Used in conventional loans (LTV)
Used to put 20% or more down.

1) Reduced risk- Less than 20% down.
2) Risk- Has PMI- Private mortgage insurance-insures top 20 % of loan.
3) PMI is to conventional loan as MIP is to FHA.- Private Mortgage Insurance.

40
Q

How to Remove PMI on conventional loan.

A

When loan to Value Ratio is less than 78%

41
Q

appraisal

A

conventional appraisal

42
Q

Procedure of Appraisal with conventional

A

Lender contacts appraisal Management company who assigns an appraiser.

43
Q

Appraisal VS contract amount

A

If appraisal comes in low can only cancel if contract allows.

44
Q

Loans available with Conventional

A

Graduated Payment Mortgage (GPM)- Payment changes because principal amount changes.

45
Q

Loan assumability with conventional loan

A

Alienation Clause *** FHA does not have this.

46
Q

Buyer qualifications for conventional loan

A

Cash- Market Conditions
Credit- Market Conditions
Collateral-Looking more at Borrower than home
Qualifying Ratios- 1) PITI (divided by)monthly gross income= front end

2)Monthly Obligations+PITI- Monthly Gross Income= backend.

Credit Score-FICO

Secondary Financing can reduce PMI

47
Q

Sub-Prime Loans (conventional)

A

Loans you give borrower with poor credit.

48
Q

Conventional loan costs

A

1) Points- Fees a lender charges to give a loan.

2) Lender Fees-Loan Origination Fee- New loan fee.

49
Q

Variable Rate Mortgage (conventional)

A

Also called ARMS (Adjustable Rate Mortgage)

1) When interest rates are high - ARMS are good
2) Lower initial rate
3) Assumable
4) No Prepayment Penalty
5) Amortized payments
6) Drawbacks is that rates change.

50
Q

Index Types with Variable Rate Mortgages

A
  • *Adjusts the interest rate on ARMS
    1) Treasury Bills
    2) 11th District Cost of Funds Index (COFI)
    3) London Interbank Offered Rate (LIBOR)
51
Q

Margins-Purposes (ARMS)

A

Seeps interest rate current with new loans. Set 1x, never changes.

52
Q

Adjustments with ARMS

A

Happens periodically- Established upfront

As index goes up and down its rate changFes.

53
Q

CAPS with (ARMS) Variable Rate

A

1) Annual- Max interest increase allowed per year

2) Lifetime- Max increase per lifetime

54
Q

Floor Rate (ARMS)

A

Lowest allowable rate

55
Q

Negative Amortization (ARMS)

A

When principal balance increases with a loan.

56
Q

Conversion with (ARMS)

A

lender might convert ARMS to fixed rate if they think you might default.

57
Q

ARMS

A

Is amortized- paid off with regular periodic payments.

58
Q

Assumtion with ARMS

A

Assuming some ones loan.

59
Q

Advantage/disadvantage of ARMS

A

Might get lower interest rate

Disadvantage- Money loss

60
Q

Truth in lending same as

A

Regulation Z and TLAW

61
Q

Properties regulated by TLAW

A

Residential Property

1 to 4 plex

62
Q

Properties not regulated by TLAW

A

1) Assumptions
2) Carry Backs
3) Leases
4) Wraps
5) Commercial

63
Q

TLAW

A

Regulations for Residential properties and 1 to 4 plex
(Enforcement Agency)

1) Loans with more than 4 payments
2) Finance charges must be disclosed
3) Terms must be disclosed
4) APR =Effective Rate- Simple interest rate+lender fees
5) 3 days to rescind on refinance only.
6) New homes not refinance

64
Q

Real Estate Settlement Procedures Act

A

RESPA- More disclosure than Regulation Z
Requires full discloser of loans and settlement
It is a form- Anytime a form is used it is from RESPA

65
Q

Not regulated with RESPA

A 
Assumptions
Carrybacks
Lease
Wraps
Commercial
66
Q

RESPA facts

A

1) Residential, 1 to 4 units
2) Limits kickbacks- why created
3) Applies when financing is federally regulated
4) Booklet “Shopping for Your Home Loan HUD Settlement costs-Form has to be given on regulated loans.
5) Closing Disclosure-provided to borrower in 3 days
6) Loan estimate within 3 days of loan application.
7) Limits are placed on taxes and insurance the lender can collect (Prorated to date of closing plus 2 months in advance) (Impoud or Reserve account)
8) Lender might not require title insurance
9) Enforcement Agency CFPB- consumer Financial protection bureau.

Real estate (14 decks)

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