Financing in California Flashcards
Mortgage
Is a legally binding document that creates a lien security interest on a piece of property that gives the mortgage lender the right to foreclose on the property is the mortgagor, borrower defaults.
Title theory
The borrower receives the deed, but the lender keeps the title and owns the house until the borrower pays off the loan. Similar to an automobile purchase through financing. Easier to foreclose a property and a title theory state.
Lien theory
The borrower holds the title and owns the house, but a promissory note signed by the borrower, gives the lender the right to seize and sell the house. Should the borrower default. The document. That place is a lien on the property is the mortgage. That shows up on the title, property cannot be transferred without the debt to the mortgagee being satisfied
Promissory note
Promise on the part of the bar war, to repay certain some of the money to another party, the payee or holder, under a certain set of terms
Principal and interest
The length of a loan
Late fees and payment penalties
Description is default
Accurate date
Negotiable instrument meaning the holder may transfer the right to receive payments to a third-party
What is a mortgage?
A legally binding document that is a lien against a property
Who is the mortgagor?
The borrower
Who is the mortgagee?
The lender
Deed of trust
Similar to a mortgage, in this document, the borrower conveys title for the property to a trust, which hold it as security for the lender
Example, some states use deeds of trust, others use mortgages. Often mortgage is used, even when a person means deed of trust.
both are accompanied by a promissory note, which is the borrowers promise to repay the loan.
Lien theory
The state adopt the lenders mortgage is a lien on a property. A title theory state says that the lender owns the property until the loan is paid off
The link is the lender the right to seize and sell the house. Should the borrower default
Usually results in court order that allows the lender to seize and sell the home
Called judicial foreclosure
Judicial foreclosure
Foreclosure process requiring court proceedings
Deeds of trust title theory
Are involve three parties, the borrower, or Trustor, the lender, or beneficiary, and a third-party, or trustee. Borrowers have equitable title until they’ve paid the loan. The trustee holds the legal title via the deed of trust till it’s paid off.
Some states attorneys act as trustees, and some other states, title insurance companies often provide the service
When the buyer has repay the loan, the lender directs the trustee to release the title to the borrower by granting a reconveyance deed to the borrower, who now owns the house, free and clear.
Trustee holds the title, and can legally sell it if the buyer defaults. The lender just Hass to prove that the borrower defaulted in the process called non-judicial foreclosure.
Nonjudicial foreclosure
A lender is able to sell a property in the event of a fire default, without going through the court system, usually granted be at a power of sale clause in the security instrument
Title theory
The theory that a lender owns the property until the underlying loan is paid off
The difference between lien theory and title theory
Lien theory: lender hold a lien on the property, but not Teitel, and therefore must use judicial foreclosure, lender has Lien
Title theory : lender, actually a third-party, holds legal title, and can use nonjudicial foreclosure, lender has title.
Involves two parties, the borrower and lender
Mortgage
Involves three parties, the borrower, lender, and trustee
Deed of trust
Backed by a promissory note
Both deed of trust and mortgage
If a mortgage is being used, which party received the following items
Mortgage and promissory note
The lender or the trustee
The lender
How does a deed of trust work?
The deed of trust goes to the trustee
The promissory note goes to the lender
discount points
Points a lender charges at closing, buyer, sometimes up to pinpoint to get a lower rate or to buy down the interest rate
Negotiable instrument
A document that conveys and unconditional promise to pay a fixed amount, with or without interest
Mortgage bond
May be used instead of a promissory note. May face foreclosure. Each state has rules. Weather Bon may be used instead of a promissory note.
Promissory note items
Principal, interest rate, lonely, discount, points, payment penalties
This isn’t a foreclosure document. However, the note should include late fee, information, default, circumstances, and process, if a borrower defaults.
Negotiable instrument
May not be payable on demand
Interest is charge for the money owed, the rate of interest, which may be fixed or variable, must appear either on the instruments out, or it must be referenced in an associate a document
The negotiable instrument may not contain any conditions for payment, it must be unconditional
Maybe handwritten, typed, or pre-printed
Payable on demand if no, definite time is stated
Interest rate is included, which is a fixed variable, must appear, either in the instrument itself or referenced in a document
Signatures may be printed or stamped
Promissory note terms
The amount charged for the use of the money = interest
Type of prepaid interest that borrowers pay to lower a loans interest rate = discount point
Feed that’s charged when a borrowers pays a loan off early = prepayment penalty
Promissory and Usery facts
All private lenders are not subject to use three laws, so use caution when working with them
Usery laws vary by state to state
Private lenders aren’t part of federal lending system don’t fall under Usery laws therefore borrowers should use caution and ask for a statement of all closing costs, the interest rate, and effective rate before making a financing commitment
Security instrument
A mortgage document
Steps on mortgage clauses
1 identifies parties, it also references that the note may be either be a part of the instrument or separate instrument . Borrower = security instrument. “I” “me”
Lender keep escrow funds, safe in a lending institution, use the escrow funds to pay the escrow items.
Why is it important for the borrower to assure the lender that a title is clear of defects?
It provides a good and marketable title for the lender to sell upon foreclosure. In the event of default, the lender will claim the property and sell it to recoup money from the original lien.
Does the lender or borrower deposit escrow funds?
Lender mortgagee
Does the lender or borrower pay the mortgage and property taxes?
Borrower mortgagor
Defeasance
Means the Barbara will receive the full title was the debt is repaid
Acceleration
A clause which gives the lender the right to make all money owed immediately due and payable in the event of the borrower defaults
Due on sale
Also called alienation clause requires the bar were to repay. The loan on the property was selling or transferring ownership of the property.
Prepayment penalty
This clause puts the bar I noticed that if the loan is paid off before a specific period of time, the lender may be owed additional interest
This protects the lender from losing profit = rare clause
Requires borrower to repay the loan when transferring ownership
Due on sale
Permits the lender to make the loan immediately due and payable is a borrower defaults
Acceleration
Stipulates that the lender may be owed additional interest if the buyer pays the loan off prior to the full loan period
Pre-payment penalty
Mortgage
A legally binding instrument that creates a lien on a piece of property
Acceleration clause
A clause in a mortgage that makes the entire day do immediately in the case of borrower defaults
Due on sale
A requirement at the bar, repay the loan when transferring ownership to another
Promissory note
I promise by a borrower to repay the loan
Payment penalty
And amount charged by the lender for interest, lost one a borrower cells or pay off a loan early
Mortgagor
The barrower
Mortgagee
The lender
Triggering term
A term that requires disclosure of other term related to the loan, if any such term is used, all terms must be disclosed
Biweekly mortgage plan
Pay half the mortgage payment every two weeks instead of once per month
1/12 mortgage plan
Dubai the mortgage amount by 12 and add the additional about to the monthly payment
Lump sum mortgage plan
Put a portion of any bonuses, tax returns, or other extra money towards the mortgage
Snowball mortgage plan
When another bill is paid off, add the amount to the mortgage payment
Recording mortgages
first mortgage (senior) - lien A recorded August 1, 2000
Junior mortgage - lien B - recorded July 1, 2010
Junior mortgage - lien C - recorded September 1, 2005
First mortgage - Lien D - recorded February 1, 2010 (because Lyndsey signed subordination agreement)
Jason bought a home in 2005 and obtained a mortgage from town land bank and trust. In 2010, he obtain a home equity loan from vanshield bank. And 2014 he refinance his mortgage through State mortgage. Vanshield bank has signed a subordination agreement. Who is First Junior and satisfied?
The refinance from State mortgage will pay off the Lim with Tile Lynn bank and trust. Vanshield thanks subordination agreement influences its spot, as well.
Vanshield bank lien would have been in the first spot had it not signed a subordination agreement. Since the day, this put state mortgage as the priority, even though the lien was recorded at a later date.
State mortgage lien = first
Vanished bank lien = Junior
Turn on land bank and trust lien =satisfied
Which of the following is the name of a penalty lenders charge when borrowers repay their loans earlier than expected?
Discount point
Late fee
Prepayment penalty
Usery
Pre-payment penalty
A trustee is holding title to Cassandra’s house until the loan is paid off in full. Which type of security instrument was used?
Deed of trust
Mortgage
Mortgage and deed of trust
Promissory note
Deed of trust
Three parties are involved, when a deed of trust is used, the lender (beneficiary), the borrower (Trustor) call mom and a neutral third-party (trustee). The trustee holds the title on the loans when a deed of trust is used.
Generally, there are covenants between the borrower and the lender within a mortgage document. What is one
Pay any charges and assessments against the property
What’s an upfront charge to make up for the difference between the interest rate and the borrower is paying and the rate the lender normally requires?
Discount point
Interest
Note
Usery
Discount point
A lender may charge discount points to make up for the difference between the rate the bar, where is receiving, and the rate the lender normally requires.
What type of foreclosure is commonly used with a mortgage is the security instrument?
Judicial
What is the mortgagor’s responsibility?
Keep the property in good repair
What describes a subordination agreement?
An agreement between two lienholders, to modify the order of lean priority
Jason purchased his dream home six months ago. After Jason received an inheritance from his uncle, he decided to pay off his mortgage. What should he consider before doing this?
Whether he will incur a payment penalty
PITI
Principal
Interest
Taxes
Insurance
A mortgage payment that has PITI (principal, interest, taxes, and insurance) lumped together is called a
Budget mortgage
Amortized mortgage
Payment amount remains stable, loan balance is reduced, a greater portion of the payment is applied to the principal balance.
Straight line loan
Portion of the payment applied to the principal remains the same with each payment, and the interest amount varies according to the outstanding loan balance each payment changes, and the barber makes higher installment payments at the beginning of the loan, when the loan balance is higher, and more interest is due. Overtime the amount of each installment payment lowers the outstanding balance
What is a mortgage constant payment method?
Amortized loan
What is a mortgage amount of combine principal and interest paid each month that remains the same over the loan term
Straight line loan
Amortized loan
Amortized loan
Payments change over the term of the lawn, generally, with hire payments at the beginning of the loan term
Straight line loan
Amortized loan
Straight line loan
What mortgage is also called constant amortization
Straight line loan
Amortized loan
Straight line loan
Reserves for taxes and insurance
Lenders require you to keep a reserve fund, a.k.a. escrow account or impound account, for taxes and insurance. Federal regulations limit the amount, but buyer should be prepared to put as much as 14 months worth of prepaid property, taxes, and insurance and reserves at closing time.
Lenders require borrowers, who live in floodplains to obtain flood insurance as a condition of obtaining their loan
What affects home affordability
Principal
Interest rates
Property taxes
Flood insurance
Reserve funds may also be called an escrow account
True or false
True
Reserve funds are designed for principal, interest, taxes, and insurance
True or false
False
A reserve fund is for tax and insurance payments
Lenders may require as much as 14 months worth of prepaid tax and insurance amounts, and reserve at the time of closing
True or false
True
Federally regulated lenders require borrowers to obtain flood insurance if the property is in a flood, playing as a condition of obtaining a mortgage
True or false
True
Flood insurance is standard coverage with most homeowners insurance policies
True or false
False
The national flood insurance program helps homeowners and flood hazard areas obtain insurance
True or false
True
Reserves and property taxes
1 At property tax payment time, will receive a property tax bill. If they’re paying their property taxes with their mortgage, they don’t have to pay this. important oh, if they pay twice will need to work with the lender to ensure that the property taxes aren’t withheld from the following period.
Buydown
The financing technique in which the buyer obtains a lower interest rate by buying down the interest rate at the time the loan is made. Lump sum pre-payment of interest to the lender at closing that buys down the interest rate to be low, the market rate, either temporary Lee or permanently. to apply for a larger loan.
Most are temporary
Can help the borrower qualify for a larger loan, keep payments lower for the first few years, includes principle and interest, reducing the loan balance overtime.
One, two, three months example year one, 3.75%, year two 4.75%, year three 5.75%.
Fourth year goes to regular original rate of 6.75%.
Example of a buy down
A buyer pays the lender two discount points so he can log into a 5.25% interest rate at closing.
What are types of property sales?
Sale subject for mortgage
Sale with assumption of a mortgage
Free and clear
Satisfaction of a mortgage
Release of mortgage, which is recorded
If a mortgage payment is not paid by the seller, they owe money that they possess. They need to have their attorney get them released from liability and make sure the mortgage is recorded, and the release of the mortgage is called a satisfaction of mortgage.
The seller is released from all liabilities. Any loan balance is paid off prior to or at closing. What type of mortgage property sale is this?
Free and clear
The buyer takes on the sellers mortgage and liability for the note. What kind of mortgage property sale is this?
Assumption of a mortgage
The buyer takes title of the property with the sellers lean still in place. What type of mortgage property sale is this?
Subject to existing mortgage
Satisfaction of mortgage
Records the release of a mortgage
Clouds the property tiled if the document is not recorded
Skip the release of the mortgage
Often, if a buyer tries to assume a sellers loan, a due on sale clause in the sellers mortgage is triggered
True or false
True
Loan assumptions make the most sense for the buyer if the interest rates have fallen, since the sellers loan was originated
True or false
False
Remember that, if a buyer assumes alone, he’s assuming the loans interest rate as well. What a fire want to pay more than the prevailing interest rate?
In addition to the assumed loan, the buyer will need to pay the seller for any equity in the property
True or false
True
When the fire assumes the debt, the lender me specify different terms
True or false
True
Your buyer clients have plenty for a down payment and closing costs, and they like to lower interest rate than the going rate. How can they use some of their save funds to get a better interest rate?
They can buy down the interest rate
What often compromises the sum total of a buyers mortgage payment?
Principal, interest, taxes, and insurance
Maddie is looking over some documents while preparing for the closing of her first home purchase. She says that her lender requires six months pre-payment of this in her escrow account.
Insurance and taxes
Insurance only
Late fees
Taxes only
Insurance and taxes
Reserve fund may also be called——— account
- Additional
- Escrow
- Insurance
- Taxable
Escrow
I reserve fund may also be called an escrow or impound account
Savings and loan association - also called thrifts
Specialized taking savings deposit, lending out through mortgage and loans. Required to keep their commercial lending at or under 20%, tied to consumers and mortgage loans.
Commercial banks
Bank of America chase, consumer and business loans, offer, investment products, and take deposits
Credit unions
Member-based cooperative, provide credit for auto loans and home loans. They take deposits and offer savings, vehicles, money, markets, and the like. Rates are competitive.
Mortgage, bankers, and mortgage brokers
Both concentrate on mortgage lending
Mortgage bankers actually do the lending. In-house loan, processors and underwriters. Wells Fargo mortgage is an example. Mortgage bankers can close quickly because they find their own loans, but range of offering is narrow and limited to their own products.
Mortgage brokers work with multiple lenders to search and negotiate the best deal for particular buyer circumstances. They don’t loan the money out themselves, they are not tied to a specific suit of lawn products.
Lending insurance companies
Nationwide, finance mortgage loans. These companies use their money to find out some types of mortgages.
Lending Investment groups
Many types of investment groups, that lens specifically to people who want to avoid conventional financing, such as other investors. These investment groups also purchase mortgage back securities.
Lender associations that accepts savings deposit an offer loans
Savings and loan associations
Lending national banks that offer, consumer and business loans
Commercial banks
Member based cooperative that provide credit for loans
Credit unions
Lending companies that finance, mortgage loans, but specialize in insurance products
Insurance companies
Lenders that are groups that man to those who want to avoid conventional financing
Investment groups
Who does the lending?
Mortgage bankers
Mortgage brokers
Mortgage bankers
Who has in-house loan processors and underwriters?
Mortgage bankers
Mortgage brokers
Mortgage bankers
Who has narrow offerings, which are often limited to their own products
Mortgage bankers
Mortgage brokers
Mortgage bankers they use in house
Who works with multiple lenders to search for a negotiate the best deal
Mortgage bankers
Mortgage brokers
Mortgage brokers
Do mortgage brokers, lend money themselves
Yes, or no
No
Primary market mortgage
Compromised of lending institutions that led directly to the consumer. They generate loans, then the package them and sell them on the secondary market. Primary loans are either conventional or government loans.
FHA and VA loans are examples of government loans
Conventional or government loans
Insured by the federal housing administration FHA or those guaranteed by the US department of Veterans Affairs VA.
Conventional loan, long to value ratio, LTV, the ratio of a loan amount to the value of the property being purchased = Islam value ratio exceeds 80%. The bar will likely have to purchase private mortgage insurance for the lender.
Private mortgage insurance PMI
An insurance requirement that protects the lender when it approves a loan with more than 75 to 80% of the purchase being financed
Loan term
30 year mortgage, we have a lower monthly payment, but what if borrower will not have a steady income in the future.
15 year mortgage will allow no mortgage payment when the plan is to have a fixed income
PMI termination
May terminate automatically, or the borrowers request under certain circumstances.
Automatic termination, when equity is scheduled to reach 22% based on original value, borrowers must be current on payments
Borrower requested termination made request to terminate PMI when principal balance on the loan is scheduled to reach 80% of homes original value, must be current on payments and good payment history, request termination in writing, prove no junior liens on property exist. Provide evidence such as an appraisal.
final termination is borrowers are current on payments, lender must terminate PMI one month after loan, reaches the midpoint of its amortization schedule, even if the LTV isn’t yet 78%. Will happen for bars who start out with a negatively amortized loan (interest only) call my some sort of balloon payment, balloon mortgage
Loan-to-value ratio LTV
The ratio of a loan amount to the value of the property being purchased
Example, if a loan to value ratio exceeds 80%, the bar we will likely have to purchase private mortgage insurance for the lender
SHA loans and mortgage insurance premium
Good for low credit score smaller down payment as little as 3.5%. Bowers must pay mortgage insurance premium MIP for light of the mortgage loan. Buyers pay portion of MIP at closing. The remaining premium is prorated and built into the monthly mortgage payments. There is a maximum loan amount, barbers last play anything above that in cash.
VA loans
Government loan that’s strictly available to members and former members of the arm service guaranteed by the US Department of veterans affairs. Can pay little as nothing down, and doesn’t require a mortgage insurance.
No federal agency participation in ensuring or guaranteeing the loan
Conventional
Governmental
Conventional
Federal agency involvement, and ensuring or guaranteeing the loan
Conventional
Governmental
Governmental
Requires PMI for down payment that are less than 20 to 25%
Conventional
Governmental
Conventional
FHA or VA mortgage is
Conventional
Governmental
Governmental
Allows down payments as low as 0.0 to 3.5%.
conventional.
Governmental
Governmental
A borrower is purchasing 100,000 home using a conventional loan of $90,000 with a 10,000 down payment
Is this required to pay a PMI personal mortgage insurance?
Yes, since the homeowner has a down payment of 10% and the financing, the rest, the lender may require PMI
What are two PMI a cancellation scenarios?
Automatically when borrowers equity reaches 22% of the original property value
By request from the barbers equity reaches 20% of the original property value
Automatic when the loan balance hit 78% or borrower request when the loan balance hits 80% equity. Bar where should contact our lender for questions about canceling PMI.
VA appraisal
Certificate of reasonable value for CRV for veterans appraisal
Facts about VA loans
VA loans are guaranteed by the US Department of Veterans Affairs. They do not insure them.
US Department of Veterans Affairs guarantees the loans
The borrower must be an eligible veteran, active duty, military, or surviving spouse, and must qualify for the loan
Barbers are not required to have a down payment
Veterans cannot use VA loans for investment properties
The loan amount may be for 100% of the CRV (VA appraisal) or 100% of the home sale price which ever is less
What is required to be eligible for a VA guaranteed loan?
Suitable credit
Sufficient income
Valid certificate of eligibility
Not just any loan is given to anyone serving or who has served. There must be additional support in terms of credit and income flow. Of credit worthiness.
Calvet loans through the California department of Veterans Affairs call the Farm and home loan division
I Calvet loans buys the property and holds the title, and then sells the property to the veterans using a contract of sale. Title is later transferred to the veteran with the loan is paid off through a grant deed.
Currently serving or honorably discharge served a minimum of 90 days of active duty
Buying owner occupied home or farm in California.
No requirement for being a resident in California in the last year is required
Calvet loan characteristics
30 year term
There are no Prepayment penalties
Below market interest rates
Low or no down payment options
No mortgage insurance premiums
Upfront funding fees
Must occupy the property being purchased
Cannot lease or transfer it in anyway, without permission from Calvet
If younger than 62 years old, they have to buy life insurance.
All Calvet bar wars must purchase homeowners insurance through Calvet itself
Federal reserve system
Feds the controls how much money is available and what banks charge for that money.
Keep the US finances in check, avoiding both runaway inflation and serious deflation
Primary mortgage market
Banks that originate loans they have cash they loan it to borrowers
Primary mortgage market are homebuyers, a.k.a. bar, wars, and lenders, a.k.a. commercial banks, credit units, savings and loans, etc.
Secondary mortgage market
Primary lenders want to loan money at one price, the package and Sutherlands to investors on the secondary market for slightly more money. They earn a profit by keeping money moving in and out of their system. The secondary mortgage market services those loans.
How the market work together
conforming loan a secondary market loan that Fannie Mae and Freddie Mac will buy. Loan about must be maximum allowed for the property type and location. Additional standards include loan to value ratio, and buyer credit score so that the default risk is acceptable.
ability to repay rule = qualified mortgage income, assets, employment, credit history, loan ratios to help ensure the borrower has the ability to repay the loan.
Non-conforming loans and unqualified mortgages are more likely to be sold to a hedge fund concerns are private investors
The federal reserve system Feds
Controls money, availability and what things can charge for that money
Primary mortgage market
We’re banks that, originate loans operate
Secondary mortgage market
Were loans are sold, held, and serviced
What does the fed want to avoid
Runaway, inflation, and serious deflation
What does the fed regulate for balanced economy?
Interest rates and available funds
Secondary mortgage market, Claires
Franny Mae, federal national mortgage association, purchase any type of loan, conventional loans and commercial banks established in 1938
Freddie Mac federal home loan mortgage corporation, can purchase any type of loan, conforming, conventional loans and smaller, lending institution thrifts
Farmer mac federal agricultural mortgage corporation purchases, Articulture, all loans and loans from rural lenders
Ginnie Mac Government national mortgage association, guarantees mortgage back securities that contain loans insured or guaranteed by a US government agency does not purchase loans
Why do lenders sell to secondary market
This frees up funds, so the lender can make additional loans. This frees the money for the original lender, which can then loan to others immediately instead of waiting for the mortgage to be paid off before loaning to others.
Frannie Mae
Conventional, Sj, VA, and Rulal development loans
Farmer Mac
Agricultural and Rulal loans
Freddie Mac
Loans from smaller, lending institutions and thrift
California housing finance agency CalHFA
Sells tax exempt bonds to raise money to purchase mortgages or deeds of trust from approved lenders.
Mortgages used in California = mortgages or deeds of trust
Do you trust is used in California mainly
CalHFA deed of trust, our 30 year fixed rate mortgage instruments choir mortgage insurance.
Available to first time homebuyers with low to moderate income
Complete education course, 5 acres, or under, located in California, US citizen, permanent resident qualified alien
Call age of a approve borrowing eligibility
US citizen, permanent resident or qualified alien( doesn’t have to be a California resident)
Satisfies the underwriting requirements of lender and mortgage insurer
Requirement of purchase, or intense to utilize any Cal HFA’s down payment programs = 1st time buyer
Must live in home for the length of loan term
Completed Cal HFA homebuying education course
CalHFA of a approve property eligibility
Home is located in California
Home is the purchasers primary residence
Home is a detached single-family residence, condo, unit is planned unit development PUD
Property is 5 acres or less
Sale price is equal to or less than the allowable sales price limit
The VA will guarantee a loan based on sales price or the certificate of reasonable value CRV
True or false
True
How did the primary and secondary mortgage market’s work together?
The primary packages loans to sell to the secondary market
Any financial institute, with deposits that are insured by a federal government agency can sell mortgages to which institution
Freddie Mac FHLMC
Shelley’s flower business is blooming and it’s time for her business to grow. She plans to take a business loan to open to more shots on the north side of town. Which lending institution which she most likely go to for the loan.
A commercial bank
Credit union
Investment group
Hey savings and loan
A commercial bank
Robyn has great credit and was able to secure a loan for her Oceanside dream home. For 30 year fixed rate loan is for an amount that’s above conventional loan limits. What type of loan does Robyn have?
A conforming Freddie Mac loan
A government loan
FHA loan
Non-conforming loan
non-conforming loan
Loans that are outside of Freddie Mac and Fannie Mae guidelines such as jumbo loans our non-conforming loans
David is an active duty member of the US Air Force assuming he and the property meet the qualifications, which type of mortgage may be the best option for him
A conventional loan
FHA loan
VA guaranteed loan
VA guaranteed loan
Who qualifies for Calvet loans?
Military personnel on veterans
Sandra retired from a career in the Navy and is ready to buy her first home, a small bungalow in a quiet neighborhood, for $169,000. Her military service gives her the benefit of Veterans Affairs VA loan what’s her required down payment
Zero
The factors are looking at a $425,000 home. They have $90,000 in savings to use as a down payment. What loan type with a likely be the best option for them
Conventional
FHA
Va
Conventional
$90,000 down payment would be a little more than 20% down. They qualify for a conventional loan with that much to put down on the home and will avoid having to buy mortgage insurance.
Rachel loves convenience. She was thrilled when she was able to finance her mortgage through the same institution where she deposits her payroll checks. Which financed Rachel’s mortgage
Insurance company
Investment group
Mortgage broker
Savings and loan
Savings and loan
Which of these provide some protection to lenders in the event of our obtaining a conventional loan, does not have a down payment of 20 to 25%
Acceleration clause
Mortgage insurance premium
Prepayment penalty
Private mortgage insurance
Private mortgage insurance
Lauren obtained a loan that that is insured, and that only require a down payment of 3.5% which of these most likely is the type of loan Lauren has.
Conventional
FHA
Home equity line of credit
VA
FHA federal housing authority, ensures the loan for the lender, because the down payment amount can be solo as little as 3.5% with this loan.
Adjustable rate mortgage ARM
Is a loan with a rate that is adjusted, usually annually based on the behavior of the economic index with which is associated (consumer price index)
If the ARM has an interest rate of 5% and a lifetime Of 7% the maximum of that may be charged is 12%
Lifetime Cap
Period cap
Lifetime cap is the value that limits the amount that interest can adjust at the mortgages first interest rate adjustment
The period cap limits the amount the rate can adjust at subsequent adjustment dates
Margin
Margin is the number of percentage points that is added to the index to determine the rate the margin is constant throughout the life of the mortgage, the index value is variable.
Example index is 5% and margin is 2%, the fully indexed rate is 7%
Lifetime Cap
Is the maximum interest rate above a given index that may be changed on the adjustable rate mortgage
Initial cap
Is the value that limits the amount that interest can adjust at the mortgages first interest rate adjustment
Period cap
Limits the amount, the rate can adjust at subsequent adjustment dates
Amortization
Is the process of paying off alone by making periodic payments?
Most payments go towards interest what ever increasing amounts going towards principal until the loan is paid off
Example 30 year fixed rate loan will be fully amortized in 30 years
Balloon payment
A lump sum payment usually at the end of a loan period
Bridge loan
Is a temporary usually 90 days loan that provides funds an additional two existing loan until permanent financing can be obtained. Often used by buyers who have not yet sold their prior property but want to purchase a new property and is best used when the buyers current home is already under contract.
Fixed rate loan
A loan in which the principal and interest payment remains the same over the life of the loan
Graduated payment, mortgage GPM
Payments, gradually, adjust usually upward, based on a predetermined dead schedule. An amount over 5 to 10 years, then remain consistent for the rest of the long term. Initial payments are below. What would be a fully amortized payment, which creates negative amortization. Can make payments easier in the beginning when income maybe lower.
Graduated payment adjustable rate mortgage GPMARM
Similar to GPM, but with a ARM characteristics. Payments may change if the index changes.
Growing equity mortgage, GEM
Is a fixed rate mortgage where the monthly payments increase over time according to a set schedule or index. The interest rate remains the same and there is no negative amortization. First payment is fully amortizing payment. As the payments increase, the amount about what would be a fully amortizing payment is applied directly to the principal balance. This reduces the life of the term and increases the interest savings for the borrower.
Home equity loan
A loan from the equity of a home. The property is on free and clear, the home equity loan is a first mortgage. If not, it is a second or junior mortgage. Rates on home equity loans tend to be higher than conventional loans, and their term rates shorter.
Package mortgage
Is a mortgage and which personal property is included with real property in the sale. Might be used in the case of a furnished condominium, for instance, but is more commonly used in commercial real estate, where business assets are included as collateral
Reversed annuity, or mortgage RAM
also called reverse mortgage, or equity conversion mortgage
Design for those who want to use their home equity to stay in their homes. With a reverse mortgage, the lender makes payments to the homeowner for a specified period of time and gains a security interest in the value of the home. It is geared toward home owners age of 62 or older.
Renegotiable rate mortgage RRM
Generally a 30 year loan made up of short term loans. Add specify periods, usually every three or five years, borrowers have the option, to renew their loan, which may mean a change, and their interest rate, based on the index changes, or immediately pay the remaining loan balance, and interest due.
Rollover mortgage ROM
A type of renegotiable alone, in which the interest rate is renegotiated at specified intervals, usually every five years
Shared appreciation mortgage SAM
Mortgage in which the borrower initially receives an interest rate below the going market rate. And exchange, the lender receives equity or percentage of the appreciation in the properties market value.
Straight term or term mortgage
A mortgage, in which on the interest payments are made, and the entire principle is paid at the end of the term
Swing loan
Temporary loan, not secured by a mortgage, usually a loan of equity in one property that is used to obtain another property. When the original home is sold, the money from the sale pays off the swing loan.
Adjustable rate
A loan, with a rate that fluctuates based on the economic index with which it is associated
Amortized
That that is paid off by making periodic payments, mostly consisting of interest and principal
Straight loan
A mortgage we’re only interest is paid until the end of the term, with the principal is paid
Shared appreciation
A lonely, where the borrower receives a below market interest rate in exchange for the lender receiving equity
Graduated payment loan
Alone, where the payments are adjustable, usually up, at specified. Over the life of the loan.
Growing equity loan
A fixed rate mortgage where the monthly payments increase over time according to a set schedule
Shared appreciation loan
A long were the borrower receives a below market interest rate in exchange for the lender receiving equity
Bridge loan
A loan that provides funds in addition to an existing loan until permanent financing can be obtained
Swing loan
A loan from the equity in a property that is used to obtain another property
Renegotiable rate mortgage
A 30 year loan made up of short term loans when, at specified intervals, borrowers have the option to renew their loan, or immediately pay off the loan. If the bar renews, the interest rate may change based on the indexed charges.
Rollover mortgage
Another renegotiable loan, has interest rate changes at specified intervals, but the barber doesn’t need to make a decision to renew the loan or pay it off
Loan taken against the equity in a home
Home equity
Equity loan usually buy the elderly to receive income from the equity in their home
Reverse mortgage
Fixed rate loan
A long does principal and interest payment remains the same over the life of the loan
Adjustable rate mortgage
A loan who’s rate is a Justin, usually annually, based on the behavior of the economic index with which it is associated
Bridge loan
A temporary loan often used by buyers who have not yet closed on their prior property
Swing halo an
The loan of equity in a property to purchase another property
Graduated payment mortgage
Payments gradually, adjust,(usually upward) based on predetermined schedule and amount over 5 to 10 years, then remains consistent for the rest of the loan term
Growing equity mortgage
Fixed rate mortgage where the monthly payments increase over time, according to a set schedule or index
Reverse mortgage
Allows a person to stay in one’s home, while living off of the equity by selling it to a lender, who makes payments to the homeowner and exchange for ownership interest in the property
Renegotiable rate mortgage
Long term loan made up of short term loans. At specified period, borrowers have the option to renew their loan, or immediately pay the remaining loan balance, and interest due.
Rollover mortgage
A type of renegotiable loan in which the interest rate is renegotiated at specified intervals (usually every five years)
Shared appreciation mortgage
Mortgage in which the borrower initially receive an interest rate below the going market rate. And exchange, the lender, Rics, equity, or a percentage of the appreciation and the properties market value.
Land contract
Contract for deed, land, installment, contract, or in document sale agreement.
Agreement between seller and buyer, seller retains the title, buyer makes installment payments to the seller .
Often down payment, at the end of contract, balloon payment would equal the balance paid in full. The seller gives the buyer title.
Purchase money mortgage
Seller issues a mortgage to the buyer towards the purchase price. Buyer use this as down payment financing. The seller is the mortgagee/lender, and the buyer is the mortgagor/borrower.
Maybe first mortgage, Junior mortgage or junior, wraparound mortgage
Wraparound mortgage
Seller financing that wraps, the new buyers mortgage around the sellers existing mortgage. The seller continues to make payments on the first mortgage, and the buyer makes the payments to the seller on the wraparound mortgage.
Sale leaseback
And investor will sometimes buy the property for cash, and then lease it back to the seller. This provides income for the investor and allows the building owner to remain in the building, conducting business, as usual, while free up capital that was stuck in real estate.
Mortgage to finance real estate transactions for large financers, institutions
- Commercial loans - non-mortgage loans from a bank
- Bonds are stocks - large companies may sell stock and bonds to raise the capital to purchase real estate
- Exchanges - trading properties
Jen needs to free up some cash. She decides to sell her commercial property, but rather than moving to a new location, she Lisa’s the space from the new owner. What is this an example of
Sale leaseback
Financing in which the seller issues a mortgage to the fire towards the purchase price of a home
Purchase money
Financing that wraps, the new buyers mortgage around the sellers existing mortgage
Wraparound
What is seller us as the lender for buyer, who purchases the property for an agreed-upon price?
Land contract
Which type of mortgage has an interest rate that remains consistent over the life of a loan
Adjustable rate
Fixed rate
Growing equity
Pledged account
Fixed rate
What type of loan is given based on the amount of equity a borrower has in the home
Bridge loan
Home equity loan
Shared equity mortgage
Swing Loan
Home equity loan
With this type of loan, personal property is included with the real property in the sale. It’s commonly seen in commercial real estate, but you may also see this in the sale of furnished condominiums.
Blanket mortgage
Package mortgage
Shared equity mortgage
Wraparound mortgage
Package mortgage
Vanessa owns a commercial space. She’d like to free up the capital she has invested in the place for other purposes, while continuing to occupy the space. She sells the property, then Brents the space back from the new owner. What is this an example of
Please sell back
Purchase money mortgage
Sale leaseback
Wraparound mortgage
Sale leaseback
TILA truth in lending act
The consumer credit protection act 1968
Safeguard the consumer and the use of residential credit by requiring full disclosure of terms and conditions, if any offers of credit
An ad can show the APR without requiring triggers and a general way such as “ low down payment “or “easy financing “, no additional disclosures required
Trigger terms : down payment, payment amount, number of payments, interest, rate, other than APR
Lenders must provide a disclosure statement within three days of making Mont application. This includes annual interest rate on the loan, APR, any finance charges that apply. For borrowers refinancing, it must include the right to resend up to three days after closing on the loan.
Equal credit, opportunity act, ECOA
Prohibits, discrimination, and financing based on: race, color, religion, national origin, sex, marital status, H, over the age of 18, the pendens on public assistance
Real estate settlement procedures act, RESPA 1974
- Enacted by the US Department of housing and urban development HUD
- lenders must prepare a statement that shows how they’ve invested in low income and rehabilitation efforts
- Community is geographic boundaries, identify investment credit offer, include comments from the public about how the lender is doing in and reading community meats.
- Involves federal regulatory review by federal financial agencies such as:
Comptroller of the currency, federal reserve board of governors, federal deposit, insurance corporation, FDIC, office of thrift supervision - Lenders must publicly post that they are subject to this review and make results of that review public
What are two qualified mortgage types?
Qualified mortgage with Safeharbor status
A qualified mortgage with rebuttable presumption
Qualified mortgage for Safe harbor status
- Meet all criteria for qualified mortgage
- Consumer account later claimed that the lender didn’t comply to repay requirements
- Lower price loan because the lender assumes less risk
- Prime loan as opposed to subprime
- Offers borrower, greatest legal certainty that lender is complying with ability to repay rule
A qualified mortgage with rebuttable perception
- higher price loan because the lender seems more risk
- Subprime loan offer to consumers who have insufficient or marginal credit history
- Lenders are presume to have verify the borrowers ability to repay the loan
- The borrower in default must show income/assets were insufficient to meet living expenses at the same time alone was granted.
Qualified loan characteristics
- meet the ability to repay rule: expected, income or assets, current employment status, mortgage payment, mortgage related obligations, current debt, alimony, child support, monthly debt to income ratio, residual, income, credit history
- The mortgage is approved based on maximum monthly charges in the first five years
- The loan should have no toxic loan features, which include: pay back longer than 30 years, negative amortization, payment option, interest, only payments, balloon payments, lender fees, total more than 3% of the loan
- The borrowers debt to income ratio is no more than 43%. Divide monthly debt payments by gross monthly income.
Disclosures and regulation Z
- advertisements that state finance charge rate must be stated “annual percentage rate “using that term, rather than saying “APR “, if the annual percentage rate may be increased after the beginning of the mortgage, the address also state that.
- if I add, includes any financing terms other than APR, all terms must also be disclosed
- Can’t speak general financing terms, FHA financing available, if no specifics are mentioned
- Must disclose within three days of loan application:
APR must be written as annual percentage rate, amount, financed, the total health paid to principle and interest, Barros refinancing, or getting a new loan on a current home I speak, given the right to resend the loan after three days after closing the loan
Requires disclosure of loan terms and costs
Truth in lending act
Requires written disclosure of estimated settlement cost to the borrower
RESPA
Real estate settlement procedures act 1974
Prohibits lenders from discriminating based on protected class
Equal credit, opportunity act
Requires lenders to demonstrate they serve the community is low to moderate income housing needs
Community reinvestment act
At what three points in time can the lender provide the disclosure statement to the borrower and still be within regulations?
At the time of the loan application
One day after the loan application
Up to three days after the loan application
Which for disclosures does the truth in lending act require lenders to make? TILA regulation Z
Annual percentage rate
Total principal and interest to be paid towards the mortgage
Finance charge
Amount, financed
What are TLA exemptions
Commercial and agricultural credit, such as a loan to buy an agricultural property for farming, purposes, exempt from TILA disclosure requirements.
T ILA applies to consumer loans
Borrowers have the right to resend when it applies to refinancing, existing primary residence mortgage or new mortgages on an already on residence. What is the cut off?
Three days after the loan closing
“Loans available at 5% annual percentage rate”
Permitted
Violation
Permitted
“Get a VA guaranteed loan here. “
Permitted
Violation
Permitted general statements are permitted
“Loans available at 5% annual percentage rate with zero down. “
Permitted
Violation
Violation, full disclosure of all terms is required, because something other than APR was mentioned
“30 year mortgage available at 5% annual percentage rate with 1000 down “
Permitted
Violation
Violation, full disclosure of all terms is required
For a good mortgage, call Mike
Permitted
Violation
Permitted
What are toxic loan features?
40 year loan term, must be under 30 years
Lender points of 4% of loan value, must not be above 3%
Balloon payments
Non-amortized payments, must be amortized
What are underwriting factors to qualifying mortgages?
Current income or salary
Employment status
Estimated mortgage payment
Other mortgage payments on the property
Taxes, interest, and insurance payments of the property
Predatory lending
Lending that takes a vantage of the consumer by encouraging that, flipping loans to charge fees, making loans to and qualified buyers, not disclosing all fees, true nature of the loan obligation, including toxic loan features terms exceeding 30 years, negative amortization
Subprime loan market
A loan that is offered at a rate above prime to individuals who don’t qualify for prime rates loans. High risk, borrowers, higher interest rates, higher fees, normally loan to poor credit.
Subprime borrowers often have : bad credit, low income, large loans, maxed out cards
Subprime = borrowers, who are not prime
Predatory lenders after work and subprime market, Sbarro should research their options before making a loan commitment
What are predatory actions?
Encouraging that, giving a consumer loan, they can’t afford, encouraging of our to keep free financing to earn money from fees, disclosing only a portion of their fees to the borrower
These are not predatory
Selling a borrowers mortgage on the secondary market
Subprime lender characteristics
Higher interest rates
Higher fees
Target, low, credit scores
Debt ratios
**Monthly housing expenses to income ratio: ** future home $2800 a month for mortgage, monthly income $3500 equals not good , mortgage payment would be 80% of her income
total payment obligations to income ratio : car payment plus student loan plus credit card
Lenders want a lower ratio than 36%
Lenders want to know the value of the property itself
Property appraisal: if appraised at $325,000, but sells for $300,000 it is appraise for $300,000
Loan-to-value ratio LTV : the primary lender, or the secondary mortgage market dictates these ratios= **loan amount, divided by the purchase price of the house*
$200,000 loan divided by purchase price $275,000 get 73% this is less than 80% cut off rate this qualifies
What documents with a lender likely review to determine whether borrow is a good credit risk
Tax returns, W-2, paystub, bank statements
California foreclosure methods
Judicial: does not contain a power of sale clause, less common with residential properties, with 1 to 4 units, involves court action, more expensive, takes longer, deficiency judgment may be sought
Non-judicial : more common in California, contains a power of sale clause, no court action, deficiency judgment may not be sought
Judicial process
– Complete a notice of action is filed
– Summons served to all parties
– Lenders attorney, six a court order to forclose
– court orders that property may be sold
– Property is advertised and sheriff cell (auction) is held
– Property is sold to the highest bidder
– Application for deficiency judgment must be filed with the court within three months of sheriff sale
Non-judicial process
– Mortgage servicer contacts borrow one default, occurs and offers foreclosure alternatives
– After state mandated 30 day, waiting period. The lender or trustee of records notice of default with the county clerk.
– At least three months after the notice of default is recorded, notice a sale can be published
– At least 20 days after the notice of sale is provided, property can be sold at trustee sale (auction)
– Property sold to the highest bidder
What foreclosure method do lenders in California choose
Judicial a non-judicial
Alternatives to foreclosure in California
Deed, in lieu of foreclosure – borrower surrenders, deed to lender, does not illuminate Junior liens, as foreclosure would.
Reinstatement or redemption - borrower pays all amounts owed, possibly entire loan amount. Must occur before the sheriff or trustee sale.
Short sale – borrower sells property for less than the loan balance plus closing cost. Lender must approve.
Bankruptcy – borrower goes through legal process to discharge or reconstructor their debts. Chapter 7 or chapter 13 bankruptcy filings are most commonly used by individuals.
Borrower surrenders the deed to the lender
Deed in lieu
Barbara pays all amounts and fees oh, possibly entire loan balance
Reinstatement
Borrower sells property for less than the loan balance and closing cost, lender approval required
Short sale
Lender restructures loan to terms more favorable for the buyer
Loan modification
Borrower discharges are reconstructures all debts not just property loan
Bankruptcy
A lender is preparing to begin foreclosure, proceedings. Rather than go through this proceeding, the borrower decides to turn over the deed to the property. What is this called?
Deed, in lieu of foreclosure
Default
Deficiency judgment
Redemption
Deed, in lieu of foreclosure
Lenders examine a variety of documents to determine whether the buyer is a good risk for a loan, such as———-?
Genealogy report
Marriage certificate
Résumé
Tax returns
Tax returns
A homeowner is behind on his mortgage. He decided to try to sell the property and is working with his lender to do so. He owes 315,000 on his home loan balance and closing costs. He has an offer for $300,000 which the lender approves. What is this an example of
Deed in Lieu of forclosure
Eviction
Redemption
Short sale
Short sale
Which of the following is a type of subprime loan usually offer to consumers with insufficient or marginal, credit history?
Qualified mortgage with a safe Harbor
Qualified mortgage with rebuttable presumption
Qualified with the ability to repay
Qualified with cash
Qualified mortgage with rebuttable presumption
Exceeds average prime offer rate for a comparable mortgage loan
Which percentage reflects the top debt to income ratio limit for qualified mortgage?
43% debt to income ratio is a firm limit
Loans for——— purposes don’t require TILA disclosure
Business
Which act was created to safeguard the consumer in the use of credit, by requiring full disclosure of the terms and conditions of that credit?
Community reinvestment act
Consumer credit protection act
Equal credit, opportunity act
Real estate settlement procedures act
Consumer credit protection act
Which of the following is most susceptible to a predatory lender?
A borrower with poor credit
A Family
A minority
An investor
A borrower with poor credit
Prepare for financing
Reduce that
Improve credit
Raise down payment
Research first time home buyer programs
Home loan NFH program
Relationships with financial institute
Relationships of housing finance agency’s
Relationship with housing related entities
Does not offer direct financing, helps with programs
Down payment tips
Roth IRA of at least five years, first time homebuyers can take out an amount that’s equal to the contributions they’ve made tax free and penalty free. They can withdraw even more as much as 10,000 be on their contributions without paying 10% penalty for early withdrawal.
Gift money to not go against the credit must be in the bank for at least six months to a year
I nonprofits such as churches, Fannie Mae has a 3/2 loan program, borrowers put just 3% down nonprofit ponies at the other 2%
Potential sources of down payment funds
Buyer savings
Assistance program, such as churches nonprofit
Gifts from family or friends, aged is best six months to a year
Modify tax withholdings and put extra cash in savings W-4
Borrow from a retirement account
Using Roth IRA money
Account must be open for at least five years
Funds are used for down payment, and closing costs only
The maximum for a home purchase is $10,000
Debt reduction benefits
Improves credit
Improves debt to income ratio
Makes home ownership more affordable
What do lenders want to see?
Two months cash reserves
Some credit cards open with room at least 33% on each card
Homeowners must have a HELOC home equity line of credit balance less than $50,000
Reduction Caveats
Increase savings
Budget
Get funds from sources, other than your down payment
Two months cash reserves
Pay down credit card balances wisely
Use HELOC wisely
Credit score versus credit report
Credit score - number
Credit report - credit history used to arrive at credit score. Free annually through annualcreditreport.com.
Credit bureaus, Equifax, Experian, Trans Union
FICO
Used credit score
Based on the information obtained from three credit bureaus
Scores require
Six months of credit history
Credit history reported to a Credit bureau
Improve : pay bills on time avoid collection, don’t close accounts, turn open account just before applying for a loan, pay down total debt, pay down balance of multiple cards not just one. Don’t apply for a bunch of cards or loans, fewer credit poles.
Number ranging from 300 to 850 that signifies credit risk
Credit score
History of credit related actions, and inquiries, compiled based on the information provided by credit bureaus
Credit report
FICO
Credit score
Trans Union, Experian, and Equifax
Credit bureau
Obtained, free annually, through annualcreditreport.com
Credit report
Calculated based on the information provided by credit bureaus
Credit score
FICO factors
Payment history
Amounts owed
Length of credit history
New credit
Types of credit and use
Joint accounts with marital status may affect all parties credit
Loan processing – refer to the three C’s
Character – likelihood of fire, to repay the loan, based primarily on borrowers credit history
Capital – current assets, such as real estate, personal property, savings, and investments
Capacity Dash ability to handle the debt load, based on current income, current debts and expenses
Collateral – make sure underlying value exists
Loan application
Loan prequalification’s
Loan preapproval - fees apply
California residential lending process
Loan application
Loan processing
Underwriting analysis
Loan approval /disapproval
The bar were kicks off the process by completing form 1003 and providing documentation
Loan application
The lender gathers all the information needed to analyze the borrower and the property
Loan processing
This individual crunches all the information about the borrower and property, and makes a recommendation
Underwriting analysis
The loan committee makes the decision closing and funding could take place next
Loan approval/disapproval
Loan processing
Character - willingness and desire to repay the loan
Capital – value of assets
Capacity – ability to repay a loan
