General - Chapter 9 Lesson 2 Flashcards
Financing problems (two groups)
backed by fed gov and aren’t
Conventional financing
doesn’t require gov backing, made to serve those who have established credit, saving, and low debt. Offered by priv mortgage lenders.
Federal Housing Administration
created by National Housing Act of 1934 to help housing industry recover from Great Depression, part of HUD, insures loans made by approved lenders
Loans for qualified vets are…
guaranteed by fed gov through Veterans Benefits Administration, part of Department of Veterans Affairs
Qualifying standards for FHA-insured and VA-guaranteed are…
more flexible than conventional
FHA requires a ____ down payment
3.5%
down payment can be made from…
non-repayable gift
Mutual Mortgage Insurance Plan
FHA’s insurance program
for all FHA insured loans must pay
upfront mortgage insurance premium
FHA insured loans, what’s added to monthly payment
annual MIP
FHA prop requirments
property eligibility, occupancy, property conditions (appraised), and maximum mortgage amount
VA-guaranteed loans are for…
eligible veterans who have been honorably discharged or are currently serving on active duty
Unlike FHA, common for veteran to obtain VA-loan with no…
down payment
primary requirement to be approved for VA loan is borrower’s…
military eligibility
Lenders may not close VA loan without…
certificate of eligibility issued by the VA
who else may be eligible for VA loan
spouses of veterans who died in active duty, MIA, or POW (if not remarried)
Credit history
record of recent debts and debt repayment that details how a person has paid credit accounts in the past and whether there have been late payments
Underwriter
An individual who evaluates a loan application to determine its risk level for a lender or an investor; the final decision maker on a loan application.
Credit scoring
determining the creditworthiness of potential borrowers
FICO
organization that summarizes a credit report into 3 digit number, FICO score, that many lenders use to consider the level of risk in providing a loan to a borrower
What does a FICO score consider?
number of open accounts
total credit limit
types of credit
length of credit history
total amount of debt outstanding
number of late payments in the past 30, 60, 90
presence of adverse public records
number of recent credit inquiries
reestablishment of positive credit history after past payment problems
tri-merged credit report
consolidates data from the three credit bureaus to provide single credit score
Qualifying standards considered in underwriting
housing expense ration, total debt to income ratio
Sable monthly income (considered initially)
income can reasonably expected to continue
gross monthly income
verifiable by borrower’s employer and federal tax returns
durable income
expected to continue for sustained period
examples of durable income
bonuses, overtime, social security payments, retirement benefits, interest from investments, rental income, and child support
housing expense ratio
relationship of the borrower’s gross monthly income to their total monthly housing expense as %
Ratio %=…
total housing expense/gross monthly income
income adequate for a loan if total does not exceed …% of stable monthly income
28
Debt
any recurring monetary obligation that cannot be canceled
total debt to income ratio
relationship of the borrower’s total monthly debt obligation to income
(D-I) Ratio %=…
total debt/gross monthly income
to protect collateral lenders require…
buyer to purchase homeowner’s hazard insurance
hazard insurance
covers loss or damage to the property in the event of a fire or another disaster
at settlement, the lender may require the buyer to…
prepay the premium for an annual policy in full or require buyer to pay into the escrow account a sum necessary to cover certain number of months
Flood insurance
floods usually not covered, separate insurance for properties prone to flooding
National Flood Insurance Program
for prop owners to purchase flood insurance as protection against flood losses (managed by FEMA)
Building Coverage
includes plumbing and electrical systems, furnaces, water heaters, kitchen appliances, permanently installed built-ins, bookcases, cabinets, and paneling, carpets, foundations, detached garages, window blind, solar, and fuel takens
Contents Coverage
furniture, clothing, electronics, curtains, washers and dryers, AC, microwaves, and valuables up to 2500
Not covered
temp housing and living expenses
prop outside insured building
currency, certificates, and papers
personal property in basements
self-propelled vehicles
damage from moisture, mildew, and mold if preventable
personal credit report tracks individual’s credit history for previous
seven years
credit score below… may prohibit borrower from receiving a mortgage from conventional lender
650
What determines the max loan amount on an FHA-insured loan?
no loan limit as long as the borrower qualifies
how Is the interest rate for FHA-insured loan determined
negotiated between borrower and lender
appraisal on an FHA-insured loan must be done by…
state-certified appraiser
