General Mortgage Knowledge Flashcards

1
Q

How do you calculate Loan To Value?

(LTV)

A

Loan amount divided by purchase price or appraised value, whichever is lower.

EX: Someone purchases a condo for $100,000 and the appraised value is $125,000 and the loan amount is $90,000. Which means the borrower is putting down $10,000. What would the borrowers loan to value be?
A: 90% (0.9)

EX: (Refinance transaction)
The borrowers property appraised for $250,000, the loan amount for their refinance is $110,000. So here we will take the $110,000 loan amount and divide by $250,000 appraised value to get a LTV ratio of 44% (0.44).

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2
Q

Whats another LTV ratio?

A

Combined Loan To Value (CLTV)
Or is also known as (TLTV-Total Loan To Value)

This is calculated by dividing the amount of a 1st mortgage and any other subordinate liens or mortgages divided by the appraised value of the property.

EX: (Refinance transaction)
In this refinance transaction, the borrower has a 1st lien loan of $110,000 and a 2nd mortgage of $40,000. Their property appraised at $220,000. So what is their CLTV?
A: Add 1st and 2nd lien for the loan amount.
$110,000+$40,000=$150,000
Then divide by the value which is the appraised.
$150,000/$220,000= 68% (0.68) CLTV

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3
Q

What is Table Funding?

A

Funding of the loan at settlement, to transfer the loan to the lender.

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4
Q

What is a Mortgage Banker?

A

Any company that can underwrite or fund loans (A mortgage broker does not fund or underwrite loans)

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5
Q

What is Yield Spread Premium(YSP)?

A

Commission paid from the wholesaler to the broker in exchange for selling a borrower on a higher rate. (The higher rate often alleviates (helps) the borrower from paying an origination fee.)

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6
Q

What is an Extended Lock Agreement?

A

If issued, it’s to protect the borrower from rising rates during the locked period.(Allowed to lock rate for 4 months to 12 months)
(Must contain loan program, interest rate, cost and expiration date and be between the borrower and the lender)

This is when you and a mortgage lender lock an interest rate, which means it’s going to be your rate because that’s what you closed on and that rate is protected. It doesn’t matter what the future market does because rates do change daily but once you lock in that rate, it’s set.

(On normal rate locks you can typically go out about as far as 90 days and shouldn’t cost any money up front at least. Should be free to lock an interest rate. When you lock it’s usually for 30 days (Like if you hear Rate X).

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7
Q

What is a Delinquent Loan?

A

Any loan over 3o days past due.

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8
Q

What is a Discount Point?

A

1% of the loan amount can be paid upfront and in addition to other origination fees to reduce the interest rate.

EX: The interest rate on a borrowers loan was 7%. The buyer also paid 2 points. What was the lenders effective yield?
***2 points = 2% of the loan.(Each discount point increases the lenders yield by 1/8th of a percent so 2 discount points would be 2/8ths)

(Each point increases yield by 1/8th%
*1/8 = 0.125)

A: Effective yield =
2/8 = 0.25%
0.25 + 7(rate) = [7.25%]

Could be called Effective Yield or APR

EX2: A borrower qualifies for a loan at 6.5%. Prevailing rate is 7%. How many points will be paid to “Buy Down” the interest rate on behalf of the buyer?
(This means they qualify for a loan with a payment at 6.5% but the bank says sorry all we have available is 7%)
So here they choose to buy down the interest rate. So they pay money upfront to the lender and in turn that is prepaid interest so in turn the lender reduces the interest rate for the monthly payments. So really how much is each point?
So in this case they pay 1% of the loan amount for each point to buy down the rate but how much has the rate actually changed?

A: Prevailing rate= 7%
Buyer qualifies for 6.5%
(so what’s the difference)
*Difference is 0.5% or 4/8ths= 4 points(4 points because its the first number before 8)

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9
Q

What is Premium Pricing?

A

It helps the borrower pay their closing costs. The premium results from the interest rate being increased.

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10
Q

What is Cash Out Refinance?

A

When you borrow equity from the value of the home, which then increases the loan amount owed against the home.
(This is a refinancing opt where a new mortgage is set up for more than your current mortgage balance and the difference is paid to you in cash.)

***Cash out refinancing allows you to use your home as collateral for a new loan that gives you some cash, but you will pay a higher interest rate and using your home as collateral can make it easier to get cash for emergencies and expenses. But make sure the cash is worth the risk because you can lose your home if you don’t keep up with payments.

Refinancing replaces an existing mortgage with one that has better terms.
(You might refinance to lower your monthly payments)

***The most basic mortgage loan refinance is the “rate to term” also known as “no cash out refinancing”
*Rate to term is used to lower your rate

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11
Q

What is Rate and Term Refinance?

A

An extension of the term or reduction to lower your monthly payments.

It’s an extension of the term or reduction of the interest rate to reduce the amount owed in the monthly payment.

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12
Q

What is Right of Rescission?

A

The opt given to a borrower to cancel a HELOC or refinance.

HELOC is a line of credit borrowered against the available equity of your home.Your homes equity is the difference between the appraised value of your home and your current mortgage balance.

The borrower must act on this right within 3 days of the closing

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13
Q

What is Junior Liens?

A

It’s a 2nd mortgage or HELOC.

***A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages.

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14
Q

What are Escrow Accounts?

A

Accounts that are paid into by the borrower for taxes, insurance and possible HOA/POA fees. The money is the borrowers and not the mortgage companies.

***An escrow account is essentially a savings account that’s managed by your mortgage servicer. Your mortgage servicer will deposit a portion of each mortgage payment into your escrow to cover your estimated property taxes and your homeowners and mortgage insurance premiums.

HOA-Homeowners Associations(are private organizations that oversee the management of some residential communities. HOAs establish sets of rules and regulations called bylaws for those living in the community to follow.)

POA-Power of Attorney(a legal document transferring the legal right to the attorney or agent to manage and access the principal’s property in the event the principal is unable to do so themselves.)

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15
Q

What does Repurchase mean?

A

When an investor buys back the loan bc of fraud

When an investor requiring the originating lender to buy the loan back because of fraud, acceptable underwriting or appraisal.

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16
Q

What do Liens do?

A

Liens secure the repayment of a debt owed, examples include 1st mortgage, 2nd mortgage, IRS tax lien, judgements, and mechanics lien.

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17
Q

What’s a lien?

A

A right to keep possession of property belonging to another person until a debt owed by that person is discharged.

*** A lien gives the creditor the right to seize and sell property.To then use to proceeds to pay off a borrowers debt.

EX: Sam borrowers money from a bank to purchase a new car, and as part of the loan agreement, Sam will allow the bank to place a lien on the car. Sam then defaults on the loan and the bank will repossess the car and sell it to then use the money to pay the loan balance back.

-Different types of a lien
1.A real estate lien secures payment on a mortgage.
2. Mechanic lien which secures payment for services preformed on property

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18
Q

What’s an Early payment default?

A

When a new borrower does not make the 1st, 2nd, or possibly 3rd payment. Fraud may be the cause.

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19
Q

What does (PITI) stand for?

A

Principal, Interest, Taxes and Insurances

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20
Q

What are Gift funds?

A

Gift funds are sometimes used as part of a borrowers down payment. They are most often gifted from a relative and cannot be conditional of repayment.

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21
Q

What’s a Temporary Buydown? (Usually a 2 to 1 buy down)

A

Its the difference between the note rate and the payment rate but the borrower must be approved at the note rate

The payment rate is 2% less the first year, 1% less the second year, requiring a buy down account held by the lender for the difference between the note rate and payment rate. The borrower must be approved at the note rate.

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22
Q

What is Accrued Interest?

A

When you make your monthly payment, the interest paid is for the month before.

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23
Q

What is Conveyance?

A

A transfer of ownership, usually through a deed.

Deed- A document used by the owner of real property to transfer or convey the right, title, and interest to the property.

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24
Q

What’s a Secondary Market?

A

A sale of closed loans to investors or Fannie Mae or Freddie Mac.

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25
Q

What’s an Assumable Loan?

A

When you allow a buyer of a home to take over the existing mortgage, but F&F do not allow, only FHA and VA do if the buyer is approved by lender.

When allowing a buyer of a home to take over the existing mortgage. Fannie Mae and Freddie Mac do not allow assumptions. FHA and VA will if the new buyer is approved by the lender. VA requires the new buyer to be a Veteran.

FHA-Federal Housing Administration

VA-Veterans Affairs

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26
Q

Types of Programs and Terminology:

A

Next card

27
Q

What is Conventional Conforming?

A

Any loan that can be sold to Fannie Mae or Freddie Mac. (Must meet their standards)

28
Q

What are back end ratios (DTI)?

A

(Also known as Debt-to-income ratio)

it lets you know how much of someones monthly income goes toward paying debts.

It’s a ratio that. indicates what portion of a persons monthly income goes toward paying debts.

29
Q

What are the Terms of a Conventional Conforming Loan?

A

-Maximum LTV - 97%
-Any loan above 80% must have MI and Escrows
-Payments to income ratios(28% for housing and 36% overall) Also known as the front and back end ratios.
-No repayment term over 30 years
-No repayment penalties or assumptions
-Non owner occupied is allowed

(MI - Mortgage Insurance)
(LTV - Loan To Value)

30
Q

What are assumptions?

A

When you allow someone to find a home they want and take over the existing home loan without having to apply for a new mortgage.

Allows someone to find a house they want to buy and take over the seller’s existing home loan without applying for a new mortgage. (This means the remaining balance, mortgage rate, repayment period and other loan terms stay the same, but the responsibility for the debt is transferred to the buyer.)

31
Q

What is Non-Conforming?

A

It’s any loan that can’t be sold to Fannie Mae or Freddie Mac.

EX: Any Jumbo mortgages or any other loan using non-verifiable income.

32
Q

What’s Non-Traditional?

A

It’s any loan that is not a 30 year fixed.

33
Q

Types of Gov’t Backed Loan Program:

A

Next card

34
Q

FHA(Federal Housing Administration)

A

-Maximum LTV is 96.5%
-31% for housing
-43% overall underwriting ratios
-MIP(Mortgage Insurance Premium is required for the life of the loan if over 90% LTV
-Seller concessions are limited to 6%

-All borrowers must be run through CAIVRS. It will tell the lender if the borrower has an open FHA Loan, default on an FHA Mortgage or Gov’t insured student loan. The borrower may not be eligible for another FHA Loan.

CAIVRS: Credit Alert Verification Reporting System

-The borrower must live in the home for at least 60 days
-Upfront MIP is 1.75%, which may be add into the loan
-The MIP renewal is 0.85 of the loan amount divided by 12. Monthly MIP Premium is to be added to the P&I Payment.

35
Q

What is a P&I Payment (Principal and Interest)?

A

The Principal is the amount you borrowed and have to pay back.

The interest is the total monthly payment you send to your mortgage company.

36
Q

USDA (United States Dept of Agriculture

A

-Available for areas of less than 35,000 people
-100% financing. Income limitations are set for eligibility
-29% front end, 41% back end underwriting ratios
-MIP–> Gov’t mortgage insurance is required for the life of the loan
-USDA must underwrite and fund all USDA Loans

37
Q

VA Loans (Veterans Administration)

A

-The down payment on a VA Loan is determined by obtaining the DD214 from the veteran.

-Once the COE is insured, the amount of entitlement benefits that may be utilized by the veteran may be calculated.

-Maximum Loan to Value is 100%
-The maximum guarantee authorized by the VA is 25% of the loan amount, up to $113,275. The maximum VA home loan limit is the same as the current Fannie Mae or Freddie Mac loan limits.
-Overall underwriting ratios is 41%. Residual income is also utilized in VA Loans.

38
Q

ARM(Adjustable Rate Mortgages)

A

There are 5 parts

Margin: The money you borrower from a broker to purchase for an investment.

EX: If you have $5,000 cash in a margin-approved brokerage account, you could buy up to $10,000 worth of marginable stock: You would use your cash to buy the first $5,000 worth, and your brokerage firm would lend you another $5,000 for the rest, with the marginable stock you purchased serving as collateral.

Index:Shows the investment return in a certain investment period.(Used as a reference when making decisions concerning investing real estate, or also to measure the investment result.

39
Q

Part 1 of ARM

A

Program:
For EX:, a 5/1 ARM=Rate fixed for 5 years and then adjusts every year thereafter (Could change)

40
Q

Part 2 of ARM

A

Caps:
The limits the interest rate can adjust with each adjustment and over the life of the loan.
For EX: 2/5, 2% is the limit the interest rate can go up on each adjustment. 5% is the lifetime cap. The lifetime cap is added to the starting rate which is the highest the rate can go over the life of the loan. If the starting rate was 4% and the lifetime cap is 5%, the highest the rate can go over the life of the loan is 9%. (You’re adding 4 and 5)

StartingRate & LifetimeCap
4% 5%
9%
^

41
Q

Part 3 of ARM

A

Margin:

The only number on an ARM that can’t change!!! It’s also the floor, meaning the interest rate can’t go below the margin (where it started)

42
Q

Part 4 of ARM

A

Index:
The most common index is based off LIBOR (London Interbank Offered Rate. This rate changes throughout the day!

43
Q

Part 5 of ARm

A

Fully Index Rate:
Adding both the Index and the Margin

-The borrower is underwritten at the higher of the starting interest rate or the fully indexed rate for qualification purposes.

44
Q

Whats a Reverse Mortgage?

A

When a homeowner gives up equity in their home in exchange for retirement income.

A mortgage loan, usually secured. by a residential property, that enables the borrower to access the value of the property.The loans typically promoted to older homeowners and usually don’t have to pay a monthly mortgage payment

or

A financial agreement in which a homeowner gives up equity in their home in exchange for payments, typically to supplement retirement income.

45
Q

5 components in a Reverse Mortgage

A

next card

46
Q

1st is Negative Amortization

A

Each Month their mortgage balance increases as the interest is not paid.

No mortgage payments are required until after the borrowers vacancy of the home.
(This is when payments are made to the borrower from the lender drawing equity from the borrowers home.)

47
Q

2nd is Escrows

A

Escrows are not included in the payment. The borrower is responsible to pay their own taxes and insurance.

48
Q

3rd is Minimum age

A

Minimum age to apply is 62 years old

49
Q

4th is Mandatory Counseling

A

Mandatory counseling must be provided prior to the borrower applying.

50
Q

5th is Non-Recourse Mortgage

A

If the mortgage balance is higher than the value at the end of the loan, FHA absorbs the loss.

51
Q

3 requirements for the borrower under a reverse mortgage are: (Or they could lose their home if they don’t)

A
  1. The property has to be their primary residence
  2. They must maintain the property
  3. Taxes and insurance have to be paid by the borrower
52
Q

Factors in determining the amount of the mortgage and monthly payouts to the borrower:

A
  1. Age of the borrower
  2. Loan To Value
  3. Interest Rate
53
Q

What’s a Purchase money Second (PM2) (Second Liens)

A

A PM2 is a second mortgage that closes with a corresponding first mortgage from the same lender.

-These loans are often used when the borrower only has less than a 20% down payment and would like to avoid having to pay PMI. (Private mortgage insurance)

EX: You may see a borrower with a 10% down payment who then takes out a second mortgage for the remaining 10% and a first mortgage for 80%

54
Q

HELOC (Home Equity Line Of Credit)(Second Liens)

A

-HELOC terms are usually between 5-15years with some available up to 25 years.

-The Floating Interest rate is based on Prime Rate.

-No principal monthly payment is required, however the borrower may choose to. The entire loan balance will be due at the end of the loan term.

-Borrower doesn’t pay interest on the loan unless they draw part of the proceeds. Then each month they will pay interest on the balance they have drawn.

EX: The value of a property is $200,000. The amount owed on the first mortgage is $100,000. The HELOC lender can lend up to 80% loan to value.

***HELOC amount could be up to $60,000

55
Q

2nd Mortgage (Second Liens)

A

All of the proceeds are paid out at the closing with the borrower needing to start making monthly P&I (Principal and Interest)payments usually within 45 days after closing.

-The term is 15 years and can be either an ARM or Fixed Rate Mortgage

56
Q

Whats a Subordination Agreement?

A

It assigns your new mortgage to 1st lien position, making it possible to refinance with a home equity loan or line of credit.

A subordination agreement is a legal document used to make the claim of one party junior to a claim in favor of another. It is generally used to grant first lien status to a lienholder who would otherwise be secondary to another party, with the approval of the party that would otherwise have first lien.)

(A Subordination Agreement needs to be recorded stating the position of each mortgage and their priority of repayments. If the borrower wants to refinance the first mortgage, they have to obtain a signed Subordination Agreement from the 2nd mortgage lender, which says the 2nd mortgage lender will stay in 2nd position while the 1st is refinanced.)

57
Q

Construction loans: There are 2 types

A

A construction loan is a short-term loan that covers only the costs of custom home building.

This is different from a mortgage, and it’s considered specialty financing. Once the home is built, the prospective occupant must apply for a mortgage to pay for the completed home.

58
Q

Construction Loan with a Permanent Take Out:

A

The consumer obtains a construction. loan from a lender. The construction lender will request a Permanent Take Out before making the construction loan. A new company/lender will take an application and process the information as a new loan.

(If approved, a commitment letter will be issued to the borrower. When the construction is completed, if the borrower meets the requirements of the commitment letter, the new lender will pay off the construction loan and the borrower will begin making payments on the permanent loan.)

59
Q

2nd type of construction program:

A

It would be a Construction Perm.

-The consumer will close on a construction permanent loan with 1 set of closing costs. The borrower has the home built and will pay interest on the draws to pay the contractor, as bills are presented.

60
Q

What happens when the construction is completed and inspections issued?

A

The lender will calculate the P&I (Principal and Interest) payment based on the amount of the loan and the remaining term of the loan.

EX: If it took 10 months to build the home, the new payment would be calculated on the remaining term of 350 months.

=
360 months
- 10months
——————–
350 months remaining

61
Q

Interest Only: (Everything that requires interest only)

A

Interest is required to be paid every month.

-But the Principal payment is not required but may be made if the borrower wants to pay the loan amount down.

-The balance of the loan will be the same as the original loan amount even after 10 years.(Only if the principal payments are never made)

-The borrower is qualified at the full P&I (Principal and Interest) payment plus escrows. If they qualify, they will be allowed to do an interest only loan.

62
Q

Prime Rate

A

the lowest rate of interest at which money may be borrowed commercially

The prime rate is the current interest rate that financial institutions in the U.S. charge their best customers. These customers have excellent credit, and are eligible for this optimal rate because their loans carry the lowest risk for their financial institutions.

63
Q

Floating Interest Rate

A

A floating interest rate is any loan, bond, mortgage or credit that changes based on a reference rate

also known as a variable or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument. Floating interest rates typically change based on a reference rate.