General Mortgage Knowledge Flashcards
What must a qualified mortgage (QM) comply with?
ATR or ability to repay
Name the 4 types of QMs
- General QM
- Temporary QM
- Small Creditor (Small creditor only)
- Balloon-Payment QM (Small Creditor Only)
A QM that complies with ATR is said to have …..
Safe Harbor, as long as it isn’t higher priced.
Higher priced QM on the other hand can have rebuttable presumption. What must the borrower prove?
That at the time the mortgage was made with the information available the consumer did not have enough residual income left to meet living expenses after paying their mortgages and debts
What do all QMs have in common?
- Cannot be a QM if they have a negative amortization or interest-only payments
- Cannot have a term longer than 30 years
- threshold on points and fees for QM loans - generally 3 percent of the loan balance
Creditor requirements for a General QM
- Underwirte based on fully-amortizing schedule using the maximum rate permitted during the first 5 years after the date of the first prepayment
- Consider and verify the consumers income, assets, debt obligations, alimony and child support obligations.
- Determine that the consumers total monthly DTI is not more than 43%
Points and fees of loan cannot exceed what thresholds for a QM
3% of total loan >=107,747
3,232 >= 64,648 < 107,747
5% 21,549 - 64,648
1,077 13,468 - 21,549
8% less than 13,468
What is a conforming loan?
One that meets Fannie and Freddie guidelines.
What is Freddie Macs underwriter called?
AUS or Automated Underwriting System
What is Fannie Maes Underwriter called?
DU or Desktop Underwriter
Fannie and Freddie may are a part of what market and what loans do they purchase?
Conventional loans and are a part of the secondary market
Qualifications for Conventional Loans. DTI, Down payment, min Credit score, Loan Limit, PMI, Appraisal, Gift Funds allowed? Borrowers with Bankruptcy, Borrower after foreclosure, LTC for cash out refinance, Reserves, seller concessions, non-occupying co-borrower, assumable? Employment history
DTI - 28/36 min down - 3% Min credit - 640 FICO Loan limit - 484,350 conforming and over that for non conforming PMI - required with less than 20% Appraisal - required Gift funds allowed? Yes Bankruptcy - ch 13 = 1 year Ch 7 = 4 years, or 2 years with extenuating circumstances from Foreclosure = 2 years Cash out 85% maximum LTV Reserves = 2 to 4 months Seller Concessions = 3% No-Occupying Co-borrower - not allowed Assumable - No Employment - 2 year history
Loan limit lookup on Fannie Mae website
FHA loans
DTI, Down payment, credit score, monthly mortgage insurance, upfront mortgage, appraisal, gift funds allowed, Borrowers with bankruptcy, borrowers after foreclosure, LTV requirements on cash out refinances, Reserves, seller concessions, Non occupying co borrower, assumable, employment history, owner occupy.
DTI - 31%/43%
DP- 3.5%
Credit - 580 with 3.5% or 500 with 10% or more
Mortgage insurance - yes
Upfront mortgage insurance- yes
Appraisal - required
Gift funds allowed - yes
Bankruptcy - 2 years after ch 7, 1 yr ch 13
LTV requirements on cash out - 85% max
Reserves- no requirement
Seller concessions- 6% maximum
Assumable - Yes, with FHA creditworthiness check
Employment history - less strict on history
Owner occupancy - must move in within 60 days
Do lending institutions that offer FHA insured loans need to be approved?
Yes
Who are FHA loans insured by?
Department of housing and urban development (HUD)
What does it mean if loan is assumable?
Allows the borrower to assume the current mortgage on the house with little or no chance if approved by the lender
What are the 4 Cs for underwriting when evaluating a FHA application?
Credit - history of borrower
Capacity - repay the loan
Cash - assets available to close the mort.
Collateral - which evaluates the value of home
What is the upfront mortgage insurance premium (UFMIP)?
Currently 1.75 percent of base loan amount. Applies regardless of LTV ratio
Upfront Mortgage insurance premiums are also coupled with what for FHA loans?
Monthly Mortgage Insurance Premiums that must be paid annually. Based on complex charts and expire at certain LTV depending on loan.
Difference between PMI and MMI?
PMI is for conventional loans and is through a private company. MMI and Upfront is for FHA and paid directly to them
What is an FHA streamline?
Streamlines are utilized by borrowers with current FHA mortgages when they would like to reduce their mi, interest rate or their payment. Streamline is basically an FHA refinance.
What’s the most common type of reverse mortgage?
HECM or FHA home equity conversion mortgage
Qualifications for reverse mortgage.
62 or older and must have a low mortgage balance that my be paid off or no balance at all
Must occupy home for reverse mortgage, if the borrower dies how is the mortgage satisfied?
The heirs may sell the home and pay off the reverse mortgage
The heirs may pay off the reverse mortgage and keep the property
The heirs may surrender the property to the lender of the reverse mortgage
Have up to year to decide
5 payment option available on HECM or Reverse Mortgages
- Tenure - borrower receives monthly payments
- Term - monthly payments for a term
- Line of Creidit - max withdrawals up to a set amount
- Modified tenure - combination of tenure and line of credit
- Modified term - combination of term and line of credit
VA Loans - DTI, DP, Min credit, Monthly Mortgage insurance, upfront mortgage, appraisals, gift funds?, bankruptcy, foreclosure, LTV on cash-out refinances, Reserves, Seller Concessions, Assumable, Owner Occupancy
DTI- 41% DP - 0% Min Credit - N/A MMI - No UMI - NO Appraisal - Required Gift funds - no down payment Bankruptcy - 2 years Ch. 7 and 1 yr ch 13 Foreclosure - 2 years LTV cash out refinance - 90% cash out with 3.3% funding fee Reserves - No reserve requirements Seller Concessions - 4% Assumable - yes with va/lender approval Owner Occupancy - Yes within 60 days
VA guarantees all loans, what will the VA pay the lender if the borrower defaults?
25% of the loan
What is the eligibility for a VA loan?
-Suitable Credit
-COE (Certificate of eligibility) must be honorably discharged
-if borrower does not meet min service requirements, they may still be eligible if they were discharged due to hardship, convenience of government, reduction-in-force, certain medical conditions and service connected disability.
Www.benefits.va.gov
How to restore entitlement of VA loan
Property purchased with the prior VA loan has been sold and paid in full or a qualified veteran transferee buyer agrees to assume the VA loan and substitute his entitlement.
Loan limits for VA
No set specific cap, however the VA has set limits of assumable liability, which will affect the amount of money that the lender may be willing to lend.
Va funding fees vary for different situations, huge chart but what is the major difference between funding fee?
First time vs. second time use
Is there anytime a funding fee doesn’t have to be charged?
If the veteran borrower has a service-connected disability of 10% or more.
The VA uses what type of DTI?
Back end DTI or total Debt to income. It is 41%. Residual income is also used to determine ATR
What is the certificate called when the house is appraised for VA loans?
NOV or notice of value, must be submitted in conjunction with the appraisal report when originating a VA loan
What is the max origination fee that can be charged for VA loans
1%
What does the VA use for a refinance, similar to an FHA streamline? What is the funding fee?
IRRRLs, interest rate reduction refinance loan. Fundin fee is .50 % for everyone. Can not receive any cashback
USDA loans - DTI, DP, Credit score, MMI, UMI, Income limits, Appraisal, Gift funds, Bankruptcy, Reserves, Seller concessions
DTI - 29/41 DP - 0% Min credit - N/A MMI - No , guarantee fee UMI - No, guarantee fee Income Limits - 115% of median area Appraisal - Required Gift Funds - no down payment Bankruptcy - 3 years ch 7, 1 yr ch 13 Reserves - No reserve requirement Seller Concessoins - Unrestricted amount
What is the initial and monthly guarantee fee for usda?
Initial guarantee is 1% and monthly is .35%
A loan that doesn’t meet Freddie or fannies guidelines is said to be….
Non-conforming
What are jumbo loans?
Loans that exceeds $484,350. Are conventional but non conforming
Subprime (ALT-A) loans caused the mortgage meltdown what are some examples of subprime loans
NINA - No income no assets
SISA - State income stated assets (no verify)
SIFA or SIVA - Stated income fullasset or stated income verified asset
No Doc - no additional income documents
Low-Doc - Minimal income documents
What is payment shock?
When borrowers payment suddenly increases, possibly causing a default on payment
What are some topics that must be discussed with borrowers of subprime mortgages?
Payment shock Prepayment penalties Balloon payments Cost of reduced documentation loans Responsibility for taxes and insurance
What is a fixed rate mortgage?
Fixed interest rate the entire life of the loan. Typically 10, 15, 20, 25 and 30 years.
What is a traditional mortgage?
30 year fixed rate mortgage
What is an ARM?
Adjustable rate mortgages, interest rate on loan periodically adjust based upon index, a margin and adjustments caps
What makes up an interest rate on a ARM
Index and margin (extra amount the lender adds). The index fluctuates with the market. The Margin is assigned at the loan origination and always stays the same.
What are the 3 most common Indexes in the mortgage industry?
LIBOR (London Interbank Offered Rate)
COFI (FHLBB 11th District Cost of Funds Index)
CMT (Constand Maturity treasury)
What are the payment caps of this ARM 2/2/8
2 Year first adjustment, 2 years for subsequent adjustments and lifetime is 8%.
A 3/1 ARM means?
It is a hybrid arm that after 3 years the interest rate will adjust ever year.
3 common types of arms.
Hybrid ARMS, Interest-only arms, and the payment option ARM
What is an interest only arm?
Allows for borrower to pay only the interest on their loan for a specified number of years. (Typically 3-10). Some have I/O arms allow for interest to adjust during that period, others do not.
What are Payment Option ARMs? What do the options typically include?
- Interest only payments - the borrower pays interest only each month
- Min payment - borrower pays a payment that can be less than the interest due that month, which may increase the amount the borrower owes on the mortgages. Neg Am
- Ac combined PMT that includes the interest payment and payments towards the principal
Explain Construction Loans
- A short-term loan that provides funds to cover the cost of building or rehabilitating a home.
- Typically higher interest rate than mortgage.
- Borrowed in series of advances, can start to pay off in 6 to 24 months or can convert into conventional mortgage loan
What is a bridge loan?
Bridge loan allows you to receive a loan for your next house before your current house is sold. Will be paid off once the old house sells
What is a graduated Payment Loan?
A GPM is a mortgage that has a low initial monthly payment that gradually increases over a specified time frame that is determined out at the time of origination
- Uses Neg am to keep payments low at first.
- larger amount of down payment
Used for borrowers that can document future income but want a house ASAP. Ie young professionals/doctors
Explain a HELOC or Home Equity Lines of Credit.
Type of revolving loan, that enables a homeowner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrowers equity.
- Usually allows 80 percent of equity
- Open line of credit that can be used more than once.
What are Balloon Mortgages? Types of borrowers that are a good fit.
A balloon mortgage is one that requires a larger than usual one-time payment at the end of the term. For example a 5/25. Normally more than two times the average loan payment.
- type of borrower is someone that is going to be in the house for a short time. Or gets a large amount o money yearly compared to the rest of the year.
