Module 2 Flashcards
A potential borrower’s ability to repay, based on their current financial situation
Capacity
A calculation that allows lenders to compare the monthly housing expense that a loan applicant will assume with a new mortgage to his/her income.
Front End Ratio or Housing Ratio
Formula for Front End / Housing Ratio
Monthly Housing Expense (PITI - Principal, Interest, Taxes, Expenses) / Monthly Gross Income
Historical conforming loan limit on Front End Ratio
28%
Historical limit for Front End Ratio on FHA loans
31%
Calculation that compares the total monthly obligations to gross monthly income (includes all recurring payments)
Bank End Ratio or Total Debt Ratio
Historical conforming loan limit on Back End Ratio for manually underwritten loans
36%
Back End Ratio requirement by GSEs
45% with compensating factors
50% recommendation
Limit for Back End Ratio on FHA loans
43%
Limit for Back End Ratio on VA loans
41%
LTV ratio which lenders use when an applicant requests a second mortgage.
Combined LTV
The LTV ratio determined when the borrower has a first mortgage and a home equity line of credit with the balance not fully drawn, which produces a lower CLTV
High LTV
The most common and comprehensive appraisal form. It is generally used on all single family homes and may also be used for row homes and townhouses if the property is situated on a fee simple lot.
Uniform Residential Appraisal Report (Form 1004)
Appraisal form used to update appraisals and report certifications of completion
1004d
Appraisal form used for single-family properties which are intended as investment properties
1007
Appraisal form used for two- to four-unit properties which are intended as investment properties
1025
Appraisal form
1073
Occasionally permitted instead of a full appraisal for certain refinances. The waiver would be granted for a borrower who is refinancing his or her property within a specified time after a previous loan transaction.
Property Inspection Waiver
Three approaches to appraising a home
Sales Comparison (most common) Cost (construction) Income (investment properties)
In the Sales Comparison appraisal approach, an appraiser must analyze a minimum of ___ comparable sales that were settled or closed within the last ___ months and must comment on sales greater than ___ months ago.
Three sales; 12 months; 6 months
When is a 2nd appraisal required on a HPML?
- The seller acquired the home 90 or fewer days prior to the consumer’s agreement to purchase it, and the price at which the consumer has agreed to purchase the home is 10% more than the price paid by the seller
- The seller acquired the home 91 to 180 days prior to the consumer’s agreement to purchase it, and the price at which the consumer has agreed to purchase the home is 20% more than the price paid by the seller
Can lenders charge a fee to lock-in an interest rate?
Yes
What is the time period by which a lender will be required to honor a lock-in agreement?
7 - 120 days, but most are effective 30-60 days
Agreement in which a lender may allows the loan applicant to lock in an interest rate without locking in the points or to allow the borrower to lock in the rate / discount points at the most advantageous time.
Float Agreement
How much of the rental income is used when calculating income and the ability to repay during underwriting?
75%
Fannie Mae guidelines state that when used for down payment or closing costs, if the value of the liquidated asset is at least XX% more than the amount of funds needed, documentation of the borrower’s receipt of funds realized from the sale or liquidation is not required.
20%
Two fundamental differences of title insurance from other types of insurance:
- Protects against past events (instead of future)
2. Requires a one-time premium (instead of ongoing)
Document that gives a detailed report of the chain of title on a specific piece of property
Title Abstract
Document that outlines the terms for establishing title insurance coverage
Title Commitment
Document that is an interim title insurance policy used for some transactions, offering temporary coverage; these are short-term policies (two years in duration, on average) and usually used for property flips or similar situations in which the buyer plans to resell before the interim coverage would expire
Title Binder
When might the term “Title Binder” refer to the Title Abstract rather than the true sense of the term?
When Title Abstract and Title Commitment are combined into a single document.
Real Property vs. Personal Property
Real property is permanently affixed to the land; Personal property can be moved
These liens take priority over all other liens
Real Estate Taxes and Special Assessments
In these states, a deed of trust is executed, and the borrower (grantor) conveys legal title to the trustee while retaining equitable title. The trustee holds title to the property until the loan is repaid, and the lender owns a beneficial interest in the property via a deed of trust until the debt is paid.
Title Theory States
In these states, the borrower retains both legal and equitable title. The mortgage serves as a lien against the property. In the case of default, the lender will be required to institute a foreclosure proceeding in order to obtain legal title to the property.
Lien Theory States
In these states, the borrower holds title to property but expressly agrees that the lender can take back title when the borrower defaults.
Intermediary Theory States
These states require judicial foreclosure proceedings
Lient Theory States
The states do not require judicial foreclosure proceedings
Title Theory States
Deed used in the context of an individual buying real property from a seller, the deed they will receive is formally called a
Warranty Deed
When property is transferred without money changing hands (for example, a parent gives their child the deed to their home, or one spouse in a divorcing couple removes their name from the record on the home), this is a
Quitclaim Deed
May be required when a borrower is seeking a 2nd Mortgage or a HELOC to ensure the lender’s priority of lien
Subordination Agreement
What may a subordinate lender require from the primary lien to maintain their primary lien status?
Signed Subordination Agreement and a Processing Fee
