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HUD counselor test > Module 4 > Flashcards

Module 4 Flashcards

1
Q

9 steps in the homebuying process (3 with housing counselor assistance, 6 with assistance from others)

A

housing counselor assists with:

1) determining if homeownership is right for the client
2) figuring out how much the client can afford
3) helping clients understand their rights

other professionals help with:

4) shopping for a home
5) making an offer
6) obtaining financing
7) getting a home inspection
8) purchasing homeowners insurance
9) closing on the home

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2
Q

questions to ask clients and why to ask them:

do you foresee the need to change jobs or relocate in the next several years?

A

homeowners need a consistent income in order to qualify for a mortgage and make monthly payments

also, to ensure that homeowners can recoup the homebuying and selling costs, they should consider remaining in the home they purchased for several years

homeownership may not be the ideal short-term plan for clients who might move in the near future for work or other life situations

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3
Q

questions to ask clients and why to ask them:

are you willing to properly maintain the home and make repairs as needed?

A

homeowners take care of all home repairs, maintenance, and yard work either by doing it themselves or hiring contract workers

homeowners should be willing to accept these new responsibilities, which require time and money

to demonstrate readiness, a client should be willing to take steps such as learning basic home repair skills, adding a budget item for home repairs and home maintenance projects, or creating a maintenance plan for major household systems

a housing counselor can assist a client to create an adjusted budget and maintenance plan

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4
Q

questions to ask clients and why to ask them:

do you have a record of paying your bills and debts on time?

A

when homeowners do not make mortgage payments, they risk foreclosure

it is best if homeowners establish the habit of paying bills on time before purchasing a home

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5
Q

questions to ask clients and why to ask them:

is your credit score currently above 640?

A

homebuyers with higher credit scores will typically qualify for better mortgage terms

though clients with scores below 640 may have financing options, the cost to obtain a mortgage may be more expensive

in addition to products insured by the FHA, some lenders have introduced programs for first-time homebuyers and conventional mortgage products for borrowers with lower credit or limited credit

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6
Q

questions to ask clients and why to ask them:

do you have enough money in savings for a down payment, closing costs, and other fees?

A

in order to purchase a home, potential homeowners need to have sufficient savings to cover down payments (up to 20% of the home price), closing costs, other fees incurred in the purchase process, initial home repairs and utility charges, and personal monthly financial obligations

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7
Q

questions to ask clients and why to ask them:

are you willing to abide by standards established by a community association?

A

homeowners may be part of communities or homeowners associations that have established rules and regulations

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8
Q

questions to ask clients and why to ask them:

are you willing to adjust your budget and spending habits?

A

homebuyers need to include additional expenses in their budgets related to buying and maintaining a home

with this in mind, clients may need to adjust spending habits to afford those expenses

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9
Q

questions to ask clients and why to ask them:

do you have the ability to make a mortgage payment every month in addition to other debt payments and living expenses?

A

debt-to-income ratios are used to determine if potential homeowners will have enough money to make their monthly payments in addition to other financial obligations

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10
Q

questions to ask clients and why to ask them:

is your annual income equivalent to at least a third of the average home price in the desired neighborhood?

A

clients can roughly estimate how much they can pay to purchase a home by multiplying their annual gross income by three

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11
Q

questions to ask clients and why to ask them:

have you previously owned a home?

A

first-time homebuyers (those who have not owned a home for at least 3 years) may be eligible for homebuying programs with down payment assistance

for previous homeowners, it is important to ask for details, as clients who lost a home due to an economic hardship event may be eligible for special programs

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12
Q

10 questions to ask clients considering purchasing a home

A

1) do you foresee the need to change jobs or relocate in the next several years?
2) are you willing to properly maintain the home and make repairs as needed?
3) do you have a record of paying your bills and debts on time?
4) is your credit score currently above 640?
5) do you have enough money in savings for a down payment, closing costs, and other fees?
6) are you willing to abide by standards established by a community association?
7) are you willing to adjust your budget and spending habits?
8) do you have the ability to make a mortgage payment every month in addition to other debt payments and living expenses?
9) is your annual income equivalent to at least a third of the average home price in the desired neighborhood?
10) have you previously owned a home?

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13
Q

5 areas to help clients understand their rights

A

1) FHA
2) abusive lending practices
3) loan scams
4) mortgage regulations
5) lender disclosures

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14
Q

8 professionals who help clients in the homebuying process

A

1) real estate agent/broker
2) lender
3) underwriter
4) home inspector
5) appraiser
6) closing agent
7) insurance agent
8) assessor

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15
Q

real estate agent/broker

A

an individual who is licensed to negotiate and arrange real estate sales for a commission

buyers and sellers typically hire their own real estate agents to represent their interest in the transaction

a real estate agent typically works for a real estate broker

a Realtor is a real estate professional who is a member of the National Association of Realtors

other housing professionals can be members of NAR, including property managers, appraisers, and others

both the seller’s broker and the buyer’s broker typically receive a percentage of the selling price of the home as sales commission - the seller usually pays the commission of both brokers

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16
Q

lender

A

a lender refers to a person or company that makes loans for real estate purchases

a related term, loan officer, refers to the representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying candidates for loans, and processing loans

some loan officers, or lenders, are paid a flat salary, and others are paid on commission from the fees attached to the loan

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17
Q

underwriter

A

an underwriter is a lender’s representative who analyzes a loan application, the potential borrower’s credit history, and a judgment of the property value

by analyzing these things, they determine the amount of risk involved in making the loan and the amount a borrower has the ability to repay

an underwriting fee may be included in the homebuyer’s closing costs

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18
Q

home inspector

A

a home inspector is a professional who conducts an inspection of the home’s structure and mechanical systems to determine quality, soundness, and safety

they make the potential buyer aware of any repairs that may be needed

the buyer generally pays these professionals directly

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19
Q

appraiser

A

an appraiser is a professional who estimates a property’s fair market value based on the sales of comparable homes in the area and the property’s features

this estimate is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property

appraisers also identify health and safety issues of a home

it is common for lenders to hire an appraiser and add the appraisal fee to the buyer’s closing costs

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20
Q

closing agent

A

aka settlement agent, this individual oversees the final transaction in the property purchase

during this transaction, the title is transferred from the seller to the buyer, and the seller receives payment for the property

depending on state requirements, a closing agent may be either an attorney or an escrow agent

in some states, an attorney is required to oversee the closing

the responsibility of paying the closing agent should be negotiated between the seller and the buyer

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21
Q

insurance agent

A

most lenders require homeowners to obtain homeowners insurance before a loan is issued

homeowners insurance policies combine protection against damage to a dwelling and its contents

these policies protect against fires, storms, or other damages, as well as against claims of negligence or inappropriate action that result in someone’s injury or property damage

insurance is paid directly to the company or through a portion of monthly mortgage payments, which is placed into an escrow account and distributed to the insurance company on an annual basis

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22
Q

assessor

A

a government official responsible for determining the value of a property for taxation purposes

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23
Q

making an offer - initial offer letter

A

real estate agents or brokers will consult with homebuyers to determine a price to offer the sellers

they may base this amount on the sales price, as well as other factors, such as the prices of other homes sold recently in the area

the buyer’s real estate agent or broker writes a sales contract stating the determined price and gives this to the seller’s real estate representative

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24
Q

making an offer - negotiations

A

sellers may accept the buyer’s initial offer, decline the initial offer, or make a counter-offer

in counter-offers, the sellers might adjust the time frame on closing or ask for a higher price

the buyer’s real estate agent or broker will help navigate this process

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25
Q

making an offer - earnest money

A

when buyers and sellers reach an agreement on a price and terms of the deal, the buyers will give their real estate agent a check for the earnest money deposit to be held until closing

the purpose of the check is to prove the buyer’s sincere intent to purchase the home

the amount offered typically ranges by region, from as low as 1% of the sales price to as high as 10%, and can be negotiated - a higher amount shows greater intent to buy

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26
Q

GSE loan or mortgage

A

a government-sponsored enterprise, or GSE, is a financial services entity created by Congress

a GSE loan or mortgage refers to a mortgage owned by Fannie Mae or Freddie Mac

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27
Q

Equal Credit Opportunity Act (ECOA) - description

A

federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs

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28
Q

Equal Credit Opportunity Act (ECOA) - example violation

A

a lender denied a loan to an immigrant family

when the family inquired about the reason for the denial, the lender claimed that he could not approve loans for homebuyers who have lived in the country less than five years

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29
Q

Equal Credit Opportunity Act (ECOA) - enforcement

A

enforced by the FTC - can file complaint with them online

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30
Q

Real Estate Settlement Procedures Act (RESPA) - description

A

federal law prohibiting certain abusive practices that increase the cost of settlement services

home sellers cannot require homebuyers to purchase title insurance form a particular company and a person cannot give or receive anything for settlement business referrals or for services that are not performed

RESPA governs required mortgage transaction disclosures that describe closing costs, lender servicing and escrow account practices, and business relationships

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31
Q

Real Estate Settlement Procedures Act (RESPA) - example violation

A

a home seller’s cousin owns a title insurance company and promises the home seller a kickback if he refers the homebuyer as a client

the home seller included the use of his cousin’s company as a requirement for the purchase of the home

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32
Q

Real Estate Settlement Procedures Act (RESPA) - enforcement

A

enforced by the consumer finance protection bureau

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33
Q

Truth in Lending Act (TILA) - description

A

federal law requiring that lenders disclose important information to borrowers in a variety of consumer finance transactions, include mortgage finance

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34
Q

Truth in Lending Act (TILA) - example violation

A

a client submitted a mortgage loan application for a 30-year fixed-rate mortgage and received the required disclosures a few days later

he noticed that the APR listed was higher than the interest rate quoted by the lender and that the loan product included an interest-only payment period

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35
Q

Truth in Lending Act (TILA) - enforcement

A

enforced by the FTC

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36
Q

TILA-RESPA Integrated Disclosure Rule (TRID) - description

A

federal law amending regulations under RESPA and TILA

aka the Know Before You Owe rule

requires easier-to-use mortgage disclosure forms that clearly outline the terms of a mortgage to the borrower and provide detailed explanations about how the forms should be completed and used

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37
Q

costs that cannot increase from the time of the loan estimate to the time of the closing disclosure under TILA-RESPA

A
  • fees paid to lender, mortgage broker, or an affiliate of either one
  • fees for required service that the lender did not allow the borrower to shop separately for, when the provider is not affiliated with the lender or mortgage broker
  • transfer taxes
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38
Q

costs that can increase up to 10% from the time of the loan estimate to the time of the closing disclosure under TILA-RESPA

A
  • required services that the borrower selects from the lender’s list of providers
  • government recording charges
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39
Q

costs that can increase by any amount from the time of the loan estimate to the time of the closing disclosure under TILA-RESPA

A
  • prepaid interest, property insurance premiums, and initial escrow account deposits
  • fees for required services that the borrower can shop for
  • fees for third-party services the lender does not require
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40
Q

TILA-RESPA Integrated Disclosure Rule (TRID) - example violation

A

a client receives her closing disclosure three days prior to closing

two days later, she receives an updated closing disclosure with no change to her closing date

41
Q

TILA-RESPA Integrated Disclosure Rule (TRID) - enforcement

A

enforced by the Consumer Finance Protection Bureau

42
Q

Home Ownership and Equity Protections Act (HOEPA) - description

A

federal law enforcing special disclosure requirements and restrictions on terms for loans that meet high-cost mortgage tests

enacted as an amendment to TILA to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees

a loan is covered by HOEPA if certain criteria apply

43
Q

when a loan is covered by HOEPA

A

1) APR exceeds treasury rates for comparable securities by
- 6.5% for first lien transactions;
- 8.5% for first-lien transactions less than $50,000 and secured by personal property (e.g., RVs, houseboats, and manufactured homes titled as personal property); or
- 8.5% for junior lien transactions

2) total fees and points payable by the borrower at or before closing exceed the larger of 5% of the loan or a fixed amount adjusted annually by the CFPB

44
Q

HOEPA required disclosures

A

required at least 3 days before closing

  • a written notice informing the consumer that the loan will not be effective until consummation or account opening occurs
  • information on the consequences of default
  • a written notice warning that borrowers could lose a residence and any money invested in it if they do not make the payments
  • the APR, payment amount, and loan amount - for variable rate loans, the lender must disclose that rate and monthly payment may increase and the amount of the maximum monthly payment
45
Q

is the client required to hire a home inspector?

A

it’s optional, but it is very strongly recommended

when considering whom to hire, it is helpful to interview several inspectors and select one that is properly qualified and licensed

46
Q

what does the home inspector do?

A

a qualified inspector carefully examines the physical condition of the home, identifies items in need of repair or replacement, and estimates the remaining life of various home components

47
Q

what to do if the inspector identifies problems?

A

a home inspection contingency can be included in the offer contract that outlines a buyer’s options in the case that the home inspector identifies major issues during inspection

the contingency typically gives the buyer the right to discontinue the purchasing process or requires the seller to put money in an escrow account to cover repair costs

48
Q

5 tips to offer clients about selecting an insurance agent and policy

A

1) shop around to compare rates - with similar products, consider the least expensive
2) ask insurance agents about discounts offered for homes with specific safety features or for other reasons
3) recognize that the cost of homeowners insurance may be included in your monthly mortgage payment
4) do your research upfront rather than waiting until a disaster hits to find out whether or not you have the right type of coverage
5) select insurance coverage that matches your personal circumstances, the home’s age/condition, and the home’s geographic location

49
Q

examples of actions that may qualify clients for discounts from insurance agents

A
  • buying package insurance, or bundling insurance
  • installing deadbolts
  • purchasing smoke alarms
  • installing an interior sprinkler system
  • increasing your credit score
50
Q

structure coverage

A

reimburses policy holders for repairs needed for a building structure when it is damaged by certain perils

for example, if a fallen branch damages the roof during a snowstorm, the homeowners are entitled to receive funds from their insurer to repair the roof

51
Q

structure coverage and condos/units with HOAs

A

clients who purchase a condo or other housing with an HOA or community association are encouraged to review their association’s master insurance policy with a housing counselor or the insurance agent before purchasing their own structure coverage

oftentimes the common components of a building, including the roof, hallways, and garage, if applicable, are insured with funds paid jointly by all residents of the condo

condo owners should ensure that they are protected from any gaps in coverage between the master policy and their personal policy (e.g., the master policy requires a large deductible for any shared costs among residents)

52
Q

contents coverage

A

reimburses policy holders for personal property destroyed by certain perils

depending on the policy, clothing, furniture, household items, musical instruments, laptops, and other items can be reimbursed

the standard is normally “actual cash value,” rather than replacement cost - reimburses for what you would be able to sell the item for at the time it was damaged or destroyed

53
Q

medical payment coverage

A

medical payment coverage reimburse policyholders for a certain portion of the medical bills incurred when someone becomes injured on a policyholder’s property and chooses not to sue

in order for this policy to apply, the individual injured cannot be a resident of the insured home

54
Q

personal liability coverage

A

provides funding for a defense lawyer or legal judgment if a policyholder is sued for a negligent act that led to an injury of a guest

55
Q

add-on coverage

A

often referred to as “riders” and “endorsements” - common add-ons include:

  • earthquake or flood insurance
  • business merchandise coverage for those who have businesses or products in their home
  • incidental business liability for those running a home business
56
Q

what happens at the closing appointment?

A

the title will officially be changed to your name, and you will receive the keys to the home

there is a large amount of paperwork involved in the process as well

57
Q

3 important things to do in preparation for closing

A

1) ensure that you have all the funds for closing costs and that they are available - they are typically due at this time
2) gather all paperwork you have received during the homebuying process - it will be helpful to have this paperwork at the closing appointment
3) review the agreement of sale before closing to ensure it protects your interest; you can consult with a real estate attorney if you need help, or review with a housing counselor - if you do not have an attorney or counselor review the agreement of sale before closing, it may still be beneficial to do so after closing

58
Q

lien

A

a legal claim against a property that secures the property as collateral if a debtor fails to meet loan obligations

acts as a defect on the title and must be settled before transfer of ownership

the lien holder, or creditor granting the loan, releases the lien when the loan is paid in full

59
Q

purpose of special assessments

A

homeowners or community associations may collect a special assessment, aka a community assessment, to pay for specific large maintenance projects that benefit the entire community

ex.: if the roof in a townhome complex needs to be replaced, each homeowner in the complex would pay a portion of the associated expenses

special assessments differ from regular HOA fees, which generally cover routine community maintenance such as landscaping, snow removal, and garbage collection

60
Q

sources of funding for special assessments - savings

A

generally, upcoming assessments will be announced six months to a year in advance, allowing time for homeowners to save money for the assessment

61
Q

sources of funding for special assessments - insurance

A

homeowners can choose a homeowners insurance policy that includes loss assessment coverage

this coverage is designed specifically for homeowners with community associations, such as condominium or townhome owners

it provides funds to cover the policyholder’s portion of certain types of community assessments, called loss assessments

loss assessments are levied when unexpected, serious damage occurs to commonly owned association property, which brings about expenses that cannot be completely covered by the association’s insurance policy

62
Q

sources of funding for special assessments - escrow

A

a home seller must notify homebuyers of any upcoming assessments that have been announced

in these situations, the seller typically deposits funds to cover the assessment in an escrow account

if the seller does not disclose information about an upcoming assessment and arrange an escrow account before the sale, the buyer may request the funds when they receive notice of the assessment

63
Q

consequences of late payments on special assessments

A

the possible consequences are similar to those for property taxes and HOA fees and include:

  • late payment fees and/or interest may accrue
  • late payments can be reported to credit bureaus, negatively affecting credit scores
  • a judgment may be filed against a homeowner or a lien may be placed on the home
  • selling or refinancing may become more difficult if a lien is placed against the home
  • other consequences outlined in community bylaws may be enforced
64
Q

purpose of mortgage

A

a mortgage gives a lender the right to collect payment on a loan and to foreclose if loan obligations are not met

mortgage contracts typically allow a grace period, usually 10-15 days after the due date; payments made after the grace period are delinquent

if a payment is not made before the grace period ends, a mortgage is considered delinquent and remains delinquent as long as one payment remains due but unpaid

lenders are not required to accept partial payments or payments that do not cover fees charged

65
Q

consequences of late mortgage payments

A
  • late payment and other service fees will be charged
  • late payments or nonpayment will be reported to credit bureaus, negatively impacting credit scores
  • homeowners can lose their home through foreclosure, a legal process in which a mortgaged property is sold to pay the loan of the defaulting borrower
66
Q

when is a loan in default?

A

a conventional loan is considered in default when a payment has not been paid after 60-90 days

additional late fees and service fees are levied during this period

for FHA loans, a loan is considered in default after 30 days

67
Q

benefits of energy efficiency home improvements

A
  • can increase the resale value of homes
  • generate lower energy bills
  • entitle homeowners to federal tax credits for consumer energy
  • qualify homeowners for Energy Efficient Mortgages, a product of the FHA
68
Q

examples of energy efficiency improvements

A
  • add insulation to the basement, attic, walls, and hot water pipes
  • seal air leaks in the basement and attic
  • replace windows with energy star qualified windows
  • install energy star qualified heating and cooling equipment
  • install an energy star qualified water heater
  • install renewable energy systems such as solar panels or a wind turbine
  • put in a skylight, sunroom, or sunspace
  • create a cool roof
69
Q

examples of safety home improvements

A
  • install an entrance door and garage door that can withstand impact and wind pressure and are secured with quality deadbolt locks
  • install a garage door with a sensor that will stop it from closing on a person in its path
  • use straps or additional clips to securely fasten your roof to the frame structure
  • cover windows with permanent storm shutters
  • purchase a generator for emergencies
  • construct a safe-room based on the FEMA guidelines
  • anchor large equipment and furniture
70
Q

examples of minor energy efficiency improvements for the interior of a home

A
  • fix leaking faucets
  • keep lights off in unoccupied rooms
  • unplug equipment when not in use
  • install a programmable thermostat
  • use compact fluorescent lights
  • reduce the temperature of the water heater
  • change your air filter regularly
  • have your heating and cooling system tuned up yearly
71
Q

examples of minor energy efficiency improvements for the exterior of a home

A
  • plant shrubs and trees to provide shade

- repair caulking on windows

72
Q

examples of minor safety improvements for the interior of a home

A
  • install and maintain carbon dioxide detectors
  • install and maintain smoke alarms
  • keep electrical cords in good condition and positioned appropriately
  • clean chimneys
  • purchase a fire extinguisher and learn how to use it
  • ensure there is adequate lighting in hallways and stairways
  • fix loose handrails or carpeting on stairs
  • track down rugs and runners
  • remove clutter
  • check for evidence of mildew or mold
  • check for exposed wires
  • clean or replace filters
73
Q

examples of minor safety improvements for the exterior of a home

A
  • check driveways and walkways for cracks, breaks, and erosions
  • use fencing around swimming pools and hot tubs
  • ensure garage doors function
  • remove clutter
  • make sure outdoor security lighting works
  • keep all window and door locks working properly
  • check the inside and outside of foundation walls for termite damage
  • keep tree branches trimmed and away from the chimney
  • check for damaged gutter systems
74
Q

home equity loan

A

provides a lump sum of money

it is often referred to as a second mortgage, because it can be obtained while the borrower is still bound to the initial mortgage

home equity loan terms can range from 5 to 30 years at a fixed interest rate

75
Q

when a home equity loan might be right for a client

A
  • their home improvement plan consists of a large one-time expense
  • they want a fixed rate for monthly payments
  • they do not have funds available for significant closing costs
76
Q

how to use a home equity loan effectively

A
  • make monthly payments on time

- don’t use the funds for anything besides the planned home improvement project

77
Q

home equity line of credit (HELOC)

A

a line of credit from which you can borrow at any time during the draw period, up to your credit limit

typically, the draw period is 10 years, and the repayment period lasts 15 years

a HELOC is generally offered at a variable rate and payments are typically interest-only during the draw period

78
Q

when a HELOC may be right for a client

A
  • their home improvement plan consists of multiple expenses that may be paid over an extended period of time
  • they do not have funds available for significant closing costs
79
Q

how to use a HELOC effectively

A
  • obtain a quote from a contractor to determine how much your home improvement project will cost before applying for a HELOC–then, only request this amount of credit
  • make an effort to research products and lenders before making your final selection
  • don’t use the credit for anything besides the planned home improvement project
  • cancel the HELOC once it is paid off
80
Q

FHA 203k loan

A

a loan insured by the FHA

can provide you with an initial loan for purchasing a home as well as funding for home improvement

81
Q

when an FHA 203k loan may be right for a client

A
  • they plan to purchase a home that needs major repairs
  • they own a home and want to refinance to conduct major repairs
  • the home and repairs meet the 203k qualifications set forth by the FHA
82
Q

how to use a 203k effectively

A
  • select an FHA-approved lender who is familiar with 203k loans
  • ensure that the property value after completion of any repairs and renovations supports the mortgage amount, including the costs of the improvements, or supports the refinanced mortgage amount
83
Q

streamlined 203k loan

A

permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home

it may be used in conjunction with the Energy Efficiency Mortgage program to make energy efficient improvements

84
Q

when a streamlined 203k loan might be right for a client

A
  • they would like to carry out a minor rehabilitation and/or home improvement project that will not require the involvement of consultants, engineers, and/or architects
  • the proposed projects meet the streamlined 203k qualifications set forth by the FHA
  • they intend to use one or more contractors to complete the repairs or can prove that they have the necessary expertise and experience to perform the work
  • they can complete the project within six months
85
Q

how to use a streamlined 203k program loan effectively

A
  • select an FHA-approved lender who is familiar with streamlined 203k loans
  • adhere to the regulations for a streamlined 203k mortgage for paying contractors as set forth by the FHA
  • don’t use the funds for a major remodeling project, new construction, the repair of structural damage, or for landscaping work
86
Q

title 1 loan

A

insured by the FHA and may be used for alterations, repairs, and site improvements on single family homes and for alterations and repairs on multifamily homes

can be used in connection with a 203k rehabilitation mortgage

87
Q

when a title 1 loan might be right for a client

A
  • they are the owner of the property to be improved, the person leasing the property (provided that the lease will extend at least six months beyond the date when the loan must be repaid), or someone purchasing the property under a land installment contract
  • they want a fixed interest rate
  • they desire a loan of up to $24,000 for improving a single-family home or for improving or building a nonresidential structure
  • you desire a loan of up to $12,000 per family unit, not to exceed a total of $60,000 for improving a multifamily structure
88
Q

how to use a title 1 loan effectively

A
  • select a lender approved to make title 1 loans
  • use caution in choosing and supervising home repair dealers or contractors conducting title 1 repair or renovation work, especially if the loan is made through the dealer
89
Q

energy efficient mortgage

A

assists individuals to purchase an energy efficient home or refinance a home to make energy efficient improvements

although the additional expense of a cost-effective energy package may be finance into an EEM, the loan is initially underwritten as if the energy package did not exist

this means that the borrower does not need to qualify for additional financing or provide a higher down payment

in addition to conventional EEM options, EEMs can be insured through either the FHA or the Department of Veterans Affairs

90
Q

when an energy efficient mortgage might be right for a client

A
  • they would like to obtain a larger loan amount than they qualify for in order to make energy efficient improvements to their home
  • they desire to buy a better and more energy efficient home
  • the client, the home, and the improvements meet the qualifications set forth by the FHA or other financing body
91
Q

how to use an energy efficient loan effectively

A
  • select a lender who is familiar with EEMs (for FHA EEMs, the lender must be FHA approved)
  • determine the cost of the energy improvements and estimate the energy savings with a home energy rating system (HERS) or an energy consultant
  • complete the energy improvements after the loan closes
92
Q

cash-out refinancing

A

when you refinance your mortgage, you replace it with a new mortgage that has better terms–typically lower interest rates

unlike regular refinancing, cash-out refinancing can leverage a borrower’s home equity to provide additional cash funding for improvements to the home

with cash-out refinancing, you replace your original mortgage with a mortgage covering a higher amount–you receive the difference to invest, save, or use for large purchases or home repairs

93
Q

3 reasons to refinance when not trying to fund a home improvement project

A

1) your original mortgage interest rates are considerably higher than current loan rates and will lead to a large reduction in monthly mortgage payments
2) you are required to pay for mortgage insurance on the original loan and owe less than 80% of the home’s value
3) you would prefer to switch from an adjustable-rate loan to a fixed-rate loan

94
Q

3 factors considered for refinancing approval

A

1) credit history
2) debt-to-income ratio
3) loan-to-value ratio

95
Q

3 factors considered for refinancing approval

credit history

A

each lender you speak to will pull your credit report in order to examine your credit history

it is possible that you will not qualify for financing if you have any of the following:

  • low credit score
  • collection accounts
  • judgments
  • liens
96
Q

3 factors considered for refinancing approval

debt-to-income ratio

A

a rate that calculates a borrower’s total monthly debt, including housing and other debt obligations, as a percentage of gross monthly income

though many lenders will not approve a loan if your debt-to-income ratio exceeds 36%, it is possible to qualify if other factors are favorable

to determine your ratio, lenders may request documents such as:

  • proof of income
  • credit report
  • housing documents
97
Q

3 factors considered for refinancing approval

loan-to-value ratio

A

a percentage calculated by dividing the amount of the outstanding loan amount by the sales price or appraised value of the home; also called an LTV ratio

to determine your loan-to-value ratio, lenders examine:

  • your property tax assessment
  • recent neighborhood sales on online home search tools
  • a recent appraisal

most lenders are unlikely to approve you for a loan if your loan-to-value ratio exceeds 80%, however, some government refinancing programs may approve higher ratios

98
Q

benefits of using a real estate agent or broker in selling your home

A
  • receiving advice about pricing your home accurately
  • obtaining assistance advertising the home
  • sharing the responsibility of showing the home to potential buyers
  • having help negotiating the sale and coordinating the details of the closing
99
Q

Equal Credit Opportunity Act

A

federal law that requires lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs

HUD counselor test (7 decks)

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