Mortgage Flashcards
Conforming Home Loan
Loan product less than or equal to the dollar amount limit set by the FHFA - Federal Housing Finance Agency and meet funding criteria of Freddie Mac and Fannie Mae (FHLMC) and (FNMA)
Loan amount threshold varies by county
Non Conforming Loan
Loan amount above the conforming loan amount limits or does not conforming underwriting criteria
Conventional loans
Most common
Great for low moderate income clients
Not insured by federal government in any way
First time home buyers to high net worth clients
Government Loan
Federal housing Administration (FHA) and Veteran Affairs (VA)
Loan is insured by federal government and protects lender if borrower defaults
Smaller down payment requirements and more flexible lending guidelines and conventional products
VA - offer d to military families and requires little or no down payment
Only available as fixed rate loans
FHA - available to all borrowers who have modest income or limited funds for down payments
Home Equity Line of Credit (HELOC)
- HELOC allows borrowers who have equity in their home to access a portion of the accumulated equity to make home improvement, consolidate debt, invest in education or finance other necessary expenses
- Good fit for clients who anticipate needing access to funds overtime
- Variable interest rates product
- Fixed rate loan option for clients who prefer predictable stable payments
- Sometimes bank only offers a percentage of equity
- HELOC can be first or second lien
- Can be used for large expenses or debt consolidation and might have lower interest rates than other types of loans
Mortgage
Temporary, conditional pledge or property to a creditor as Security for repayment of a debt
Borrower agrees to repay the borrowed money with interest at a predetermined rate, over a specific period of time
Lien
Legal claim against a mortgage property
- lien is released when debt is repaid
- mortgage balance is the lien portion - amount owed to bank
- when a client decides to sell, the amount left on the lien needs to be paid to the bank before any profit can be distributed to the clien
Why do clients need mortgage?
Purchase a home/property
Refinance a home
Obtain a HELOC to gain access to cash or reduce monthly expenses
Purchase Mortgage?
Used to buy a home The borrower (client) agrees to repay the borrowed money, along with interest, at a predetermined rate
Refinance a loan?
New mortgage is obtained to replace existing one
Restructures existing mortgage loan
Pays off the old loan while simultaneously taking out a new one
Types of refinancing
Rate and term refinance
Cash-out refinance
Delayed refinancing
Rate and Term Refinance
Current mortgage is refinanced with a new one that changes the rate or term but does knot increase the loan balance
Loan proceeds can’t be used for any other purposes other than satisfying the original debt
Cash-Out Refinance
Client receives cash back as a result of refinance
The refinance is in excess of the current balance of the old loan Plus the closing and settlement costs
The feature of getting cash out is only viable if the client has enough equity in the home
Equity
Value of home minus mortgage debt
Delayed Refinance
Client chooses to acquire property on a cash basis
Client submits an application for a cash-out loan to recover the cash used to purchase the property
Transaction must begin within certain time frame after purchase of property
Consolidating debt
Restructure credit card and other debt into one loan
Fixed Rate Mortgage
Interest rate does not change over the life of the loan
- interest rate will usually be higher than those for an ARM at least initially
- principal and interest rates remain the same - assures clients
- if market rates fall, the client will have to refinance the loan to benefit from lower interest rate
- payments spread over term of the loan
Adjustable-Rate Mortgage ARM
Someone who pays off Home quickly
Interest rate can adjust/vary over the life of the loan
- lower initial interest rate which results in lower monthly payment during initial fixed period of loan
- interest rate can change after fixed period resulting in increase or decrease of he payment
- can be interest only or fully amortized
Types of ARM
Interest only ARM
Fully-Amortized ARM
Interest-Only ARM
“Basically renting house instead of paying down the principal of the house”
- interest only payments are required along with low monthly payments
- popular for high net worth clients
Fully-Amortized ARM
principal and interest rates are required
APR
APR is a quick way to see the true, total cost of a mortgage
Reflects: (APR includes these elements into one percentage rate)
- mortgage interest rate
- Mortgage points
- fees
- other charges
Closing Costs and Settlement
Closing a mortgage requires additional fees which can run 2% to 5% of sale price (purchase) or loan amount (refinance)
Elements of a Mortgage
PITI
principal - amount applied to outstanding balance of the loan
Interest - cost of borrowing $
Taxes - 1/12 of estimated annual real estate taxes on home
Insurance - 1/12 of annual homeowners and mortgage insurance
The fixed-rate mortgage is designed for clients with what type of needs and preferences?
Someone who doesn’t want to pay a higher interest rate
The adjustable-rate mortgage is designed for clients with what type of needs and preferences?
Someone wanting lower rate for a fixed period of time - someone to sell house
What are the benefits of refinancing a mortgage?
Save money
Cash out
Lower interest rate
Although there are many refinancing options and Customized rates, what are the most common refinance options (30 year fixed rate)
30, 20, 15 and 10 year depending on how fast you want to pay down your home
What are some examples of expenses that a Home Equity Line of Credit is used to finance?
Home improvements / renovations
Debt consolidation
Tuition
Vacation
