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NMLS Prep Chapters 1-3 > Products > Flashcards

Products Flashcards

1
Q

Fixed-Rate Mortgage

A

Most common type of mortgage. Fixed interest rate over the entire life of the loan. Has fixed terms of 10, 15, 20, 25, or 30 years.

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2
Q

Escrow

A

Money or value is deposited with a third party (usually the lender) which is then used to pay property taxes or insurance. Buyers typically pay into the escrow account each month as part of their mortgage payment if they are escrowing. The amount is determined by taking the yearly amount due and dividing it by 12 for monthly payments.

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3
Q

Traditional Mortgage

A

30-year fixed rate mortgage.

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4
Q

Non-Traditional Mortgage

A

Anything other than a 30 year fixed rate mortgage.

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5
Q

Adjustable-Rate Mortgage (ARM) / Variable-Rate Mortgage

A

Starts with an initial rate and payment for a limited period, then once that period is over the interest rate and monthly payment can change at each adjustment period.

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6
Q

Adjustment Period (For ARM)

A

The period between rate changes. For example, a 1 year adjustment period is often referred to as a 1 year ARM.

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7
Q

Interest Rate (for ARMs)

A

Consists of the index and the margin. Index is a measure of market interest rates. Margin is the profit the lender adds. The index rate changes each adjustment period to fluctuate with the market but the margin always stays the same. 2 most common indexes are CMT and SOFR.

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8
Q

ARM Adjustment Calculations

A

At the time of adjustment, the lender will add the current index number with the margin. For example, a 1-year ARM with a margin of 1.25% and an index of 0.5% will combine to a fully indexed rate of 1.75%.

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9
Q

Interest Rate Adjustment Caps (ARMs)

A

Put in place to make sure that a borrower’s interest rate never goes higher or lower than a certain percentage with each adjustment. 3 types: First adjustment Cap, Subsequent Adjustment Cap, and Lifetime Adjustment Cap.

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10
Q

First Adjustment Cap (ARMs)

A

Allows the loan’s interest rate to increase or decrease by only a certain amount at the first adjustment.

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11
Q

Subsequent Adjustment Cap (ARMs)

A

Only allows the interest rate to increase or decrease by a specific percentage on any other adjustments after the first adjustment.

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12
Q

Lifetime Adjustment Cap

A

Limits the number of total upward adjustments for the life of the loan. (Starting interest rate + the lifetime cap = the lifetime maximum interest rate)

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13
Q

Negative Amortization

A

If the borrower doesn’t pay all the interest on the loan the remaining interest is added to the balance of the loan causing the amount owed to go up. The reverse of Amortization.

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14
Q

Hybrid ARM

A

Mix between fixed rate and adjustable rate mortgages. Fixed for a specific period of time before they begin adjusting. For example a 3/1 interest rate is fixed for 3 years then adjusts every 1 year.

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15
Q

Interest-Only ARM

A

Allows the borrower to pay only the interest on their loan for a specific number of years for a smaller monthly payment during this period. After the interest-only period, the monthly payment increases and the borrower pays both principal and interest.

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16
Q

Payment Option ARMs

A

Allows the borrower to choose from several payment options. Options include; Interest only payment, minimum payment, a combination payment (which is for both interest and principal.

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17
Q

Periodic Interest Rate

A

The rate charged on a loan over a specific period of time. Lenders quote interest rates on an annual basis, but in most cases, the interest compounds more frequently than annually.

As a result, the periodic interest rate is the annual interest rate divided by the number of compounding periods.

Annual Rate/12 = periodic rate

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18
Q

Interest-only loan payment calculation

A

Loan amount X Rate = Payment
Then Payment/12 months to get the monthly interest payment.

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19
Q

Construction Loan

A

Higher interest rate than a standard mortgage. Money from loan is provided in a series of advances as construction progresses. Interest on what has been drawn is due at the end of each month. Completed when the house is finished.

Payments on construction loans start 6 to 24 months after the loan is made. Can be paid in a lump sum (usually by a new mortgage) or converted to a conventional mortgage.

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20
Q

Construction-to-Perm Loan

A

Construction loans that convert to permanent mortgages. The borrower pays interest until the house is built. Once construction is done the lender will figure out the new P&I to pay the loan off in the remaining term.

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21
Q

Bridge Loan

A

Short-term loan secured by the borrower’s current home that allows the borrower to use their equity for building or a down payment on a new home before the current home sells. Typically interest only. Paid off once the old house sells.

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22
Q

Balloon Mortgages

A

A mortgage that requires a larger than usual one-time payment at the end of the term. The balloon payment is more than 2X the loan’s average monthly payment and covers the remaining balance of the loan.

For example, a 360/180 (payment is a 360-month or 30-year payment but the loan is required to be paid in full at 180 months.)

Most lenders do not offer due to risky nature.

23
Q

Graduated-Payment Mortgage (GPM)

A

A mortgage that has a low initial monthly payment that gradually increases over time. Uses negative amortization to allow borrowers to have low initial payments. Require large down payments.

24
Q

Home Equity Line of Credit (HELOC)

A

Open Ended Loan allows the borrower to take money out of their home to use for other purposes. Must have equity built up in their home. Usually allows taking out around 80% equity max. Only requires monthly interest-only payments on the balance and can be paid down. (Generally ARMs)

25
Q

“What You Should Know About Home Equity Lines of Credit”

A

A Required disclosure for homeowners obtaining HELOCs. Produced by CFPB and required under TILA. MLOs are required to provide within 3 business days of application.

26
Q

Conforming Mortgage

A

A mortgage that conforms with Fannie Mae and Freddie Mac guidelines.

27
Q

Conventional Loan

A

Can be either conforming or non-conforming. Any loan not issued or guaranteed by the government. i.e. cannot be FHA, VA, or USDA loans.

28
Q

Desktop Underwriter (DU)

A

Fannie Mae’s automated underwriting system.

29
Q

Loan Product Advisor (LP)

A

Freddie Mac’s automated underwriting system.

30
Q

Front-End Debt to Income Ration / Housing Expense Ratio

A

The amount borrower will be paying for the mortgage divided by gross monthly income.

31
Q

Back-End Debt to Income Ratio / Total Expense Ratio

A

Borrower’s monthly liabilities divided by gross monthly income

32
Q

Loan to Value (LTV)

A

The loan amount divided by either the purchase price or appraised value, whichever is lower.

33
Q

Down Payment

A

A portion of the price of the home out of your own pocket. Usually cannot be borrowed money. The amount depends on the program, and can be as little as 3% to as much as 20%.

34
Q

Seller Concessions

A

Costs that the seller or lender is paying. Can include;
Title insurance
Origination fees
Processing fees

35
Q

Reserves or PITI Reserves

A

Cash amount that the borrower has available after making a down payment and paying closing costs. Some programs require that a borrower have reserves available at the time of closing.

36
Q

Private Mortgage Insurance (PMI)

A

Required on all conventional or conforming loans when the borrower’s down payment is less than 20%.

37
Q

FHA’s 4 C’s of Underwriting

A

-Credit History (Do they pay?)
-Capacity to repay the loan (Can they pay?)
-Cash/capital assets available to close the mortgage
-Collateral, which evaluates the value of the home.

38
Q

Upfront Mortgage Insurance Premiums (UFMIP)

A

A requirement for FHA loans that requires a one-time payment at closing or is financed into the loan amount. (Currently this is 1.75% of the loan amount) Required regardless of term or LTV.

39
Q

Mortgage Insurance Premium (MIP)

A

PMI for FHA loans paid directly to the FHA.

40
Q

FHA Maximum Loan Amount

A

115% of median house prices.

41
Q

Assumable Loans

A

Allows borrowers to assume a current mortgage, generally with little to no change in terms.

42
Q

FHA Streamlines

A

Refinance for FHA loans to reduce mortgage insurance, interest rate, or payments.

43
Q

Home Equity Conversion Mortgage (HECM)

A

Insured by FHA. Enables older homeowners to convert the equity they have to cash using a variety of payment options.
-Borrower must be at least 62 years old
-Borrower has a principal residence that is either paid off or has a low mortgage balance that can be paid off at settlement.
-Mandatory counseling is required before applying
-Negative amortization
-No escrows for taxes and insurance

44
Q

Veterans Affairs Loans (VA Loans)

A

Loans specifically for veterans of the US Armed Forces and their spouses. Guarantees a certain portion of all VA loans, meaning that VA will pay the lender up to 25% of the loan value should the borrower default.

The borrower must have suitable credit, income, and a Certificate of Eligibility (COE). The borrower can only use VA loan for primary residence and must be honorably discharged or meet requirements.

45
Q

VA Full entitlement

A

VA basic entitlement is $36,000. Most lenders will lend up to 4X this.

46
Q

VA Bonus Entitlement

A

If a veteran wants to buy a home for more than $144,000 then the VA will look at the Federal Housing Finance Agency’s (FHFA) current national conventional financing conforming limit. The VA will guarantee 25% of their loan amount based on these loan limits.

47
Q

VA Interest Rate Reduction Refinance Loan (IRRRL)

A

No cash-out refinance loan for VA loans. Borrower cannot receive any cash back.

48
Q

US Department of Agriculture Loan (USDA Loan)

A

Type of mortgage that is available in rural areas of less than 35,000 people. Benefits include no down payment, 100% financing, lower-than-market interest rates, and a lower PMI rate than any other loan program.

Only 30-year loans but offer direct loans to low or very low-income applicants.

Provides 90% loan note guarantee to approved lenders.

The guarantee fee includes an initial of 1% and a monthly of 0.35%

49
Q

Jumbo Loan

A

a single-family loan that exceeds Fannie Mae and Freddie Mac’s loan limits. Conventional but non-conforming.

50
Q

Sub Prime Mortgages (Alt-A)

A

Designed for borrowers who have less-than-perfect credit. Part of the 2008 meltdown. Were manually underwritten. Little, no, or negative amortization. May not require PMI. Little borrower verification. Risky for lenders.
Include:
-No Income/No Asset Mortgages (NINA)
-State income/Stated Assets (SISA)
-Stated Income/Full Asset or Stated Income/Verified Asset (SIFA/SIVA)

51
Q

Interagency Guidance on Nontraditional Mortgage Product Risks

A

Published 2006. Provides guidelines to lenders regarding nontraditional mortgage products.

52
Q

Payment Shock

A

Occurs when the borrower’s payment suddenly increases. Caused by variable rates. The borrower often can no longer afford to pay mortgage because of high-interest rates causing loan defaults.

53
Q

Predatory Lending

A

Loans that has one of the following:
-Making loans based predominantly on the foreclosure value of borrower’s collateral rather than the borrower’s ability to repay
-Inducing a borrower to repeatedly refinance a loan to charge high points and fees each time the loan is refinanced.
-Engaging in fraud or deception to conceal the true nature of the loan obligation.

54
Q

Non-QM Loans

A

A loan that does not conform with qualified mortgage rule. Not accepted by government-sponsored entities like Fannie Mae or Freddie Mac. Cater to the not-so-perfect borrower.

NMLS Prep Chapters 1-3 (18 decks)

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