PSI 2.0 Exam Prep: Financing Flashcards
What is the average origination fee %?
Between 1-3%. No more than 3%
How to calculate LVT?
LOAN AMOUNT / SALE PRICE OR APPRAISE VALUE (WHICHEVER ONE IS LOWER)
What is PMI?
Private mortgage insurance
When is a PMI neccesary?
when the down payment is less than 20% and loan-to-value ratio is in excess of 80%
what does PITI stands for?
Principal, interests, taxes and Insurance
it is the borrower’s promise to repay the mortgage loan. These are negotiable instruments, which means they can be transferred to another holder.
A promissory note
Who is involved in a deed of trust?
the trustor (borrower), the beneficiary (the lender) and the trustee (an independent third party who holds the deed of trust).
it permits the lender to use a non-judicial foreclosure process; e.g., the lender doesn’t have to go to court to enforce foreclosure proceedings.
The power of Sale in the deed of trust
what is the purpose of a deed of conveyance?
To prove that the mortgage has been paid in full. Also, the lender mark the promissory note as “paid in full and return it back to the borrower
Who is involved in a mortage?
Borrower and the lender
it orders the lender or trustee to immediately release full title to the borrower once the loan is paid in full. The lender is then prevented from pursuing additional payment after the payoff.
The defeasance clause
it makes the entire debt due immediately if there’s borrower default. Before a foreclosure occurs, lenders must send a Letter to the borrower (often not sent until two to three months in default).
An acceleration clause
it requires the borrower to repay the loan when transferring ownership to another.
A due-on-sale clause (also known as alienation clause)
it permits the lender to charge a specified amount for interest lost when a borrower sells or pays off a loan early. these are rare in today’s mortgage market.
A pre-payment penalty
Lenders view these loans as some of the most secure because they may require a down payment of 20%, thus reducing the LTV to 80%
Conventional loans
What is the difference between conforming loan and non-conforming one?
Conforming loans have all of the rules that Fanie Mae and Freddie Mac requires while the non-conforming does not.
it is a mortgage that exceeds the maximum conforming loan amounts. In other words, it’s a loan that exceeds $510,400 in most areas of the U.S.
Jumbo Loan
what MIP stands for?
Mortgage Insurance Premium
This type of loan offers direct guaranteed loans to farmers and ranchers and for rural housing. Congressional appropriation funds these loans.
The USDA Farm Service Agency (FSA)
it is one in which the interest rate fluctuates based on some selected economic index.
An adjustable-rate mortgages (ARM)
is a temporary, short-term loan that provides funds until buyers can obtain permanent financing. it is typically secured by the borrower’s existing home.
Bridge (swing) loan
it requires the buyer to make installment payments to the seller for property purchase. The seller retains the title while buyer gets equitable title.
A land contract/contract for deed
it is a loan a seller issues to the buyer as part of the purchase transaction. This typically occurs in situations where the buyer cannot qualify for a mortgage through traditional means.
A purchase money mortgage
it is a type of junior loan which wraps or includes, the current note due on the property. This loan will consist of the balance of the original loan plus an amount to cover the new purchase price for the property. These mortgages are a form of secondary financing
wrap-around loan
What TILA stands for?
Truth in Lending Act of 1968
What is the purpose of TILA?
It requires lenders to state complete terms when using advertisement for its lending purposes.
it requires mortgage lenders to follow TILA disclosure requirements for real estate advertisements that include credit terms.
Regulation Z
What RESPA stands for?
The Real Estate Settlement Procedures Act (RESPA) of 1974
What is the purpose of RESPA?
it protects consumers from unscrupulous lending practices
who handed RESPA responsibility to the Consumer Protection Finance Bureau (CFPB).?
The Dodd-Frank Wall Street Reform Act of 2010
What does ECOA stands for?
Equal Credit Opportunity of 1974
What is the purpose of ECOA?
it protects consumers from lenders who less favor protected classes
is unfair or abusive lending to buyers. it impose deceptive, coercive, and exploitive practices to take advantage of consumers to increase their debt while financing risky loans.
Predatory Lending
Property falsely appraised at a higher value, then quickly sold, with the buyer taking the “equity” in the property
Illegal Property flipping
When an investor receives title to a property— often by using a straw buyer—doesn’t make the mortgage payments, and usually rents out the home until foreclosure occurs.
Equity Skimming
Conceal their real identity behind someone else’s name and credit
straw buyer
An appraiser secretly works with a borrower and provides a misleading appraisal report to the lender
Inflated appraisals
it is lending money at an excessive (illegal) rate
Usury
These are typically exempt from usury?
Credit cards, retail installment contracts, and consumer leases
Four primary factors in loan underwriting include:
Income, Debt Ratio, Credit Score, Credit History
What are three things Loan underwriters analyze before approving a loan?
borrower’s credit, capacity, and collateral.
How do you calculate housing ratio?
borrower’s projected monthly housing expense (principal, interest, taxes, insurance, second liens, and association fees) divided by income.
HOUSING EXPENSES/INCOME
What are the required housing ratio (aprox) based on the loan type?
Conventional: 25 - 28%
FHA: 31% - 40%
VA: Does not apply
How do you calculate debt-to-income ratio?
total of all the buyer’s debt obligations divided by income.
What are the required debt-to-income ratio (aprox) based on the loan type?
Conventional: 33 - 36%
FHA: 43% - 51%
VA: cannot exceed 41%
Conventional loans typically require credit scores:
620 and Above
FHA borrowers must have a minimum credit score of
580 to qualify for a 3.5% down payment; borrowers with credit scores between 500 and 579 may have to put down as much as 10%.
A balloon payment
has some that some principal remains at the end of the loan term.
it is a standardized measure for interest rates and other costs of the loan.
Annual percentage rate
What wins when determine the debt to income and housing ratio?
The lender will choose whichever amount is the lowest
ds that mention general financing terms, such as “low down payment” or “easy financing,”
do not require additional disclosure. If Bo had gotten more specific (e.g., “10-year loan with 0% down”) he would need to include more information.
What factors directly affect an adjustable rate mortgage?
Rate, index, and margin
When buyers haven’t spoken to their bank or another lender, how should you handle the situation?
Offer to refer them to a lender and prepare them for the meeting.
How many parties does a deed of trust involve?
the trustor (borrower), the beneficiary (the lender) and the trustee (an independent third party who holds the deed of trust).
When a mortgage is used as a security instrument, who holds the mortgage and the promissory note?
The lender holds the mortgage and the note.
what is the difference between a pre-approval letter and a pre-qualification letter?
A pre-approval has been verified by the lender; thus it provides more assurance while the pre-qualification letter does not
Are early prepayment penalties also applied to refinance
Yes
What is TRID?
TILA-RESPA Integrated Disclosures
When considering loan risk, which two items will lenders consider in equal measure?
The property’s value (as underlying collateral) and the borrower’s ability to repay the loan will be equal considerations for the lender.
Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full?
Defeasance
What Item is the most important in detecting mortgage fraud?
The original sales agreement and any addenda
he mortgage becomes a lien on the property, but title remains with the buyer. Foreclosure proceedings in a this theory state may be more difficult for the lender.
Lien Theory State
Phoebe’s gross monthly income is $4,200, and she has $360 in monthly non-housing debt payments. The lender’s qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What’s the maximum housing payment she can afford?
The maximum house payment is the lesser of the amounts calculated using both ratios. DTI: $4,200 x .36 = $1,512. $1,512 – $360 = $1,152. Housing ratio: $4,200 x .28 = $1,176. Phoebe’s maximum payment is $1,152.
Manuel is selling his home to Selena. He has an existing loan that he’ll continue to make payments on, and he’s extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction?
Wrap-around loan
are RESPA requirements exempt from commercial loans?
Yes, they are
