Section 10: Lending and Loans Flashcards
LENDING AND LOANS:
Financing Markets:
* There are a number of sources to borrow money from including both Private and
Commercial Lenders for those in need of _______ for Real Estate.
* Financing sources (primary and secondary mortgage markets, seller financing etc).
Financing
LENDING AND LOANS:
Financing Markets:
* _______:
o Commercial banks, mutual savings banks, life insurance companies, savings
and loans, credit unions, mortgage banks.
Primary Mortgage Market
LENDING AND LOANS:
Financing Markets:
* Primary Mortgage Market:
o Loan origination is marketed directly to _______ NOT brokers or middlemen.
o These lenders create the loans and, in some cases, will keep and service them.
Buyers
LENDING AND LOANS:
Financing Markets:
* Primary Mortgage Market:
o IMPORTANT: Most Lenders will ‘BUNDLE’ multiple loans into packages and sell them to investors. This is called a _______.
Mortgage-Backed Securities (MBS)
LENDING AND LOANS:
Financing Markets:
* Primary Mortgage Market:
These SINGLE loans are CREATED in the _______.
BUNDLED loans are SOLD on the _______.
Primary Mortgage Market
Secondary Mortgage Market
LENDING AND LOANS:
Financing Markets:
_______:
* There is a large network of investors who purchases existing mortgages and
trust deeds on the Open Market and could be other banks, private investors or
groups.
Secondary Mortgage Market
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Lenders from the primary Market package loans together as a _______.
* IMPORTANT: This provides liquidity of assets back to primary lenders so they can issue NEW loans by freeing up capital that was held up in the original loans.
Mortgage Backed
Security (MBS)
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* _______, Fannie Mae, Freddie Mac, Life insurance companies, investment firms, pension funds are the biggest BUYERS of BUNDLED mortgages.
Ginnie Mae
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Ginnie Mae, _______, Freddie Mac, Life insurance companies, investment firms, pension funds are the biggest BUYERS of BUNDLED mortgages.
Fannie Mae
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Ginnie Mae, Fannie Mae, _______, Life insurance companies, investment firms, pension funds are the biggest BUYERS of BUNDLED mortgages.
Freddie Mac
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Ginnie Mae, Fannie Mae, Freddie Mac, _______, investment firms, pension funds are the biggest BUYERS of BUNDLED mortgages.
Life Insurance Companies
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Ginnie Mae, Fannie Mae, Freddie Mac, Life insurance companies, _______, pension funds are the biggest BUYERS of BUNDLED mortgages.
Investment Firms
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* Ginnie Mae, Fannie Mae, Freddie Mac, Life insurance companies, investment firms, _______ are the biggest BUYERS of BUNDLED mortgages.
Pension Funds
LENDING AND LOANS:
Financing Markets:
Secondary Mortgage Market:
* _______:
A clause found in a lenders servicing agreement that would prevent a new lender from changing terms of the loan without the direct approval of the borrower (Protects the borrower).
Estoppel Certificate
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
* Mortgage Backed
Security (MBS) are sold on the secondary market mainly to the _______ entities.
Government Backed
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
o IMPORTANT: Since the mortgage meltdown, _______ now are biggest buyers (90%).
Federal Reserve Entities
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
* Entities such as Freddie Mac and Fannie Mae set guidelines for how the loans they buy should be underwritten known as _______.
Mortgage Backed
Security (MBS) Pools
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
* Mortgage Backed
Security (MBS) Pools can also consist of loans that do NOT fit Fannie Mae or Freddie Mac
guidelines, like jumbo loans where _______ or _______ are likely to purchase these pools.
Hedge Funds
Private Investors
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
o _______:
This is a privately run government institution that buys mainly conventional loans on the secondary market
from larger commercial banks.
Federal National Mortgage Association / Fannie Mae (FNMA)
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
o _______:
This is a privately run government institution that buys mainly conventional loans from smaller banks or credit unions.
Federal Home Loan Mortgage Corporation / Freddie Mac (FHLMC)
LENDING AND LOANS:
Financing Markets:
Who BUYS All Of The Mortgages?
o ________:
This is a government
entity that buys mainly VA, FHA, RHA, and other government backed mortgages.
Government National Mortgage Association / Ginnie Mae (GNMA)
LENDING AND LOANS:
Financing Markets:
Mortgage Banker vs Broker (Who ISSUES the Mortgages?):
* _______:
They work in the loan department of larger financial institutions like banks, savings and loan association or credit unions.
o Usually a banker works directly with the public i.e. realtors, direct borrowers etc.
o Understands and tries to use his own products to get people into a loan.
o Wells Fargo & Chase Bank are examples of these individuals.
Mortgage Banker
LENDING AND LOANS:
Financing Markets:
Mortgage Banker vs Broker (Who ISSUES the Mortgages?):
* Mortgage Banker:
o The _______ define a banker as an individual, firm or corporation that originates, sells and or services loans secured by mortgages.
Mortgage Bankers Association
LENDING AND LOANS:
Financing Markets:
Mortgage Banker vs Broker (Who Issues the Mortgages?):
* _______:
This person has no direct ties to any one institution and can shop loan programs.
o Determines the loan type that is best for the individual borrower.
o Shops different mortgage bankers to determine who could offer best terms.
o Has the ability to compare loans from different institutions.
Mortgage Broker
LENDING AND LOANS:
Financing Markets:
Mortgage Banker vs Broker (Who Issues the Mortgages?):
* Mortgage Broker:
o The _______ define a broker as an independent
real estate financing professional who specializes in the origination of
mortgages.
National Association of Mortgage Brokers
Real Life Note:
Most real estate agents work with mortgage brokers. Brokers can “shop” different banks and lender programs to find a loan for the borrower that fits that borrowers needs.
Not all banks offer the same programs, so find yourself a great loan broker as they can get your clients the best rates, which in turn, gets you the agent, more business!
What is this called?
Dual Agency
This lender has the option of shopping for better rates for their client:
Broker
Banker
Broker
LENDING AND LOANS:
Conventional Loans:
* Loans that are _______ federally insured or guaranteed.
* Banks or private financial institutions originate the loan.
Not
LENDING AND LOANS:
Conventional Loans:
* These loans are determined to be either conforming or non-conforming:
* _______:
Any mortgage loan that CONFORMS to federal guidelines.
Conforming Loans
LENDING AND LOANS:
Conventional Loans:
o _______ are loans that meet the criteria set by Freddie Mac and Fannie
Mae and are sold on the Secondary Market.
Conforming Loans
LENDING AND LOANS:
Conventional Loans:
o Loans must be below $_______ in order to be considered ‘CONFORMING’
o (This is the new loan limit as per 2022).
$625,000
LENDING AND LOANS:
Conventional Loans
*_______:
A loan that fails to meet bank criteria for funding.
Non-Conforming Loans
LENDING AND LOANS:
Conventional Loans
*Non-Conforming Loans:
o Loan amount is higher than the conforming loan limits, lack of _______, the unusual nature of the loan, or other out of the ordinary criteria.
Sufficient Credit
LENDING AND LOANS:
Conventional Loans
*Non-Conforming Loans:
o Jumbo Loans: loans in the amount over the conforming rate of $_______.
o Government buyers typically don’t by jumbo loans or pools consisting of jumbos.
$484,350
LENDING AND LOANS:
Conventional Loans
*Non-Conforming Loans:
o Private entities or corporations will buy Non-Conforming loans.
o Higher risk to lender, usually require larger down payments and _______ borrower qualifications.
Stricter
LENDING AND LOANS:
Quiz:
A _______ loan is over the conforming loan limit size.
Jumbo
LENDING AND LOANS:
Quiz:
You purchase your home through the local ABC Bank. They have decided to sell your loan and ______________ it with other loans. They then sell it on the ____________ market.
Bundle
Secondary
LENDING AND LOANS:
Quiz:
What is the difference between a Mortgage Banker and a Mortgage Broker?
Mortgage Banker works in the loan department of larger financial institutions like banks, savings and loan associations, or credit unions. On the other hand, Mortgage Broker has no direct ties to any institution and can shop loan programs.
LENDING AND LOANS:
Quiz:
Why would a Primary Lender sell your loan?
The lender needs their money freed up to continue making new loans to new borrowers. When they sell these loans on the secondary market, they not only profit from this sale, but they get their money back, which they then turn around and loan out again, and the process starts all over again.
LENDING AND LOANS:
Quiz:
Who would most likely purchase a Jumbo Loan on the Secondary Market?
Hedge funds or private investors will likely purchase a Jumbo Loan on the Secondary Market.
LENDING AND LOANS:
Quiz:
Conforming loans:
Are similar to other loans in the area
Are not government insurable
Exceed $424,100
Meet federal criteria guidelines
Meet federal criteria guidelines
LENDING AND LOANS:
Quiz:
The largest buyer of Mortgage Backed Securities is:
Federal Government
FMLA
FHA
Big Banks and Investment Firms
Federal Government
LENDING AND LOANS:
Quiz:
All of the following loans would be considered conforming except:
Rural Home Loans under $250,000
Jumbo Loans
VA ensured loans with no down payments
New construction home loans
Jumbo Loans
LENDING AND LOANS:
Quiz:
Your client, a newly graduated student from university who has large student loans but a good credit score. The problem is that the borrower has limited funds to be used as a down payment and has a somewhat high debt to income ratio. This borrower would most likely be best served by which type of home lenders?
Loan Broker
Loan Banker
Vendor
FHA
Loan Broker
LENDING AND LOANS:
Government Insured Loans:
*The federal government insures a ________ of each loan in the event the borrower defaults on their home loan.
Portion
LENDING AND LOANS:
________:
* This backing, or guarantee, is what gives lenders more confidence in homebuyers and the ability to extend favorable rates and terms.
Government Insured Loans
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* Managed by ________. FHA Does NOT originate or make loans, they ONLY INSURE these loans.
Department Housing and Urban Development (HUD)
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* Available to all types of buyers not just first-time homeowners by having looser lending ________ versus a conventional loan would.
Guidelines
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* IMPORTANT: FHA Loans NEVER have a ________ on it’s loans.
Prepayment Penalty
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* IMPORTANT: FHA Loans are only for owner occupied homes up to 4 units as long as 1
is ________.
* Low down payment compared to conventional with only a 3.5% down payment.
Primary Owner
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* FHA loan limits will vary between counties and states
* IMPORTANT: FHA loans will carry a MIP on loans that have LESS THAN a ________% down payment.
20%
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
o MIP = ________ carried on FHA insured loans.
o This is designed to PROTECT the lender in cases where the borrower has defaulted.
Mortgage Insurance Premium
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
o FHA has an ________ and an ongoing monthly
premium that now, never goes away until the loan is paid off or refinanced.
Upfront Mortgage Insurance Premium (UFMIP)
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* FHA ________ will perform a specific type of appraisal to satisfy FHA terms.
Certified Appraisers
LENDING AND LOANS:
Government Insured Loans:
FHA Loans:
* ________:
A typical FHA clause where by the borrower is mandated to receive their earnest money back in full without penalty if the property FAILS to meet value or appraise.
FHA Conditional Commitment / FHA Amendatory Clause
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
* Loans offered SPECIFICALLY for the use of qualified US Military Veterans.
* VA loans are for ________ units only.
Owner Occupied
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
o ________:
Proof that the Veteran has served and is eligible.
Certificate of Eligibility
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
Certificate of Eligibility:
ELIGIBILITY INCLUDES:
o ________ Consecutive Days of active military service during wartime.
90 Consecutive Days
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
Certificate of Eligibility:
ELIGIBILITY INCLUDES:
________ Days of active service during peacetime.
181 Days
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
Certificate of Eligibility:
ELIGIBILITY INCLUDES:
More than ________ Years of service in the National Guard or Reserves.
6 Years
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
Certificate of Eligibility:
ELIGIBILITY INCLUDES:
The spouse of a service member who ________ in the line of duty or as a result of a service-related disability.
Died
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
* ________: VA loans have a NO down payment needed.
Zero Down Payment
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
* There is NO ________ on VA Loans.
Mortgage Insurance
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
* VA loan limits vary by county and state. AZ current 2018 limits are $________.
$453,100
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
* Appraisals are done in accordance with the ________.
Department of Veterans Affairs
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
o ________:
Veteran is given a certificate good for a period of 6 MONTHS that the property meets the value at asking price.
Certificate of Reasonable Value
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
o Certificate of Reasonable Value:
VETERAN is given a certificate good for a period of ________ Months that the property meets the value at asking price.
6 Months
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
o Certificate of Reasonable Value:
* ________ :
These fees for VA loans vary between loans and can be paid by seller or Veteran.
Variable Funding Fee
LENDING AND LOANS:
Government Insured Loans:
VA Loans:
o Certificate of Reasonable Value:
* Veterans can ________ their VA loans over and over using their ‘certificate of eligibility’.
Reuse
LENDING AND LOANS:
Government Insured Loans:
Which statements about government insured loans are correct?
The federal government insures a portion of each loan in the event the borrower defaults on their home loan
FHA loan limits do not vary between counties and states
VA loans have no down payment needed
FHA Loans do NOT have a prepayment penalty on it’s loans
The federal government insures a portion of each loan in the event the borrower defaults on their home loan
VA loans have no down payment needed
FHA Loans do NOT have a prepayment penalty on it’s loans
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
This is specifically for _______borrowers with certain income requirements that are not able to obtain adequate housing with conventional financing.
Rural
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
There are _______ Insured loans for rural borrowers with certain income requirements that makes it harder for them to obtain housing with conventional financing.
Government
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
IMPORTANT: _______ DO exist and are based off of the average for the area.
Income Limits
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
The _______ of the property being financed must be eligible and recognized as rural as per the guidelines of the United States Department of Agriculture.
Address
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
Does NOT have to be a first-time buyer, can be _______ used.
Repeatedly
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
IMPORTANT: 100% Financing, no _______ is needed.
Down Payment
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
USDA loans do NOT have PMI, but instead have an _______ that is meant to cover any losses incurred by borrowers who may default.
Upfront Premium
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
o IMPORTANT: Up front mortgage insurance is _______% of the loan amount and can be financed.
2%
LENDING AND LOANS:
Servicing of a Loan:
Who SERVICES The Mortgage?
* IMPORTANT: _______ = the collection of funds due monthly to the loan owner and the distributions of those funds to the appropriate party, for a collection fee.
Loan Servicing
LENDING AND LOANS:
Servicing of a Loan:
Who SERVICES The Mortgage?
Loan Servicing:
* IMPORTANT: The ‘_______’ of a loan could be the same as the original lender.
* Most often, the originator of the loan will have a 3rd party servicer.
Servicer
LENDING AND LOANS:
Servicing of a Loan:
Who SERVICES The Mortgage?
Loan Servicing:
* The property owner must be notified in _______ if their loan is going to be sold or serviced by another party in advance of the action taking place.
* At initial closing of the loan, a disclosure states what _______ of loans that broker/banker keeps VS sells on the secondary market to give people an idea of if their loan will be sold.
Advance
Percentage
LENDING AND LOANS:
Common Loans:
Fully Amortized Loans:
* IMPORTANT: Most frequently borrowers have both fully amortized and _______ loans.
Budget
LENDING AND LOANS:
Common Loans:
* _______:
These are loans where both the principal and interest are being paid per month.
Fully Amortized Loans
LENDING AND LOANS:
Common Loans:
Fully Amortized Loans:
o All mortgages are ‘_______’ which means you are paying back the majority of the interest in the up-front period of the loan and principal increases over time.
Front Loaded
LENDING AND LOANS:
Common Loans:
Fully Amortized Loans:
o IMPORTANT: At the _______ of the loan term, both the principal and the interest will have been paid back.
End
LENDING AND LOANS:
Common Loans:
Budget Loans:
These are loans that include the payments that will be made to _______ and _______.
Insurance
Taxes
LENDING AND LOANS:
Common Loans:
Budget Loans:
o IMPORTANT: Commonly known as _______ loans or Principal, Interest, Taxes and Insurance.
P.I.T.I.
LENDING AND LOANS:
Common Loans:
Budget Loans:
o Loans with PMI are known as _______ loans as they include PMI amounts.
o Lenders use this PITI to determine your ratios on how much you can afford.
P.I.T.I.-M.I. loans
Remember: Pity Me
LENDING AND LOANS:
Common Loans:
Budget Loans:
o IMPORTANT: Each month, the lender is taking 1/12 of your taxes and insurance bill and place these monies into your ‘_______’ account.
Impound / Escrow / Special
LENDING AND LOANS:
Common Loans:
Budget Loans:
o IMPORTANT: The _______ will pay your taxes and insurance bills when they come due from
this Impound / Escrow / Special account.
Lender
LENDING AND LOANS:
Uncommon Loans:
* Not Every borrower will qualify for a conventional loan and as such there are quite a few types of loans that lenders have created in the past to satisfy the demand of
_______ lending.
Unconventional
LENDING AND LOANS:
Uncommon Loans:
* _______:
o Borrowers who wish to build will obtain this type of loan where the lender will finance both the materials and the labor being used to construct the building.
Construction Loans
LENDING AND LOANS:
Uncommon Loans:
* Construction Loans:
o These loans have a short duration and at end of the construction, the loan is _______ to a conventional loan.
Converted
LENDING AND LOANS:
Uncommon Loans:
* Construction Loans:
o Lender issues draw payments to borrower at predefined increments called _______.
Draw Periods
LENDING AND LOANS:
Uncommon Loans:
* Construction Loans:
IMPORTANT: _______:
These are detailed payment plans for a construction project.
Draw Payments
LENDING AND LOANS:
Uncommon Loans:
* _______:
o In this type of loan payments is lower because only the interest is being paid, not principal.
Interest Only Loans
LENDING AND LOANS:
Uncommon Loans:
* Interest Only Loans:
o In this type of loan the entire _______ loan amount is due on the final payment at the end of their terms.
Remainder
LENDING AND LOANS:
Uncommon Loans:
* _______:
o Any type of financing that is provided directly by the seller to the buyer.
Seller Financing
LENDING AND LOANS:
Uncommon Loans:
* Seller Financing:
o Usually, a down payment is made followed by monthly payments at an agreed upon _______ until the loan is repaid.
Interest Rate
LENDING AND LOANS:
Uncommon Loans:
* Seller Financing:
o Also known as a _______, ________, or _________.
Contract for Deed
Land Contract
Agreement for Sale
LENDING AND LOANS:
Uncommon Loans:
* _______:
o This type of loan is used to fund the purchase of more than one piece of real property.
Blanket Loans
LENDING AND LOANS:
Uncommon Loans:
* Blanket Loans:
o Popular with builders who buy large tracts of land, then _______ them to create many individual parcels to be gradually sold one at a time.
Subdivide
LENDING AND LOANS:
Uncommon Loans:
* _______:
o This type of loan is typically issued by PRIVATE investors or companies.
o Interest rates are usually HIGHER than a standard lender.
Hard Money Loans
LENDING AND LOANS:
Uncommon Loans:
* Hard Money Loans:
o There is little to NO _______ oversight and regulation.
Government
LENDING AND LOANS:
Uncommon Loans:
* _______:
o In this type of loan borrowers over the age of 62 pledge their current home as collateral to a bank who in turn makes payments to the borrowers who own the home.
Reverse Mortgage Loans
LENDING AND LOANS:
Uncommon Loans:
* Reverse Mortgage Loans:
o Typically reserved for the elderly who own their homes free and clear.
o Owners are still responsible for homes _______ and _______.
Taxes
Insurance
LENDING AND LOANS:
Uncommon Loans:
* Reverse Mortgage Loans: Upon the owner’s _______, the home reverts to the bank as an asset.
Death
LENDING AND LOANS:
Uncommon Loans:
* Adjustable Rate Loans:
o IMPORTANT: Also known as an ARM where the rate ADJUSTS over the life of the loan.
o Adjustments are tied to a _______.
Specific Index
LENDING AND LOANS:
Uncommon Loans:
* _______:
o This is a type of loan where the borrower is borrowing for the purchase of both real and personal property.
o Think of a farm – the new buyer is buying the farm (land) and the equipment (personal).
o IMPORTANT: Sometimes can be used for the purchase of property that is furnished already.
Package Loans
LENDING AND LOANS:
Uncommon Loans:
* _______:
o Borrower makes equal payments until a predefined point where the balance is due.
o The final payment is for the remainder of the balance.
Balloon Loans
LENDING AND LOANS:
Uncommon Loans:
* _______:
o This is the type of loan that allows owners to use their equity as a loan to receive cash out payments.
Home Equity Loans
HELOC
Home Equity Lines of Credit
LENDING AND LOANS:
Uncommon Loans:
* _______:
o This type of loan is through a bank or other institution that originates mortgage loans and holds a portfolio of loans instead of selling them in the secondary market.
Portfolio Lenders
LENDING AND LOANS:
Uncommon Loans:
* _______:
o The seller carries a SECONDARY mortgage which wraps around and exists in addition to any first loan already secured by the property.
Wrap Loans / Carryback Loans
LENDING AND LOANS:
Uncommon Loans:
* Wrap Loans / Carryback Loans:
o Sellers carry some risk in the case that buyer defaults on the loan, SELLER is still _______ for paying the primary mortgage.
Responsible
LENDING AND LOANS:
Uncommon Loans:
* _______Open End Loan:
o Where the seller can keep ‘OPEN’ the maximum amount he can borrow.
o As they pay down their principal, the borrower can go back and borrow up to their loan limit again and again.
LENDING AND LOANS:
Uncommon Loans:
* _______:
o A short-term financing tool that helps purchasers to “BRIDGE” the gap between old and new mortgages by allowing them to tap the equity in their current residence as a down payment, while essentially owning two properties CONCURRENTLY as they wait for the sale of their existing home to close.
Gap Loan
Bridge Loan
Swing Loan
LENDING AND LOANS:
Uncommon Loans:
* _______:
o Long-term take-out loans replace interim financing, such as a short-term construction loan.
Take Out Loan
LENDING AND LOANS:
Uncommon Loans:
* _______:
o A loan used for the specific purpose of obtaining a non-affixed home whereby the borrower can borrow money to obtain both the land and the mobile/manufactured home in one loan.
Manufactured Home
Mobile Home Loan
LENDING AND LOANS:
Uncommon Loans:
* Manufactured Home or (Mobile Home) Loan:
IMPORTANT: A _______ financing statement is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor. This is used primarily in financing mobile homes.
UCC-1
LENDING AND LOANS:
Uncommon Loans:
Quiz:
Which of these is NOT an uncommon loan?
Reverse loan
Budget loan
Construction loan
Blanket loan
Budget loan
LENDING AND LOANS:
Commercial Financing
* Types Of Commercial Loans:
o _______ =
Similar to residential financing, but in the case of a business, personal AND business credit scores are used. The down payments is usually 20-30% down and rates are HIGHER versus residential.
Conventional
LENDING AND LOANS:
Commercial Financing
* Types Of Commercial Loans
o _______ =
In some cases, the SELLER of commercial will act as the bank, thus carrying the borrower.
Seller Financing
LENDING AND LOANS:
Commercial Financing:
* Types Of Commercial Loans
o _______ =
These loans guarantee loans on behalf of small business. They are GOVERNMENT insured and will pay back up to 85% of a loan in case of a business DEFAULT.
Small Business Administration (SBA) Loans
LENDING AND LOANS:
Commercial Financing:
* _______ =
Many new businesses can’t show profit and loss statements on their TAXES so the owner of the business/real estate can opt to personally guarantee the loan, using their own money and assets.
Personal Guarantee
LENDING AND LOANS:
Commercial Financing:
* _______ =
This premium cost is a contractual clause that compensates a lender for the loss of interest payments arising from a borrower’s early payment of the loan.
Yield Maintenance /
Pre-Payment Penalty
LENDING AND LOANS:
Commercial Financing:
* _______ =
These are used to measure the fees, spreads and rates in commercial real estate finance. Each one is worth 0.01 percent of a single percentage point. (100 = 1%)
Basis Points (BPS)
LENDING AND LOANS:
Commercial Financing:
* _______ =
This is a popular benchmark used in the measurement of an entity’s ability to produce enough cash to cover its debt payments, expressed as a ratio (NOI / Debt Owed).
Debt Coverage Ratio
LENDING AND LOANS:
Commercial Financing:
* _______: Rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.
IMPORTANT: Used primarily in commercial – the amount put out vs cash that comes in is expressed as a %)
Cash-on-Cash Returns
LENDING AND LOANS:
_______:
* Many loans are in fact able to be taken over and the new borrower can assume or take over the existing terms and conditions of the seller’s current loan.
Assumable Loans
LENDING AND LOANS:
Assumable Loans:
* Most _______ loans and all _______ loans are ASSUMABLE and are set up that way.
o New buyer still have to qualify for the loan just as if it were a new loan and the lender will have to ALLOW the new buyer to assume the loan.
FHA
VA
LENDING AND LOANS:
Assumable Loans:
* _______ =
The buyer assumes the debt and terms of the sellers existing loan.
o In some loans, the original buyer (now seller) can be held liable for the original loan.
Assumption
LENDING AND LOANS:
Assumable Loans:
* _______ =
Substitution of a new contract in place of an old one.
o When the seller (original borrower) doesn’t want to be on the hook for new borrower in case of default, they can use this clause.
Novation /
Nomination
LENDING AND LOANS:
Assumable Loans:
* _______=
Subject to the existing mortgage on the property.
o Loan stays in the seller’s name, but the buyer gets the deed and controls the property.
o Buyer makes the mortgage payments but the seller remains responsible for the loan.
Subject To Loans
LENDING AND LOANS:
Assumable Loans:
* _______ =
This is a way to prevent a new buyer from assuming the loan (lender can call the note due and payable IMMEDIATELY, also found in foreclosures).
o This dictates that the loan must be paid off in full before a new borrower or owner can take over the property.
Due on Sale Clause /
Alienation Clause
LENDING AND LOANS:
Qualifying for a Loan:
* Lenders look at the Ratio’s and the overall _______ performance to qualify borrowers
* The borrowers Debts and their Incomes will be a primary source of determining the capability of obtaining a loan and repaying it over time.
Credit
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
A seller has an existing VA loan and wants to sell to another Veteran. The VA loan is ____________ as long as the new buyer qualifies!
This is an ASSUMABLE loan where the new buyer can take over the original loan ‘assuming’ all the same terms as long as they qualify.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Why (primarily) does the federal government insure a portion of most mortgages?
The federal government insures a portion of each loan if the borrower defaults on their home loan. This backing, or guarantee, gives lenders more confidence in home buyers and the ability to extend favorable rates and terms.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
For an FHA loan, when is mortgage insurance required? What does mortgage insurance provide?
Mortgage insurance is designed to protect the lender when the borrower defaults.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Despite the added cost of Mortgage Insurance Premiums (MIP), what is the primary advantage to a buyer of an FHA loan?
FHA has an upfront mortgage insurance premium and an ongoing monthly premium that never goes away until the loan is paid or refinanced.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
What is the difference between assumption and novation?
In assumption, the buyer ASSUMES the debt and terms of the seller’s existing loan. In some loans, the original buyer (now seller) can be held liable for the original loan. For Novation, the SUBSTITUTION of a new contract replaces an old one. When the seller (original borrower) doesn’t want to be on the hook for the new borrower in case of default, they can use a novation clause.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
The interest rate on an amortized fixed-rate mortgage will?
Change every year
Stay the same for the entire repayment
Increase gradually
Decrease gradually
Stay the same for the entire repayment
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Conforming loans:
Are similar to other loans in the area
Are not government insurable
Exceed $424,100
Meet federal criteria guidelines
Meet federal criteria guidelines
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Which is not a characteristic of an FHA loan?
No mortgage insurance premium
Low down payment
High down payment
Government insured
No mortgage insurance premium
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Which loan would have A clause that protects A borrower from paying more than the house is worth?
VA Loan using Protection Clause
USDA using Rural Guidance Clause
Conventional using Fair Market Clause
FHA using the Amendatory Clause
FHA using the Amendatory Clause
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
In lieu of A conventional appraisal process, A VA loan applicant receives
Certificate of reasonable value
Certificate of eligibility
FHA appraisal
Cost method appraisal
Certificate of reasonable value
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
USDA/RHS loans require A(n):
Mortgage insurance premium
Certificate of eligibility
Down payment
Upfront premium
Upfront premium
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
Fully amortized loans:
Pay interest only
Pay principal only
Pay both interest and principal
Have A balloon payment at A predetermined time
Pay both interest and principal
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
With A budget loan, money collected each month for taxes and insurance is put into what type of account?
Impound
Escrow
Savings
PITI
Impound ONLY ON BUDGET LOANS.
Escrow Account on all other loans.
LENDING AND LOANS:
Qualifying for a Loan:
Quiz:
With interest only loans, when is the principal paid?
At the closing of the property
Gradually every 12 calendar months
Beginning midway through the term
Paid in full at the end of the term
Paid in full at the end of the term
LENDING AND LOANS:
Qualifying for a Loan:
This is why you need a good lender, well, that and a good borrower! These are the items that will qualify or disqualify your borrower from obtaining credit.
Lenders look at the DTI Ratio’s and the overall Credit performance to qualify borrowers.
The borrowers Debts and their Incomes will be a primary source of determining the capability of obtaining a loan and ________ it over time.
Repaying
LENDING AND LOANS:
Qualifying for a Loan:
* ________ = A form that was developed by the Federal National Mortgage Association (Fannie Mae), as a standardized form for the industry.
Uniform Residential Loan Application (URLA) Form 1003
LENDING AND LOANS:
Qualifying for a Loan:
* All loan officers, brokers or lenders must be licensed according to the Nationwide ________ and follow national guidelines.
* Lenders will look at your DTI ratio to determine how much they can qualify for known
Mortgage Licensing System (NMLS)
LENDING AND LOANS:
Qualifying for a Loan:
* ________ =
You have a unique score that helps determine your creditworthiness. This is one of the 4 C’s (Credit, Character, Collateral, Capacity).
Credit Score
LENDING AND LOANS:
Qualifying for a Loan:
* ________ =
A credit report where all 3 credit reporting bureaus are reporting to the lender information that is in their credit report on you, which can and will vary between agencies.
Tri-Merged Credit Report
LENDING AND LOANS:
Qualifying for a Loan:
________ =
This is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
o Example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. ($2000 is 33% of $6000.)
Debt to Income Ratio
DTI Ratio
LENDING AND LOANS:
Qualifying for a Loan:
It’s not always how much you can borrow, but how much you can ‘________’
Afford
LENDING AND LOANS:
Qualifying for a Loan:
o ________ =
Any index that is used to adjust pricing on loans, borrowing costs, lease rate etc. The consumer price index or inflation index are two examples of an index.
Indices
LENDING AND LOANS:
How Much Is Being Borrowed?
* ________ =
Ratio is a number that describes the size of a loan compared to the value of the property securing the loan.
LENDING AND LOANS:
How Much Is Being Borrowed?
* Lenders use the Loan to Value (LTV) ratio to understand how ________ a loan is, and it can be used for approving loans or requiring mortgage insurance.
LTV is always expressed as a percent:
o Loan amount/ Property Value = LTV
o $320,000 loan + $400,000 property = 80% LTV
o The borrower here is financing 80%
Risky
LENDING AND LOANS:
Income & Debt Ratios:
* ________ = Monthly housing expenses / Monthly Gross Income
o The lower the better which means you have lower monthly expenses.
o The lower your expenses overall, the more you can ‘BORROW’ on a loan.
Income Ratio
LENDING AND LOANS:
Income & Debt Ratios:
* ________ = All Housing expenses + All Other Monthly expenses / Monthly Gross Income.
o This is your total debts, not just housing and again, the LOWER the better.
o Many people can’t afford a home because their car loans, student loans and credit cards absorb too much of their total income.
Debt Ratio
LENDING AND LOANS:
Income & Debt Ratios:
Understanding borrowers ‘________’ will give you the real estate agent an idea of what they can qualify for, even before you talk to a lender. It should be obvious that the more income you have, the more you qualify for, unless you have a lot of debt. so again, we are looking at ratios being express as a percentage or a fraction.
Ratios
LENDING AND LOANS:
Income & Debt Ratios:
Case Study:
Express this to me as a RATIO please!
To qualify for a conforming loan, most lenders require a DTI of 43% or lower, commonly known as the “43% rule.”
So if your borrower has income of $100,000 and debts of $50,000 you would divide the debt by the income: $50,000 / $100,000 to determine they have a 50% DTI - Not going to qualify!
Better, a borrower earns $60,000 a year and has $12,000 in debt. ($12,000 / $60,000 = .20) This buyer has a _____% DTI and looks like a great buyer!
20%
LENDING AND LOANS:
Income & Debt Ratios:
Quiz:
If a borrower has a yearly income of $90,000 but has debts of $34,000 per year, what is their DTI expressed as a percentage?
2.65%
37%
45%
19%
37%
NOTE: Remember, small (debt) divided by big (income) = percent or rate. $34,000 / $90,000 = .37 or 37%
LENDING AND LOANS:
Income & Debt Ratios:
Like Diamonds and the 4 C’s, lending has the 4 C’s
1.
2.
3.
4.
- Credit
- Collateral
- Character
- Capacity
LENDING AND LOANS:
Income & Debt Ratios:
THE 4 C’S of Lending:
* Credit:
o Lenders look at credit to determine borrowers past borrowing patterns.
o Most often a tri-merged credit report is pulled.
o Equal Credit Opportunity Act prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
o IMPORTANT: HOWEVER, you _______ place bias or discriminate on the basis of credit.
Can
LENDING AND LOANS:
Income & Debt Ratios:
THE 4 C’S of Lending:
* Collateral
o Is the property being loaned against good enough to be used as collateral.
o An appraisal will determine the _______ of the asset.
Value
LENDING AND LOANS:
Income & Debt Ratios:
THE 4 C’S of Lending:
* Character
o _______ can be made about a borrower to determine his ABILITY to repay.
o Past history is used as evidence to help determine character.
Assumptions
LENDING AND LOANS:
Income & Debt Ratios:
THE 4 C’S of Lending:
* Capacity:
o Does the borrower have the _______ means necessary to repay the loan.
o Can the borrower pay not only the loan but also their other monthly debt obligations?
Financial
LENDING AND LOANS:
Loan Limits and Rates:
* It is very likely that two borrowers will get two completely different loans if applying for the same property from the same lender
* Most of the time the lender has loan limits set by the _______, NOT federal requirements.
* Designed to not take advantage of borrowers with varying credit backgrounds
State
LENDING AND LOANS:
Loan Limits and Rates:
* ________ =
The illegal practice of lending money at unusually high interest rates.
Usury
LENDING AND LOANS:
Loan Limits and Rates:
* Usury =
o IMPORTANT: Arizona has this rates set at 10% - BUT – Creditors and Borrowers can ‘________’ and as such, there is NO limit to what a creditor can charge (as long as agreed upon).
Agree to Any Rate
LENDING AND LOANS:
Loan Limits and Rates:
* ________ = Loans where the borrower is not prime or A grade. These borrowers will usually have a higher interest rate due to lower credit, capacity, collateral or character.
Sub-Prime Loan
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
* ________ =
Have SAME interest rate for entire repayment.
o Slightly higher rate but PREDICTABLE payments.
Amortized Fixed-Rate Mortgages
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
* ________:
Will change, typically every year.
o Lower initial rate but UNCERTAINTY about future payments.
Adjustable Rate Mortgage (ARMs)
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
* Adjustable Rate Mortgage (ARMs):
* Some ________ loans will begin fixed for several years and then change to adjustable.
Hybrid
LENDING AND LOANS:
Government Effect On Rates:
* Federal Reserve directly CONTROL interest rates by raising or lowering the ________.
Federal Funds Rate
LENDING AND LOANS:
Government Effect On Rates:
________: Interest rate conventional banks use to lend money.
Federal Funds Rate
LENDING AND LOANS:
Government Effect On Rates:
* By raising the cost to borrow money from the Federal Reserve, banks in turn ________ the interest rates at which they lend their money in the form of mortgages.
Raise
LENDING AND LOANS:
Government Effect On Rates:
o By raising the cost to borrow money from the Federal Reserve, banks in turn ________ interest rates, the cost of borrowing money becomes cheaper.
Lower
LENDING AND LOANS:
Government Effect On Rates:
o Lower interest rates mean people can borrow more money at lower costs, which ________ public buying and directly affects the real estate market by increasing home sales.
Stimulates
LENDING AND LOANS:
Government Effect On Rates:
Quiz:
Name one of the 4 C’s of Credit?
Credit, Capacity, Collateral, or Character
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
Quiz:
What is the difference between a Fixed Rate Mortgage and an Adjustable Rate Mortgage?
Fixed-rate mortgages have the same interest rate for repayment. It is a slightly higher rate but predictable payments. On the other hand, Adjustable Rate Mortgage (ARMs) will change, typically every year: lower initial rate but uncertainty about future costs.
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
Quiz:
How can lenders legally exceed the usury rates?
Arizona has usury rates set at 10%, but lenders can ‘agree to any rate,’ so there is no limit to what a creditor can charge (as long as agreed upon).
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
Quiz:
What is the difference between income ratio and debt ratio?
The income Ratio is calculated as Monthly housing expenses / Monthly Gross Income. The lower, the better, which means you have lower monthly expenses. The lower your costs, the more you can ‘borrow’ on a loan. However, the Debt Ratio equals All Housing expenses added to All Other Monthly expenses / Gross Income. This is your total debt, not just housing, and again, the lower the better.
LENDING AND LOANS:
Fixed vs. Adjustable Rate Loans:
Quiz:
Name one of the four items lenders look at to determine credit?
1). Uniform Residential Loan Application (URLA) Fannie Mae Form 1003
2). Credit Score
3). Tri Merged Credit Report
4). DTI Ratio
LENDING AND LOANS:
Quiz:
The interest rate on an amortized fixed-rate mortgage will?
Change every year
Stay the same for the entire repayment
Increase gradually
Decrease gradually
Stay the same for the entire repayment
LENDING AND LOANS:
Quiz:
Which loan criteria is being investigated when looking at a borrower’s financial means to repay the loan and other debts?
Credit
Collateral
Character
Capacity
Capacity
LENDING AND LOANS:
Quiz:
When can A creditor charge interest above the usury rate?
When borrower has had A past bankruptcy
During hard times
When agreed upon by the borrower
When A borrower’s DTI exceeds 49%
When agreed upon by the borrower
LENDING AND LOANS:
Quiz:
Which of the following criteria can be discriminated against in regards to lending:
Social and Ethnic Background
Community Property Applications
Job length history
Supplemental government assistance
Job length history
LENDING AND LOANS:
Quiz:
The ratio describing the size of A loan compared to the value of the property is referred to as:
Debt to income ratio
Income ratio
Loan to value ratio
Collateral ratio
Loan to value ratio
LENDING AND LOANS:
Quiz:
The total of all housing expenses and other expenses compared to monthly gross income is referred to as:
Investment Ratio
Debt to Income Ratio
Loan to value ratio
Collateral ratio
Debt to Income Ratio
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
Mortgages are paid in arrears, you are paying interest on money you used.
Arrears
LENDING AND LOANS:
Loans Terms Defined:
* Arrears:
o IMPORTANT: October 1st mortgage payment is for the money borrowed for the month of ________.
September
LENDING AND LOANS:
Loans Terms Defined:
* Arrears:
o IMPORTANT: March 1st mortgage payment is for the money borrowed for the month of ________.
February
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
The amount of the loan being financed.
Principal
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
The money paid to a lender for the use of their money.
Interest
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
A percentage rate applied to the principal which determines the amount of interest owed to the lender over time.
Interest Rate
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
The rate that is offered to a borrower before actually making a loan decision can fluctuate depending on external forces, and is where rates are for any given day, before a borrower has ‘locked in’ their rate.
Floating Rate
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
When the borrower gets closer to the close of escrow date, the lender will ask the borrower to ‘lock in’ their rate which we try and get the most favorable terms based on the market.
Rate Lock
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
The rate charged and represents the actual amount of borrowed moneys cost over the life of the loan.
Annual Percentage Rate (APR)
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
Lenders clause in the borrowing documents that states there will be a financial penalty if the loan is paid off early.
Pre-Payment Penalties
LENDING AND LOANS:
Loans Terms Defined:
* Pre-Payment Penalties =
Usually his penalty is only for the first couple of years. Normally ________ Years.
They are NOT as common as they once were.
3-5 Years
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
When financing multiple properties and the borrower pays off one of the properties under a blanket loan, the lender will ‘release’ that property from being encumbered.
Release (Partial Release)
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
This is defined as a loan where the borrower or guarantors are
not personally liable for repaying any outstanding balance on the loan.
Non-Recourse Loan
LENDING AND LOANS:
Loans Terms Defined:
* ________ =
When the borrower has successfully paid of their MORTGAGE, the lien holder will send a satisfaction of mortgage letter indicating fully repaid. This is also recorded as a release of liability.
Satisfaction Of Mortgage
LENDING AND LOANS:
Loans Terms Defined:
* ________:
This is the same concept of the satisfaction of mortgage, but used in States where the Deed of Trust is used and indicates full satisfaction and REPAYMENT of the DEED OF TRUST.
Deed of Reconveyance
LENDING AND LOANS:
Loan Points:
* ________ =
Prepaid interest that lowers the APR over the life of the loan.
Discount Points
LENDING AND LOANS:
Loan Points:
Lender and Loan Points:
There are a few types of “POINTS” that you will see in Real Estate.
REMEMBER THIS:
EVERY POINT is equal to ________% of the LOAN AMOUNT
1%
LENDING AND LOANS:
Loan Points:
________:
Prepaid interest that lowers the APR over the LIFE of the loan.
Discount Points
LENDING AND LOANS:
Loan Points:
Discount Points:
IMPORTANT: THIS REDUCES THE BORROWERS PAYMENTS FOR THE LIFE OF THE LOAN:
1 Discount Point = 1% of the PRINCIPAL LOAN AMOUNT:
o 1 Discount point on a $240,000 loan = $________
$2400
LENDING AND LOANS:
Loan Points:
Discount Points:
IMPORTANT: THIS REDUCES THE BORROWERS PAYMENTS FOR THE LIFE OF THE LOAN:
1 Discount Point = 1% of the PRINCIPAL LOAN AMOUNT:
o $240,000 loan buying 2 Discount Points.
$240,000 x .02 (2 points) = $________
$4800
LENDING AND LOANS:
Loan Points:
* 1 Discount Point = a 1/8 % Reduction in Interest Rate:
o To lower the interest rate 1 % = ________ Discount Points
8 Discount Points
LENDING AND LOANS:
Loan Points:
* 1 Discount Point = a 1/8 % Reduction in Interest Rate:
o To lower the interest rate 1/2 % = ________ Discount Points
4 Discount Points
LENDING AND LOANS:
Loan Points:
1 Discount Point = 1% of the LOAN AMOUNT
1 Discount point on a $240,000 loan = $2400
$240,000 loan buying 2 Discount Points = $________
$4800
LENDING AND LOANS:
Loan Points:
1 Discount Point = a 1/8 % Reduction in Interest Rate
To lower the interest rate by ONE FULL PERCENT (1 %) = 8 Discount Points
Think going from 5% rate to 4% rate, that is 1 full % so you need 8 points
1/8 = ________ x 8 = 1
.125
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
1/8 = _________%
.125%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
2/8 = _________%
.250%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
3/8 = _________%
.375%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
4/8 = _________%
.5%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
5/8 = _________%
.625%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
6/8 = _________%
.75%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
7/8 = _________%
.87%
LENDING AND LOANS:
Loan Points:
Calculating Discount Points by Reduction in Interest
Rate:
8/8 = _________%
1%
LENDING AND LOANS:
Loan Points:
* _________ =
An upfront fee that borrowers will pay to the lender as compensation for issuing a loan, processing, underwriting, and closing.
Origination Points
LENDING AND LOANS:
Loan Points:
* Origination Points:
o 1 Origination Point = 1% of the PRINCIPAL LOAN AMOUNT
1 Origination Point on a $185,000 loan = $_________
$1850
LENDING AND LOANS:
Loan Points:
* Origination Points:
1.5 Origination Points on a $300,000 loan = $_________
$4500
LENDING AND LOANS:
Loan Points:
Points as a Whole:
There will be times where a borrower has both discount points (reduce their interest rate) and origination points (lender profit).
It doesn’t matter. To do the math it’s the same as above but remember, each point is 1% of the _________, not the purchase price!
Loan Amount
LENDING AND LOANS:
Loan Points:
Case Study:
Question: A borrower is getting an 80% loan on a $400,000 property. She has 1 origination point and 2 discount points. What are her costs?
Answer: $400,000 is the purchase price. She has an 80% loan so that is 320,000 (400,000 x .80 = 320,000)
1 origination point = $3,200 (1% of $320,000)
2 discount points = $6,400 (2% of $320,000)
Total costs = $________
$9,600
LENDING AND LOANS:
Loan Points:
Case Study:
A borrower wants to reduce their interest rate by 1/2% from 7.5% to 7%. This will cost the borrower _________ discount points to do this.
This is 4 points. Each discount point is going to lower the borrowers rate by 1/8% or .125. So 4/8 or 1/2 is 4 points or .5%!
LENDING AND LOANS:
Loan Points:
* _________ =
By paying upfront fees to a lender a borrower can receive a reduced interest rate for a set amount of time.
Temporary Buydown Points
LENDING AND LOANS:
Loan Points:
Temporary Buydown Points:
* _________:
This is a 2-year reduced payment and rate.
1st Year rate reduced by 2%, 2nd year rate reduced by 1% and 3-30 rate is fixed.
2-1 Buydown
LENDING AND LOANS:
Loan Points:
Temporary Buydown Points:
* 2-1 Buydown:
This could be paid for by the buyer or more often by the SELLERS as an _________ to entice people to buy. This is common with developers or builders.
Incentive
LENDING AND LOANS:
Loan Points:
Quiz:
True or False; Discount points are an upfront fee that borrowers will pay to the lender as compensation for issuing/processing a loan.
True
False
False - Sellers Normally cover to Entice Buyers
LENDING AND LOANS:
Loan Points:
Case Study:
A client’s potential mortgage is $1,350 a month in addition to $500 worth of additional debt payments that they have for their car, student loans, etc. If their monthly income is $3,600 a month (before taxes - gross), what is their DTI Ratio?
Total debt payment=1350 + 500 = $1850
Monthly income= $3600
DTI Ratio= 51.38%.
LENDING AND LOANS:
Loan Points:
Case Study:
What does Arrears mean?
Mortgages are paid in arrears; you are paying interest on money you used.
LENDING AND LOANS:
Loan Points:
Case Study:
To lower an interest rate by 0.5%, how many discount points would be required?
To lower the interest rate by 0.5 % , 4 Discount Points would be required
LENDING AND LOANS:
Loan Points:
Case Study:
How are temporary buydown points used?
By paying upfront fees to a lender, a borrower can receive a reduced interest rate for a set amount of time. For example, a 2-1 Buydown is a two-year reduced payment (and rate). 1st Year rate reduced by 2%,, 2nd year rate reduced by 1%, and 3-30 rate is fixed.
LENDING AND LOANS:
Loan Points:
Quiz:
Pledging real property in order to secure a mortgage is an example of:
Credit
Collateral
Character
Capacity
Collateral
LENDING AND LOANS:
Loan Points:
Quiz:
What is the interest rate that the governments banks lend to conventional banks so that they can then lend money?
APR
Federal funds rate
Lending rate
Principal
Federal funds rate
LENDING AND LOANS:
Loan Points:
Quiz:
To lower an interest rate over the life of the loan by 1/2%, how many discount points would A borrower have?
1
2
4
8
4 [EACH POINT IS 0.125%]
LENDING AND LOANS:
Loan Points:
Quiz:
In an effort to cool an overzealous housing market, the federal reserve would typically:
Decrease interest rates
Relax lending guidelines
Create new programs designed to stimulate investment
Raise interest rates
Raise Interest Rates
LENDING AND LOANS:
Loan Points:
Quiz:
The difference between the current owner’s balance and the asking price on an assumable mortgage loan is:
Negotiable
Adjustable
Buyer’s equity
Seller’s equity
Seller’s Equity
LENDING AND LOANS:
Loan Points:
Quiz:
In an attempt to lure potential buyers to their community, A builder could legally entice people by offering which of the following lending practices:
Discount Purchase Loans
Temporary buy down
Free prequalification
Not disclosing the APR
Temporary Buy Down
LENDING AND LOANS:
Loan Points:
Quiz:
A borrower is told that they can get a 4.625% loan for 30 years. The lender states they can buy it down by 1/2% if they wanted to. If the loan amount is $240,000, how much would this cost them if they did end up buying the rate down?
$9600
$2400
$1200
$12,000
$9600
LENDING AND LOANS:
Loan Points:
Quiz:
With A budget loan, money collected each month for taxes and insurance is put into what type of account?
Impound
Escrow
Savings
PITI
Impound
Points and Loan Math:
Qualifying for a home purchase is a lenders job, but as an agent we have to know what goes into that as well as know discount points and fees that are common in real estate loans. A Discount Point is equal to 1%
of the loan amount and will lower the interest rate by _______%. These points are used to buy down the interest
rate on a loan. Buydowns are temporary in nature where they are only for a defined duration. Origination fee is an upfront fee charged by a lender to obtain a loan.
1/8%
Points and Loan Math:
Qualifying for a home purchase is a lenders job, but as an agent we have to know what goes into that as well as know discount points and fees that are common in real estate loans. A Discount Point is equal to _______ of the loan amount and will lower the interest rate by 1/8%. These points are used to buy down the interest
rate on a loan. Buydowns are temporary in nature where they are only for a defined duration. Origination fee is an upfront fee charged by a lender to obtain a loan.
1%
Points and Loan Math:
A borrower has been told that he can obtain 80% financing on a home purchase. If he can borrow a maximum of $160,000, what is the max purchase price he can qualify for?
- $160,000 ÷ .80 (80%) = $200,000
ANSWER: $200,000 purchase price max
Points and Loan Math:
Lender AZUSA is quoting a potential borrower that they can get a loan at 4.5% on a $200,000 purchase loan but there are additional finance costs of $2300. What is the Actual Percentage Rate (APR)?
- $200,000 x .045 (4.5%) = $9,000 Annual Interest
- $9,000 + $2,300 = $11,300 Total Costs
- $11,300 ÷ $200,000 = .00565 or 5.65% APR
ANSWER: 5.65% actual APR
Points and Loan Math:
A grant program is offering a down payment grant on new purchases to borrowers with a 620 fico score or higher at 7.5%. There is an origination fee of 1% of the purchase price and 2
discount points for all borrowers. Your client wants to buy a $135,000 townhouse in Avondale. What is his actual interest rate and what is the interest they will be paying per month on the loan?
- $135,000 x .075 = $10,125
- $10,125 + $1,350 (origination) + $2,700 (two discount points) = $14,175
o $14,175 ÷ 12 = $1,181.25/monthly interest
o $14,175 ÷ $135,000 = .105 or 10.5% Rate
ANSWER: Actual monthly interest $1,181.25 and 10.5% Rate
Points and Loan Math:
Joan de Arc has a great loan (her lender thinks!!). She borrowed 90% LTV on a conventional mortgage and she is paying $1320 monthly in interest at a rate of only 12.25%! What is her loan amount?
- $1320 x 12 = $15,840
- $15,840 ÷ .1225 = $129,306
ANSWER: Her loan amount is $129,306
Points and Loan Math:
What was the purchase price of the home that Joan de Arc just bought?
* $129,306 ÷ .9 (90% of purchase price) = $_________
* Don’t forget that the purchase price should always be higher than the loan!
ANSWER: Purchase price of $143, 673
Points and Loan Math:
Lieutenant Dan is proud to be getting a VA loan. His lender can get him a 4.25% rate to buy a home but Dan really wants to get a 3.875% rate. On a $255,000 loan amount, how much is
this going to cost Lieutenant Dan?
$255,000 x .03 (3 discount points) = $7,650
* Discount points are 1% of loan amount
* 1% of loan amount = 1/8% lower rate
* 1/8% is equal to .125 on a rate
ANSWER: This will cost him $7,650
Points and Loan Math:
Tina Turnaround is paying the price for having poor credit, but since she makes good money, she is ok with the fee’s associated with getting a loan. The lender LoanSharks Inc has
told Tina that she can get a loan for a condo at 7%. In order to get that loan, she has to pay 5
discount points. What was the rate that she was offered initially by LoanSharks Inc?
- 1/8 x 5 = .625%
- .625 + 7% = 7.625%
ANSWER: She was initially offered a rate of 7.625%
Points and Loan Math:
Monica and Chandler are finally buying their first home. They are going for an interest only
loan at 3.375% and buying their dream home for $555,000 where they are putting 25% down.
What is the total amount of interest they will pay for the 1st year?
- $555,000 x .75 (75% of sales price) = $416,250
- $416,250 x .03375 (3.375%) = $14,048
ANSWER: They will pay $14,048 in interest the 1st year
LENDING AND LOANS:
Government Insured Loans:
USDA/RHS Loans (US Department of Agriculture/Rural Housing Service):
IMPORTANT: _______ DO exist and are based off of the average for the area.
Income Limits
