Sources of Mortgage Funds Flashcards
Typical residential loans
Conventional (less, not gov backed)
Federal Housing Administration
Veteran’s Administration
USDA Rural Housing
Conventional loan
“Typical”
FRM
Balloon note
ARM
What is the maximum LTV that many conventional lenders prefer?
Put down 20%, get 80% LTV
LTV
Loan-to-value
Can a conventional mortgage have higher LTVs?
Yes, between 80-97%
What is Private Mortgage Insurance (PMI) for?
The amount you go over 80% LTV
Adds extra to your monthly payment
When do we pay PMI?
When borrowing more than 80%, meaning you put down less than 20%
How do people avoid PMI?
Put 20% down
Get a 2nd mortgage (higher rate)
Get government backed mortgage
What is the Federal Housing Administration part of?
The U.S. Department of Housing and Urban Development
Does the FHA lend money?
No, but if a loan is approved and the lender defaults they will pay it all back
Who obtains FHA loans?
First-time homebuyers
Lesser credit buyers
High debt ratio buyers
Buyers with little cash
Maximum FHA loan amount
$271,050 in Alabama
How much do FHA borrowers invest?
3.5%
Why are government loans more expensive?
Have to pay an upfront premium of 1% of the loan for mortgage insurance (can be amortized)
What are other amounts the borrower might have to pay?
- 35% - 1.55% of the loan amount each year for mortgage insurance
- to pay for mortgage defaults
Does the Veterans Administration lend money?
No, they guarantee the loans of qualified veterans
What must the borrower have/do to qualify with VA?
Have a Certificate of Eligibility
Pay a funding fee up front
(1.25% - 3.30%)
-this is to make up for losses
What determines the VA funding fee?
How much down payment you have
How many times you’ve gotten a VA loan
What LTV can veterans borrow under the program and what is the max loan amount?
100%
$417,000
What veterans don’t have to pay the funding fee?
Disabled from war
Widows of veterans
What type of people get USDA loans and what locations?
People in rural areas, poor
Want to keep locations there
What will the government do for people with USDA loans compared to other types?
(rural development)
Will pay part of (subsidy) and
Forbearance (stop payments if unemployed)
Maximum loan amount
Based on income
Funding fee 2% up front + .4% per year
“Guarantee programs”
USDA and VA
What LTV can be borrowed under USDA and what is the max loan term?
100%
38-40 year loans
(30 is normal) = lower pmt
Typical commercial loans
Conventional loans from commercial banks
Commercial mortgage backed security (CMBS)
A securitized commercial loan, means it is sold from the bank to investors
Balloon note
Short term note kept at the bank
What is typical amortization for commercial loans?
25 years
Small Business Administration Commercial loans (SBA)
Guarantee programs for banks
One note with more down than CDC
SBA typical percentages
85% up to $150,000
75% from $150,000 to $5,000,000
Amortization under SBA (business loans)
Real estate amortized up to 25 years
Equipment amortized up to 10 years
Costs/penalties of SBA commercial loans (and amounts)
Low closing costs- no points, bonus/application fees
High prepayment penalties- included on 15 or > years
5% 1st, 3% 2nd, 1% 3rd forward
SBA guaranty and servicing fee
Guaranty: 2% - 3.75%
Servicing: .55% per year on outstanding balance
Certified Development Company (CDC) loan
two notes, less down than SBA Economic development (np)
What % on mortgages will CDC’s give?
50% senior mortgage (bank)
40% junior mortgage (CDC-SBA guarantee)
10% down payment or equity
–basically, bank will make you a first mortgage for 50% LTV, then they will make you a 40% junior mortgage, then you have to have 10% down
Farm credit
Provides LT loans on rural acreage
How much on land will farm credit loan and why does that matter?
90%, it is a higher loan amount than the bank will give
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