The Basics of Finance 1 Flashcards
three basic components
- The Primary Mortgage Market
- The Secondary Mortgage Market
- Government Influences
understanding the parameters as a real
estate agent
We, as real estate protessionals, must understand the mortgage market in order to facilitate real estate transactions and help our buyers and sellers make informed decisions. As always, do not overstep your bounds of licensure or quote rates, act like mortgage protessionals, etc. It is important to note, even if you hold a mortgage license, it is against the law. in the State of Utah to wear the hat of both mortgage professional and real estate agent
the primary mortgage market
Buyer meets with a mortgage loan officer and works to obtain funds for the purchase of their home. Also referred to as “retail lending”: the gathering of funds directly to buyers who want to purchase property.
Typically in primary mortgage market, a mortgage broker will originate a loan and then will package it and sell it on the secondary market.
direct lenders
Provides loans to buyers
Savings and Loans
Commercial Banks
Mutual Savings Banks
Credit Unions
Pension Plans
Mortgage Brokers
commercial banks
Sometimes a buyer will go into bank or credit union and sit with a loan officer to get a loan. Those institutions potentially have a limited number of resources that they can reach out to in terms of lenders that they work with in order to provide funds.
mortgage brokers
A vast majority of buyers work with mortgage brokers who have a variety of resources, many different lenders that they can send a loan to. A mortgage broker will look at that lenders guidelines and see if that lender’s criteria is a good fir for the buyer. The goal as a mortgage broker is to make that marriage work between the buyer and the loan product.
indirect sources of funds
- Life Insurance Companies
- Pension Funds
- Investment Groups
understanding the flow of money
As a real estate licensee, you don’t need to necessarily worry about the flow of money and how the details will work in every transaction. As a general rule, it is valuable for you to
understand how the flow of money works.
The Role of the Federal Government
- The Federal government have a significant role in mortgage lending.
- FHA and VA loans are the two of the prominent loans
the secondary mortgage market
Plays a key role in financing of real estate in the US. This will be covered in the next course, The Basics of Finance 2.
US department of housing and urban
development (HUD)
hud.gov
This website is a great resource tor someone looking to buy a house. It provides great insight on how to quality for a mortgage, figure out how much one can afford, get tips of avoiding foreclosure, etc. This website is the first place to go to find information on FHA loans.
mission of HUD and their role in the
mortgage market
“HUD’s mission is to create strong, sustainable, inclusive communities and quality attordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of lite; build inclusive and sustainable communities free trom discrimination, and transtorm the
way HUD does business.”
Builder Bob wants a mortgage to build a home for himself and his family. He goes to Squarepants Mortgage Company to obtain his loan. This loan was originated in the:
A: Primary Mortgage Market
B: Secondary Mortgage Market
C: Federal Reserve Market
D: Hard Money Market
A: Primary Mortgage Market
Sources for money in the Primary Mortgage Market include:
A: Savings & Loans
B: Commercial Banks
C: Credit Unions
D: All Of The Above
D: All Of The Above
Samantha seeks to purchase a condominium in Provo. She will be LEAST likely to seek financing for her condo from a:
A: Mortgage Loan Originator
B: Bank
C: Credit Union
D: Life Insurance Company
D: Life Insurance Company
Indirect sources of funds for a mortgage loan might come from:
A: Life Insurance Policies
B: Pension Funds
C: Investment Groups
D: All Of The Above
D: All Of The Above
Travis has a license to originate a mortgage between Billy the Borrower and Countrywide Home Loans. Travis is acting in the capacity of:
A: The Borrower
B: The Secondary Market
C: A Hard Money Lender
D: A Mortgage Loan Officer
D: A Mortgage Loan Officer
FHA loans
Federal Housing Administration
https://www.hud.gov/buying/loans HUD and FHA are not the primary lending source. They insure the loan. FHA and VA loan exist to help people buy their own primary residence. Not to buy investment properties.
three benefits of FHA loans
- Low Down Payments
- Low Closing Costs
- Easy Credit Qualifying
low down payment
One of the best benefits is the low down payment. As of the taping of this course, a buyer can buy a house with as low as 3.5% down.
low closing costs
Very helpful to first time homebuyers.
easy credit
qualifying It is much easier for a buyer to qualify for an FHA loan, than a buyer to qualify for a conventional loan.
FHA residential use only
An FHA loan is available for 1-4 units, as long as the Buyer lives in one of the units. Anything above 4 units is not considered residential, but commercial, and therefore the FHA loan would not be available for use.
know your rights
HUD oversees anything to do with Fair Housing. In the event that a complaint was
filed, it would be filed to HUD.
real estate settlement procedures act
(RESPA)
borrower’s rights and predatory
lending
Not covered in this course, but know that the information can be found on the
hud.gov website.
shopping for a loan?
There is a brochure available to shop, compare, and negotiate the best mortgage, as well as learn about FHA loans and interest only loans.
HUD homes
In the event that a FHA loan is given to a Borrower, they default and the property goes back to the Lender, that home is now called a HUD Home. Sometimes you can get really great deals on HUD homes. This is not on the exam, so you can learn all about it after you get your license.
home inspection for an FHA loan
This disclosure lets the Borrower know that they need to have a home inspection done prior to purchasing a home. In the event, they decide not to get a home inspection done, they are choosing that at their own risk. The purpose of this form is to help consumers be informed and make good decisions.
maximum mortgage limits
Most useful piece of information on hud.gov: Current breakdown in table format for the maximum mortgage limits for the State of Utah broken down by county.
A mortgage loan guaranteed by the federal government is most likely a(n):
A: FHA Or VA Loan
B: Conventional Loan
C: New Construction Loan
D: Home Equity Line Of Credit
A: FHA Or VA Loan
FHA reverse mortgage
Vehicle for older Americans to pull equity out of their home to purchase other properties or
purchase a primary residence.
A great mortgage option for a first time home buyer with good credit and a 3.5% down payment might consider a(n):
A: Conventional Loan
B: FHA Loan
C: VA Loan
D: Reverse Mortgage
A: Conventional Loan
B: FHA Loan
VA loans
The Veterans Administration does not actually issue loans, but comes up with the qualifying criteria for the program and they work with direct lenders who will actually provide the funding for the loans to transpire for your buyer. The VA guarantees a portion of the loan to allow the lender to offer better terms to the buyer.
VA and FHA loans
While the work is challenging and unpredictable, it is so rewarding to see someone who might not have been able to qualify for a loan, get approved for a VA or FHA
loan and have the opportunity to purchase a home.
benefits of VA loan
- Purchase Loans
- Cash Out Finance
- Interest Rate Reduction Refinance Loan (IRRRL)
purchase loans
The loans help you get competitive interest rates without requiring a down payment or
private mortgage insurance.
cash out refinance
Allows the Veteran to take cash out of their home equity to pay debts such as funding
school or home improvements.
interest rate reduction refinance
loan (IRRRL)
A Veteran buyer who already has a VA Loan in place on their home can do a streamline refinance, not taking cash out (cash out refinance).
EX: When buyer purchased their home the interest rates were at 6%, and now interest rates are at 4%. It makes sense to refinance the loan to save money.
VA home loan fact sheet
Discusses what the loan can be used for, the benefits, and who is eligible for a VA
loan.
a common misconception
of VA loan
The VA Loan can be used for new
construction.
use a lender with vast VA
loan experience
Make certain if your buyer is using a VA Loan, that they are utilizing a lender who knows exactly what they are doing and has vast experience with VA
loans.
VA appraisals
These appraisals help make sure the
property is safe, sanitary and sound.
A great mortgage option for a borrower who was recently discharged from active duty service in the US Marine Corps might strongly consider a(n):
A: Conventional Loan
B: FHA Loan
C: VA Loan
D: Reverse Mortgage
C: VA Loan
A borrower over the age of 62 with significant equity in their home might consider a(n):
A: Conventional Loan
B: FHA Loan
C: VA Loan
D: Reverse Mortgage
D: Reverse Mortgage
Sam Smith walks into Apple Jacks Credit Union and applies for a mortgage. The Credit Union is an example of:
A: Primary Mortgage Market
B: Secondary Mortgage Market
C: Hard Money Loan
D: Federal Reserve Market
A: Primary Mortgage Market
Apple Jacks Credit Union sells Sam Smith’s closed mortgage to an investor. This is an example of the:
A: Primary Mortgage Market
B: Secondary Mortgage Market
C: Hard Money Loan
D: Federal Reserve Market
B: Secondary Mortgage Market
One of the advantages of FHA loans is that:
A: There Are No Origination Fees
B: There Is No Down Payment Requirement
C: FHA Loans Are Assumable
D: No Appraisal Is Required
B: There Is No Down Payment Requirement
C: FHA Loans Are Assumable
One of the advantages of VA loans is that:
A: There Are No Origination Fees
B: There Is No Down Payment Requirement
C: A Poor Credit History Will Not Be Held Against The Borrower
D: No Appraisal Is Required
B: There Is No Down Payment Requirement
Of the following, which one of these lenders will most likely use their own funds and then sell the loan to the secondary market?
A: Mortgage Banker
B: Fannie Mae
C: Freddie Mac
D: Mortgage Broker
A: Mortgage Banker
