The Loan Process

Question 1

What are the 7 steps of the loan process?

Answer 1

Pre-purchase; Application; Set up; Processing; Underwriting; Pre-closing; Closing

Question 2

What does the US Patriot Act of 2001 require?

Answer 2

Verify and record the ID for all applicants for the Customer Identification Program

Question 3

What is the most heavily weighted in the credit report?

Answer 3

Past Payment History 35%

Question 4

Which is better, 1 maxed out credit card or multiple credit cards below 30% limit?

Answer 4

Multiple

Question 5

What holds the least amount of weight in the credit report?

Answer 5

Inquiries 10%

Question 6

How long does derogatory credit stay on a credit report?

Answer 6

Average of 7 years

Question 7

Is it a good idea to close credit cards or consolidate debt?

Answer 7

No, you should keep credit lines open even if they aren’t used

Question 8

What are some questions to ask borrowers concerning guaranteed vs. non-guaranteed income?

Answer 8

How long have you been receiving this income? Is it guaranteed?

Question 9

What income do you look at tax returns for?

Answer 9

Rental income, interest and dividend, and self-employment income

Question 10

What is a sole proprietor?

Answer 10

Has right to profits and loss of business; success depends solely on owner

Question 11

What documents do you need from a sole proprietor?

Answer 11

2 recent years personal tax returns; Schedule C; Profit and Loss

Question 12

What is a Partnership?

Answer 12

2 or more share profits, losses, and responsibility; each partner is 100% liable for debts and actions

Question 13

What documents do you need for a Partnership?

Answer 13

2 recent years personal tax returns; Schedule K1 and Schedule E part II; YTD profit and loss statement

Question 14

What is a Limited Liability Company (LLC)?

Answer 14

Income passed through members who have liability protection

Question 15

What documents do you need for an LLC?

Answer 15

2 recent years personal tax returns; Schedule K1 and Schedule E part II; YTD profit and loss statement

Question 16

What is a C Corporation?

Answer 16

State chartered business owned by stock holders, who are not legally responsible

Question 17

What documents do you need for a C Corp?

Answer 17

2 recent years personal tax returns; Schedule B; YTD profit and loss statement

Question 18

What is a S corporation?

Answer 18

Risk is amount of capital owner has in business? Does not directly pay federal income taxes on earnings, passed onto shareholders

Question 19

What documents do you need for an S Corp?

Answer 19

2 recent personal tax returns; Schedule K1 and Schedule E part II; YTD Profit loss statement

Question 20

How is commission income calculated?

Answer 20

Averaged over 2 year period, needs YTD paystubs and 2 W2s

Question 21

What documents are required for rental income from properties owned for less than a year?

Answer 21

Rental agreement

Question 22

What document is required for rental income from properties owned for more than a year?

Answer 22

Schedule E (rental income)

Question 23

What schedule is Interest/Dividend income on?

Answer 23

Schedule B

Question 24

What is a sales contract?

Answer 24

An agreement in which the purchaser agrees to buy certain real estate and seller agrees to sell property under stated terms and conditions

Question 25

Can a sales contract be written?

Answer 25

Yes, can be handwritten or typed

Question 26

What is the FHA/VA Amendatory clause for sales contracts?

Answer 26

Gives borrower the right to cancel the offer if the property does not appraise at least as much as the purchase price

Question 27

What are nonallowables for FHA loans?

Answer 27

Certain charges not allowed to be paid by borrower; usually paid by seller

Question 28

What are seller concessions allowed by VA?

Answer 28

4% of sales price in concessions, in addition to reasonable closing costs

Question 29

What is the sales comparison appraisal approach?

Answer 29

Purchaser pays no more than the cost of existing and equivalent properties, based on selling price and comps

Question 30

What is the cost appraisal approach?

Answer 30

Estimates of the cost to build an identical building to property at current prices, minus depreciation and plus land value

Question 31

What is the income appraisal approach?

Answer 31

For income producing properties, value = present worth of income stream

Question 32

Which does the lender care more about, the resale value or the amount to rebuild?

Answer 32

Resale value

Question 33

How many comparables should be in an appraisal analysis?

Answer 33

Minimum of 3 within subject neighborhood and sold within 6-12 months

Question 34

What should the condition of improvements be?

Answer 34

At least average

Question 35

What % should the total net adjustments not exceed?

Answer 35

15% of sales price

Question 36

What % should the individual line adjustments not exceed?

Answer 36

10%

Question 37

What is required on all sales approach appraisals?

Answer 37

Analysis of any current sales agreement, any listing within the last 24 months, or any sales within the last 36 months

Question 38

What is a drive by appraisal?

Answer 38

Only visual from outside with comp sales in area to determine property value

Question 39

Can the lender challenge appraisal results?

Answer 39

Yes, but cannot unduly influence appraiser for certain results

Question 40

What happens if the appraisal comes back as “subject to” instead of “as is”?

Answer 40

FHA loans will always be subject to final inspection; otherwise underwriter needs to review appraisal

Question 41

What are some appraisared flags that can hold up a loan?

Answer 41

If it’s a condo; in a flood zone; line adjustments exceed 10%; net/gross adjustments exceed 15/20%; has deferred maintenance; listing/selling history shows home has been actively for sale or has been sold multiple times