The Loan Process Flashcards
What are the 7 steps of the loan process?
Pre-purchase; Application; Set up; Processing; Underwriting; Pre-closing; Closing
What does the US Patriot Act of 2001 require?
Verify and record the ID for all applicants for the Customer Identification Program
What is the most heavily weighted in the credit report?
Past Payment History 35%
Which is better, 1 maxed out credit card or multiple credit cards below 30% limit?
Multiple
What holds the least amount of weight in the credit report?
Inquiries 10%
How long does derogatory credit stay on a credit report?
Average of 7 years
Is it a good idea to close credit cards or consolidate debt?
No, you should keep credit lines open even if they aren’t used
What are some questions to ask borrowers concerning guaranteed vs. non-guaranteed income?
How long have you been receiving this income? Is it guaranteed?
What income do you look at tax returns for?
Rental income, interest and dividend, and self-employment income
What is a sole proprietor?
Has right to profits and loss of business; success depends solely on owner
What documents do you need from a sole proprietor?
2 recent years personal tax returns; Schedule C; Profit and Loss
What is a Partnership?
2 or more share profits, losses, and responsibility; each partner is 100% liable for debts and actions
What documents do you need for a Partnership?
2 recent years personal tax returns; Schedule K1 and Schedule E part II; YTD profit and loss statement
What is a Limited Liability Company (LLC)?
Income passed through members who have liability protection
What documents do you need for an LLC?
2 recent years personal tax returns; Schedule K1 and Schedule E part II; YTD profit and loss statement
What is a C Corporation?
State chartered business owned by stock holders, who are not legally responsible
What documents do you need for a C Corp?
2 recent years personal tax returns; Schedule B; YTD profit and loss statement
What is a S corporation?
Risk is amount of capital owner has in business? Does not directly pay federal income taxes on earnings, passed onto shareholders
What documents do you need for an S Corp?
2 recent personal tax returns; Schedule K1 and Schedule E part II; YTD Profit loss statement
How is commission income calculated?
Averaged over 2 year period, needs YTD paystubs and 2 W2s
What documents are required for rental income from properties owned for less than a year?
Rental agreement
What document is required for rental income from properties owned for more than a year?
Schedule E (rental income)
What schedule is Interest/Dividend income on?
Schedule B
What is a sales contract?
An agreement in which the purchaser agrees to buy certain real estate and seller agrees to sell property under stated terms and conditions
Can a sales contract be written?
Yes, can be handwritten or typed
What is the FHA/VA Amendatory clause for sales contracts?
Gives borrower the right to cancel the offer if the property does not appraise at least as much as the purchase price
What are nonallowables for FHA loans?
Certain charges not allowed to be paid by borrower; usually paid by seller
What are seller concessions allowed by VA?
4% of sales price in concessions, in addition to reasonable closing costs
What is the sales comparison appraisal approach?
Purchaser pays no more than the cost of existing and equivalent properties, based on selling price and comps
What is the cost appraisal approach?
Estimates of the cost to build an identical building to property at current prices, minus depreciation and plus land value
What is the income appraisal approach?
For income producing properties, value = present worth of income stream
Which does the lender care more about, the resale value or the amount to rebuild?
Resale value
How many comparables should be in an appraisal analysis?
Minimum of 3 within subject neighborhood and sold within 6-12 months
What should the condition of improvements be?
At least average
What % should the total net adjustments not exceed?
15% of sales price
What % should the individual line adjustments not exceed?
10%
What is required on all sales approach appraisals?
Analysis of any current sales agreement, any listing within the last 24 months, or any sales within the last 36 months
What is a drive by appraisal?
Only visual from outside with comp sales in area to determine property value
Can the lender challenge appraisal results?
Yes, but cannot unduly influence appraiser for certain results
What happens if the appraisal comes back as “subject to” instead of “as is”?
FHA loans will always be subject to final inspection; otherwise underwriter needs to review appraisal
What are some appraisared flags that can hold up a loan?
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
