Unit 15-Financing Principals Flashcards
Sources of real estate financing
Savings associations Commercial banks Savings banks Insurance companies Mortgage banking companies Mortgage brokers Credit unions
Savings associations
Specialize in long-term residential loans. Must be chartered by the state or federal government. Most flexible lending institution in regard to their mortgage lending procedures. Residential mortgage loans, residential construction loans, home equity loans, mortgage-backed securities. Conventional, FHA-insured, and VA-guaranteed loans.
Commercial banks
Must be chartered by the state or federal government. Mostly short-term loans (as construction, home improvement and manufactured housing loans). Also conventional, FHA, and VA home mortgages.
Savings banks
Operate like savings associations. Issue no stock and mutually owned by their investors, the depositors themselves. Invests in loans secured by income property as well as residential real estate. Seek low-risk loan investments. FHA-insured or VA-guarantee loans.
Insurance companies
Amass large sums of money from the premiums paid by policyholders. Long-term real estate loans that finance commercial and industrial properties. Invest in residential mortgage and deed of trust loans by purchasing large blocks of government backed loans (FHA-insured and VA-guaranteed).
Mortgage banking companies
Use money borrowed from other institutions, funds of their own, or both to make real estate loans. They make loans in the name of the mortgage banker with the intention of selling them to investors either on a loan-by-loan basis or pooled together as a security. Organized as a stock company or as a wholly owned subsidiary of a bank or savings association.
Mortgage brokers
Are not lenders but often instrumental in obtaining financing. Individuals who act as intermediaries to bring borrowers and lenders together. Locate potential borrowers, process preliminary loan applications, and submit the applications to lenders. Loans closed in the name of the lender. Do not service loans.
Credit unions
Cooperative organizations in which members place money in saving accounts, usually at higher interest rates than other saving institutions offer. Short-term consumer, home improvement, longer-term first and second mortgage, and deed of trust loans.
Prequalified vs preapproved
Prequalified-The lender has estimated the maximum loan for which the applicant could qualify using the borrower’s account of earnings, outstanding debt, and savings.
Preapproved-The lender has verified income, debt, savings, and has run a thorough credit check, permitting the lender to quote a specific maximum loan amount and to assert that it would advance a loan under the terms and conditions existing at the time of loan application.
5 factors for a FICO credit score
Borrower’s payment history, amounts owed, length of credit history, types of credit used, and number of new credit applications or queries
Lender credit score requirements
Range is 300-850
FHA: min 580. Under 500 is not eligible.
Fannie Mae/Freddie Mac: at least 620 but may charge a higher rate of interest or a higher down payment if the score is under 660.
An electronic network for handling loan applications through remote computer terminals linked to several lenders’ computers. Enhances an applicants ability to comparison shop for a loan.
Computerized loan origination (CLO) system
Automated underwriting
The process of electronically evaluating a loan application and subsequently providing a recommendation for or against loan approval.
The process of electronically evaluating a loan application and subsequently providing a recommendation for or against loan approval.
Automated underwriting
4 types of payment plans
Fully amortized loans (like mortgage loans or deed or trust loans), interest-only payment, flexible payment, balloon payment (partially amortized)