Unit 15 - part 2 Flashcards
loan-to-value ratio (LTV)
Mortgage loans can be classified based on their loan-to-value ratio (LTV).
The LTV is the ratio of debt to the value of the property, where the value is the sales price or appraised value, whichever is less.
Conventional Loans
Conventional loans are viewed as the most secure loans because their loan-to-value ratios are often lowest. The ratio may be 80% of the value of the property or less because the borrower may make a down payment of at least 20%.
Usually with a 20% down payment and a conventional loan, no additional insurance or guarantee on the loan is necessary to protect the lender’s interest. A loan with less than a 20% down payment usually will require private mortgage insurance.
A conventional loan is not government insured or guaranteed.
Private Mortgage Insurance (PMI)
One way a borrower can obtain a conventional mortgage loan with a down payment that is less than 20% of the purchase price is by obtaining private mortgage insurance (PMI).
The borrower pays a monthly premium or fee while PMI is in force, which may be made part of the loan payment. Lender automatically terminate the PMI payment if the borrower has accrued at least 22% equity in the home and is current on mortgage payments.
FHA-Insured Loans
The Federal Housing Administration (FHA), neither builds homes nor lends money. The term FHA loan actually refers to a loan that is insured by the agency.
- requires FHA appraisal
- appraisal stays with property 4 months
- mortgage insurance stays for life of loan
- buyer may assume an FHA loan
HUD Home Sales
- foreclosed FHA homes
- HUD accepts bids only from real estate professionals who are registered with HUD
- Properties are sold in “as-is” condition
HUD allows an early bidding period for those who intend to be owner-occupants; properties are made available to investors only after that period has elapsed, if the property remains unsold.
As added incentives, HUD has special programs that may offer a reduced down payment on property that is purchased with an FHA-insured loan.
HUD’s Good Neighbor Next Door program - allows law enforcement officers, firefighters, emergency medical technicians, and teachers to purchase eligible property in those areas at a 50% discount off the list price.
VA-Guaranteed Loans
- guarantees loans for veterans and spouses
- constructions homes for eligible veterans and spouses
- deceased veteran’s widow(er) can buy a home with VA loan
Veterans can pay for:
- appraisal
- credit report
- state and local taxes
- recording fees
Veterans can’t pay for:
- commissions, brokerage fees
- termite reports
Agricultural Loan Programs
The Farm Service Agency (FSA) is a federal agency of the Department of Agriculture. The FSA offers programs to help families purchase or operate family farms.
FSA also provides loans to help families purchase or improve single-family homes in rural areas (generally areas with populations of fewer than 10,000 people).
