CHAPTER 2: LEARNING THE PRODUCTS & PROGRAMS Flashcards
What is one of the most popular programs for mortgage?
Fixed Rate mortgages, one of the most popular programs that sets the interest rate at
closing and will remain the same for the life of the loan.
Adjustable Rate Mortgage (ARM) –
This product is not for every borrower, as the
interest rates can go up or down at each adjustment, which may put the borrower at risk.
The five parts of an ARM loan are
o Program, o Caps, o Margin, o Index; and o Fully indexed rate
Most ARM products, the interest rate will ______ the same for the _____ term and then
are subject to change at each ________ period.
- remain
- initial
- adjustment
The CAPS, are exactly as they state, there is:
o An adjustment cap, which limits the amount the interest rate can go or down at
each adjustment.
o The life cap is the addition of the starting interest rate and the 2nd number of the
caps, which gives you the highest the interest rate can go over eh life of the loan.
There are two types of construction loans
the construction with a permanent take out and
construction permanent.
A bridge loan
in temporary financing against the equity of the borrower’s present home to
make a down payment on a new home or to start building a home.
Graduated payment mortgage:
o Lower payments at the beginning of the loan and then go up gradually to help the
borrower.
o The lower payments could result in negative amortization.
HELOC – Home Equity Line of Credit
a loan that uses the equity in your home to
borrower money and pay it back as you see fit and only pay interest on the amount you
have drawn each month.
o The interest rate is floating, usually against prime.
Balloon mortgages
allow for 30-year amortization, but the mortgage will be called due,
when the balloon period ends.
o The balloon cannot be less than five (5) years.
Conventional Conforming Loans
– any loan that Fannie Mae or Freddie Mac meet their
requirements and will be purchased from approved lenders
Non-Conforming Loans –
any loan that will not be purchased by Fannie Mae or Freddie
Mac because the loans do not meet their guidelines. The loans will be purchased by
private investors
Conventional Loans:
o Minimum 3% down payment o 28%/36% DTI ratios o Annually changing loan limits o PMI required with less than 20% down o 1 year from Chapter 13 discharge, 4 years from Chapter 7 filing (2 years with extenuating circumstances) o 2 years from foreclosure o 3% seller concessions
The Front-End Debt to Income Ratio/Housing Expense Ratio:
This ratio simply
takes the amount that the borrower will be paying for their mortgage and divides
it by their gross monthly income
The Back-End Debt to Income Ratio/ Total Expense Ratio:
This ratio takes all of
the borrower’s monthly liabilities and divides it by their gross monthly income
Loan to Value
is another calculation made to determine whether a borrower qualifies for
a property or not
Seller concessions.
o The seller will help the borrower with down payment, closing costs or discount
points.
o There are limits for each program
Private mortgage insurance allows
borrowers to put less than 20% down.
o The premium is paid by the borrower
o PMI has to be dropped at 78%LTV as required by Homeowners Protection Act
(HPA)
o The borrower can request that PMI be dropped at 80% per the HPA
FHA – Federal Housing Administration loans are insured by the FHA
o 3.5% down payment
o 31/43% DTI rations
o 580 credit score with 3.5% down
o 2 years after Chapter 7 Discharge, 1 year after Chapter 13 filing
o 2 years after a foreclosure
o 6% maximum seller concessions
o Assumable
o MMI and UFMIP required
o Underwriters or lenders use FHA’s “4 C’s of Underwriting” when evaluating
FHA applications:
▪ Credit history of the borrower
▪ Capacity to repay the loan
▪ Cash assets available to close the mortgage
▪ Collateral, which evaluates the value of the home
o FHA Streamlines are a standard FHA refinance product. Streamlines are utilized
by borrowers with current FHA mortgages when they would like to reduce their
mortgage insurance, interest rate, or their payment.
o Reverse Mortgages (HECMs) allow borrowers 62 and older to use the equity in
their home to help them meet their living expenses or supplement their income.
The loan results in negative amortization
FHA Streamlines
are a standard FHA refinance product. Streamlines are utilized
by borrowers with current FHA mortgages when they would like to reduce their
mortgage insurance, interest rate, or their payment.
Reverse Mortgages (HECMs)
allow borrowers 62 and older to use the equity in
their home to help them meet their living expenses or supplement their income.
The loan results in negative amortization
VA loans are guaranteed by the VA:
o 41% DTI with Residual Income
o 0% down payment (100% financing available dependent on Veterans benefits)
o Funding Fee required
o 2 years after Chapter 7, 1 year after Chapter 13
o 2 years after a foreclosure
o 4% seller concessions
o Assumable
o Valid COE required
o IRRLS – VA streamline (known as Interest Rate Reduction Refinance Loan)
USDA – mortgage loans for rural areas of less than 35,000 people.
o 100% financing available
o 29%/41% DTI ratios
o Guarantee fee
o There are income limitations. (115% max of area median income)
o 3 years from Chapter 7 discharge, 1 year from Chapter 13 filing
Jumbo Loans exceed what?
– they exceed the Fannie Mae and Freddie Mac loan limits
