Flashcards in Finance Deck (57):
Types of primary lenders:
Savings and loans
Life insurance companies
Nationally chartered banks must join this and purchase stock in one of the 12 districts ______ ________ ________ . This system regulates the flow of money and interest rates through its member banks by controlling the reserve requirements and discount rates.
The Federal Reserve
Any mortgage loan that is not insured or guaranteed by a government entity.
(The FHA or VA)
The most secure type of loan.
Available to anyone who can meet the lenders requirements.
Use this formula for calculating interest:
Principal T Interest rate
Monthly payments are usually hire on these.
Larger down payment so often required to keep payments manageable.
Borrow or loses the interest tax deduction because the home is paid off sooner.
Disadvantages of a 15-year loan
A fee assessed by the lender to compensate for the interest income lost if buyer pays off a long term loan early. Conventional lenders used to penalize early loan repayment to discourage it. But most lenders today would rather reinvest the money.
•Follow the criteria said by secondary markets, primarily Fannie Mae and Freddie Mac
•maybe sold to the secondary market
•are generally preferred by lenders
•do not follow Fannie Mae/Freddie Mac criteria and therefore cannot be sold to Fannie Mae or Freddie Mac.
•maybe classified as such due to the size of the loan (larger) or the credit quality of the bar.
•The amount of money borrowed (The mortgage loan amount compared to the value of the property)
•used by Linda's to determine how much they are willing to loan on a given property based on its value
•The property value is defined by the lender as the appraised value for the sales price whatever is less
Loan to value ratio (LTV)
Insurer shares part of the lenders a risk by ensuring the upper portion of the loan-the part of the loan that exceeds the standard 80% loan-to-value ratio (LTV)
Private mortgage insurance (PMI)
LTVR% T appraisal value or sales price
Calculation for loan to value ratio
Down payment assistance programs, subsidize mortgage interest rates, to help with closing costs or a combination.
• offered by government or non-profit organization is to promote ownership or by lenders as a part of the obligation under the community reinvestment act.
•money for these programs is limited and is administered on a first come, first serve basis.
Homebuyer assistance programs
Finances all a part of the sale of property for the buyer.
Retains a mortgage as security.
Title passes to the buyer.
The instruments of the buyer gives to the seller as consideration at settlement collectively called purchase money mortgage.
Simple list when property is being sold unencumbered (considered to be free and clear of mortgages or other liens).
When a buyer takes over the sellers existing mortgage loan.The buyer assumes responsibility for the loan, but the seller is not completely released from liability-he or she remains secondarily liable.
The buyer gets a loan to purchase property "subject to " The sellers existing financing.
The buyer of knowledge is the sellers existing financing but exceptional personal liability for it. (The seller remains liable)
Possible only if there is no alienation clause
"Subject To" financing
A new mortgage loan encompasses an existing mortgage loan.
Not an option when the mortgage contains and alienation clause.
The buyer, called a vendee, makes payment to the seller, called a vendor, in exchange for the right to occupy, use, and enjoy the land.
The vendor actually holds title to the land, just not a mortgage.
No deed or title transfers until all, or a specified portion of, payments are made.
An option to purchase the property within a specific time period. Usually within the term of the lease.
A loan when a buyer and another investor enter into a partnership, with fire paying an equity share in a deal in lieu of interest. Also called a shared equity plan or shared equity mortgage.
Pain 1% of the loan amount to reduce the borrowers monthly payments or interest rate.
Additional points paid to the lender at the beginning of the loan to reduce the buyers interest rate (and monthly payment).
Is a mortgage that permits the lender to periodically just the interest rate so that it accurately reflects fluctuations in the cost of money.
Adjustable rate mortgages ( ARM)S
•Lower interest rate's and payments
•May be easier to qualify for a loan
•leverage buyer in to a higher-priced home
•maybe converted to a fixed rate loan
•good in times of low inflation or for short-term ownership
Advantages of ARMS
•no interest great guarantees
•no payment guarantees
•buyer's financial situation may change
•buyer may over leverage
•possibility of negative amortization
•May have a fee to convert even if you choose not to convert
Disadvantages of ARMS
The borrower's interest rate is determined initially by the cost of money at the time the loan is made.
Once the rate is been said it is tied to one of several widely recognized and published indexes.
Future interest rate adjustments are based on upward/downward movement of the chosen index.
If the selected index rises, the lender has the option of increasing the borrowers interest rate or leaving the it the same.
If the index falls a reduction in the rate is mandatory.
How ARMs work
•The index used to determine the interest rate
•how to find the index
•Conversation option details
•an exclamation of how the interest rate and down payment are determined
•initial interest rate and down payment
•maximum interest rate and payment
•description of the information that will be contained in the assessment notice and when such notices will be provided
Regulation Z: required ARM disclosures
Part of the Department of Housing and urban development(HUD)
Its primary function is to insure loans
Does not make loans or build homes
Loans made by a local lender are approved by
It's regulations, procedures, and practices shape real estate finance.
Has maximum loan amount that ferry with the location of the property based on the average price in the area
Federal Housing Administration(FHA)
Loans that are insured by Federal housing administration (FHA)which is part of the housing and urban development (HUD)
•loans may have lower down payments
•they have less stringent qualifying requirements
•their loans don't have prepayment penalties
•discount points may be paid by the buyer or the seller.
Loans that are guaranteed by the veterans administration (VA) for certain residential loans made to eligible veterans.
Veterans Administration (VA)guaranteed loans
•Loans may be obtained with no down payment
•Secondary financing is permitted
•in most circumstances VA loans are assumable
•don't have prepayment penalties
•discount points may be paid by seller/ buyer
•loan origin nation fee can be no higher than the 1 point or 1% of the loan amount.
A government agency under the department of agriculture that insurance, guarantees, or makes loans.
Provides loans and roll areas for houses at or below 80% of the adjusted median income level
USDA rural development loans
Created in 1970 to redo shortages of funds from private banks for mortgage lending in New York.
Designed to make housing affordable to low-and moderate-income households.
Offers below-market interest rates, low or no down payment requirements, no prepayment penalty's, and some closing cost assistance
A recapture tax is due if house sold for profit within nine years
State Of New York Mortgage Agency (SONYMA)
•originators of loans
•actual lenders of mortgage monies in the primary market
•charge The borrower a loan origination fee & annual interest for the use of money during the term of the loan
•originate mortgage loans w/ intention of selling mortgages to third-party investors in the secondary market
•continue to service loans for investors who have purchased loans in the secondary market & charge investors servicing fees
Required for an individual or entity that originate at least five mortgage loans in a one year.
New York mortgage banker license
•do not fund loans
•Aaron a fee to act as intermediary to bring together borrowers and lenders who fund actual loans
•May solicit, process, place, and/or negotiate residential loans
•can also be compensated by the lender
Mortgage loan originators
•Helping borrower gather nec. documentation to assist lender with pre-approval
•Submitting the loan applications to lenders
•explaining terms of various options, such as interest rates, discount points, origination fees etc.
•negotiating a rate lock, which is when the agreed-upon interest rate and points are frozen until the loan closes.
•Securing a mortgage commitment from a lender, a written letter confirming lenders willingness to loan money.
Role of Mortgage Loan Originator
Borrowers stable monthly income is generally considered adequate for a conventional mortgage loan if the proposed monthly mortgage payment of principal, interest, taxes, and insurance (PITI) does not exceed 20% of the stable monthly income. This is also called the housing expense ratio for front-end ratio.
PTI Ratio (T) Gross monthly income
The math for calculating PTI Ratio
Any recurring monetary obligation that cannot be canceled. For example:
•installment loans for cars, furniture
•Credit card payments
•retail account payments
A second but equally important concern when determining the buyers qualification for a conventional mortgage loan is that the bar is that does not exceed 36% of their stable monthly income. This is also called debt to income ratio or the...
Total service ratio
Total debt allowed
DTI Ratio(T)Gross monthly income
Total Debt service ratio equation
The borrower pays interest on the month borrowed the previous month. If a borrower makes payment on September 1, he is paying interest for money borrowed in the entire month of August. If a borrower makes a payment on August 1, he is paying interest on money borrowed the entire month of July. (
At settlement is the only time that the borrower pays interest in advance on a mortgage loan)
Mortgage interest paid in arrears
Private mortgage insurance is not required and will be canceled with the loan has been paid down to less than:
78% of the properties current value
A term used to describe seller financing. More specifically, however, it refers to the actual role and mortgage that the buyer gives the seller and the seller financed transaction.
Purchase money mortgage
The most frequently used interest rate caps are:
The first number is the greatest change the interest-rate can make either up or down in one period. The second is the most the interest-rate can go up or down over the life of the loan.
If interest rates go up, the amount of the increase is capped protect the borrower. But if interest rates go down, the amount of the increase is also capped which protects the lender.
Interest rate caps
Joan has an adjustable rate mortgage (ARM)
It has an initial interest rate of 7% jested annually with the 2/5 interest rate cap. If the interest rate goes up, what is the most Joan's interest rate can be raised to in the second year?
7% +2% = 9%
7% is the interest rate & 2 (The 1st # of 2/5)
always refers to the greatest change the interest rate can make either up or down in anyone period.
William has an adjustable rate mortgage (ARM). It has an initial interest rate of 6% adjusted annually with 2/5 interest-rate cap. If the interest rate goes up, what is the most that Williams interest-rate can increase over the life of the loan?
6% + 5%= 11%
6% is the interest rate & 5 (The 2nd # of 2/5)
always refers to the most interest rates can go up or down over the life of the loan.
The purpose of _______ ___ is to let customers know exactly what they're paying for credit, enabling them to compare credit cost and shop around for the best credit terms.
This was designed to enhance consumer protection and reduce fraud by requiring states to establish national minimum standards for training and mortgage loan originator's (MLOs), including prelicensing an annual continuing education.
The Safe Act
Originate the loan(find the borrower)
Process the loan(verify information given by borrower)
Underwrite the loan(from the borrower) and
Service the loan
These are the functions of:
Place, and/or negotiator residential loans
Whose role is this?
Mortgage loan originators
What are the requirements of a mortgage loan originator?
Must be either employed by or an independent contractor to a licensed registering originating in today, such as a mortgage brokerage company. May not be simultaneously employed or affiliated with more than one originating entity.
After mortgage banks sell mortgages to third-party investors in the secondary market, peace lenders may continue to generate income by:
Servicing the loans for investors who have purchased loans
These type of loans are not in short or guaranteed by a government entity. However, private mortgage insurance is available for these type of loans.