General Mortgage Knowledge Flashcards
How do you calculate Loan To Value?
(LTV)
Loan amount divided by purchase price or appraised value, whichever is lower.
EX: Someone purchases a condo for $100,000 and the appraised value is $125,000 and the loan amount is $90,000. Which means the borrower is putting down $10,000. What would the borrowers loan to value be?
A: 90% (0.9)
EX: (Refinance transaction)
The borrowers property appraised for $250,000, the loan amount for their refinance is $110,000. So here we will take the $110,000 loan amount and divide by $250,000 appraised value to get a LTV ratio of 44% (0.44).
Whats another LTV ratio?
Combined Loan To Value (CLTV)
Or is also known as (TLTV-Total Loan To Value)
This is calculated by dividing the amount of a 1st mortgage and any other subordinate liens or mortgages divided by the appraised value of the property.
EX: (Refinance transaction)
In this refinance transaction, the borrower has a 1st lien loan of $110,000 and a 2nd mortgage of $40,000. Their property appraised at $220,000. So what is their CLTV?
A: Add 1st and 2nd lien for the loan amount.
$110,000+$40,000=$150,000
Then divide by the value which is the appraised.
$150,000/$220,000= 68% (0.68) CLTV
What is Table Funding?
Funding of the loan at settlement, to transfer the loan to the lender.
What is a Mortgage Banker?
Any company that can underwrite or fund loans (A mortgage broker does not fund or underwrite loans)
What is Yield Spread Premium(YSP)?
Commission paid from the wholesaler to the broker in exchange for selling a borrower on a higher rate. (The higher rate often alleviates (helps) the borrower from paying an origination fee.)
What is an Extended Lock Agreement?
If issued, it’s to protect the borrower from rising rates during the locked period.(Allowed to lock rate for 4 months to 12 months)
(Must contain loan program, interest rate, cost and expiration date and be between the borrower and the lender)
This is when you and a mortgage lender lock an interest rate, which means it’s going to be your rate because that’s what you closed on and that rate is protected. It doesn’t matter what the future market does because rates do change daily but once you lock in that rate, it’s set.
(On normal rate locks you can typically go out about as far as 90 days and shouldn’t cost any money up front at least. Should be free to lock an interest rate. When you lock it’s usually for 30 days (Like if you hear Rate X).
What is a Delinquent Loan?
Any loan over 3o days past due.
What is a Discount Point?
1% of the loan amount can be paid upfront and in addition to other origination fees to reduce the interest rate.
EX: The interest rate on a borrowers loan was 7%. The buyer also paid 2 points. What was the lenders effective yield?
***2 points = 2% of the loan.(Each discount point increases the lenders yield by 1/8th of a percent so 2 discount points would be 2/8ths)
(Each point increases yield by 1/8th%
*1/8 = 0.125)
A: Effective yield =
2/8 = 0.25%
0.25 + 7(rate) = [7.25%]
Could be called Effective Yield or APR
EX2: A borrower qualifies for a loan at 6.5%. Prevailing rate is 7%. How many points will be paid to “Buy Down” the interest rate on behalf of the buyer?
(This means they qualify for a loan with a payment at 6.5% but the bank says sorry all we have available is 7%)
So here they choose to buy down the interest rate. So they pay money upfront to the lender and in turn that is prepaid interest so in turn the lender reduces the interest rate for the monthly payments. So really how much is each point?
So in this case they pay 1% of the loan amount for each point to buy down the rate but how much has the rate actually changed?
A: Prevailing rate= 7%
Buyer qualifies for 6.5%
(so what’s the difference)
*Difference is 0.5% or 4/8ths= 4 points(4 points because its the first number before 8)
What is Premium Pricing?
It helps the borrower pay their closing costs. The premium results from the interest rate being increased.
What is Cash Out Refinance?
When you borrow equity from the value of the home, which then increases the loan amount owed against the home.
(This is a refinancing opt where a new mortgage is set up for more than your current mortgage balance and the difference is paid to you in cash.)
***Cash out refinancing allows you to use your home as collateral for a new loan that gives you some cash, but you will pay a higher interest rate and using your home as collateral can make it easier to get cash for emergencies and expenses. But make sure the cash is worth the risk because you can lose your home if you don’t keep up with payments.
Refinancing replaces an existing mortgage with one that has better terms.
(You might refinance to lower your monthly payments)
***The most basic mortgage loan refinance is the “rate to term” also known as “no cash out refinancing”
*Rate to term is used to lower your rate
What is Rate and Term Refinance?
An extension of the term or reduction to lower your monthly payments.
It’s an extension of the term or reduction of the interest rate to reduce the amount owed in the monthly payment.
What is Right of Rescission?
The opt given to a borrower to cancel a HELOC or refinance.
HELOC is a line of credit borrowered against the available equity of your home.Your homes equity is the difference between the appraised value of your home and your current mortgage balance.
The borrower must act on this right within 3 days of the closing
What is Junior Liens?
It’s a 2nd mortgage or HELOC.
***A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages.
What are Escrow Accounts?
Accounts that are paid into by the borrower for taxes, insurance and possible HOA/POA fees. The money is the borrowers and not the mortgage companies.
***An escrow account is essentially a savings account that’s managed by your mortgage servicer. Your mortgage servicer will deposit a portion of each mortgage payment into your escrow to cover your estimated property taxes and your homeowners and mortgage insurance premiums.
HOA-Homeowners Associations(are private organizations that oversee the management of some residential communities. HOAs establish sets of rules and regulations called bylaws for those living in the community to follow.)
POA-Power of Attorney(a legal document transferring the legal right to the attorney or agent to manage and access the principal’s property in the event the principal is unable to do so themselves.)
What does Repurchase mean?
When an investor buys back the loan bc of fraud
When an investor requiring the originating lender to buy the loan back because of fraud, acceptable underwriting or appraisal.
What do Liens do?
Liens secure the repayment of a debt owed, examples include 1st mortgage, 2nd mortgage, IRS tax lien, judgements, and mechanics lien.
What’s a lien?
A right to keep possession of property belonging to another person until a debt owed by that person is discharged.
*** A lien gives the creditor the right to seize and sell property.To then use to proceeds to pay off a borrowers debt.
EX: Sam borrowers money from a bank to purchase a new car, and as part of the loan agreement, Sam will allow the bank to place a lien on the car. Sam then defaults on the loan and the bank will repossess the car and sell it to then use the money to pay the loan balance back.
-Different types of a lien
1.A real estate lien secures payment on a mortgage.
2. Mechanic lien which secures payment for services preformed on property
What’s an Early payment default?
When a new borrower does not make the 1st, 2nd, or possibly 3rd payment. Fraud may be the cause.
What does (PITI) stand for?
Principal, Interest, Taxes and Insurances
What are Gift funds?
Gift funds are sometimes used as part of a borrowers down payment. They are most often gifted from a relative and cannot be conditional of repayment.
What’s a Temporary Buydown? (Usually a 2 to 1 buy down)
Its the difference between the note rate and the payment rate but the borrower must be approved at the note rate
The payment rate is 2% less the first year, 1% less the second year, requiring a buy down account held by the lender for the difference between the note rate and payment rate. The borrower must be approved at the note rate.
What is Accrued Interest?
When you make your monthly payment, the interest paid is for the month before.
What is Conveyance?
A transfer of ownership, usually through a deed.
Deed- A document used by the owner of real property to transfer or convey the right, title, and interest to the property.
What’s a Secondary Market?
A sale of closed loans to investors or Fannie Mae or Freddie Mac.
What’s an Assumable Loan?
When you allow a buyer of a home to take over the existing mortgage, but F&F do not allow, only FHA and VA do if the buyer is approved by lender.
When allowing a buyer of a home to take over the existing mortgage. Fannie Mae and Freddie Mac do not allow assumptions. FHA and VA will if the new buyer is approved by the lender. VA requires the new buyer to be a Veteran.
FHA-Federal Housing Administration
VA-Veterans Affairs
