Non-Traditional Loans & Conforming Loans

Question 1

According to the SAFE Act, what is a Nontraditional Mortgage?

Answer 1

Anything other than a 30-year fixed rate mortgage.

Question 2

What is a Conforming Mortgage and what is a Non-conforming Mortgage?

Answer 2

Conforming Mortgage

1. ) Meet standards set by Fannie Mae & Freddie Mac
2. ) May be sold on secondary market.

Non-Conforming Mortgage
1.).) Does not meet Fannie Mae & Freddie Mac standards.
2.) Cannot be sold on the secondary market.
(Also called jumbo loan).

Question 3

What are Fannie Mae/Freddie Mac standards for qualifying loans as conforming (There are 5)?

Answer 3

1. ) 28% total house expense ratio
2. ) 36% total debt-to-income ratio.
3. ) borrower must qualify under both ratios.
4. ) Borrowers should have 5% of their own funds for a down payment.
5. ) Borrowers should have 2 months of reserves on deposit.

Question 4

What is a Subprime Loans and qualifies as one?

Answer 4

1. ) Can not be sold on the secondary market;
2. ) And has a combination of credit and documentation issues.
3. ) Often has toxic features or a higher interest rate.

Question 5

What is Secondary Financing?

Answer 5

Buyer borrows money from another source (other than the primary lender) to pay part of the purchase price or closing costs, such as:

• Seller
• Conventional 80-20 loan
• Second mortgage/junior liens

Question 6

Who makes conventional loans, and are they insured or guaranteed by a government entity or agency?

Answer 6

A bank or institutional lender; and no, they are not.

Question 7

Who has created the guidelines for conventional loans?

Answer 7

GSEs, or government-sponsored entities, so that they may be sold to other lenders on the secondary market.

Question 8

If a borrower of a conventional loan does not put at least 20% down of the amount at closing,

Answer 8

PMI, or Private Mortgage Insurance.

Question 9

For a conventional loan, the late fee of 5% is of the monthly ___ & ____.

Answer 9

Principal & Interest; or P & I.

Question 10

What is a Fixed Rate?

Answer 10

Loan terms remain constant for the life of the loan.

Question 11

What is Interest Only payment mortgage (Straight Note)?

Answer 11

Period of reduced payments, for a specified time, then payment increases to fully amortized by the end of the term.

Question 12

What are Adjustable Rate Mortgages (ARMs)?

Answer 12

Interest rate periodically adjusted to reflect fluctuations in cost of money.

Question 13

Explain a Reverse Mortgage?

Answer 13

A borrower—62 and older— converts the equity in their home for a monthly check; decreasing the equity in the home, and increasing the balance of the loan.

Question 14

What is the most popular Reverse Mortgage product?

Answer 14

FHA’s Home Equity Conversion Mortgage (HECM).

Question 15

In a Reverse Mortgage, what is the Tenure Method?

Answer 15

When a borrower receives a monthly check instead of making a monthly payment.

Question 16

For a reverse mortgage, the amount the applicant may borrower is base on what?

Answer 16

1. ) The age of the youngest borrower.
2. ) The value of the property.
3. The expected interest on the loan.

Question 17

Under what conditions is a reverse mortgage cancelled, and what happens to the remaining equity?

Answer 17

If not in breach, due when last surviving borrower:

1. ) Dies
2. ) Sells home
3. ) Has not lived in home for 12 consecutive months
4. Has not payed property taxes & insurance fees.

All remaining equity belongs to estate.