Financing
Types of Loans 1. Fixed-rate mortgage-Description:Fixed
1. Fixed-rate mortgage-Description:Fixed interest rate; equal monthly payments of principal and interest until debt is paid in full Advantages/disadvantages: Stable, with long-term tax advantages; rarely assumable
Loans of credit unions, personal finance companies, and pawnbrokers are exempt unless the loan falls in one of the statutory categories mentioned below:
1. The maximum statutory interest rate that may be charged for consumer loans (money, goods, or other things intended for personal, family, or household purposes), other than loans for the purchase, construction, or improvement of real property, is 10% per year. 2. Money, goods, or other things intended for the purchase, construction, or improvement of real property are subject to a maximum rate of 10% or the prevailing Federal Reserve Bank discount rate plus 5%, whichever is higher. 3. Business loans are subject to a ceiling of the Federal Reserve Bank discount rate plus 5%. The refinancing of a loan is subject to the same maximum rate as the original loan.
203(k) Loan
203(k) Loan The 203(k) loan is similar to an FHA loan in that it's geared more toward homeowners than investors. It is an owner-occupied, 3.5% down loan that allows you to lump the rehab costs into your mortgage. You might, for example, consider a 203(k) loan if you want to purchase a distressed property for $100,000 that needs $35,000 worth of rehab work. Your loan amount would be $135,000 to include the cost of rehab.
VA loan-The
3. VA loan-The VA does not make loans, but it guarantees a portion of the loan. A 25 percent down payment is required on amounts over the county no-down-payment limit.
graduated payment mortgage (GPM)-The
3. advantages/disadvantages: easier to qualify for
shared appreciation mortgage
5. shared appreciation mortgage (SAM)-FHA also allows a shared appreciation mortgage (SAM) for a dwelling of one to four units. Shared appreciation mortgage (SAM):Below-market rate and lower payments in exchange for losing some equity. advantages/disadvantages:Loss of equity makes investment more expensive
6.Graduated payment adjustable-rate mortgage
6.Graduated payment adjustable-rate mortgage (GPARM)-description:Same as GPM, but additional payment change possible if index changes advantages/disadvantages: Easier to qualify for; could be negative amortization
7.Growing equity mortgage (GEM)
7.Growing equity mortgage (GEM) (also called rapid payoff mortgage):Fixed interest rate; payments vary by index or schedule advantages/disadvantages: Rapid payoff as payout increases; income must also increase
8.Reverse annuity mortgage (RAM) (also
8.Reverse annuity mortgage (RAM) (also called equity conversion mortgage):One-time or monthly payment(s) are made to borrower age 62 or older using property as collateral advantages/disadvantages:Provides cash to homeowner; loan amount plus accrued interest is due when property is sold or at homeowner's death; high closing costs require independent loan counseling for homeowner
Sources of Financing Conventional Loans
A conventional loan is the most common type of mortgage. You provide a down payment and the bank gives you the rest of the money in exchange for
Deed in lieu of foreclosure
A deed may be used to transfer property to the beneficiary of a trust deed with the beneficiary's consent, to prevent a forced sale. Transfer of the property to the beneficiary may be to the beneficiary's advantage if the property is worth at least the amount of the remaining debt. The trustor benefits by avoiding the publicity of a public foreclosure sale. A danger arises when the property is worth more than the outstanding debt owed to the beneficiary. In that case, the beneficiary should pay the difference to the trustor, or the transfer could be challenged later in court.
Federal Housing Administration (FHA)
A federal agency established in 1934 under the National Housing Act to encourage improvement in housing standards and conditions, to provide an adequate home-financing system through the insurance of housing mortgages and credit and to exert a stabilizing influence on the mortgage market.
Home Equity Line of Credit (HELOC)
A home equity line of credit, popularly known as a HELOC, is what people can use if they have already purchased a home and have some equity tied up in it. For example, let's say you've lived in your primary residence for 10 years, all the while paying down the mortgage and benefiting from appreciation. The appraised value is now $500,000 and your mortgage payoff is $250,000. You can take out a HELOC to tap into the $250,000 of equity you have in the property ($500,000 value minus the $250,000 loan outstanding). You can then use this $250,000 to purchase on an investment property.
Home Affordable Refinance Program (HARP)
A program of the Departments of the Treasury & Housing Urban Development (HUD) for mortgage borrowers who are current on their payments but having trouble refinancing because the value of their home has declined.
straight note
A promissory note evidencing a loan in which payments of interest only are nade periodically during the term of the note, with the principal payment due in one lump sum upon maturity. A straight note is usually a non-amortized note made for a short term, such as three to five years, and is renewable at the end of the term. (See promissory note)
General Concepts
A purchaser of real estate who defers part or all of the purchase price seller, the cost of that credit is usually the interest rate charged to the uses some form of credit. When the purchaser receives credit from the purchaser. The purchaser may borrow money from another source to finance the purchase or borrow money using property already owned outright as collateral.
Sheriff's deed
A sheriff's deed is given to the purchaser at a court-ordered sale to satisfy a judgment. A sheriff's deed carries no warranties.
Tax deed -
A tax deed is issued by the county tax collector if property is sold because of nonpayment of taxes. Tax collection procedures are discussed in Unit 11.
Warranty deed -
A warranty deed expressly warrants that the grantor has good title. The grantor's warranty makes the grantor liable for a flaw in the title affecting the buyer's interest that may be discovered later, even if the grantor had no previous knowledge of it. This form of guarantee, while attractive to a property buyer, could be devastating to a property seller. It is one reason why title insurance is required (particularly by lenders) in most transactions in California. By shifting the liability to the insurer, the seller can be assured that there will be no future liability caused by an undiscovered defect in the seller's title. In turn, the buyer can rely on the resources of the title insurer if any problem covered by the title insurance should arise.
Adjustable-Rate Mortgage (ARM)
Adjustable-Rate Mortgage (ARM) An adjustable-rate mortgage is exactly what it sounds like: a loan in which the interest rate fluctuates with the overall market interest rate. There are a lot of variations on ARMS. With most ARMS, your interest rate is adjustable for the full term of the loan, but there are "hybrid" ARMS with which your rate is fixed for a certain number of years before transitioning to the adjustable rate.
installment note
An example of an installment note that specifies equal payments of both principal and interest appears.
Trust deed -
Any money left over would go to the trustor. The purchaser would receive a trustee's deed from the trustee.
FHA VS. VA LOANS
At present, there are fewer distinctions between FHA-insured and VA-guaranteed loans than there have been in the past. The differences that still exist involve the following factors.
3. 203(k) Loan Cons
Available only to owner-occupants - you have to live at the property as your primary residence • Any work you do yourself will not be You'll need to have licensed contractors fill out the necessary covered under the 203(k) loan. раperwork • Contractors must be vetted and approved by your lender • Typically, there's more paperwork involved before, during and after settlement
Loan purpose -
Both FHA and VA loans are available for first mortgages of owner-occupied property. VA loans also include junior liens for repairs or improvements. Although FHA technically allows some types of secondary financing, for all practical purposes the FHA market is first mortgages only.
Refinancing to avoid default
Both FHA and VA loans can be refinanced to avoid imminent default, so that payments may be extended beyond the initial loan term. VA loans can be refinanced only if 80% or more of the new loan will be paid within the original loan term limit. The FHA loan term on refinancing can be no more than three quarters of the remaining economic life of the building. HERA has provided a refinancing program for homebuyers with problematic subprime loans, allowing lenders to write down qualified mortgages to 90% of current appraised value and providing qualified borrowers a new FHA 30-year fixed-rate mortgage at 90% of appraised value, up to a maximumn loan amount of $550,440. Borrowers share 50% of all future appreciation with FHA. The Helping Families Save Their Homes Act, which was signed into law by President Obama on May 20, 2009, gives FHA more enforcement capabilities against lenders who use false or misleading marketing tactics.
Interest rate -
Both VA and FHA allow lenders and borrowers to negotiate the interest rate offered, which can vary from lender to lender. Both FHA and VA allow a variety of loan types. Down payment and closing costs usually are lower on a VA-guaranteed loan than on an FHA-insured loan.
Loan prepayment -
Both agencies allow full or partial prepayment of principal at any time. The VA does require that any prepayment be at least $100 or the amount of one installment.
Buyer qualification for an FHA loan -
Buyer qualification for an FHA loan - The following rules are aimed at reducing the number of defaults on FHA-insured loans, in addition to preventing defaulting borrowers from acquiring more credit: 1. Total seller contributions, including discounts, buy-down costs, and closing costs, cannot exceed 6% of acquisition cost. 2. The borrower must be qualified at the full note rate, rather than the buy-down rate.
Heloc
Cons • Essentially, you are spending the equity in your original home, which in effect increases the cost to retain it • Most HELOCS have adjustable rates. This can be a challenge when trying to predict your financing costs over time
Hard-money
Cons • Higher interest rate than other loans: 10-12% • Hard-money loans can be even more expensive if you are perceived as risky (if you don't have a good credit score and a lot of real estate experience) There are shorter terms: Hard-money loans are usually for a year less, at which time the full amount needs to be paid back
ARMS Cons
Cons • Interest rate (and therefore cash flow) is harder to predict reliably with an ARM. So there's an element of risk that you'll have to consider and worry about • ARMS are somewhat more com lex to understand and analyze • Over the last few years, interest rates have been at a historical low but are steadily rising now. There is a good chance that your interest rate will increase over time, which increases your monthly payment
Conventional loans
Conventional loans are a good solution for buy-and-hold investors building a They are not typically used to because these mortgages are underwritten for a term of 15, 20 or 30 years. Conventional loan lenders are not interested in providing short-term financing.
Service charges
FHA allows a service charge of 1% on loans involving existing buildings and 2% on loans for buildings to be constructed. Buyers can be charged discount points, which are a subject for buyer-seller negotiation. Seller contributions cannot be more than 3% of acquisition cost as of summer 2010. The buyer also can be charged an FHA application fee and fees for credit report, appraisal, and other closing costs. VA allows lenders to charge reasonable costs, including credit report, survey, title evidence, and recording fees. Other loan origination costs can be included in a flat charge that cannot exceed 1% of the loan amount for most properties. In certain cases, the veteran may be charged discount points. The VA funding fee depends on the down payment and origination date.
2. Federal Housing Authority (FHA) Loans
FHA loans are government-sponsored loans that incentivize people to purchase a home by offering a borrowing option in which the buyer needs to put down only 3.5%. The FHA doesn't loan the money; it guarantees the loan for the lender. Since the FHA takes on some of the financial risk by insuring the payment of the loan if the borrower defaults, it's easier for borrowers to qualify for an FHA loan than a conventional loan, and the lender is able to offer a competitive interest rate.
Mortgage insurance premium and monthly fee -
FHA-insured loans have both an up-front mortgage insurance premium (MIP) that is paid to FHA at closing as well as an annual renewal fee, which is paid on a monthly basis. The up-front MIP is not considered an acquisition cost of the loan in computing down payment. The premium may be paid by the borrower or someone else, or it may be included in the loan amount. Presently, the FHA MIP is 1.75% of the loan amount for all purchase loans and 2% for home equity loans. The MIP is refunded if a loan is prepaid (paid in full before the end of the loan term).
Hard Money
Hard money is similar to private money, but instead of coming from an individual, the funding comes from a hard-money lender. The term "hard money" is fitting, because the lenders use the hard asset (the property) to secure the loan.
Hard Money
Hard-money loans are short-term loans, most often used by borrowers who buy to fix up and flip. Typically, you'll get hard money to cover 70-80% of the property's purchase price before rehab, so the lenders must be confident that the property is worth more than the loan and their cost to liquidate the property if you default. Hard-money lenders typically charge high interest rates and include other fees such as loan origination fees.
State law -
In 1979, California voters passed Proposition 2, which exempted from usury laws any loan made or arranged by a real estate broker and secured by real property. California law also exempts loans made by banks and savings and loan associations. Loans of credit unions, personal finance companies, and pawnbrokers are exempt unless the loan falls in one of the statutory categories mentioned below:
Types of loans available
In addition to the traditional fixed-rate amortized loan, FHA allows use of a graduated payment mortgage (GPM). The GPM is available for families who expect income to increase over the loan term and who otherwise would not
amortized loan
In an amortized loan the payment of the financial obligation is made in installments. A loan has negative amortization when the loan payments do not cover all of the interest due, which then is added to the remaining loan balance.
Dodd-Frank Bill -
In response to the mortgage lending crisis and subsequent upheavel in financial markets, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Stability Act of 2010), was signed into law by President Obama on July 21, 2010. The Act created the Financial Stability Oversight Council and the Office of Financial Research, both as part of the Treasury Department.
FHA-insured loan limits
Insured loan amounts are adjusted annually to reflect changes to the maximum amount allowed for loans that are held or backed by the organizations, such as Fannie Mae and Freddie Mac, which comprise the secondary mortgage market, discussed later in this unit. FHA-insured loan limits are set at 65-150% of the limit for loans purchased on the secondary market, with the higher loan limits available for higher-cost areas. For 2017, the maximum FHA-insured loan on a California single-family home range from $275,665 to $636,150, as shown in
Interest rates are
Interest rates are allowed to reflect market trends by use of an adjustable-rate note, described later in this unit. A loan can also call for payment of the entire amount due on demand of the holder of the note.
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
Legislation that in 1989 established a new deposit insurance fund, SAIF, for savings institutions; created the investment operations; and created the Office of Thrift Supervision as part of a restructuring of federal thrift Resolution Trust Corporation to dispose of failed thrifts; imposed wide-ranging changes in savings institution regulation.
Government Programs
Loans that do not involve government cooperation are called conventional loans. Loans that are created or financed with the help of a government source are nonconventional loans.
THE MONEY SUPPLY
Money is a medium of exchange as well as a measure of value. In exchange for our work efforts, we earn income in the form of money. Income also comes from the following: Investments Rents Royalties Interest on amounts owed to us
With a CalVet loan, the veteran is buying under a land contract.
Mortgage brokers who originate and process CalVet loans receive a $350 processing fee plus a 1 percent origination fee. The state raises the funds for CalVet loans by issuing tax-exempt bonds.
Most important is that the trust deed
Most important is that the trust deed offers the lender a relatively fasterand cheaper means of protecting the security interest. Sale of the encumbered property is a last resort, however, no matter what form the sale takes. The lender may very well be the only bidder at the sale, and owning the property is an alternative most lenders do not welcome.
RESPA
Note one final similarity between FHA-insured and VA-guaranteed loans. Because both are federally related, both fall within the requirements of the Real Estate Settlement Procedures Act (RESPA), discussed in Unit 8, in addition to all other disclosure requirements. A Closing Disclosure form noting transaction charges for both buyer and seller appears in Unit 10.
Private Money
Private money is exactly what it sounds like: financing sourced from individual (private, rather than institutional) investors. Seeking financing from family, friends, co-workers or people you've met at your local real estate investing meetups are all potential sources of private money.,
8. Home Equity Line of Credit (HELOC)
Pros • It's a cheap financing option in terms of interest rates and closing costs • You can pay it off whenever you like. You pay on the outstanding balance, not the entire HELOC • The cost to close on a HELOC is much lower than the cost to obtain other financing HELOCS are the most flexible type of financing. You pay interest on only the amount borrowed at the time. In the example above, you would have $250,000 available to use, but if you used only $100,000 of it, you would owe interest on only that outstanding amount
Conventional loans
Pros • Most widely available type of financing, so you can easily shop around for best rates and terms • Easy to understand • Conventional loans typically have the lowest interest rates of any loan options • In most cases, the required PMI (private mortgage insurance) payment automatically burns off as you gain equity in the property • Fewer burdensome provisions than FHA, VÀ or other loans • If you have a credit score of 720 or better, you can qualify for even lower interest rates than FHA or VA loans • No PMI if you put down 20% of the purchase price
ARMS
Pros • Typically, ARMS have lower initial interest rates than fixed mortgages • There is a chance that your interest rate will decrease over time • Ideal for short-term financing needs because over the short term, interest rates don't fluctuate widely. (Historically, rates increase or decrease slowly over time.)
Hard-money
Pros • Very flexible loan structure • Easy to qualify for because the loan is secured by the property rather your personal financial situation and your ability to pay back the loan n over time. However, if you're deemed a higher-risk borrower, you'll pay more than a borrower who is considered less risky • Hard-money lenders understand the and offer quick loan approval and funding. Very quick turnaround from application to funding allows you to negotiate more favorably when putting in offers - it's the next best thing to having cash in hand • Hard money loans are easy to find
4. Veteran Affairs (VA) Loan
Qualifying for a VA loan is one of the great advantages of serving in the military. This loan offers no-down-payment loans to veterans, service members and select military spouses. Similar to the FHA loan, you'll be required to live in the property for at least one year. One great thing about VA loans is that you can buy as many houses as you want as long as you don't exceed the set amount you qualify for and you live in each one for at least a year. The limiting factor isn't the number of houses; it's the entitlement amount. (Along with offering USAA is one popular VA mortgage lender.)
Reconveyance deed -
Reconveyance deed A reconveyance deed executed by the trustee is the means by which the trustee returns title to the trustor when the debt is paid off. The beneficiary notifies the trustee that the debt has been cleared by sending the trustee a document called a request for reconveyance.
9. Renegotiable-rate mortgage (RRM)
Renegotiable-rate mortgage (RRM) (also called rollover mortgage):Rate and payments constant for three- to five-year intervals; can change based on FHLBB index; rate cap of 5% over maximum 30-year term advantages/disadvantages:Fair stable payments due to less-frequent changes in rate
Seller-funded down payment assistance programs -
Seller-funded down payment assistance programs - Effective October 1, 2008, FHA prohibits the use of down payment assistance programs funded by those who have a financial interest in the sale, such as the property seller. Programs provided by nonprofits or funded by other sources, such as churches, employers, or family members, are still allowed. Allowable seller concessions, such as payment of discount points, cannot exceed 6% of the home purchase price.
Since 1980, even banks that are not
Since 1980, even banks that are not members of the Fed have been required to comply with its reserve requirements.
The Fed regulates the flow of money and
The Fed regulates the flow of money and the cost of credit to help stabilize the market fluctuations that create inflation or recession. The 12 regional Federal Reserve Banks follow the policies set by a seven-member Board of Governors. Members of the board are appointed by the President of the United States and confirmed by the Senate for 14-year terms. The Fed makes its own decisions but reports to Congress, and its power can be revoked by Congress.
Federal Deposit Insurance Corporation -
The Federal Deposit Insurance Corporation (FDIC) was created by Congress in 1933 to insure individual accounts in participating banks and (as of 1989) savings and loan associations, currently up to $250,000 per depositor, per insured bank, for each ownership category.
Federal Home Loan Banks-
The Federal Home Loan Bank System (FHLB system) was authorized by Congress in 1932. There are 12 regional Federal Home Loan Banks and they are now regulated by the Federal Housing Finance Agency (FHFA).
Federal Reserve Bank System -on
The Federal Reserve Bank System (the Fed) was created by Congress in 1913 to serve as the central bank of the United States.
National Housing Trust Fund -
The Housing and Economic Recovery Act of 2008 (HERA) created the National Housing Trust Fund (NHTF), to be funded by a percentage of profits from the government-sponsored enterprises mentioned later in this unit. The NHTF is intended to provide revenue to communities to build, preserve, and rehabilitate affordable rental homes for extremely and very low-income households. The first state allocations, to be made in 2016, total $173.6 million; California's allocation is $10,128,143, to be administered by the California Department of Housing and Community Development. More information on NHTF is at www.nlihc.org/issues/nhtf.
DEPARTMENT OF VETERANS AFFAIRS
The Servicemember's Readjustment Act of 1944 (the GI Bill of Rights) helped ease the transition into civilian life of World War II veterans. The programs later were expanded to include veterans of subsequent conflicts. The GI Bill also covers the surviving spouse of an eligible person who died as the result of a service-connected injury, and the surviving spouse of a person missing in action or listed as a prisoner of war for more than 90 days. Benefits are available as long as the surviving spouse remains unmarried.
Buyer qualification for an FHA loan-
The borrower's Social Security number must be supplied on the loan application to assist in reporting of delinquent and foreclosed loans to other federal agencies and to credit bureaus.
Buyer qualification for an FHA loan-
The following rules are aimed at reducing the number of defaults on FHA-insured loans, in addition to preventing defaulting borrowers from acquiring more credit: 1. Total seller contributions, including discounts, buy-down costs, and closing costs, cannot exceed 6% of acquisition cost. 2. The borrower must be qualified at the full note rate, rather than the Tresbuy-down rate.
Total cash investment
The minimum cash investment made by a borrower on an FHA-insured loan must be at least 3.5% of the sales price, provided the borrower has a credit score of at least 580. If the borrower has a credit score of 500 to 579, the required down payment is 10%, although other factors, such as late payments on existing debts, may result in denial of the loan application by FHA. A borrower with a credit score of less than 500 is ineligible for FHA-insured financing.
PROMISSORY NOTE
The promissory note is a promise to pay money according to specified terms. The payment may be by installments that include both interest and principal (the amortized loan) or by installments of interest only with the principal due in a lump sum (a straight note). A combination of loan types also may be used, with a lump-sum balloon payment due at the end of a specified term, during which only part of the principal is paid.
PROMISSORY NOTE
The promissory note is a promise to pay money according to specified terms. The payment may be by installments that include both interest and principal (the amortized loan) or by installments of interest only with the principal due in a lump sum (a straight note). A combination of loan types also may be used, with a lump-sum balloon payment due at the end of a specified term, during which only part of the principal is paid. A balloon payment is defined by the Real Estate Law as an installment that is at least twice the amount of the smallest installment. Interest rates are allowed to reflect market trends by use of an adjustable-rate note, described later in this unit. A loan can also call for
FHA insurance
The selling price of a home can be higher than the maximum amount stated, but FHA insurance will not cover the excess. Condominium loan limits are approximately the same as those for single-family residences in the same county. Higher limits apply to two- to four-unit properties.
WHEN A MORTGAGE IS REALLY A DEED OF TRUST
The term mortgage is used generically to refer to any security device. In California, that device (instrument) most often takes the form of a deed of trust
Trust deed
The trust deed, also called deed of trust, is used when property serves as security for a debt. The debt typically is the loan used to purchase the property, but it can be any loan using the property as collateral to guarantee payment of the amount borrowed. The requirements for creation of a security interest in real estate are explained in Unit 8. When the purchaser of property borrows money to finance the purchase, the borrower (new owner) is the trustor (the grantor) of the trust deed. The trustee (the grantee) is the party who holds title until the debt is paid. The beneficiary, the party on whose behalf the title is held, is the lender. If the underlying debt is not paid, the trustee has the power to sell the property at a foreclosure sale and pay the beneficiary the amount
Cons Conventional
There is a limit to how many conventional loans you can have • You need a good credit score (640 or higher for most conventional loans) to qualify Difficult to impossible to qualify if you're buying properties through an rather than putting them in your personal name Conventional mortgages typically take three to four weeks to get through the underwriting process. This is a downside because investment properties often go to "cash buyers" who don't need to delay the closing by attaching a mortgage loan approval contingency to their offer • You may also have to pay a loan origination fee
hypothecation
To pledge real or personal property as security for a loan or other obligation without surrendering possession of the property. The borrower retains the rights of control and possession, and the lender secures an underlying equitable right in the pledged property.
To qualify for a VA-guaranteed loan,
To qualify for a VA-guaranteed loan, an individual must have had 181 days of active service. An appraiser approved by the VA checks the property. The loan cannot exceed the appraisal known as the certificate of reasonable value (CRV). The certificate of reasonable value is based on a VA appraisal made for insurance purposes. (The loan amount is not regulated, but the guarantee is.)
HUD direct endorsement plan -
Under HUD's Direct Endorsement Plan, qualified lenders may process a loan without prior HUD review, except for construction projects. This program thus eliminates the lengthy processing time that is one of the major drawbacks of the federally insured loan.
balloon payment
Under an installment loan agreement, a final payment that is substantially larger than the previous installment payments and repays the debt in full is called a balloon payment.
Under the CalVet loan program (the
Under the CalVet loan program (the California Farm and Home Purchase Program), California veterans can acquire a suitable farm or a single-family residence at a low financing cost. The State of California actually takes title to the property and sells it to the veteran under a land contract. Following are some features of the CalVet loan: CalVet loans can now be arranged through lenders approved to handle CalVet loans. • CalVet loans are now processed with DVA guidelines. The loans are now available to peacetime as well as wartime veterans and active
USURY
Usury is the charging of an exorbitant amount or rate of interest and is the subject of both state and federal law.
Down payment -
VA generally does not require a down payment, although the lender may. FHA requires a down payment of at least 3.5% of the sales price or appraised value, whichever is less.
Loan amount -
VA guarantee limits do not set the upper limit of the loan amount. FHA loan maximums are exactly that.
Federal law
When they cover the same subject, federal law preempts state law.
Why would anyone lend as much money as most real estate transactions require?
Why would anyone lend as much money as most real estate transactions require? Because the loan can be backed by the property. Real estate loans in California generally are made using two instruments: The promissory note is the borrower's promise to pay the amount borrowed. The promissory note is evidence of the debt. It establishes the underlying obligation of the loan transaction. The security instrument is used to identify the real estate that serves as assurance that the loan will be repaid.
Conventional loans
a lien on the property secured by a mortgage. While many banks allow some borrowers (those who plan to occupy the property as their primary residence) to put down as little as 5% of the purchase price, investors must typically put down more. Most investors pony up a 20% down payment, so their loan is not subject to private mortgage insurance (PMI).
adjustable -rate mortgage-description: Interest
adjustable -rate mortgage-description: Interest rate changes based on index; could increase payments, term, or principal; could have rate cap or payment cap
adjustable-rate mortgage (ARM)-FHA
adjustable-rate mortgage (ARM)-FHA allows an adjustable-rate mortgage (ARM) for owner-occupied residences of no more than four units. The rate of interest charged is adjusted by increases in monthly payment, outstanding principal balance, loan term, or a combination of the three. Maximum loan term is 40 years. Adjustment of the interest rate must correspond to a specified national interest rate index. Adjustments of no more than 1% of the outstanding loan balance may be made annually, with an increase of no more than 5% over the initial contract interest rate over the life of the loan. At the time of application, the borrower must be given a written explanation of the loan features and possible rate and payment increases over the loan term.
Adjustable rate mortgage
advantages/disadvantages:Very popular with lenders; rate cap of no more than 5% advisable; with payment cap, negative amortization possible; usually assumable
balloon payment
balloon payment is defined by the Real Estate Law as an installment that is at least twice the amount of the smallest installment.
Calvet program
duty military. The maximum home loan amount is 125 percent of the maximum for a Fannie Mae conforming loan; 2015 limit is $521,250. • Depending on the type of CalVet loan, the down payment can range from 0 to 5 percent. They have a limit of up to $589,785. 2015 CalVet loans start at 4.25 percent interest for a 30-year home loan (higher rate for mobile homes). CalVet loans have an origination fee of 1 percent. Cal Vet loans have a funding fee of 1.25 percent to 3.30 percent. While CalVet loans have a variable interest rate, the rate is seldom changed.
graduated payment mortgage
graduated payment mortgage (GPM)-The GPM is available for families who expect income to increase over the loan term and who otherwise would not qualify for a mortgage loan. Only single-family residences are eligible. With a GPM, monthly payments do not cover all of the interest due. The unpaid interest is added to the remaining balance of principal owed. This negative amortization process continues for 5 to 10 years, depending on which of five different GPM plans is used. At that point, monthly payments stay the same to the end of the loan term and are fully amortized. Because interest is paid on interest, the statute specifically preempts any state usury laws that might be violated. Graduated payment mortgage (GPM)-description: Lower monthly payments rise gradually over 5 to 10 years, then level off for remainder of term
FHA
qualify for a mortgage loan. Only single-family residences are eligible. With a GPM, monthly payments do not cover all of the interest due. The unpaid interest is added to the remaining balance of principal owed. This negative amortization process continues for 5 to 10 years, depending on which of five different GPM plans is used. At that point, monthly payments stay the same to the end of the loan term and are fully amortized. Because interest is paid on interest, the statute specifically preempts any state usury laws that might be violated. FHA allows an adjustable-rate mortgage (ARM) for owner-occupied residences of no more than four units. The rate of interest charged is adjusted by increases in monthly payment, outstanding principal balance, loan term, or a combination of the three. Maximum loan term is 40 years. Adjustment of the interest rate must correspond to a specified national interest rate index. Adjustments of no more than 1% of the outstanding loan balance may be made annually, with an increase of no more than 5% over the initial contract interest rate over the life of the loan. At the time of application, the borrower must be given a written explanation of the loan features and possible rate and payment increases over the loan term. FHA also allows a shared appreciation mortgage (SAM) for a dwelling of one to four units.
Va loans can be used to
refinance existing mortgage loans for dwellings owned and occupied by veterans.
Pros
• Low down payment - 3.5% is all you need for a down payment. You still need to pay closing costs, but many of those costs can often be financed into the loan itself. • Easier to qualify - many banks require a credit score minimum of only 550 or 600 to qualify
4. Veteran Affairs (VA) Loan Pros
• No down payment. (You will have some closing costs and fees, but you don't have to come up with any down payment to qualify for VA loan.) • VA loans offer the lowest interest rate available • No required PMI for VA loans
3. 203(k) Loan Pros
• You can finance the whole project with one lender exo You can widen your choices to include distressed and foreclosed properties in addition to move-in ready properties • You can negotiate a better deal on a property in need of rehab, which means you can likely benefit from instant equity • If you contract the rehab work yourself, you can negotiate costs below retail prices - it'll cost you less and you'll build equity faster You don't need to find additional cash for rehab costs, and when you're finished, the home will likely be worth more than the loan amount
Cons
• You're required to personally live in the property for at least one year The FHA's version of PMI (private mortgage insurance) is MIP (mortgage insurance premium), and you have to pay it for the life of the loan. It's the price you pay for getting a mortgage with such a low down payment. (You can avoid MIP if you put 10% down, but that sort of defeats the purpose of getting this loan, the low down payment.) • You can have only one FHA loan out at a time, and the loan has to be in your personal name, not that of an LLC or other entity • There is more paperwork at closing, and it typically takes a little longer than a conventional loan • In addition to the strict appraisal needed for loan approval to - the house has to pass inspection by the U.S. Department of Housing and Urban Development (HUD). These additional "health and safety" inspection guidelines can be pretty strict. And if the house requires repairs to pass inspection, these repairs must be done before the sale can go through. You either need to make the repairs before you actually own the property (not recommended) or ask the seller to make the repairs at their cost prior to the sale. The stricter appraisal and inspection requirements make it nearly impossible to buy a fixer-upper with an FHA loan. That means you
VÀ loans can be used to:
• buy or build an owner-occupied home; • alter, repair, or improve real estate; • purchase a mobile home; and
the differences between mortgage and trust deed lie in the:
• number of parties, conveyance of title, statute of limitations, available remedies on default, • period of reinstatement, • availability of redemption, • availability of deficiency judgment, and • procedure following satisfaction of the debt.
The main activities of the Fed are accomplished by:
• raising or lowering reserve requirements (cash on hand) of member banks, which decreases or increases the amount of money allowed to circulate; establishing the discount rate (interest rate) that member banks must pay to borrow money from the Fed, which affects the federal funds rate that member banks charge each other for borrowing funds they maintain with the Fed, the prime.rate that banks charge their most favorably rated commercial borrowers (usually-but not always-3% above the federal funds rate), and, ultimately, the rate consumers are charged; and buying and selling government securities to affect the amount of funds available for savings and other investment, and thus the amount available for borrowing.