2nd half: section 9 Loan Qualification & Financing in. WA
An appraised value that's lower or higher than expected creates some dilemmas for the buyer and seller. Which two of these statements about appraised values are correct?
- A low appraised value may mean that the seller has to reduce the sales price or that the buyer has to come up with additional cash. - An appraised value that's considerably higher than the purchase price may leave the seller feeling cheated.
Loans available on the primary market are either conventional or government loans. Select the two statements that describe a conventional loan.
- Generally are packaged and sold on the secondary mortgage market - Available in different loan products
There are several criteria that lenders use to determine whether a loan conforms to Fannie Mae/Freddie Mac guidelines. Identify these criteria.
- Housing or total debt-to-income ratio - Loan amount - Loan-to-value ratio - Down payment
Francis did his homework, decided on a loan, and filled out and submitted his loan application. Now, he's having second thoughts. How long does his right to rescind last? Select the two best answers.
- Three business days from the transaction being consummated - Three business days from delivery of the disclosure statement
Several Washington cities and counties offer down payment assistance (DPA) for buyers of properties within those localities. Which of these municipalities have DPA programs available?
-Tacoma -Seattle -Bellingham
Which of the following is the credit score range?
300 and 850
Jeffrey has accepted an offer of $310,000 for his house. The buyer is making a $50,000 down payment, and the buyer's appraisal came in at $300,000. On what number will the buyer's lender base the loan-to-value ratio?
300,000
Which range of credit scores represents the average score for Americans overall?
670 to 739
Consumers in the _______ range have an above-average credit score. They tend to qualify for better interest rates than those in the "acceptable" category.
740-799
Consumers in the _______ range are well above the average credit score and generally have an easy time getting approved for new credit.
800+
Pre-qualification letter
A letter from a lender stating that, on the face of information provided by the borrower, the borrower will likely qualify for the loan
What's a payment cap?
A limit to how much monthly payments can increase during any given year
Conforming loan
A loan that adheres to Fannie Mae and Freddie Mac criteria and may be sold on the secondary mortgage market
Which professional performs appraisals?
Certified appraiser
Juan's credit score is being pulled. Which of these actions would have a positive effect on his score?
Credit accounts with low or no balances
Lender criteria
Credit history, monthly housing expense vs. income ratio, total payment obligations vs. income ratio
Which type of loan is insured by the Federal Housing Administration?
Government
Buyers don't want to be committed to purchasing a home for more than it's worth. What's the best way for buyers to protect themselves in the event the property appraises for lower than the contracted sales price?
Include an appraisal contingency with the purchase contract.
Whenever property is being financed, an appraisal will be required. Which party to the transaction is responsible for ordering the appraisal?
Lender
Payment history, age of accounts, credit usage rate, and inquiries are factors considered in calculating a credit score. Which of the following is also considered?
Length of credit history
Borrowers must list their liabilities when completing a residential loan application. What are liabilities?
Obligations a borrower owes
HomeChoice
Offers down payment assistance to buyers who have a disability
Your seller clients are angry because the buyer's financing fell through. "The buyer was pre-qualified! How can this happen?" they ask. How do you answer?
Pre-qualification does not equal pre-approval.
House Key Opportunity
Program for first-time buyers offers financing at below-market rates
Home Advantage
Program with below-market rates and financing up to 97% of appraised value
The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called?
Purchase money mortgage
In order for earnings from a second or part-time job to be considered as part of a lender's income evaluation, what must be true?
The applicant must have been employed for at least two years, and the employment must be expected to continue.
Which statement most accurately describes the right of rescission?
The three-business-day period from the date a transaction is consummated or disclosures are delivered to the borrower, whichever is later, during which the borrower can cancel the loan
Tina is applying for a home loan. In order for child support payments she receives to be considered in the income evaluation by her lender, what must be true?
There must be a consistent track record of payment or the payments must be the result of a court order.
(monthly debt payments / gross monthly income) x 100
Total debt ratio
Guarantees loans
VA loan
When is private mortgage insurance typically required on a conventional loan?
When the borrower's down payment is less than 20%.
Payment history, credit usage, inquiries, and types of accounts are factors considered in calculating a credit score. Which of the following options is also a factor?
age of accounts
Conforming loan
is one that conforms to Fannie Mae and Freddie Mac guidelines. A jumbo loan is non-conforming because the loan amount is over the Fannie Mae/Freddie Mac loan limit, but a jumbo loan can still be a conventional loan, and the FHA does actually insure jumbo loans for qualified borrowers.
The buyer makes payments to the seller.
land contract
The buyer places security interest in property on behalf of the seller.
purchase money
The buyer retains title.
purchase money
Your buyer client asks you the purpose of a financing contingency. Your response should be that it protects _________________.
the buyer
Which statement describes a conforming loan?
A loan that meets certain criteria that are accepted by Fannie Mae and Freddie Mac
VA loan
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs
Adjustable rate mortgage (ARM)
A mortgage loan in which the interest rate varies according to a recognized index, such as the Consumer Price Index
FHA loan
A mortgage loan insured by the Federal Housing Administration
Pre-approval letter
An assurance from the lender that the borrower appears to have the funds and creditworthiness to close; includes verifying the borrower's credit standing, available funds and employment history
When a borrower is completing a loan application, items of value the borrower owns are listed in the ______ section.
Assets
MIP always required
FHA Loan
Insures loans
FHA loan
Typical down payments are 3.5%
FHA loan
Why are new condominiums an issue with FHA loans?
FHA requires 50% of the units to be under contract
Buyers may borrow up to 97% of the appraised value or sales price, whichever is lower.
Home Advantage
Simon has been living in Portland, Oregon, for the last two years. Prior to that, he was living and working in Vancouver, Washington. He owned a condo in Vancouver, but sold it when he moved to Portland, and rented the entire time he was in Oregon. He moved to Seattle for a new job, and he'd really like some mortgage assistance, since his job is only slightly above entry level. Which program would likely work for Simon?
Home Advantage
Tanya and Gino sold their condo six months ago, and want to buy a larger, single-family home. They're concerned because they only have a 5% down payment. Which Washington buyer assistance program might be right for them?
Home Advantage
The property must meet Federal Housing Administration (FHA) guidelines.
Home Advantage
This program offers below-market rates and financing for up to 97% of appraised value.
Home Advantage
This program offers down payment assistance to buyers with a disability.
HomeChoice
Borrowers must be first-time buyers.
House Key
The program is funded by the sale of tax-exempt bonds.
House Key
The property can't be more than a maximum sales price.
House Key
This program for first-time buyers offers financing below-market rates.
House Key opportunity
Lenders use credit scores when determining whether to approve a loan application. What does the score tell the lender?
How likely the applicant is to repay the money that's been borrowed
Adjustable rate mortgage interest rates are often linked with a recognized ______.
Index
Payment history, age of accounts, credit usage, and types of accounts are factors considered in calculating a credit score. What's also a factor?
Inquiries
Brian is completing a residential loan application. On the application, he lists his assets. What are assets?
Items of value the borrower owns
The seller retains title.
Land contract
Housing debt ratio
Monthly housing payment (principal, interest, taxes, and insurance)/monthly gross income
Which of the following responses to a low property appraisal might impact the buyer's equity in the home?
The buyer makes up the difference between the appraised value and the purchase price.
Besides the appraisal, what's a common hurdle as transactions approach closing?
The buyer's financing falls through.
Loan-to-value ratio (LTVR)
The ratio of a loan to the value of the property purchased (to a lender, value is the lower of the sales price or appraised value)
Which statement is true regarding most government loans?
They're insured or guaranteed by the government.
What is the purpose of TILA (truth in lending act) ?
To better educate consumers about the cost of credit and financing
What's the purpose of the financing contingency?
To protect the buyer in case the buyer cannot obtain financing
(monthly housing expenses / gross monthly income) x 100
Total housing ratio
Total debt ratio
Total liabilities/total debt
Brent is your buyer client and a first-time homebuyer. Despite every effort he's made to win the lottery, he'll be financing the purchase of his first home. You're about to review the financing steps with him. Which is the first financing step he must complete? a. Sign a purchase contract b. Complete a loan application c. Obtain pre-qualification or pre-approval letter
c. Obtain pre-qualification or pre-approval letter
Biff is completing a residential loan application. Which of the following would he include in the liabilities section?
car loan
Federal agencies don't participate in insuring or guaranteeing the loan
conventional loan
Payment history, age of accounts, inquiries, and types of accounts are factors considered in calculating a credit score. What's another item that's considered?
credit usage
A conventional loan
is one that doesn't require special financing, such as an FHA or VA loan (which are types of government loans). These are also often called commercial loans (but this doesn't mean that it's for a commercial product).
Which is the most important factor used to determine a credit score?
payment history
