Chapter 14 Real Estate

rural development loans

- The Farm Service Agency administers rural development loan programs. - These government loans are available to family farms and housing in rural areas. -Loans can be set for a period of 33 years (38 years for very low income individuals).

rules for compensation of a mortgage broker

- The broker can't be compensated on the basis of the terms of the transaction. For example, the compensation can't be tied to the rate of interest for the loan the consumer receives. - Compensation can't take the form of a bonus or other plan that's based on mortgage-related profits. -The broker can't be compensated by multiple people in a single transaction. For example, the borrower and the creditor in a transaction can't both give compensation to the broker.

open vs closed computerized loans orgination system

- closed= often found in real estate offices, and the offices of builders and mortgage bankers. The borrower goes through the respective professional to access the system, which is why they're called closed systems. These systems can prequalify the borrower, show competing mortgages with the lowest effective rate or costs at a set point in time - open= are accessible to the consumer through their home computer or other device. Real estate agents and lenders pay monthly fees to list properties and loan programs, respectively, and the consumer uses free software to access the system.

government loans

- include participation from a federal agency as an insuring, or guaranteeing party. - The two most common types of government loans are 1. Federal Housing Administration (FHA)-insured and U.S. - little as 3.5 percent, lower credit scores and bc of that have to pay mortgage insurance premium (MIP) and you pay that for the total life spam of FHA loan 2. Department of Veterans Affairs (VA)-guaranteed loans. - don't require down payment, mortgage insurance or prepayment penalty - gap in down payment is covered by gov entity

conventional loans

- offer a broad range of loan products that vary in length and carry terms that do not include any insurance or guarantee from a federal agency. - though, conventional loans are bundled together and sold on the secondary mortgage market - 3% down payment.

what type of loan? This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule. The interest rate remains the same, and there's no negative amortization. The first payment is a fully amortizing payment. As the payments increase, the amount greater than a fully amortizing payment is applied directly to the principal balance, reducing the life of the term and increasing the borrower's interest savings.

.growing equity mortgage

Which two of the following are possible loan origination fee percentages borrowers might expect to incur?

1% and 3%

What's the purpose of PMI?

To protect the lender in case of borrower default when the borrower has put down less than 20%

what is the major difference bw and equity loan and home equality line of credit (HELOC)?

While the rates on an equity loan are usually fixed, HELOC rates are often variable (ARMs).

In light of economic conditions, lenders consider borrower credit and property value. Property value is important because it factors into the loan-to-value ratio (LTVR) calculated by the lender. Let's say the buyer and seller agreed to a sales price of $90,000, but the property appraised at $100,000. What value would the lender use to calculate LTVR? 100,00 appraisal value or 90,000 sale price

$90,000 sale price bc the lender will use the lesser of the appraisal value or sale price

3 tools a lender uses to lock in a rate at any point from the time of application to the day of closing.

1. lock-in 2. rate-lock 3. rate commitment

Mortgage PITI payment

1. p(principal) = balance on the loan, the actual amount owed, as the intrest payment of the mortgage increase, more of the payment is applied to principal 2. I (Interest) the fee paid back to the lender for the use of their money, intrest portion payment usually decreases over the life of the mortgage 3. T(Taxes) includes property tax, which is cost of public service/ value of property for the area 4. I (insurance) may include mortgage, home-owners and or flood insurance

types of lenders

1. saving and loan association (Associations that accept savings deposits and offer loans) 2. commercial banks - National banks that offer consumer and business loans 3. credit unions - Member-based cooperatives that provide credit for loans 4. mortgage bankers or mortgage brokers - both concentrate on mortgage lending.Mortgage bankers= do the lending & mortgage brokers= work with multiple lenders to search for and negotiate the best deal for a particular borrower's circumstances. 5. insurance companies - Companies that finance mortgage loans, but specialize in insurance products 6. investment groups

what does the lender examine to decide if it is a risk too big to take or to see if they all make the money back they lended out?N

1. the borrower (solid credit in the buyer) - lender asks for income information and buyer provides the last 2yrs of federal income tax return paperwork - then the lenders underwriter will calculate 2 dept rations A) monthly housing expense to income= principal and intrest plus taxes and insurance and any other loans B) total payment obligations to income: revolving credit card debt, auto loans, and student loans) - then ask for employment history 2. the property (solid value in the property) - lender wants to know property's investment quality so the lender looks at appraisal value and the loan to value ratio (LTVR) -owner occupied properties are better risks bc owners tend to take better care of property

Which three of these describe the loan-to-value(LIVR) ratio?

1. the way loans are classified 2. a calculation used by lenders to determine the loanable amount of a given property 3. the ration of debt to the value of the property

residential loan process

1.Loan pre-qualification or pre-approval 2.Loan application 3.Loan processing 4.Underwriting analysis 5.Loan approval/disapproval

The lender will charge a one-and-a-half-point origination fee and two loan discount points. What will be the total due for points on a $115,000 loan?

4,025

Charlie and Wendy are purchasing a property with a sales price of $350,000. They'll be financing $335,000. What's their LTV ratio?

95.7%

Fixed-rate loan

A loan where the principal and interest payment remains the same over the life of the loan.

Budget mortgage

A typical amortized mortgage loan that includes principal, interest, taxes, and insurance in each (usually monthly) amortized payment. A common acronym for this kind of loan is PITI (principal, interest, taxes, and insurance).

Deborah obtained her eligibility certificate for a VA loan and has made an offer of $275,000 on a home. The home appraises at $270,000. What are Deborah's options?

Deborah can still purchase the home, applying funds from her own savings to make up the difference between the appraised value and the purchase price.

Amortized loan

Debt is paid off by making periodic payments toward both principal and interest.

Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay an MIP. What type of loan does Lydia have?

FHA

the smaller the ______________ ratio the more comfortable the lender is likely to be with the investment

LTV ratio (loan to value ratio)

How many times can a veteran use VA loan benefits?

More than once if previous loans have been paid off or properly assumed

Vince Parker is purchasing a home for $150,000. He puts 10% down on a conventional loan. Will he be required to obtain PMI or MIP?

PMI (Vince is required to get PMI because he's applying for a conventional loan and is unable to put at least 20% down toward the purchase.)

Ronny is purchasing a home for $150,000. He puts 10% down on a conventional loan. Will he be required to obtain PMI or MIP?

PMI, Ronny is required to get PMI because he's applying for a conventional loan and is unable to put at least 20% down toward the purchase of the home.

land contract

The buyer has possession of the property, while the seller still holds the title.

adjustable -rate mortgage

The interest rate fluctuates based on the economic index to which it's tied.

What's loan-to-value ratio

The ratio of the amount of a loan to the value of the property

Stacey's lengthy military service makes her uniquely eligible for a(n) ________.

VA loan (Individuals eligible for VA loans include military members who have served 181 days on active duty or three months during war time.)

Victor buys a property from Yolanda for $200,000. Using a land contract, Victor agrees to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title?

Yolonda

Caroline's monthly mortgage payment includes principal, interest, taxes, and insurance. She has a 30-year mortgage at a consistent 3.75% interest. What type of loan does she have?

a budget mortgage

April's mother is getting older, lives alone, and needs care. April's house is too small for both of them. She has a solid amount of equity in the home but isn't in a position to move. Instead, she decides to take out a loan to build an 800-square-foot addition onto the existing home for her mom. What type of loan might April likely consider to finance the addition?

a home equity loan (is based on the amount of equity the homeowners have in their home. These funds are received in one lump sum and are frequently used for large expenses, such as home renovations.)

mortgage bankers

actually do the lending. - can close quickly bc they fund their own loans, have narrow offering which are limited to their own products, and have in-house loan processors and underwriters

Discount point

are loan fees that lenders charge to give buyers a lower interest rate without losing out on the yield lenders will earn over the life of the loan.

what type of loan? A loan with a lump sum payment, usually at the end of a loan period. The balloon loan may be paid as an interest-only loan for a period of time and then be paid off all at once. It may also be a partially amortized loan, in which case it's paid off through a series of amortized payments with a balloon payment at the end of the term. For example, a lender may agree to amortize the loan over a 30-year period with a balloon payment at the end of 10 years. This equates to lower monthly payments, but borrowers must be able to pay off the entire loan at the end of 10 years.

balloon loan

what type of loan? can be paid as interest-only or partially amortized until the final balloon payment is due.

balloon loans

Prepayment of interest at closing to reduce the interest rate either temporarily or permanently

buydowns

what type of lender ? National banks that offer consumer and business loans

commercial banks

What type of loan? Temporary financing for construction purposes. The developer submits plans for a proposed project, and the lender makes a loan based on the property appraisal value and the construction plans. The entire loan isn't given at once; disbursements are made at intervals as phases of construction are completed. Upon completion, the lender makes a final inspection, closes the construction loan, and converts the loan into permanent, long-term financing. Construction loans involve risk for the lender (they are essentially loaning on land, air, and a promise to build) and usually come with a higher rate.

construction mortgage

conforming conventional loans

conventional laws are conforming when they meet Frankie Mae and Freddie Mac guidelines

what type of lender? Member-based cooperatives that provide credit for loans

credit unions

A fee charged by the lender to give the borrower a lower interest rate

discount points

every time a homeowner makes a mortgage payment, that payment not only pays down the loan balance (or principal), it also increases the homeowner's_________________________

equity

the amount of the home you actually own

equity

what is referred to as constant payment method, meaning that the borrower's installment payment remains the same throughout the loan term (assuming it isn't an adjustable-rate mortgage, of course).

fully amortized loans

Which type of loan is insured by the Federal Housing Administration?

government

Lending is especially impacted by inflation. What two things are you likely to see during inflationary periods?

higher rates and fewer buyers

A lump-sum loan that must be repaid by the homeowner

home equity loan

is made based on the amount of equity the homeowners have in their home. Loan funds, which are received in one lump sum, are frequently used for home renovations, to fund a college education, to pay off credit card debt, or for other major purchases and expenses.

home equity loan

what type of lender? Companies that finance mortgage loans, but specialize in insurance products

insurance companies

what type of lender? Groups that lend to those who want to avoid conventional financing

investment groups

A point

is a percentage of the loan amount that lenders charge to borrowers. Points include origination fees and discount points.

A computerized loan origination system (CLO)

is an automated computer system that allows borrowers to compare mortgages electronically and, if they so desire, to apply for a mortgage. CLOs come in two flavors: closed and open.

Equity

is the amount of value a homeowner has in a property after any debts (such as a loan) are taken into account - the amount of the home you actually own

what type of loan? Also known as a contract for deed, land installment contract, or installment sale agreement, this is a contract between a seller and buyer in which the seller acts as the lender for the buyer, who purchases the property for an agreed-upon price. Just as with a traditional lender, the buyer makes installment payments to the seller, who retains the title to the property while the buyer gets the right of possession. Often, there's both a down payment, and at the end of the contract, a balloon payment. When the loan balance is paid in full, the seller gives the buyer title.

land contract

what type of loan? The buyer and seller negotiate a sale price, which is written into the lease. Sellers will often apply a portion of the rent toward the purchase to entice the buyers to close more quickly.

lease with option to buy

What step. in the residential loan process? requires lenders to provide borrowers with a Loan Estimate of fees that will be due at closing. The Loan Estimate is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the loan for which they're applying. The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. If the borrowers don't inform the lender that they want to proceed with the loan, the estimate will expire after 10 business days.

loan estimate

A fee charged by the lender to cover the cost of processing the loan

loan origination fee

what step in the residential loan process is ? The buyer actually applies for a loan with a lender. The information about income, assets, debt, and money available for a down payment is accompanied by some supporting documentation. The buyer might also be required to pay an application fee at this point. The lender will verify the buyer-provided information, determine the buyer's ability to finance, and decide what that magic number might be. While there's no guarantee at this point that the buyer will receive final approval for the loan, a loan pre-approval is generally viewed more favorably than a pre-qualification because of the verification of buyer-provided information. It's a good way to show a seller that the buyer's offer is viable. However, until a property has been identified, or the buyer's financial condition is such that the lender can easily pre-approve a loan, pre-approval is rare.

loan pre-approval

what step in the residential loan process is ? The buyer provides information to a lender about income, assets, debt, and how much money is available for a down payment. The lender uses these numbers to provide the buyer with a pre-qualification letter that estimates the amount for which the buyer might qualify but doesn't verify any of the information. This letter helps the buyer understand what price range to shop in, and there's usually no cost to the buyer.

loan pre-qualification

what step in residential loan process? The lender collects documentation from the consumer about income and credit, as well as the property.

loan processing

what do lenders us to determine the loanable amount of a given property?

loan to value ratio (LTVR)

Which type of payment is made at the end of the term for a balloon mortgage?

lump sum

Inflation

means the government has to borrow to meet its current debt load, businesses have to borrow more, and buyers have to borrow more to pay their grocery bill and other expenses. The housing market suffers because interest rates are sky high and more buyers are pushed out of the market.

The borrower is charged ______ for all FHA loans.

mortgage insurance premium

Which of the following items is a benefit of a U.S. Department of Veterans Affairs-(VA) guaranteed loan?

no down payment required

back - end compensation

paid by the lender, get a wholesale price from the lender and charge a retail force for the loan

front-end compensatio

paid directly by the borrower, up front, for my wor

what is 1% of the loan amount?

points

Loan origination

points are charged by the lender to recover the cost to making the loan

FHA federal housing administration) loan insurance

program helps buyers who may have trouble qualifying for a conventional loan. This includes many first-time homebuyers, as well as borrowers with credit issues or inadequate cash for a conventional down payment.

The Hendersons don't have enough money to make the full 20% down payment their lender requires. To close the sale, the seller is willing to finance a loan for the gap between the home's list price and the amount the institutional lender is willing to loan. What's this type of financing called?

purchase money mortgage

With this arrangement, the buyer is able to obtain a loan for a large part of the purchase price, and the seller agrees to finance the rest of the balance. The buyer or the bank obtains the title to the property.

purchase money mortgage

what type of loan? A mortgage loan alternative that allows the interest rate to be renegotiated periodically. The loan can be either long-term with periodic adjustments or short-term with more frequent rate adjustments.

renegotiable rate

3-2-1 buydown

results in a 3% interest rate reduction in year one, 2% in year two, and 1% in year three, with the interest rate returning to the full rate in year four.

As funds are drawn by the homeowner over time, the bank gains ownership of the property

reverse mortgage

loans allow older homeowners, typically 62 and older, to convert home equity into available funds. The home itself is pledged as collateral for the loan and the borrower typically receives the loan funds in one of three ways: 1.Regular monthly advance payments to the borrower, until the approved balance has been achieved 2.A lump-sum payment at the beginning of the loan 3.A line of credit for the approved balance that may be drawn upon as the borrower desires

reverse mortgage

what type of loan? the lender makes payments to the homeowner and slowly gains ownership.

reverse mortgage

what type of lenders? Associations that accept savings deposits and offer loans

saving and loan assosiations

Which type of lender specializes in taking in savings deposits and then lending money out to consumers through mortgages and other loans?

savings and loans

With which type of amortization does the amount applied toward the principal remain the same each month, with the interest amount varying according to the outstanding loan balance?

straight-line

Borrowers who fall into the ______ category may be faced with paying interest 1% to 5% over the current market rate.

subprime

Borrowers with B, C, and D credit ratings are ______ borrowers.

subprime

lender rebate

the fee is the difference bw the wholesale and retail price

What would happen if a client's rate lock-in expires two days prior to closing?

the intrest rate will revert to the current rates

Which number will the lender use to calculate the loan-to-value ratio?

the lesser of either the appraised value or the sales price

straight-line loan (also called straight-line amortization or constant amortization)

the portion of the payment applied to the principal remains the same with each payment, and the interest amount varies according to the outstanding loan balance. This means that the amount of each payment changes, and the borrower makes higher installment payments at the beginning of the loan when the loan balance is higher and more interest is due. Over time, the amount of each installment payment lowers the outstanding balance. -Payments change over the term of the loan, generally with higher payments at the beginning of the loan term. - "constant amortization"

seller financing

the seller agrees to provide credit to the buyer for a portion (or sometimes all) of the funds required to close the transaction. The buyer makes payments directly through the seller.

Jacqueline found a ready, willing, and able buyer for her client's condo, with a sales price of $20,000 more than the asking price. However, the appraisal came in just under the asking price. Which number will the lender use to calculate the loan-to-value ratio?

the smaller number (Lenders use the lesser of the sales price and appraised value.)

The Shores are in the process of buying a beautiful 3,000-square-foot home from the Bishops. They've completed all the required paperwork on their loan application. Mary's analyzing the package to determine their ability to repay the loan. She examines the property's value, the property type, and the loan-to-value ratio, among other things. Her recommendation is that the Shores' loan application be approved. What is Mary's role?

the underwriter

Down payment assistance programs are typically aimed at first-time home buyers because

these buyers often find the amount of a down payment to be a significant barrier to homeownership

Buydowns

they lower (or "buy down") borrowers' loan interest rate to reduce their monthly payment, are lump sums buyers choose to pay at closing. Buydowns are also referred to in terms of points.

what step in the residential loan process ? All of the information about the property and borrower is analyzed, and a recommendation is made.

underwriting analysis

home equity line of credit (HELOC)

uses the equity homeowners have in their property. However, because of how it's set up (as a line of credit), homeowners use this as an open-end account. In this way, a HELOC is similar to the revolving credit of a credit card from which the homeowner can take advances, repay money, and even borrow money again.

Fully Amortized Loans

when a mortgage loan is made, the borrower will make mortgage payments based on the numbers outlined in an amortization schedule. This payment method may be referred to as the "constant payment method," meaning that the borrower's installment payment remains the same throughout the loan term (assuming it isn't an adjustable-rate mortgage, of course).

non-conforming conventional loans

when conventional laws doesn't meet Frankie Mae & Freddie Mac guidelines, at higher risk but make up for it buy chagrinning higher interest rates

mortgage brokers

work with multiple lenders to search for and negotiate the best deal for a particular borrower's circumstances. - DONT lend the money

Manuel is selling his home to Selena. He has an existing loan that he'll continue to make payments on, and he's extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction?

wrap-around loan