Financing
mortgage broker
"middle man" between the buyer and the lending institution; brings together the parties and lets them hash out the details
Gunther's gross monthly income is $3,800, and he has no monthly debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment Gunther can afford?
$1,064
Phoebe's gross monthly income is $4,200, and she has $360 in monthly non-housing debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment she can afford?
$1,152 - The maximum house payment is the lesser of the amounts calculated using both ratios. DTI: $4,200 x .36 = $1,512. $1,512 - $360 = $1,152. Housing ratio: $4,200 x .28 = $1,176. Phoebe's maximum payment is $1,152.
A buyer is purchasing a property for $400,000. His loan-to-value ratio is 80%. The lender also charges a 1% loan origination fee. How much is the loan origination fee?
$3,200
VA-guaranteed loan down payment?
0% - VA loan programs offer financing with no down payment
Generally, what's the common range for loan origination fees?
1% - 3% - Lenders usually charge a loan origination fee between 1% and 3%. Loan origination fees are nearly always negotiable, but most borrowers don't know this!
A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what's the housing ratio?
23% - The housing ratio is 23%: ($1,000 + $150) / $5,000 = .23 x 100 = 23%.
Traditionally, lenders' qualifying mortgage rules use a range of percentages to qualify for both the housing debt-to-income ratio and the total debt-to-income ratio. What are those ratio ranges?
25% to 28% for housing; 33% to 36% for total debt
A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what is the total debt ratio?
31%
Which statement best describes an adjustable rate mortgage?
A loan with a rate that fluctuates based on the economic index to which it is tied
Your seller clients have received an offer, and the buyer has included a pre-approval letter. Your clients are a little confused and think a pre-qualification letter is necessary. What's true regarding pre-approval and pre-qualification?
A pre-approval letter comes with lender verification of buyer-provided data and provides more assurance to the seller. -A pre-approval letter provides more assurance of the buyer's ability to financing than a pre-qualification letter does
While Martha's paying off her loan, her lender is holding on to something that includes her name, property address, the interest rate on her loan, what the late charge amount would be, and the amount and term of the loan. When her loan is paid off, the lender returns it to Mary, marked paid in full. What is this item?
A promissory note
Stacy has gone into default on her mortgage. Her lender is demanding that the entire loan balance be paid in full. Which mortgage clause permits her lender to do this?
Acceleration - The acceleration clause gives the lender the right to accelerate payment of the loan if the borrower defaults.
Which of these is NOT a likely features of a bridge loan?
Amortized loan paid back over a period of no more than five years - A bridge loan is usually a temporary, short-term interest-only loan secured by the borrower's existing home.
_______ is a standardized measure for interest rates and other costs of the loan.
Annual percentage rate
Which of the following is an action borrowers take to temporarily lower the interest rate on their mortgage loan?
Buydown
What type of loan is neither guaranteed nor insured by government agencies?
Conventional
What factors does the underwriter consider in reviewing a mortgage loan application?
Credit, capacity, and collateral
In an amortized loan, the interest portion of the mortgage payment generally ______ over the life of the loan.
Decreases - The interest portion of the payment generally decreases over the life of the mortgage loan as the principal portion increases.
Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full?
Defeasance - The defeasance clause means that the lender is prevented from trying to pursue additional payment because the loan has been paid in full.
Gerard has been offered a 4% interest rate on a $300,000 mortgage. His monthly mortgage payment would run about $950 per month. He plans to pay $2,000 up front to drop his interest rate to 3.75% and his payment to $920 per month. What is this upfront charge called?
Discount point
Gregory and Dianne are American citizens of Cuban origin, and when their home loan is denied, they suspect discrimination. Which of the following acts prohibits lender discrimination on the basis of the protected class of national origin?
Equal Credit Opportunity Act
Which act prohibits lender discrimination on the basis of the protected class of national origin?
Equal Credit Opportunity Act
Goldie and Kurt are looking at purchasing their first home. Their credit history is a little shaky and they don't have enough money saved to put down 20%. What type of loan seems most appropriate?
FHA
Which entity services rural development loans?
FSA
What's the most common indicator of illegal property flipping?
Falsely inflated appraisal
Government Sponsored Enterprises (GSEs)
Fannie Mae and Freddie Mac
Which of the following is an acceptable ad based on Regulation Z?
Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment and a 30-year fixed rate with no points.
Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency.
Guaranteed loans
Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?
Her down payment of $50,000 isn't at least 20% of the purchase price.
Jason's having trouble paying his monthly rent. His landlord agrees to float him the rent for the next few months with 20% interest. The deal with his landlord is in violation of the state's usury law. Which of these statements must be true?
His state's personal loan interest rate cap is less than 20%. - Usury prohibits excessive interest charges on personal and consumer loans. Many states have a cap on the percentage that can be charged. Jason's deal with his landlord would be in violation if the interest rate is higher than the cap.
Which of the following describes the amount a lender charges a borrower for using money?
Interest
In the eyes of a lender, when financing a residence, what advantage does an investor have over owner-occupied borrowers?
Investors can use rental income to qualify.
Lawrence is a buyer closing on a home for which he's obtaining financing. Which document will give Lawrence an estimate of the costs he'll likely pay at closing?
Loan Estimate - The Loan Estimate, required by the Dodd-Frank Act, provides buyers with the costs they're likely to pay at settlement and discloses the mortgage loan specifics, such as its key features, costs, and risks.
The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled?
Maybe, but they'll have to petition their lender
Can you accept/provide referral fees or kickbacks to/from settlement service providers such as mortgage brokers?
No. RESPA prohibits licensees from providing or receiving referral fees or kickbacks
what is true about conventional loans?
Originators usually package and sell the loans on the secondary market
Which of the following statements is true about conventional loans?
Originators usually package and sell the loans on the secondary market.
Upon examination of his mortgage document, Jared finds a clause stating he will owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe?
Prepayment - The prepayment penalty clause puts the borrower on notice that if the loan is paid off before a specified period of time, the lender may be owed additional interest.
What does PITI stand for?
Principal, interest, taxes, insurance
PMI
Private Mortgage Insurance
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 -A purchase money mortgage is the term for seller financing that's typically used to bridge the gap between the home's list price and the institutional loan, though it can also be used to finance the entire purchase price.
The primary component you look for when building a short list of qualified lenders is ________.
Real-world experience - The primary component of building a short list is experience. You want to refer your clients to those lenders who deliver exceptional service, competitive prices, and consistent delivery on their promises.
Rusty received an acceleration letter from his mortgage lender. What is the most likely reason for receiving this letter?
Rusty is two or three months in default.
What is TRID?
TILA-RESPA Integrated Disclosures
Which of the following statements is true about government loans?
They're insured or guaranteed by a government agency.
How many parties does a deed of trust involve?
Three: borrower, lender, and trustee
What's the purpose of the fixed/adjustable rate note?
To convert the interest rate from fixed to adjustable - The note converts the interest rate in an ARM from fixed to adjustable. It's part of the mortgage package.
The ______ can offer direct loans to farmers and ranchers. The loans are funded by congressional appropriation.
USDA Farm Service Agency
what best describes annual percentage rate (APR)?
a standardized measure for interest rates and other loan costs; regulation z requires lenders to use a standardized measure for loan costs, including interest rates, which is the APR
budget mortgages
a type of amortized loan that include principal, interest, taxes, and insurance (PITI) in each amortized monthly payment.
balloon loan
allows borrowers to make regular amortized payments, then make a "balloon" or lump sum payment at the maturity date. A lander can amortize the loan over a 30-year period with a balloon payment at the end of 1o years
bridge loan
allows the homeowner the ability to pay for two homes at the same time when there is a delay between the sale of a property and the purchase of another
what is true about FHA financing?
an FHA loan is typically more attractive to borrowers who have lower credit scores and down payments
usury
an illegal practice of lending money
buydown
buydowns lower or "buy down" a loan's interest rate to reduce the borrower's monthly payment; buyers choose to pay a lump sum at closing; buydowns are also referred to in terms of points
what causes a cancellation of PMI?
cancellation of PMI happens once the borrower reaches a 22% equity position; this is determined by the loan-to-value ratio at the time of the purchase
What factors does the underwriter consider in reviewing a mortgage loan application?
credit, capacity, and collateral Underwriters look at borrowers credit history and scores (credit), ability to repay the loan (capacity), and whether the home value is sufficient to support the loan (collateral)
amortized loans
don't necessarily include tax and insurance payments
Which of the following is a tactic used by a predatory lender?
encouraging debt
Farm families financing the purchase of properties in rural areas may be able to obtain financing through this government agency if they meet certain criteria, such as income requirements.
farm service agency
USDA loans (Rural Development loans)
government loans specifically offered to family farms and to help finance housing in rural areas through the Farm Service Agency on agency of the USDA
down payment
initial payment a buyer can make when taking out a loan to help lower the loan amount
straight mortgage
involve interest-only payments until the end of the loan term, when the entire principal broker comes due
Purpose of the Truth in Lending Act (TILA) is...
it requires lenders to provide credit applicants with disclosures that allow credit offer comparisons
what is the loan to value ratio based on that a lender uses?
lender will use the lesser of the sales price and appraised value to determine the LTVR ex) house is listed at 299,000 and appraised at 300,000 = lender uses the 299,000
What would be a consequence if there was no secondary mortgage market?
lenders might not have funds available to make new loans to the public; purchases on the secondary market provide primary lenders with funds to continue making loans
lender holds a lien?
lien theory state
gap financing loans
like a bridge loan (one that enables a buyer to buy a home while waiting for the cash flow from the sale of the buyer's other home to come in)
adjustable rate loan
may include taxes and insurance, but the payment will fluctuate based on the current index rate it's associated with
Adjustable Rate Mortgage
payment and interest rate are locked in the the first five years, then the interest rate is adjusted based on the behavior of the economic index it's associated with and changes each year
what does PMI do?
protects the lender when the borrower has less than 20% equity in the property
Loan estimate
required by the Dodd-Frank Act, informs buyers of the costs they're likely to pay at settlement and discloses the mortgage loan specifics, such as its key features, costs, and risks
mortgage banker
someone who works for a company that does the actual lending, has in-house processors and underwriters, and offers its own products
lien theory state
the mortgage acts as a lien on the property, but title remains with the buyer, which makes foreclosures more difficult
land contract
the seller retains the title; when the loan balance is paid in full, the seller gives the buyer title. While the loan is being repaid, buyer has equitable title. When the loan balance is paid in full, owner will give buyer the full title to the property
lender holds the title?
title theory state
Which of the following defines when a lender charges a borrower more than the highest allowable interest rate?
usury
when is PMI automatically cancelled?
when the loan-to-value ratio is 80% or less; borrowers may have to petition for PMI to be cancelled and must be current on payments