Financing: conventional, FHA, and VA loans chapter 14
FHA 203 b loan
most widely used FHA loan, 1-4 family residences. Single upfront MIP charge paid in cash or added to loan. For 30 years it is 1.75% of loan . Allows all or some of down payment to be a gift from relatives . Only one FHA loan at a time. No prepayment penalty assumable.
Biweekly Mortgage
repayment plan, the equivalent of 13 monthly payments per year or 26 half payments. Reduce a 30 year to 19 or 20
Eligibility for VA loan
6 years for reserves or guardsmen. After 1980, 2 years active duty fir all others. Before 1980 90 days during war or 180 days of active service
FHA section 203k
Allows one loan to cover both the purchase price and rehab work. Can also be used for refinance existing loan or remodel jobs like a garage or addition.
Certificate of Reasonable Value (CRV)
A form indicating the appraised value of a property being financed with a VA loan. It's the appraisal
VA-guaranteed loan
A government-guaranteed loan designed to help veterans obtain home mortgage loans for which they might not otherwise qualify. Because the VA guarantees 25% of the loan no down payment is required. VA are for one to four family property owned or coowned by a veteran. The loan itself comes from local lending institutions . The veteran pays a funding fee directly to dept of veteran affairs . Disabled vets exempt and national guards and reserves pay a higher funding fee. It is assumable and does not have to be a veteran.
fully amortized loan
A loan that requires payments of both principal and interest. When the last payment is made, the loan is retired. Interest due declines as the unpaid balance decreases
PITI aka Budget Loan
An abbreviation which means "Principal, Interest, Taxes and Insurance." In residential financing, it is common for the monthly mortgage to include these four payments.
Hybrid Mortgage Loan
Combination of fixed s d adjustable. Offe an initial fixed interest rate usually 3-7 years then becomes adjustable.
Points
Each point paid upfront at closing reduces the interest rate by approximately 1 percent.
Convential Loan
Entirely between borrower and lender. Most not assumable. Can be fixed, adjustable, or hybrid. With any down payment below 20%, a conventional loan must be accompanied by a private mortgage insurance (PMI)
Estimate of value
FHA loans require an FHA approved appraiser. If purchase price is higher than FHA appraisal the buyer must pay the difference at closing in cash or cancel purchase. Down payments at low as 3.5 and credit scores as low at 620. They are allowed to finance a portion of closing cost but it's added to base of loan. There are also stricter repair requirements and buyer must intend to occupy propert. It is assumable
Payment Plans
Fixed rate, Adjustable rate, Hybrid, or Interest only
Fixed Rate Loans
Fully Amortized, Straight payment loan, Balloon payment(partially amortized), and Biweekly mortgage
Amendatory clause
In all FHA and VA loans, says that if the house appraises for less than the agreed upon sale price, the buyer is not obligated to complete the purchase
MIP (Mortgage Insurance Premium)
Insurance from FHA to the lender against incurring a loss on account of the borrower's default.. upfront paid in cash or added to loan . MIP can be dropped when equity reaches 78% of original appraisal but only after 5 years.
Private Mortgage Insurance (PMI)
Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency. Buyer pays monthly premium. Can request to have it removed when equity reaches 20 percent and lender must automatically remove it at 22 percent . A new appraisal may be required.
FHA (Federal Housing Administration) loan
Insured by federal housing administration but loan comes from local lending institutions. Require low down payment 3.5%. Can add several weeks to loan process. Does not insure property but instead insured the lender against loss. Relatives allowed to gift down payment. Appraisal must be done by their own certified GENERAl appraiser.
Tax Deductable interest Payments
Interest paid in loans up to a million, on home equity loans up to 100,000, propert taxes, prepaid interest(Points), and prepayment penalties can be deducted.
Interest only Loans
Last only a few years and new amortization schedule at the end requires much higher payments when principal kicks in and then becomes an adjustable
New Jersey Homebuyers Program
New Jersey housing and mortgage finance agency (NJHMFA). Lender of low interest loans in poorer cities
Buydowns
Payment of extra points in return for lower interest rate. Pay at closing
Balloon Payment (partially amortized)
Periodic payments that don't fully amortize the loan and result in one big balloon payment at the end.
Farmers Home loan
Rural farmers economic and community development (RECD) . Was called FmHa farmers home administration . Loan can be a low as 1 percent . Loan comes DIRECTLY from the Department of Agriculture. USDA loan. Directed at loans to low income first time home buyers . Property had to have been farm land.
Adjustable Rate Mortgages
Shift risk to borrower. Adjustment period is usually one year but could be more. Interest rate can go up or down. Index is used to determine rate and usually is rate paid in one year treasury bill. Margin is the percentage charged by lender above index rate . The cap is the percentage beyond which interest rates cannot be raised at adjustment and the ceiling is highest interest rate ever allowed on the loan. Loan can be converted (convertibility) to a fixed rate. Usually available on 3,4,5 anniversary. Initial interest rate is usually low. Some arms are assumable by the next owner. 1 point is typical for both assuming or changing to fixed.
Equity
The difference between the amount owed on a home and the home's value
Straight Payment Loan
Usually used for home improvement loans and second mortgages. Interest only with balloon payment at the end.
interest
a charge for borrowing money
BPO (Broker's Price Opinion)
written estimate of value by a real estate licensee resembles a CMA