Section 5: Real Estate Financing Practice in Texas

We are looking at a $200,000 property with a loan term of 30 years and an interest rate of 5%. Using the Austin ZIP code 73301, find the monthly payments your client will be making on their loan.

$1,074

In light of economic conditions, borrower credit and property value are considerations of lenders. Property value is important because it factors into the loan-to-value (LTV) ratio calculated by the lender. What value would the lender use to evaluate LTV?

$90,000 sales price If the appraisal value came in at $85,000 instead of $100,000 and sales price was still $90,000, the appraisal value would be used. -The lender will use the lower of the appraisal value or sale price

Permitted Statements

-"Loans available at 5% annual percentage rate." -"Get a VA-guaranteed loan here!" -"For a good mortgage, call Mike!"

Toxic Loan Features

-40-year loan term -Lender points of 4% of loan value -Balloon payments

Texas is a title theory state:

-A deed of trust is used. -The lender owns the property until the underlying loan is paid off, which often makes it easier for a lender to foreclose on a property, if necessary. -The actual legal title to the property temporarily passes to a trustee to secure the debt.

Purpose of the Pre-Qualification Letter

-A pre-qualification letter is a letter from the mortgage broker that states that the buyer will qualify for a loan of a certain amount based on the contents of a credit report and initial information the borrower provided. -A pre-qualification letter is an indication to the seller that the buyer's credit has been reviewed and that the buyer is working with a mortgage professional. -From both the seller's and buyer's standpoint, a pre-qualification letter is much better than no letter at all.

Amortized loan

-Also called "constant payment method" -Amount of principal and interest paid each month remains the same over the loan term

TILA (Regulation Z) requires that lenders make certain disclosures. Which four of these disclosures does the Truth in Lending Act require lenders to make?

-Annual percentage rate -Total principal and interest to be paid toward the mortgage -Finance charge -Amount financed

Single Family Housing Direct Home Loans (Section 502 Direct Loan Program

-Assists buyers of low- and very low-income candidates in qualified rural areas -Provides payment assistance to add to a candidate's repayment ability

Single Family Housing Guaranteed Loan Program

-Assists lenders in offering low- and moderate-income families the chance to own property as their primary residence in qualified rural areas -Candidates can build, restore, upgrade or move a home in an eligible rural area

Lenders must provide the borrower with a disclosure statement. At what three points in time can a lender provide this statement to the borrower and still be within regulations?

-At the time of the loan application -One day after the loan application -Three days after the loan application

Texas First-Time Homebuyer Program Qualifications

-Available to Texas residents purchasing their first home. -Specific credit score and debt-to-income ratios apply, and vary depending on the type of loan (government, such as FHA, VA, or USDA, or secondary, such as Fannie Mae).

Texas veterans, military members, and their spouses must meet the following requirements to be eligible for any of the Veterans Land Board programs:

-Be at least 18 years old -On the application date, be a bona fide and legal resident of Texas -Meet one of the following service criteria: (Be an active duty military member, Be a member of the Texas National Guard, Be a reserve component military member who has completed at least 20 qualifying years for retirement, Be a veteran who has served at least 90 active duty days, unless discharged sooner due to a service-connected disability (and not discharged dishonorably), and Be the surviving spouse of a veteran whose death was service-connected, or who is listed as "missing in action")

Identify the key players in the deed of trust

-Borrower -Lender -Trustee

Mortgage (Security Deed)

-Borrower and lender -Either borrow or lender holds title -If borrower has title, lender needs court order to foreclose on property -If lender has title OR if the mortgage contains a power of sale clause, lender doesn't need court order to foreclose

Deed of Trust

-Borrower, Trustee holds title (usually lawyer or title insurance company), and lender -Lender doesn't need court order to foreclose on property

According to the Bootstrap requirements, non-contract labor can come from which four parties?

-Borrowers -Family -Friends -Volunteers

What three types of information about the transaction are included in the application?

-Closing costs -Purchase price -Mortgage expenses

What three items must meet specific requirements in order for a primary mortgage to be sold to the secondary market?

-Collateral -Documentation -Borrower

Underwriting Factors

-Current income or salary -Employment status -Estimated mortgage payment -Other mortgage payments on the property -Taxes, interest, and insurance payments for this property

If a deed of trust is being used, who receives the following items?

-Deed of trust (Trustee) -Note (Lender)

Mortgage bankers

-Do the lending -Have in-house loan processors and underwriters -Can close quickly because they fund their own loans -Have narrow offerings which are often limited to their own products

What three types of personal information about the borrower are included in the Uniform Residential Loan application?

-Employment -Income -Assests

Predatory Actions (harmful towards the borrower)

-Encouraging debt -Giving a consumer a loan she can't afford -Encouraging a borrower to keep refinancing to earn money from the fees -Disclosing only a portion of the fees to the borrower

Secondary Mortgage Market Players

-Fannie Mae (Federal national mortgage association or FNMA) -Freddie Mac (Federal home loan mortgage corporation or FHLMC) -Farmer Mac (Federal agr mortgage corporation) -Ginnie Mae (Gov national association or GNMA) -Lending institutions that buy loans from other lenders

Mortgage Facts: Governmental

-Federal agency involvement in insuring or guaranteeing the loan -FHA, VA, or Rural Housing Service mortgages -Requires mortgage insurance premium (MIP) -Allows down payments as low as 3.5%

It's a good idea to steer buyers clear of subprime lenders. It may be easier to do this if you know what to look for. What are three common characteristics of subprime lenders?

-Higher interest rates -Higher fees -Targets low credit scores

A lender looks at several factors to determine whether a borrower is a good credit risk. These include:

-Income -Two types of debt ratio (Monthly housing expense income ratio and Total payment obligations income ratio) -Employment history -Credit

In an attempt to maintain a balanced economy, which two of the following items does the Fed regulate?

-Interest rates -Available funds

Construstion Loan Details

-It is a short-term loan that generally carries a higher interest rate than long-term financing. -Plans and specifications for the planned construction and the property must be submitted to obtain the loan.

What are the three key data points that need to be entered into the amortization schedule?

-Loan amount -Interest rate -Loan period

What are three of the reasons why some one would choose a balloon mortgage?

-Low interest rates -Easy to qualify for -Lower closing costs

Let's assume a mortgage is being used. Which party receives the following items?

-Mortgage (Lender) -Note (Lender) -No trustee when a mortgage is being used

VHAP Qualifications

-Must be used to purchase the primary home. -The land must be located in the state of Texas. -If the home is new construction, it must be ENERGY STAR®-certified. -The veteran must remain in the home for at least three years.

Mortgage Facts: Conventional

-No federal agency participation in insuring or guaranteeing the loan -Requires PMI for down payments less than 20-25%

Rural development

-Offers financial assistance programs for a variety of rural applications, including those for individuals, businesses, lenders, tribes, nonprofits and communities, and utilities. -These direct loans provide payment assistance—through a type of subsidy that reduces the applicant's mortgage payment for a short time.

Farm service agency

-Offers loans and loan guarantees through its loan programs for farmers and ranchers who are unable to obtain credit elsewhere to start, purchase, maintain, or expand their family farms. -The loans are temporary and are intended to help farmers and ranchers eventually "graduate" to obtaining commercial credit.

How does the original bank that issued the loan make money from a MBS?

-Originating the loan -Servicing the loan -Other associated fees

5 types of deeds of trust

-Package Mortgage -Blanket Mortgage -Open-End Mortgages -Purchase Money Mortgages -Shared-Appreciation Mortgages (SAMs)

Straight-line loan

-Payments change over the term of the loan, generally with higher payments at the beginning of the loan term -Also called "constant amortization"

What three types of information about the property are included in the application?

-Purpose -Property address -Legal description

What three factors affect the ARM (adjustable rate mortgage)?

-Rate -Index -Margin

Purpose of a GSE

-Reduce the cost of capital -Improve the flow of credit

Texas Bootstrap Program Qualifications

-Requires the mortgagor to supply no less than 65% of the labor. -Loans from other sources can be used in conjunction with the "bootstrap" loan. -Yes, other sources can be used with the loan, but the total of those sources cannot go over $90,000.

The Fed wants to avoid a couple of things in its attempt to maintain a balanced economy. What two things does the Fed try to avoid?

-Runaway inflation -Serious deflation

Shared-Appreciation Mortgages (SAMs)

-SAMs are mostly offered to land developers of large real estate projects. -The borrower agrees to the lender's participation in the net income from the commercial property or enterprise in order to obtain the loan. -The lender may receive interest and a share of the owner's profits -Allows the lender to receive a share of the profits generated by the commercial property.

Many different categories of lenders make up the primary lending market:

-Savings and loan associations (thrifts) -Commercial banks -Credit Unions -Mortgage bankers and brokers -Investment groups

Direct loans (FSA)

-Serviced by FSA using government money -Responsible for providing credit counseling and supervision

Guaranteed loans (FSA)

-Serviced by commercial lenders -Approves all eligible loan assurances and provides oversight of the lender's activities

We mentioned that FHA loan limits may vary based on a few factors. Which three of these items influence the limit?

-State -County -Housing Type

The U.S. Department of Veterans Affairs' website outlines eligibility requirements for home loans. Take a look at the resource to read about eligibility. Which three items are required to be eligible for a VA-guaranteed loan?

-Suitable credit -Sufficient income -Valid certificate of eligibility

Once property value is determined, the lender will assess the borrower's creditworthiness. Lenders look at lots of criteria and information. What four documents would a lender likely review to determine whether a borrower is a good credit risk?

-Tax returns -W-2 -Pay stub -Bank statement

Promissory Note

-Terms of repayment -Loan period -Late fees -Pre-payment penalties, if any -Actions if borrower defaults

Which three of the these conditions must be met in order to qualify as a Texas veteran?

-Texas resident -At least 18 years old -Served at lease 90 active duty days

The Texas Securities Act

-The Texas Securities Act prohibits fraud when offering or selling securities. -Violators of the Texas Securities Act can face administrative, civil, and criminal sanctions.

What are the two primary factors that lenders look at when determining whether or not to make a loan?

-The borrower's creditworthiness -The property itself

These lenders look at two things before they loan out their money:

-The borrower's creditworthiness -The property itself, and whether it offers solid value

VHIP Qualifications

-The home must be located in the state of Texas. -The home must be the primary residence.

Veterans Land Program Qualifications

-The land must be located in the state of Texas. -The land must have legal access to a public road. -Zoned for non commercial use

Facts about VA Loans

-The loan is guaranteed by the U.S. Department of Veterans Affairs. -The Department of Veterans Affairs guarantees the loans. -The borrower must be an eligible veteran, active duty military, or spouse, and must qualify for the loan. -Borrowers are not required to have a down payment. -The loan amount may be for 100% of the CRV (VA appraisal) or 100% of the home sale price, whichever is less.

In particular, Texas equity loans come with a barrelful of protective restrictions. Here are just a few of those restrictions:

-The maximum loan-to-value ratio is 80% (minus any existing liens on that property). -Closing costs may not exceed 3%. -Pre-payment penalties are prohibited by law. -Only a single equity loan can be in place at any given time. In addition, only a single equity loan can be made in a single year (except in the case of an emergency).

The Mortgage Broker and the Mortgage Commitment

-The mortgage broker's role is that of middleman in obtaining the mortgage commitment. -The mortgage broker does not have a say in this decision. -The inspection and the appraisal follow the loan commitment. -The mortgage broker has no part in the inspection process, except to ensure that the inspection is still scheduled to occur.

Pre-Approval Letter

-The pre-approval letter is given to the borrower by the lender. -The pre-approval letter is provided only after the borrower's loan application has been reviewed and approved by the underwriter. -A pre-approval letter is basically a loan commitment minus the property information. -Loan commitment can be adversely impacted if the property doesn't appraise or if the borrower's situation changes significantly. -It's the underwriter who must approve the terms and conditions of the pre-approval letter in order for the loan to be funded.

Benefit of Automated Underwriting

-The time from application to approval is faster. -Closing costs, such as appraisal fees and credit report fees, are reduced.

Not a benefit of Automated Underwriting

-There is a turnover with loans processed automatically. -Allowances for special circumstances or other compensating factors that might need to be considered can't be made.

Blanket Mortgages

-These are used in commercial applications. -Two or more properties are pledged as security for repayment of the loan. -A release clause allows parcels to be removed from the lien at a given event (usually when the loan balance lowers to a specified amount). -Two or more properties are pledged as security.

Open-End Mortgages

-These mortgages allow the borrower to go back to the lender to ask for more money at a later date, if certain conditions have been met. -There is usually a set dollar amount that can be loaned.

Package Mortgage

-This is a mortgage in which personal property is included with the real property in the sale. -This might be used in the case of a furnished condominium, for instance, but it is more commonly used in commercial real estate where business properties are included as security.

Purchase Money Mortgages

-This is financing in which the seller gives the buyer a mortgage toward the purchase price of the home. -The seller offers to be the bank and therefore, offers the buyer more financing than a lender might offer. -The buyer accepts the seller's mortgage, and the difference between the balance on the mortgage and the sales price is financed through a lender.

Mortgage brokers

-Work with multiple lenders to search for and negotiate the best deal -Don't lend money themselves

Balloon payment mortgage

-will have a defined length of time that the borrower will be required to make regular payments, but those payments will not be enough to pay off the balance of the loan at the end of the term. Therefore, they will be left with a large "balloon payment" to make at the end of the mortgage. -Good for people who do not plan to live on the property for long

Qualified mortgages require debt-to-income ratios of no more than ______.

43%

Balloon Payment

A balloon mortgage is a loan that doesn't fully amortize. As a result the final payment is larger than the regular monthly payment. This payment is known as the balloon payment, which means that some principal remains on the loan.

The resource describes what a buydown is. Which of these scenarios is an example of a buydown?

A borrower pays the lender two discount points so he can lock into a 5.25% rate at closing.

Which of the following is most susceptible to a predatory lender?

A borrower with poor credit

Nina and Rob prepaid some of their interest to their lender when financing their new home. This is called _____________.

A buydown

Shelly's flower business is blooming and it's time for her business to grow. She plans to take out a business loan to open two more shops on the north side of town. Which lending institution would she most likely go to for the loan?

A commercial bank

What's a purchase money mortgage?

A form of seller financing in which a mortgage is given by the buyer to the seller toward the purchase price.

Pre-Qualification Letter

A letter on the lender's letterhead that says based on initial, borrower provided information, as well as a credit report review, the buyer will qualify for a loan of a certain amount. It's not a guarantee, nor is it the same thing as being approved.

Adjustable rate

A loan with a rate that fluctuates based on the economic index to which it is tied.

What is a GSE?

A privately held financial services company with a public purpose.

All construction activity in the Texas Bootstrap Loan Program must be done under the supervision of ______.

A state-certified NOHP

Which of the following is a downside of automated underwriting?

Allowances for special circumstances can't be made.

HECM for Purchase

Allows the borrower to purchase a new principal residence using the money from a reverse mortgage loan.

Home equity lines of credit (HELOCs)

Also use the equity homeowners have in their home. However, because this is set up—as it sounds—like a line of credit, homeowners use this as an open-end account (similar to the revolving credit of a credit card) from which they can take advances, repay money, and even borrow money again.

Noah owns an LLC that buys and sells stocks on the NASDAQ 100. He needs some additional financing. To which type of lending institution might he prefer to go?

An investment group

Mortgage-backed securities (MBSs)

Are bonds that are secured by home and other real estate loans. They're also known as "asset-backed securities." MBSs are created when several such loans, which usually have similar characteristics, are grouped, or pooled, together, and then sold. The majority of MBSs are sold to government agencies or government-sponsored enterprises; others are sold to security firms or to private firms.

Savings and loan associations

Associations that take in savings deposits and lend out through loans

When must lenders provide borrowers with a disclosure statement regarding finance charges, annual percentage rate, etc.?

At loan application or within three days after loan application

Interest Only Payment Plan

Borrower makes payments made up of interest only on a periodic basis. When the interest-only term ends, the entire principal is due—either in a lump sum, or to be financed by another loan.

Flexible Payments

Brandon took out a 30-year mortgage with a seven-year I-O payment; therefore, he makes interest-only payments for the first seven years of the loan. After that, both the principal and interest are paid for the remaining loan term. But because Brandon still has to pay back the principal from that initial seven-year term, his payments increase after those first seven years.

Loans for ______ purposes don't require TILA disclosure.

Business

If your clients want to keep their interest rates lower than the going rate and have plenty for a down payment and closing costs, they may have enough funds to _______ the interest rate.

Buydown

How does the Fed maintain a balanced economy?

By regulating the flow of available funds and interest rates

Fannie Mae

Can purchase any type of loan, but primarily deals with conventional loans from commercial banks.

Freddie Mac

Can purchase any type of loan, but primarily deals with conventional loans from smaller lending institutions (thrifts).

Insurance companies

Companies that finance mortgage loans, but specialize in insurance products

Which type of loan is commonly used for the purpose of building improvements?

Construction loan

Which act was created to safeguard the consumer in the use of credit by requiring full disclosure of the terms and conditions of that credit?

Consumer Credit Protection Act

The Federal Reserve System

Controls money availability and what banks can charge for that money

Which type of lender is a member-based cooperative that provides credit for auto loans and home loans, takes deposits, and offers savings vehicles and money markets?

Credit unions

Amortized

Debt that is paid off by making periodic payments mostly consisting of interest and principal.

The Truth in Lending Act requires lenders to make certain ______ to consumers.

Disclosures

Which of the following is a tactic used by a predatory lender?

Encouraging debt

The secondary mortgage market buys loans from the primary market. In other words, it helps ______.

Ensure funds are available to borrowers

Which of the following prohibits lenders from discriminating based on protected class status?

Equal Credit Opportunity Act

What institution was established in 1938 to purchase FHA-insured loans from individual lenders, group the loans together, and sell them as mortgage-backed securities to investors?

Fannie Mae (FNMA)

You're a farmer. Which loan program might be tailor-made for you?

Farmer Mac

The purpose of the ______ is to keep U.S. finances in check by maintaining balanced and favorable economic conditions.

Federal Reserve System

Any financial institution with deposits that are insured by a federal government agency can sell mortgages to which institution?

Freddie Mac (FHLMC)

Which payment plan consists of the borrower paying a constant amount made up of principal and interest on a periodic basis (usually monthly)?

Fully amortized loan payment plan

What institution was formed in 1968 and took over the sale of the government loan market?

Ginnie MAe (GNMA)

Which of the following loan transactions would be exempt from TILA disclosure requirements?

Grocery store, with personal funds used as collateral

Investment groups

Groups that lend to those who want to avoid conventional financing

Ginnie Mae

Guarantees mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a U.S. government agency.

Chanel and Cooper Rufus, a married couple ages 65 and 68 respectively, are looking to purchase a home that better suits their needs so that they can retire. Which type of reverse mortgage would be best for them?

HECM for Purchase

According to Mike, you can often find predatory lenders floating in the subprime loan market, targeting borrowers whom primary lenders may consider to be subprime, or less creditworthy. Which of these borrowers might be considered subprime?

He seems genuine when he says the car repossession last year wasn't his fault, and that the late payments on his credit report were misunderstandings.

Conservation loans

Help complete a conservation method in an approved plan.

Emergency loans

Help with losses caused by a natural disaster that damaged a farming or ranching outfit.

Operating loans

Help with the buying of livestock and equipment.

Farm ownership loans

Help with the purchase of a farm or ranch. Could also be used to build a new building or improve an existing building.

Joann purchased her house with a mortgage loan from her friendly neighborhood bank. Which of these most likely happened to Joann's loan soon after she received it from her bank?

Her bank sold it on the secondary market as an investment product.

What type of loan is given based on the amount of equity a borrower has in the home?

Home equity loan

What personal information about the borrower is included in the Uniform Residential Loan Application?

Income

When you make a fully amortized payment, where is the money applied first?

Interest owed

I-O

Interest-only

Government-Sponsored Enterprise

Is a privately held financial services company with a public purpose. GSEs were created by Congress to increase the availability of credit, and reduce the cost of credit and the cost of capital to specific sectors of the economy, such as home finance, education, and agriculture.

What is Computerized Loan Origination?

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. -A CLO is an automated computer system that allows borrowers to compare mortgages electronically. -CLOs may be open or closed. -Open CLOs can be accessed by consumers in the comfort of their own home. -Closed CLOs can only be accessed through real estate offices, builders or mortgage professionals. -Borrowers should be sure CLOs are providing the best results and are neutral.

What does a balloon payment represent at the end of a loan term?

It means that some principal remains at the end of the loan term

Talking the consumer into refinancing over and over so a lender can charge fees is ______.

LOAN flipping

Charles is selling his property to Seth. Charles is financing part of the transaction for Seth, who will make payments to Charles while Charles retains the property title. What is this an example of?

Land contract

What information about the property is included in the Uniform Residential Loan Application?

Legal description

This may seem like an easy question, but many people don't know what a mortgage is. The resource attached to this lesson defines a mortgage as well as a few other key terms you should know. So, let's start off by selecting the right answer to an easy question: What is a mortgage?

Legally binding document that is a lien against a property

What could be a consequence if there were no secondary mortgage market?

Lenders might not have funds available to make new loans to the public.

Let's look at a couple of lenders. One of them demonstrates some predatory actions, and the other does not. Which scenario could be regarded as predatory?

Lending for You was really friendly. When Bob told the representative he only had 10% saved for a down payment on a new home, the representative didn't discourage him at all. In fact, she suggested taking out a personal loan and using that money toward the down payment. Bob could even obtain that loan through Lending for You. She also said that if Bob waits until a few days before closing, it wouldn't factor the personal loan into Bob's debt-to-income ratio. Bob can almost feel the keys to his new home in his pocket.

To whom does the subprime market cater?

Less creditworthy borrowers

What attracts borrowers to adjustable rate mortgages?

Lower initial interest rate

Equity loan

Made based on the amount of equity the homeowners have in their home. These funds— received in one lump sum—are frequently used for home renovations, to fund a college education, or for other major purchases.

Which of the following is a characteristic of predatory lending?

Making loans the consumer can't afford

What's it called when a number of percentage points is added to the index to determine the rate for an adjustable rate mortgage?

Margin

What's a Pre-Approval Letter?

Means that the borrower has completed the loan application and provided their debt, total income, and savings information, which has been reviewed and pre-approved by the underwriter. Credit, income, and collateral have also been confirmed. -Is essentially the loan commitment, minus specific property information, and is good for only a limited time. If the property doesn't appraise, if the borrower's situation changes with the addition of more debt or loss of income, or if too much time passes, then the loan won't be funded. A pre-approval loan commitment is communicated to the seller by the buyer's agent.

Credit unions

Member-based cooperatives that provide credit for loans

Mick focuses on originating mortgage loans at a company that has in-house loan processors and underwriters. The options he offers consumers are limited to the products his company offers. What's Mick's position?

Mortgage banker

Darrel loves working in the mortgage lending industry. On a daily basis, he works with multiple lenders to find and negotiate the best deals for his customers. What is Darrel's profession?

Mortgage broker

To compute a monthly principal and interest payment, which of the following pieces of information do you need to know?

Mortgage loan value, annual percentage rate, loan term, and payment frequency

Information about which of the following is included in the Uniform Residential Loan Application?

Mortgage type

Straight

Mortgage where only interest is paid until the end of the term, when the principal is paid.

Which program offered by the TDHCA helps residents purchase their first home?

My First Texas Home

Commercial banks

National banks that offer consumer and business loans

Mikki's husband, Craig, served in the Army for 10 years before he was killed in a car accident on his way home from the gym. Since then, Mikki has moved to Texas, where she is a bona fide, legal resident. She wants to take out a Veterans Land Board loan to purchase a home. Does she qualify?

No because his death was not service related

Which entity insures VA loans?

No entity, because they are guaranteed by the U.S. Department of Veterans Affairs

You have a client who's selling his family's working tree farm. Does TILA apply?

No- A working farm is a business enterprise and TILA doesn't cover loans for commercial properties

The Veterans Land Program (VLP)

Offers Texas veterans money to buy at least one acre of land. According to the VLB, this is the only program of its kind in the nation. Through the VLP, Texas veterans can borrow up to $125,000 to buy land on a fixed-term 30-year loan. Typically, they only have to pay a minimum 5% down payment for tracts of one acre or more. The applicant must pay a $325 appraisal and contract service fee at the time of application. There are no prepayment penalties on VLP loans. -The land must be located completely in Texas. -The land must have usable, legal access to a public road. -The land must be described in a complete copy of the recorded subdivision plat (if it is a "lot and block" description), or in a Field Note description with the Surveyor's Official Seal and Signature (original or copy). -The land must not be zoned for commercial use. -If there are improvements on the land, those improvements will not be given any value.

The Veterans Home Improvement Program (VHIP)

Offers Texas veterans up to $25,000 for a 20-year loan, or up to $10,000 for a 10-year loan to complete repairs or home improvements on their current home. Those veterans who have a VA service-connected disability rating of 30% or more qualify for a discounted interest rate. Although no down payment is required on VHIP loans, the borrower must pay a $10 flood certification fee and a $125 title search fee at time of application. Closing costs also apply. In addition, the following requirements must be met for VHIP loans: -The home must be located entirely in Texas. -The home must be the primary residence. -Single-family homes, condominiums, duplexes, triplexes, and four-plexes are eligible. However, duplexes, triplexes, and four-plexes must be at least five years old to qualify. Modular or manufactured homes may be eligible if they're on a permanent foundation and are part of the real property (but the VLB will make the final decisions on loans for modular/manufactured homes). -The VLB must be in first or second lien position. -The borrower must use a general contractor. Because VLB home improvement loans are FHA Title I insured loans, they require a valid lien in favor of the VLB against the property—and this lien type cannot be created if there is not a general contractor. -The borrower must not advance any funds to the contractor or purchase material before receiving the loan proceeds from VLB. Those proceeds are made available on the fourth business day after closing.

Which of the following is an example of a prime lender, as compared to a subprime lender?

Offers lower fees

How often can interest rates change on an adjustable rate loan with a flexible payment plan?

Once a month

What is a wrap-around mortgage?

One that may involve seller financing

Gretchen and Sam are in the market for a new home. They're doing some research on mortgages at home and are comparing many of their options. What are they using?

Open CLO

With this type of loan, personal property is included with the real property in the sale. It's commonly seen in commercial real estate, but you may also see this in the sale of furnished condominiums.

Package mortgage

Which payment plan consists of the borrower making payments of interest and principal on a periodic basis, with a large amount due at the end of the loan term?

Partially amortized payment plan

You've just learned that your buyer, Kirk, can't obtain a qualified mortgage for his dream home because his debt-to-income ratio would be above the threshold. What is Kirk's best option?

Pay off his other debt and/or increase monthly income

Which of the following loan types involves a type of graduated payment?

Pledged account

Amy purchased a new home and obtained financing through a bank, called Natula Bank, located in her city . Natula originated the loan, but before Amy's first mortgage payment was due, it sold her loan to CitiMortgage. As a loan originator, what market is Natula Bank operating in?

Primary Mortgage market

The mortgage market is made up of?

Primary and secondary mortgage

In which market do lenders that originate real estate loans operate?

Primary mortgage market

Which of these provides some protection to lenders in the event that the borrower obtaining a conventional loan does not have a down payment of 20 to 25%?

Private Mortgage Insurance

Equal Credit Opportunity Act

Prohibits lenders from discriminating based on protected class

Sale Leaseback Financing

Provides 100% financing and allows the investor to realize the tax benefits of real property ownership, as well as the security of owning a building with a (generally speaking) solid tenant.

The Veterans Housing Assistance Program (VHAP)

Provides money to qualifying veterans and their spouses to purchase a primary residence in Texas. The following requirements apply to VHAP loans: -The home must be a single-family home, townhome, or condo, or an owner-occupied two- to fourfamily unit (under the conditions noted below). In addition, some modular and manufactured homes also qualify. -If purchasing a duplex or other multi-family home, that property must be owner-occupied, and must have been built at least five years prior to the loan's closing date. -All new construction homes must be ENERGY STAR®-certified. -The veteran must occupy the home within 60 days of closing, and live in the home as a principal residence for at least three years.

Wrap-Around Loans

Provides the seller with financing that "wraps" the new buyer's mortgage around the seller's existing mortgage. -The seller continues to make payments on the first mortgage, and the buyer makes the payments to the seller on the wrap-around mortgage. -The borrower obtains additional financing from the seller before paying off the first loan. -Buyer's payments go to pay seller's original loan and to purchase property.

Farmer Mac

Purchases agricultural loans and loans from rural lenders.

Which of the following is a mortgage where the consumer cannot later claim that the lender did not comply with the ability to repay requirements?

Qualified mortgage w a safe Harbor status

Which of the following is a type of subprime loan usually offered to consumers with insufficient or marginal credit history?

Qualified mortgage with the rebuttable presumption

Which consumer protection act enacted in 1974 prohibits kickbacks and referral fees and requires written lender disclosure of estimated and final settlement costs?

Real Estate Settlement Procedures Act

Truth in Lending Act

Requires disclosure of loan terms and costs

Community Reinvestment Act

Requires lenders to demonstrate they serve the community's low- to moderate-income housing needs

Which of the following statements is true regarding the "Bootstrap" program?

Requires the mortgagor to supply at least 65% of the labor.

RESPA

Requires written disclosure of estimated settlement costs to the borrower

Which of the following situations is an example of a sale leaseback financing arrangement?

Rob purchases a property from Jeff, then immediately leases the space to Jeff.

Which one of these entities require mortgage loan originators to be enrolled in the NMLS?

SAFE Act of 2008 -requires any mortgage loan originators that accept loan applications or make, transact, or negotiate mortgages to be enrolled in the NMLS.

Rachel loves convenience. As you can imagine, she was thrilled when she was able to finance her mortgage through the same institution where she deposits her payroll checks. Which of these most likely financed Rachel's mortgage?

Savings and loan

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

Savings and loan

In which market do lenders purchase packaged loans?

Secondary Mortgage market

Why does a buyer need a pre-qual letter?

Sellers want to be sure that buyers can qualify for a loan before accepting their offer. A pre-qualification letter indicates that the buyer's working with a mortgage professional, and that someone's looked at their credit history and found it acceptable.

Which type of RD loan program helps low- and very low-income applicants obtain decent, safe, and sanitary housing in eligible rural areas?

Single Family Housing Direct Home Loans

Which item is a benefit of an interest-only loan payment?

Small monthly payment for the first few years

Land contracts

Sometimes called contracts for deed or installment contracts. -This type of contract is often used because the buyer is unable to meet the lender's requirements. In this case, the seller is willing to provide the financing in order to make the sale happen. -The seller retains title. -This is also known as an installment contract.

Understanding I-O Payments

Sometimes mortgages offer interest-only payment plans. With this type of payment the borrower pays only interest for a specific amount of time, usually five to seven years. After the specified period of time, the entire principal is due.

The Kennedys were able to get a loan for their home because they met the qualifications and provided at least 65% of the labor to build their home.

Texas Bootstrap

Which of the following laws requires the registration of securities that are sold in Texas?

The Texas Securities ACT

How long does the borrower have to rescind or cancel a new mortgage obtained for an already owned property?

The borrower has three days after loan application to rescind or cancel.

Flexible Payment Plan

The borrower makes lower (than with a traditional mortgage) payments for a period of time (usually five years), and then higher payments for the remaining term of the loan (for example, for the last 25 years of a 30-year loan).

Partially Amortized Payment plan

The borrower makes payments on a mortgage or deed of trust on a periodic basis, with a large sum (a balloon payment) due at the end of the loan term. The lender can—but is not obligated to—extend the balloon payment for an additional limited term.

Fully Amortized Loan Payment Plan

The borrower pays a constant amount made up of principal and interest on a periodic basis (usually monthly). -In the beginning of the loan, the payments mostly pay the interest, w only a small amount going toward the loan principal -Over time, more of the payment goes toward the principal and less toward the interest. By the end of the loan, the payment goes almost entirely toward the loan's principal.

Interest-only payment

The borrower pays only the interest.

Which of the following statements is true of the secondary mortgage market?

The borrower's rights are unaffected

Just before closing, your buyer applies for a credit card. What could be the advantage or disadvantage at closing?

The buyer's loan could be denied

Let's say you take out a 30-year adjustable rate mortgage loan with a five-year I-O payment period. How long will you make interest-only payments?

The first 5 years

Let's say you take out a 30-year adjustable rate mortgage loan with a five-year I-O payment period. When will you start paying toward the principal and interest?

The last 25 years

hich of the following is a true statement about U.S. Department of Veterans Affairs loans?

The loan that's guaranteed will be based on either 100% of the sales price or 100% of the CRV, whichever is less.

How do the primary and secondary mortgage markets work together?

The primary market packages loans to sell to the secondary market

Lump sum

The remainder of the money owed at the end of the loan—which is the entire principal

Which of the following is a benefit of automated underwriting?

There is no chance of personal prejudice entering into the decision

Growing equity

This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule.

In addition to placing requirements on lenders, borrowers also have some guidelines, such as the cut-off point for borrowers to rescind or cancel a new mortgage on a residence they already own. What is this cut-off point?

Three days after the loan closing

How many parties does a deed of trust involve?

Three: borrower, lender, and trustee

It is common for lenders to sell the mortgages they worked so hard to obtain. Why do lenders do this?

To free up funds to make additional loans

A qualified mortgage may not include interest-only payments and balloon payments, or lender fees and points that total more than 3% of the loan because these are considered ______ in relation to the qualified mortgage.

Toxic loan features

Brendan's lender set him up with a loan in which the majority of Brendan's early payments go toward interest, his monthly payments remain the same, and he doesn't start paying much toward his principal until closer to the end of the loan. This is ______.

Typical amortization

Which of the following is the process the lender uses to evaluate whether to make the loan?

Underwriting

What type of interest rate does a HELOC have?

Variable

Which veteran loan program offers qualified veterans help with repairs on their current home?

Veterans Home Improvement Program

Which Texas veteran loan program is available to help with the purchase of a single-family home?

Veterans Housing Assistance Program

Primary mortgage market

Where banks that originate loans operate

Secondary mortgage market

Where loans are sold, held, and serviced

HECM Choice

Which provides a fixed interest rate and doesn't require the borrower to withdraw all of the profits at the end of the closing. However, borrowers with this reverse mortgage must withdraw 60% of their principal limit at closing. This program allows buyers to receive a steady paycheck.

A qualifying veteran can participate in all loan programs at the same time.

Yes but they can only have one loan in each

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?

Yolanda

Which of the following describes a buydown?

Your clients opt to pay their lender two discount points in a lump sum so they can lock in a reduced interest rate

HECM Refinance

which allows one HECM loan to be converted into another HECM loan. This type of refinancing is often done to get a lower interest rate on the mortgage or to borrow more cash if the home value has increased.

HECM standard

which is most frequently used to help the borrower pay daily living expenses (Note: As of April 1, 2013, borrowers can no longer obtain fixed rates on HECM Standard reverse mortgages. Instead, these come with adjustable rates).

HECM Fixed Advantage

which provides borrowers the opportunity to withdraw the remaining funds of their reverse mortgage in a lump sum within 12 months after closing, rather than through periodic payments. These borrowers must withdraw 60% of their principal limit at closing (as with the HECM Choice program).