Real Estate Practice (Chapter 20: FINANCING REAL PROPERTY)

OTHER FEATURES OF DESIRABILITY W/ FHA MORTGAGE

***SAVE ON COSTS: 1) LOANS ARE ASSUMABLE (buyer can take over loan obligation after title transferred at settlement) 2) REQUIRE NO PREPAYMENT PENALTIES So, buyer saves $ by avoiding typical expenses of getting new mortgage. Seller can use as incentive to make property more attractive- save $ on mortgage finance charges.

***IMPORTANT VA LOAN FEATURES

***SEE P 190-191 FOR 12 FEATURES. FOR EXAM, NEED TO KNOW: 1) HOME MUST BE FOR "PERSONAL" OCCUPANCY 8) NO MORTGAGE INSURANCE PREMIUMS 9) AN ASSUMABLE MORTGAGE- BY VETS AND NON-VETS 10) RIGHT TO PREPAY W/O PENALTY

RAM MUST BE REPAID WHEN?

*1) MOVES OUT OF HOME 2) SELLS HOME 3) LAST SURVIVOR DIES* *BEWARE: WHO IS DEBT LEFT WITH? ENSURE FAMILY MEMBERS USE PROPER FINANCIAL VEHICLES TO AVOID THESE CIRCUMSTANCES (I.E. CD'S)

RAM = REVERSE ANNUITY MORTGAGE AKA "REVERSE MORTGAGE"

*ALLOWS OLDER PERSONS TO BORROW $ FROM THE EQUITY IN THEIR HOME*. *NORMAL LOAN PROCESS IS REVERSED IN THAT THE BORROWER RECEIVES PAYMENTS FROM THE LENDER in form of lump sum, line of credit, or monthly payments*. Purpose: HELPS OLDER HOMEOWNERS SUPPLEMENT THEIR RETIREMENT AND SS BENEFITS W/ ADDITIONAL INCOME W/O HAVING TO MOVE OR SELL THEIR HOME. (CAN BE USED FOR OTHER BENEFITS AS WELL.) ie paying for huge medical debt or payoff high credit card bills).

APR

*ANNUAL PERCENTAGE RATE: % THAT REPRESENTS TOTAL COST OF BORROWING $ ON YEARLY BASIS*. -WHEN COMPARING LENDERS, SEARCH FOR LOWEST APR (LEAST EXPENSIVE). -*LOCKED-IN APR IS USUALLY HIGHER RATE OF INTEREST THAN AGREED* TO ON DISCLOSURE STATEMENT ONLY B/C IT NOT ONLY *INCLUDES THE REGULAR RATE, BUT ALSO HAS THE FINANCE CHARGES* AVERAGED INTO AN ANNUAL % ADDED ON TOP OF THAT, *REPRESENTING TOTAL COST OF BORROWING*.

ADJUSTMENT

RATE OF *INTEREST RESETS PERIODICALLY* BASED UPON THE AGREED UPON INDEX. TYPICALLY MADE ON AN *ANNUAL BASIS*.

LOAN TO VALUE RATIO (Aka LTV, L/V, OR LTVR to Lenders)

RATIO = MATH TERM: "RELATIONSHIP OF TWO #'S AMOUNT OF LOAN "IN RELATIONSHIP TO" VALUE OF RP -LOAN AMOUNT (FRACTION # ON TOP= NUMERATOR) -VALUE OR SP ( # ON BOTTOM = DENOMINATOR) -ratio basically establishes a risk limit--above 8o% need PMI because of higher risk.

PARTIALLY AMORTIZED MORTGAGE

*BLENDING OF AMORTIZED MORTGAGE AND A TERM LOAN* (CHARACTERISTICS OF EACH). AN *INITIAL SEGMENT OF 3, 5, OR 7 YEARS TYPICALLY* WITH PORTIONS OF *PAYMENTS APPLIED TO BOTH INTEREST AND PRINCIPAL*. EVEN THOUGH FOR SHORT PERIOD OF TIME, *PAYMENTS CALCULATED AND SPREAD OVER TYPICAL LIFE OF A 15 OR 30 YEAR MORTGAGE*. AT END OF INITIAL 3, 5, OR 7 YEAR SEGMENT, THIS MORTGAGE CONTAINS A *FEATURE OF A TERM LOAN THAT REQUIRES A LUMP SUM BALLOON PAYMENT OF PRINCIPAL* TO BE DUE AND PAYABLE. THEREFORE, PARTIALLY AMORTIZED MORTGAGE IS *TYPE OF BALLOON* FINANCING. MOST BORROWERS *USE THIS FOR LOW RATES OF INTEREST OR AS TEMPORARY LOAN WITH NEARBY FUTURE INTENT TO SELL PROPERTY OR REFINANCE*.

CONTRACT FOR DEED AKA "LAND CONTRACT" "INSTALLMENT CONTRACT" "INSTALLMENT SALE" OR *"EQUITABLE TITLE"*

*BUYER AGREES TO MAKE REGULAR INSTALLMENT PAYMENTS DIRECTLY TO THE SELLER* UNTIL THE AGREED UPON PURCHASE PRICE HAS BEEN PAID IN FULL TO SELLER. -*BUYER GETS OPPORTUNITY TO MOVE INTO/OCCUPY PROPERTY. * *HOWEVER, SINCE SELLER RISKS BUYER DEFAULTING, SELLER RETAINS TITLE UNTIL BUYER HAS MADE SUBSTANTIAL AMOUNT OF PAYMENTS* TOWARD PURCHASE PRICE. -PAYMENTS EXISTS OF BOTH PRINCIPAL AND INTEREST- SO THIS IS FORM OF SELLER FINANCING. **IN PA, BUYER IS GIVEN THE RIGHT TO RECORD BUYER'S INTEREST IN THE PROPERTY IMMEDIATELY AFTER ENTERING INTO AGREEMENT.**

TERM LOAN

*ENTIRE PAYMENT IS APPLIED TOWARD INTEREST* AND *PRINCIPAL IS PAID IN FULL AT THE VERY END* OF THE LOAN TERM IN A *"FINAL LUMP SUM"* PAYMENT---CALLED A *BALLOON PAYMENT* Importance: 1) *Usually for construction loans and swing loans*. 2) Used to be primary type financing in US before Great Depression. 3) To understand its difference from a partially amortized mortgage.

SALE AND LEASEBACK

*FOR COMMERCIAL/ INDUSTRIAL PROPERTIES.* IF *OWNER OF RP HAS A CONSIDERABLE AMOUNT OF BUILT-UP EQUITY AND NEEDS TO CONVERT THAT LOCKED-IN EQUITY INTO LIQUID CASH*, SALE AND LEASEBACK CAN PROVIDE A CONVENIENT MEANS OF ACCOMPLISHING SUCH AN OUTCOME W/O A LOAN OR GIVING UP OCCUPANCY OF RP. *OWNER BECOMES LESSEE/ BUYER BECOMES LESSOR*

TILA AND ADVERTISING ABOUT CONSUMER LOANS

*IF LENDER IS ADVERTISING MORTGAGE LOAN AND SPECIFIC DETAILS OF LOAN ARE ADVERTISED, SUCH AS LOW RATE OF INTEREST, THEN ALL OTHER RELEVANT DETAILS OF LOAN MUST BE INCLUDED* IN THE ADVERTISING, INCLUDING, BUT NOT LIMITED TO, "THE APR, TOTAL COST, MONTHLY PAYMENTS, FINANCE CHARGES, REQUIRED DOWN PAYMENT, ETC.

NEGATIVE AMORTIZATION

*INCREASE IN LOAN DEBT*; IE interest rate rises to point where loan payment higher than that allowed by payment cap. Amount above cap would be added to unpaid loan balance. Result = negative amortization.

PURPOSE OF DISCOUNT POINTS

*INCREASES PROFIT TO LENDER. *POINTS ARE NOTHING MORE THAN PREPAID INTEREST. (% OF LOAN) Charged to compensate lender for the loss of profit in providing lower rates of interest than conventional mortgages. But, b/c rates of interest for FHA mortgages "floats" w/ cost of $, usually = or higher rates than conventional mortgages. THEREFORE, LENDERS HAVE NO NEED TO CHARGE POINTS.

BENEFITS OF PURCHASE MONEY MORTGAGE

*NO LENDING INSTITUTIONS!* FOR BORROWER: *NO FINANCE CHARGES* SUCH AS APPLICATION FEE, DOCUMENT PREP FEE, TAX SERVICE FEE, ETC. CAN SAVE THE BUYER THOUSANDS OF DOLLARS WHICH IN TURN *CAN ALLOW PURCHASER TO BUY A HIGHER PRICED PROPERTY* FOR SELLER: *More easily negotiate higher priced property, earns significant amount in interest, easier pitch to sell to buyer*. (ADVANTAGES TO SELLER AND BUYER) * JUST BE CAREFUL W/ "COAL DC" OBLIGATIONS *Investors use this loan today to buy more expensive RE*. - Also *useful in times of tight financing when interest rates too high*. (if more buyers/ sellers aware of this, it would be taken advantage of--Lenders will never bring this up)

1) CONVENTIONAL MORTGAGE

*NOT ENSURED BY FHA/ NOT GUARANTEED BY VA *MOST COMMON CATEGORY OF MORTGAGES. -Standard mortgage w/o government insured financing and has either a fixed or variable rate of interest. * 2 Subcategories: 1) Conventional Uninsured Mortgage 2) Conventional Insured Mortgage

INDEX

*RATE OF INTEREST FOR AN ARM IS BASED ON AN ECONOMIC INDEX*, SUCH AS THE YIELD ON THE *COFI (COST OF FUNDS INDEX)* OR THE *LIBOR (LONDON INTERBANK OFFERED RATE*).

GPM = GRADUATED PAYMENT MORTGAGE

*REGULAR MORTGAGE PAYMENT INCREASES EACH YEAR TYPICALLY EITHER FOR 5 YEARS OR 10 YEARS AND THEN LEVELS OFF FOR REMAINING TERM OF LOAN*. PURPOSE: *ALLOWS BUYERS TO ACQUIRE HOME OWNERSHIP MORE EASILY WITH LOWER MORTGAGE PAYMENTS IN THE EARLY YEARS OF THE MORTGAGE*. SPECIFICALLY *DESIGNED FOR YOUNG PROFESSIONALS IN EARLY YEARS OF CAREER* WHO HAVE HIGH PROBABILITY OF RISING INCOME IN THE FUTURE BUT A LIMITED INITIAL INCOME COMBINED W/ DESIRE FOR IMMEDIATE HOME OWNERSHIP. *IE. 7/23 TWO STEP LOAN: FIRST 7 YEARS = LOW FIXED INTEREST RATE/ 23 YEARS OF 30 EAR MORTGAGE = ADJUSTABLE RATE OR PREVAILING FIXED RATE*.

INTERIM FINANCING

*TEMPORARY LOAN OF SHORT DURATION FOR ONLY THE TIME OF THE CONSTRUCTION.* -FORM OF *TERM LOAN*, SO *ONLY INTEREST PAYMENTS ARE MADE BY BORROWER AS DISPERSED TO BUILDER*.

SWING LOAN AKA "GAP LOAN" " BRIDGE LOAN""

*TEMPORARY LOAN*; RP OWNER PURCHASES NEW HOME BEFORE SELLING CURRENTLY OWNED ONE. THEREFORE *NO EQUITY FROM OLD HOME IS FREED UP YET TO BE USED AS DOWN PAYMENT ON NEW ONE*. -SWING LOAN CAN BE USED AS DOWN PAYMENT TO FILL THIS GAP IN TIME. -USUALLY *HIGHER IN INTEREST BECAUSE CONSIDERED A SECOND LOAN*...SO HIGHER RISK. -THEREFORE REQUIRE *INTEREST ON LOAN TO BE PAID OFF FIRST*. -*LOAN NOT GRANTED UNLESS EXECUTED AGREEMENT MADE ON OLD HOME*. OTHERWISE, SETTLEMENT ON NEW HOUSE COULD ARRIVE AND OLD HOUSE MAY NOT BE SOLD = 3 MORTGAGES TO PAY FOR AND LIKELY DEFAULT. (NEW HOME AND OLD HOME MORTGAGES, SWING LOAN)

BUY DOWN FINANCING

*TEMPORARY REDUCTION IN PAYMENTS* (similar idea but not same as discount points; points address interest) FINANCING ARRANGEMENT WHERE PARTY SUCH AS BUYER, SELLER, OR DEVELOPER WOULD *PAY $ UP-FRONT TO A LENDER IN ORDER TO REDUCE OR BUY DOWN THE RATE OF INTEREST* FOR A BORROWER. -*LOWERS INTEREST RATE FOR AT LEAST FIRST FEW YEARS*. - CAN BE MARKETING PROMO FOR BUILDER/DEVELOPER TO INCREASE SALES OF HOMES IN A DEVELOPMENT THAT MAY NOT BE ACCOMPLISHED VIA REDUCTION IN PRICE.

3/1 AND 5/1 ARM MORTGAGE

*VARIATION OF THE ARM*; *FIXED RATE OF INTEREST FOR EITHER THE FIRST THREE YEARS OR FIVE YEARS* RESPECTIVELY. MORTGAGE THEN *CONVERTS TO AN ADJUSTABLE RATE MORTGAGE SUBJECT TO ANNUAL ADJUSTMENTS* based on economic indexes. -*ENABLES ESTABLISHMENT OF EQUITY--SHOULD: CONSIDER AMORTIZED MORTGAGE ONCE CONVERTS TO ARM*.

AMORTIZED MORTGAGE

*VAST MAJORITY ARE THESE MORTGAGES* TODAY B/C OF *LOWER INTEREST RATES*. LOAN IN WHICH EACH PAYMENT INCLUDES PORTION OF THE PAYMENT THAT GOES TOWARD *PAYING OFF THE LOAN AMOUNT (CALLED PRINCIPAL)* AND A PORTION OF THE PAYMENT THAT GOES TOWARDS PAYING OFF THE INTEREST ON THE LOAN. WHEN FINAL MORTGAGE PAYMENT MADE, LOAN PAID IN FULL. (INTEREST IS CALCULATED AND PAID OFF FIRST IN EACH PAYMENT, BECAUSE CHANGES/ LOWERS WITH EACH LOAN PAYMENT. *PRINCIPAL STAYS THE SAME!!*

SUBORDINATION AGREEMENT

*WHEN LENDING INSTITUTIONS PROVIDE MORTGAGES, THEY ALWAYS DESIRE FIRST MORTGAGES TO BE FIRST LIEN PRIORITY POSITION* (FIRST IN LINE OF CREDITORS TO GET PAID FROM SHERIFF SALES IN CASE OF DEFAULT). MOST LOANS TAKE LIEN POSITIONS *ACCORDING TO DATE FILED* AND RECORDED IN COUNTY COURT HOUSE. ONCE ONE LOAN IS SETTLED, IT IS REMOVED FROM POSITION AND THE NEXT LOAN (AND ALL BEHIND IT) MOVE UP TO THAT POSITION. * AS A RESULT, THE NEW REFINANCING LENDER WILL WANT THE EQUITY LENDER TO REMAIN IN SECOND POSITION BY SIGNING A SUBORDINATION AGREEMENT* TO LOWER THE EQUITY LOAN POSITION BACK TO SECOND PLACE. -*Very common in RE and very understood*;* Most primary mortgages always first lien*; also, if buyer has good credit and payment history, equity lender should is almost always content/ happy and should not rock the boat. Otherwise, they could get dumped.

2) ***PEACETIME SERVICE SECOND CATEGORY OF "QUALIFIED AND ELIGIBLE" VETS.

- 181 DAYS OF CONTINUOUS ACTIVE DUTY and discharge or release from military, or service connected disability during the following periods: (a) Peacetime - 7/26/47 - 06/26/50 (b) Peacetime - 02/01/55 - 08/04/64 (c) Peacetime - 05/08/75 - 09/07/80 (if enlisted) or 05/08/75 - 10/16/81 (if officer)

***1) WARTIME SERVICE FIRST CATEGORY OF "QUALIFIED AND ELIGIBLE" VETS.

- 90 DAYS OF "CONTINUOUS" ACTIVE DUTY AND DISCHARGE/ RELEASE FROM MILITARY, OR SERVICE-CONNECTED DISABILITY DURING FOLLOWING PERIODS OF ARMED CONFLICT: A) WWII - 9/16/40 - 07/25/47 B) KOREAN CONFLICT - 6/26/50 - 01/31/55 C) VIETNAM ERA - 08/05/64 - 05/07/75 D) PERSIAN GULF WAR 08/02/90- PRESENT (service for 2 yrs or full period active duty)

PAYMENT CAP

-*LIMITS MAXIMUM AMOUNT OF THE "MORTGAGE PAYMENT"* OF THE BORROWER. * PRINCIPAL AND INTEREST* -CAN BE DANGEROUS B/C IT CAN RESULT IN AN INCREASE IN THE LOAN DEBT. (AKA NEGATIVE AMORTIZATION).

OTHER ELIGIBLE CATEGORIES OF PERSONS FOR VA LOAN w/ additional criteria involved

1) ACTIVE DUTY MILITARY 2) SELECTED RESERVES OR NATIONAL GUARD 3) UNMARRIED SURVIVING SPOUSES OF VETERANS WHO DIED AS A RESULT OF SERVICE CONNECTED INJURIES. 4) SPOUSES OF ANY MEMBER OF THE ARMED FORCES SERVING ON ACTIVE DUTY AND WHO ARE REGARDED AS MISSING INACTION OR PRISONER OF WAR FOR MORE THAN 90 DAYS. 5) A FEW OTHER SPECIAL CATEGORIES OR PERSONS AS DESIGNATED BY THE VA

BESIDES PURCHASING A HOME, VA FINANCING MAY ALSO BE USED FOR WHAT?

1) Buy townhouse/ condo unit in a project approved by VA 2) build a home 3) repair/alter/improve home 4) simultaneously purchase and improve home 5) improve home through installment solar heating and/or cooling system or other energy efficient improvements 6) refinance existing home 7) refinance existing VA loan to reduce interest rate 8) buy a manufactured (mobile) home and/or lot 9) buy and improve a lot on which to place manufactured home which already own/occupy 10) refinance a manufactured home loan in order to acquire a lot.

3 BASIC MORTGAGE CATEGORIES

1) CONVENTIONAL 2) FHA 3) VA

WHAT BROUGHT ABOUT ALTERNATIVE FINANCING TECHNIQUES?

1) Economic times of *high rates of interest on mortgages* 2) *Scarce mortgage money* 3) Other special circumstances

CAP

A *LIMIT* THAT *PREVENTS BORROWER FROM FACING AN EXCESSIVELY HIGH ADJUSTMENT* IN THE RATE FOR THE FUTURE; REQUIRED BY LAW TO BE PLACED ON INTEREST RATE.

PARTIAL RELEASE CLAUSE

Activated when each home in development is sold. An greed upon amount of debt on each home is paid off at settlement table from proceeds of sale price; thereby removing mortgage lien on that property. This allows title for each property to be conveyed by developer to new purchaser.

***VA APPRAISAL ON EXAM

BEFORE APPROVED LENDER GIVES VA MORTGAGE, ***VA "CERTIFIED AND APPROVED"*** APPRAISER MUST DETERMINE NOT ONLY CURRENT MARKET VALUE BUT ALSO THAT THE PROPERTY MEETS VA STANDARDS OF "CONSTRUCTION AND CONDITIONS." -IF PROPERTY FAILS TO MEET VA STANDARDS, SELLER CAN TERMINATE THE SALE W/O PENALTY OR REPAIR PROPERTY TO MEET VA STANDARDS. THIS IS REPORTED ON CRV.

MAXIMUM FHA 203B LOAN AMOUNT

DETERMINED BY FHA FORMULA. (House must be more than 1 year old OR less than 1 yr and build to FHA Guidelines.) FORMULA BASED ON PARTICULAR REGION IN WHICH PROPERTY LOCATED AND THE COST OF HOUSING IN THAT AREA. IF LOAN FALLS W/IN MAX LIMIT (CAN BE AS HIGH AS 96.5% OF APPRAISED VALUE OF PROPERTY), IT REQUIRES BUYER TO MAKE A DOWN PAYMENT AS LITTLE AS 3.5% OF APPRAISED PROPERTY VALUE. -Offers great opportunity for would-be-buyers who do not have substantial down payment.

2) FHA MORTGAGE AKA "FHA INSURED MORTGAGE"

FEDERAL HOUSING ADMINISTRATION ***DOES NOT LEND $ FOR MORTGAGES; ONLY INSURES LENDER AGINST PORTION OF THEIR LOSSES. -OPERATES UNDER HUD; CREATED AS FEDERAL AGENCY TO HELP STIMULATE THE ECONOMY AND MAKE HOMES MORE AFFORDABLE THROUGH FHA MORTGAGES. FHA mortgages require low down payment, which usually represents higher risk. However, FHA operates as a government sponsored insurance agency to eliminate lender's risk on very high LTV ratio FHA Mortgages. SINCE FHA ONLY "INSURES", DOES NOT MANDATE A MINIMUM CREDIT SCORE --THATS FOR LENDERS THAT "LEND" $

DISADVANTAGES IF PURCHASE MONEY MARKET

For Seller: *Prevents seller from leaving settlement table with a large check for full amount equity*--likely *unable to make down payment on next home*. Also *if buyer defaults, seller has burden of initiating foreclosure* process. Lastly, if this mortgage was second mortgage, *foreclosure on first mortgage would divest (dispose of) the second mortgage*.

Homeowner's Protection Act (July 29, 1999)

Forced lenders to terminate PMI whenever the unpaid loan balance is 78% of original property value. 1) borrower must request cancellation of PMI; lender will confirm LTV 80% or less and cancel 2) borrow could not have been delinquent on loan payments.

PURPOSE OF FHA MORTAGE

HELP MORE PEOPLE OWN A HOME PROVIDING A LOAN WITH: 1) LOW DOWN PAYMENT 2) MORE LIBERAL FINANCIAL QUALIFICATION STANDARDS THAN W/ A CONVENTIONAL LOAN, PARTICULARLY FOR LOW AND MODERATE INCOME FAMILIES 3) 100% LOAN RISK PROTECTION

WRAPAROUND MORTGAGE AKA "ALL-INCLUSIVE MORTGAGE" OR "JUNIOR FINANCING"

INCLUDES ENCOMPASSES AND WRAPS AROUND ALL OF OTHER EXISTING FINANCING ON REAL PROPERTY. *SELLER WILLING TO PROVIDE FINANCING TO BUYER, BUT SELLER HAS MORTGAGE ON PROPERTY FOR SALE THAT CANNOT OR SHOULD NOT BE PAID OFF* (I.E. SEVERE PREPAYMENT METHODS OR LOW RATE OF INTEREST ON FIRST LOAN ALLOW HIGH YIELD ON 2ND WRAP AROUND LOAN. SO INSTEAD, BUYER AGREES TO PURCHASE SELLER'S PROPERTY WITH WRAPAROUND LOAN THAT WILL ENCOMPASS SELLER'S FIRST MORTGAGE. *SELLER BECOMES LENDER AND RECEIVES LOAN PAYMENTS FROM BUYER. SELLER IS RESPONSIBLE FOR MAKING PAYMENTS TO FIRST LENDER WITH $ RECEIVED FROM BUYERS PAYMENTS TO SELLER*.

PRIVATE MORTGAGE INSURANCE (PMI)

INSURANCE POLICY THAT GUARANTEES PROTECTION TO THE LENDER IN THE EVENT THE DEBT IS NOT REPAID AND THE LENDER LOSES $ AS A RESULT. -There is a high charge to borrower for using this. Should try to be avoided. Provides monetary compensation to lender for the amount of the loss on the top portion of the loan. Coverage for loss varies with amount of down payment. INSURANCE STOPS ONCE LTV GETS BELOW 78%

VALUE OF RP REQUIREMENT

LENDERS REQUIRE VALUE OF RP FOR FINANCING PURPOSES TO BE DETERM,INED BY AN APPRAISAL OF PROPERTY AND THEN LOAN BASED ON EITHER APPRAISED VALUE OF PROPERTY OR SALE PRICE OF PROPERTY...*WHICHEVER IS LESS*.

CONVENTIONAL INSURED MORTGAGE

LOAN EXCEEDS 80% LTV- WOULD REQUIRE PMI DUE TO HIGH RISK OF DEFAULT.

ARM = ADJUSTABLE RATE MORTGAGE

LOAN ON RP ON WHICH THE MORTGAGE *RATE OF INTEREST IS VARIABLE* AND ADJUSTS EITHER UP OR DOWN *BASED ON SOME ECONOMIC INDEX*. -THE ADVANTAGE TO BORROWERS IS THAT LENDERS NEED TO *OFFER THESE LOANS AS A COMPETITIVE ALTERNATIVE TO A FIXED RATE MORTGAGE BY OFFERING AN ENTICING, INITIAL RATE OF INTEREST THAT IS LOWER THAN THAT FOR A FIXED INTEREST RATE MORTGAGE OF SIMILAR LENGTH*. -RESULTS IN MORE PEOPLE BEING FINANCIALLY ABLE TO QUALIFY FOR LOANS. -WHEN INTEREST RATES STEADILY FALLING, MONTHLY MORTGAGE PAYMENTS DECREASE FOR BORROWERS W/O ANY NEED TO REFINANCE AS WELL.

OPEN END MORTGAGE/ HELOC (HOME EQUITY LINE OF CREDIT)

LOAN THAT *CAN BE OPENED BACK UP* TO THE END IN THE SENSE THAT A BORROWER WHO HAS REDUCED THE DEBT ON THIS LOAN CAN BORROW AN AMOUNT OF MONEY BACK UP TO THE ORIGINAL AMOUNT OF THE LOAN (PER PROVISIONS IN LOAN AGREEMENT). - IE *BORROW BACK FROM ALREADY PAID DEBT* i.e. reduced unpaid balance of $100,000 down to $30,000 through regular loan payments. Borrower can therefore borrow $70,000 (amount back up to $100,000). SO CONSTITUTES FORM OF REFINANCING. COMMONLY REFERRED TO TODAY AS : EQUITY LINE OF CREDIT (CAN BE USED FOR CARS, COLLEGE, REMODELING). WHEN USED FOR A HOME, REFERRED TO AS HELOC/ HOME EQUITY LINE OF CREDIT -*BY CLOSING, SELLER MUST PAY THIS OFF!!*

BLANKET MORTGAGE

LOAN THAT ENCUMBERS TWO OR MORE PROPERTIES. 1) *COMMONLY FINANCES PROPERTIES IN DEVELOPMENTS* USING A *"PARTIAL RELEASE CLAUSE"* (RIDS DEVELOPER OF DEBT WITH EACH HOME SOLD). 2) ALSO COMMONLY USED WHEN *PURCHASING A SECOND HOME* FOR VACATION OR RENTAL BY USING SUBSTANTIAL AMOUNT OF EQUITY IN CURRENTLY OWNED FIRST HOME AS DOWN PAYMENT ON 2ND PROPERTY (COLLATERAL SECURITY FOR REPAYMENT OF DEBT).

PACKAGE MORTGAGE

LOAN USED IN PARTICULAR TO *FINANCE FULLY FURNISHED CONDO* UNITS THAT INCLUDE FURNITURE, WASHER, DRYER, ETC. (CAN ALSO INCLUDE INVENTORY AND EQUIPMENT). *ENCUMBERS BOTH REAL AND PERSONAL PROPERTY*. + Finances entire package (property/ furnishings) - Financing over longer period so paying hefty finance charges on items such as furniture. Also, if buyer defaults, loses condo AS WELL AS all personal property encumbered by loan. **NOT LEGAL IN PA WITH RESIDENTIAL PROPERTY ONLY (legal on commercial/ industrial properties)** on exam

CRITICAL TO REMEMBER ABOUT FHA MORTAGE

LOGICAL TO ASSUME FHA MORTGAGE WOULD BE OBTAINED FROM FHA. HOWEVER, "FHA DOES NOT LOAN $ FOR FHA MORTGAGES. IT RATHER PROVIDES LOAN RISK PROTECTION BY INSURING THE LENDERS WHO GET FHA MORTGAGES" against 100% of any loss of loaned $ b/c of borrower default.

MARGIN

MARGIN ON THE ARM IS THE * PERCENTAGE DIFFERENCE B/W INDEX RATE AND THE HIGHER RATE OF INTEREST CHARGED TO BORROWERS*. Difference, usually about 2%-3% of loan, represents amount lender adds to index to *cover expenses and make a profit (does not change over life of loan). So, target low margins.*

TAKE OUT LOAN

MORTGAGE *LOAN USUALLY OBTAINED AT COMPLETION OF A BUILDING'S CONSTRUCTION*. NEEDS TO BE ARRANGED BY THE BORROWER, FREQUENTLY THROUGH ANOTHER LENDER. (*REPLACES INTERM FINANCING*)

GEM = GROWING EQUITY MORTGAGE

MORTGAGE W/ *CONTINUOUS YEARLY INCREASES IN MORTGAGE PAYMENTS*. ANY INCREASE IN PAYMENT OF THE FIRST YEARS' PAYMENT WOULD BE *APPLIED DIRECTLY TO THE LOAN PRINCIPAL.* CONSEQUENTLY, THE *LOAN WOULD BE PAID OFF MORE QUICKLY THAN NORMAL. SAVES ON INTEREST TOO* B/C PRINCIPAL PAID OFF SOONER.

FHA 203(B)

MOST COMMON TYPE FHA MORTGAGE; USED AS FINANCING VEHICLE/TOOL "FHA TITLE II SECTION 203(B)" *REQUIRES MORTGAGED PROPERTY TO BE APPRAISED BY AN APPROVED FHA APPRAISER, AND MEET FHA DETERMINED STANDARDS OF **"CONSTRUCTION AND CONDITION"* -BORROWER MUST BE FHA FINANCIALLY QUALIFIED AND MUST PAY A 1-TIME FHA FEE AT SETTLEMENT AND A MONTHLY FEE CALLED A MONTHLY INSURANCE PREMIUM (MIP) -AS OF 12/15/89- ALL FHA 203B LOANS ARE FOR *"OWNER OCCUPIED PROPERTIES."* --SO NOT COMMERCIAL OR INVESTMENT PROPERTIES (I.E. BED AND BREAKFAST HOME OFFICE: DEPENDS ON IF BUSINESS GENERATES INCOME...THEN OK. IF PROPERTY GENERATES INCOME (RECEIVE VISITORS)...THEN NO!

BENEFITS OF VA MORTGAGE

OFFERS QUALIFIED AND ELIGIBLE US VETS WITH A HOME LOAN WITH: 1) EITHER NO DOWN PAYMENT OR LOW DOWN PAYMENT 2) LIBERAL FINANCIAL QUALIFYING STANDARDS 3) RISK PROTECTION TO THE LENDER -Similar to FHA benefits- both make home ownership more accessible than conventional mortgages.

TRUTH IN LENDING ACT AKA "TILA" OR *"REGULATION Z"*

PASSED BY CONGRESS 1969; *INFORMS CONSUMERS COSTS OF BORROWING $ FOR TYPICAL CONSUMER LOANS (MORTGAGE, CAR, PERSONAL, AND EQUITY)*. (can cause a lot of grief for consumers if don't understand/agents for explaining) *LENDERS PROVIDE BORROWERS W/ STATEMENT DISCLOSING ESSENTIAL/ALL COSTS INVOLVED W/ BORROWING $* INCLUDING: 1) *INTEREST RATE 2) TERM 3) MONTHLY PAYMENT 4) TOTAL COST 5) FINANCE CHARGES 6) APR (ANNUAL PERCENTAGE RATE)* **CLOSING COSTS MUST NOW BE ABLE TO BE REVIEWED BY BUYER "AT LEAST 3 DAYS PRIOR" TO CLOSING (USED TO BE 24 HRS).***

RURAL HOUSING LOANS AKA ABBREVIATED ON HUD-1 AS "RHS, OR RURAL HOUSING SERVICE"

PREVIOUSLY KNOWN AS "FARMER'S HOME ADMINISTRATION LOAN" AND/OR "FARMERS SERVICE AGENCY LOAN." * MORTGAGE THAT IS AVAILABLE THROUGH PARTICIPATING LOCAL LENDERS FROM THE US DEPT OF AGRICULTURE (USDA) TO ASSIST LOW AND MODERATE INCOME BORROWERS WITH VERY LOW INTEREST RATES. -CHECK TAX RETURNS-- HAS INCOME LIMIT--IF OVER LIMIT, DO NOT QUALIFY! -NON-CITY

DIFFERENCE B/W PRIMARY AND SECONDARY MORTGAGE MARKET

PRIMARY= LENDERS SECONDARY = INVESTORS (BUY LOANS IN BULK FROM PRIMARY MARKETS AND RE-SELL THEM)

SOURCE OF FHA MORTGAGES

PROVIDED BY FHA-APPROVED LENDING INSTITUTIONS SUCH AS COMMERCIAL BANKS, SAVINGS AND LOANS ASSOCIATIONS, AND PARTICULARLY MORTGAGE SERVICE COMPANIES. FHA INTEREST RATES ARE FLOATING RATES--CHANGE BASED ON COST OF $ AT ANY PARTICULAR TIME W/IN LIMITATIONS SET BY LAW AND IS NO LONGER ESTABLISHED BY HUD.

CONSTRUCTION LOAN

PROVIDED BY LENDER FOR PURPOSE OF ALLOWING OWNER OR PURCHASER TO *FINANCE EITHER THE CONSTRUCTION OF A NEW BUILDING OR OTHER IMPROVEMENTS TO RP*. -*USES INTERIM FINANCING, which is later replaced at building's completion by a TAKE OUT LOAN*. - *Lending institution makes periodic installment payments to building contractor ONLY after lender has inspected and approved each phase of new construction. Gives lender collateral security prior to disbursing $*.

CONVENTIONAL "UN"INSURED MORTAGE

SAFE LOAN TO VALUE---LTV OF 80% OR LESS EQUIVALENT OF SAYING LENDERS DESIRE BORROWERS HAVE AT LEAST 20% DOWN PAYMENT OR EQUITY IN RP TO MINIMIZE CHANCES OF DEFAULT/ FORECLOSURE.

***MILITARY SERVICE 3RD CATEGORY OF "QUALIFIED AND ELIGIBLE" VETS.

SERVICE B/W: (A) 09/07/80 - 09/01/90 (IF ENLISTED) (B) 10/16/81- 09/01/90 (IF OFFICER) and one of the following: 1) 24 MONTHS CONTINUOUS ACTIVE DUTY AND DISCHARGE OR RELEASE FROM MILITARY 2) FULL PERIOD OF SERVICE (AT LEAST 181 DAYS) IF CALLED OR ORDERED TO ACTIVE DUTY. 3) 181 DAYS OF ACTIVE DUTY W/ HARDSHIP DISCHARGE, AN EARLY OUT DISCHARGE, OR COMPENSABLE SERVICE-CONNECTED DISABILITY. 4) DISCHARGE FOR A SERVICE-CONNECTED DISABILITY.

***"FINANCIALLY QUALIFIED AND ELIGIBLE"* US MILITARY VETERANS ON EXAM AND QUIZ

SEVERAL CATEGORIES OF "QUALIFIED AND ELIGIBLE" VETS. VETS W/ MILITARY DISCHARGE OR RELEASE UNDER CONDITIONS OTHER THAN "DISHONORABLE" AND W/ SPECIFIC MILITARY TENURE ARE QUALIFIED AND ELIGIBLE.

PURCHASE MONEY MORTGAGE AKA "SELLER FINANCING"

TECHNICALLY REFERRED TO ANY LOAN USED TO FINANCE THE PURCHASE OF RP MOST COMMONLY USED TO ID THE TYPE OF *FINANCING WHEN THE SELLER PROVIDES A MORTGAGES TO A BUYER.*

HOW DETERMINE ACTUAL ELIGIBILITY OF VET?

TO DETERMINE ACTUAL ELIGIBILITY, VET OR RE AGENT HELPING VET MUST CONTACT DEPT OF VA AFFAIRS REGIONAL OFFICE FOR AN APPLICATION AND INFO AS TO HOW TO PROCEED. * REQUEST FROM VET HIS DD14 ("DEPT OF DEFENSE 14" - LOCAL MILITARY/ PERSONNEL RECORDS) WHICH IS NEEDED TO START PROCESS. CAN GET IN LOCAL COUNTY RECORDER OF DEEDS OFFICE FOR FREE.

INTEREST RATE CAP

TYPICALLY, THIS *CAP* ALLOWS THE *RATE OF INTEREST TO INCREASE NO MORE THAN 2% ABOVE THE PREVAILING RATE = AKA PERIODIC RATE CAPS*. IN ADDITION THERE IS AN INTEREST RATE CAP FOR THE *ENTIRE TERM OF THE LOAN OF NO MORE THAN 6% = AKA AGGREGATE RATE CAPS OR CEILING.* ABOVE THE INITIAL LOAN RATE.

HOW DOES RAM DIFFER FROM 2ND MORTGAGE OR EQUITY LINE OF CREDIT

UNLIKE 2ND MORTGAGE OR ELOC: *1) NO INCOME IS REQUIRED* BY BORROWER SINCE $ BEING BORROWED FROM EQUITY IN HOME 2) THEREFORE *NO LOAN QUALIFICATIONS* 3) *NO PAYMENTS MADE AS LONG AS BORROWER LIVES IN THE HOME*. **INTEREST IS HOWEVER CHARGED* 2 QUALIFICATIONS: *1) OCCUPY HOME AS PRINCIPAL* FOR THE YEAR 2) *PAID OFF MORTGAGE OR SMALL AMOUNT UNPAID BALANCE REMAINING*.

OUTSTANDING DEBT

UNPAID BALANCE OF LOAN

CERTIFICATE OF REASONABLE VALUE (CRV)

VA APPRAISAL DOCUMENTATION FORM

DIFFERENCE B/W FHA AND VA MORTGAGES

VA CAN BE USED IN MANY CASES FOR 100% FINANCING---REFERRED TO AS *"NOTHING DOWN PURCHASE"*. THIS ELIMINATES NEED TO SAVE FOR A DOWN PAYMENT AND REQUIRES ONLY BORROWERS ABILITY TO FINANCIALLY QUALIFY FOR THE LOAN. **VET PAYS A FUNDING FEE WHICH CAN BE ADDED TO LOAN AMOUNT INSTEAD OF MIP.

VA GUARANTEE

VA DOES NOT LEND MORTGAGE $ VA GUARANTEES TO LENDER PORTION OF MORTGAGE AGAINST LOSS OF THAT LOAN AMOUNT IN EVENT BORROWER DEFAULTS. VA GUARANTEE IS EQUIVALENT TO FHA INSURANCE OR PMI

MAXIMUM VA LOAN

VET CAN BORROW UP TO APPRAISED VALUE OR SP OF HOME- WHICHEVER IS LESS, PLUS VA FUNDING FEE.

3) VA MORTGAGE AKA "VA GUARANTEED MORTGAGE"

VETERANS ADMINISTRATION- IN 1989, BECAME AGENCY UNDER US FEDERAL GOVERNMENT- KNOWN AS : DEPT. OF VETERANS AFFAIRS (DVA) *GUARANTEES PORTION OF LOAN FOR LENDER AGAINST LOSS. * NO MIP IN VA LOANS -CREATED IN 1944 AS PART OF SERVICEMEN'S READJUSTMENT ACT. FEDERAL GOVERNMENT PROVIDED THIS NEW TYPE OF FINANCING CALLED "VA MORTGAGE" TO ELIGIBLE US MILITARY VETS FOR PURPOSE PURCHASING/ BUILDING HOME.

WHEN TO REFINANCE

WHEN INTEREST RATES HAVE DECLINED/LOWERED

WHAT IS CONSIDERED TO BE A SAFE LOAN TO VALUE RATE?

WHEN LTV RATIO IS "80% OR LESS" IE CONVENTIONAL "UNINSURED" MORTGAGE

CAN CONVENTIONAL MORTGAGE LENDERS ALSO CHARGE POINTS?

YES, WHEN RATE OF INTEREST ON CONVENTIONAL MORTGAGE IS LESS THAN THE YIELD DESIRED BY AN INVESTOR, CONVENTIONAL MORTGAGE LENDERS CAN CHARGE POINTS.