Section 16: Real Estate Financing: Loan Types & Pay Offs Unit 2

Reverse mortgage loans

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

The USDA Rural Development program

assists rural Americans by offering loans, grants, and loan guarantees for housing (as well as economic development, health care, first responder services and equipment, and water, electric, and communications infrastructure).

Requires a formal arrangement with the lender to divide payments into smaller chunks.

biweekly payments

Is an informal method to make additional payments to the principal.

extra principal payments

Lending eligibility requirements for USDA loans are considered ______.

fairly lenient

Bindy received a loan based on the amount of equity she had in her house. She used this lump sum to fund her daughter's college education. What type of loan did she get?

home equity

home equity loan

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

Includes shorter time frames, higher monthly payments, and less total interest.

reduced loan term

FHA Home Equity Conversion Mortgage (HECM)

reverse mortgages are secured by owner-occupied residential property, including 1-4 unit residential property provided the borrower lives in one unit. Fixed-rate HECM loans are available if the borrower receives a lump sum at the beginning of the loan. If borrowers prefer to receive monthly payments or a line of credit, the rate will be adjustable. Because it is an FHA loan, a mortgage insurance premium is charged.

conventional loans

which are defined as mortgage loans that aren't insured guaranteed, or made by the federal government. No government involvement Down payment ranging from 3% to 20% No limits on loan amounts unless the loan is conforming PMI may be required for loans >80% of home value Borrowers must meet lender repayment standards (Fannie Mae and Freddie Mac for conforming loans)

Client Bette asked licensee Frank about a home equity line of credit versus home equity loan. Which of the following offers an brief overview of what a home equity line of credit is?

A borrower borrows against the equity in the house and pays back the amount withdrawn plus interest.

which of the following is true about a home equity line of credit?

A borrower can use the funds as needed, repay them, and borrow them again.

VA-guaranteed loan

A government-guaranteed loan designed to help veterans obtain home mortgage loans for which they might not otherwise qualify. Guarantees the loan for the lender, removing risk related to default 0% down payment required, though borrower may make a down payment if desired No limits on loan amounts, but the amount the VA guarantees is limited Residential properties with between one and four units Borrowers will usually be required to pay a one-time funding fee No penalty for prepayment Available only to eligible active duty military and veterans and their spouses, and widows and widowers who haven't remarried Borrower must qualify for the loan according to the VA guidelines. Loan assumption limited to loans after 1988

FHA-insured loan

A loan insured by the Federal Housing Administration and made by an approved lender in accordance with FHA regulations. Insures lender against borrower default Down payment as low as 3.5% Limits on loan amounts based on average home price in county Residential properties with between one and four units (one unit must be occupied by the borrower) Mortgage insurance premium (MIP) (up front at closing and annually for the life of the loan) required Standards for borrower credit are less stringent than for conventional loans

home equity loan

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

subordination agreement

A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, and other liens under certain circumstances.

Which of the following is a true statement about FHA financing?

An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.

Reverse Annuity Mortgage

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

Which products and services does the USDA Rural Development Program offer to its rural customers?

Direct loans Grants Loan guarantees Advisory services

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

FHA

Conventional loans may be conforming or nonconforming, depending on whether they meet ______ guidelines.

Fannie Mae and Freddie Mac

Obtaining a 20-year mortgage instead of a 30-year mortgage results in which of the following?

Higher payments and less interest

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. Associated with conventional loans Paid until equity reaches 22% Only required for some borrowers

Rob and Jill obtained a mortgage from Taylor Bank & Trust in 1998. In 2014, they obtained a second mortgage from Quail Loans. What is the loan with Quail Loans considered?

Junior mortgage

Sophie only has 15% to put down on her new home. What might the lender require in order for Sophie to obtain conventional financing

Private mortgage insurance

Morgage Insurance Premium

Required for all borrowers Associated with FHA Paid until the entire loan is paid off

Which of the following is a significant drawback to an FHA loan as compared to conventional financing?

Required mortgage insurance must remain in place for the life of the loan.

Monty retired 10 years ago and would like to see the world, but his retirement account won't support his desire to travel. Monty heard of a loan that would allow him to take advantage of the equity in his home by getting monthly payments from the bank by using his house as collateral. What is this type of loan called?

Reverse annuity mortgage (RAM)

Where are mortgages recorded?

They're recorded at the recorder's office in the county where the property is located.

Which government program assists rural Americans by offering loans, grants, and loan guarantees for housing?

USDA Rural Development

Home Equity Line of Credit

Used similarly to a credit card

Reverse Annuity Mortgage (RAM)

a mortgage in which the lender uses the borrower's house as collateral to buy an annuity for the borrower from a life insurance company; also called an equity conversion