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Unit 2: Loan Programs
Terms in this set (94)
Any loan without government insurance or guarantees
The main sources of Conventional loans
Commercial Banks, Thrifts, and Mortgage Companies
A process that lenders use to determine home loan rates and terms
The ratio of the loan amount to the property's appraised value or selling price, whichever is less.
loan-to-value ratio (LTV)
Conventional Loan Guidelines
Type of Amortization
Type of Property
Maximum Loan Limit
The portion of the purchase price that is not financed.
Insurance that provides coverage for the top part of a residential loan in the event of default
When is mortgage insurance used
Loans with LTV ratios that are higher than 80%
Extra insurance that lenders require from most homebuyers who obtain conventional loans that are more than 80% of their new home's value.
Private Mortgage Insurance (PMI)
The federal Homeowner's Protection Act (HPA) allows the cancellation of private mortgage insurance under these circumstances.
Any conventional loans sold in the secondary mortgage market must conform to the Fannie Mae/Freddie Mac underwriting guidelines and are called ________ _____.
A ________ ____ is a loan retained by the lender
________ ____ have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac.
Principles lenders use to evaluate the risk of making real estate loans.
______ ___ and _______ ___ guidelines determine which properties are suitable, set maximum loan limits, and set debt-to-income ratios for conforming loans.
Fannie Mae and Freddie Mac
Fannie Mae/ Freddie Mac Suitable Property
1-4 family unit principal residences
Single-family second homes
1-4 family investor properties (non-owner occupied)
Co-ops, condos, PDs, and leaseholds
To determine a consumer's maximum loan amount, lenders use a guideline called a _______ ___ ______ ______
How to get a DTI ratio
divide the borrower's total monthly obligations by his gross monthly income
DTI: This includes consumer debt and the total monthly payment for the mortgage loan.
Total Monthly Obligations
DTI: Consumer Debt includes
Credit Card Debt
DTI: Includes the principal, interest, property taxes, insurance and HOA fees
The mortgage payment
Components of a DTI Ratio
Total Monthly Obligations
Total Stable Monthly Income
Maximum DTI Ratios for conforming loans
range from 36%- 45%
MAX DTI Ratio for loans Underwritten Manually
45% if borrower meets the credit score and reserve requirements
MAX allowable DTI ratio for Loans Underwritten through Desktop Underwriter
50% for certain loan casefiles with strong compensating factors
Technology-based tool that combines historical loan performance, statistical models, and mortgage lending factors to determine whether a loan can be sold into the secondary market.
Automated underwriting (AU)
Can evaluate a loan application and deliver a credit risk assessment to the lender in a matter of minutes.
automated underwriting system (AUS)
What kind of loans are Fannie Mae Products
Pros to Fannie Mae products
Build equity faster
Carry a lower interest rate
_______ ____ has been more aggressive in serving the subprime market and has developed loan products to serve that market.
A loan that does not meet the Fannie Mae or Freddie Mac lending guidelines.
An option for borrowers whose creditworthiness does not meet the guidelines.
Exceeds the maximum conforming loan limit set by Fannie Mae and Freddie Mac.
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac
Offered to borrowers who may have recently filed for bankruptcy or foreclosure, or have late payments on their credit reports.
Lenders charge higher fees on subprime loans due to their _______ _____
Questionable fee charged in closing costs that may not bear any significant relationship to the actual loan transaction
The practice of adding credit insurance or other extras to increase the lender's profit on a loan.
"CFR" stands for
Code of Federal Regulations
Examples of "_" _____ _____ are the 2/28 ARM and 3/27 ARM. These ARMs have a fixed interest rate for the first 2 or 3 years of the loan. After that, the interest rate can change yearly according to the index plus the margin
"B" paper loans
A notorious home loan product offered in the subprime industry. This adjustable-rate mortgage loan product features a teaser rate for which the borrower qualifies even with high debt-to-income ratios.
The exploding ARM
A low, short-term introductory interest rate designed to tempt a borrower to choose a loan.
Federal Government Agency that insures private home loans for financing homes and/or home repairs
Federal Housing Administration (FHA)
The three federal agencies that participate in real estate financing
FHA, VA, USDA
The FHA developed ________ _______ _______ (___) and standards for new construction to reduce their mortgage risk and to improve housing standards and conditions
minimum property standards (MPS)
On loans with less than a 20% down payment, the lender is protected in case of foreclosure by ______ _________ ________ (___)
Mutual Mortgage Insurance (MMI)
the FHA charges an upfront mortgage insurance premium (UFMIP) of _.__% of the base loan amount.
The down payment (minimum required investment) on FHA loans varies with the amount of the loan
Low Down Payment
The FHA currently allows the seller, or a third party, to contribute up to 6% of a home's sales price to pay for closing costs, discount points, upfront mortgage insurance premiums, or upfront interest.
Since the FHA does not loan money, it does not set interest rates. Interest rates are negotiated between the borrower and the FHA-approved lender.
Competitive Interest Rates
Because the FHA provides mortgage insurance, lenders are more willing to give loans with lower qualifying requirements
Easy Qualifying Requirements
HUD regulates the closing costs associated with FHA-insured loans.
Reasonable Loan Fees
The appraisal report fee ranges from ____ __ ____ and pays for an appraisal report made by an independent FHA appraiser.
$300 to $500
A credit report fee ranges from ___ - ___ and pays for the credit report of the borrower's credit history.
$40 - $55
A ___-_____ credit report takes the raw data from all of the major credit repositories—Trans Union, Experian and Equifax—and merges it into one easy-to-read credit report.
The _________ ________ __________ ___ covers the processing of an application for mortgage insurance.
mortgage insurance application fee
An _________ ___ is charged when a buyer assumes the seller's existing real estate loan.
The ____-_________ ___ is not the same as the loan origination fee. This fee pays for preparing the paperwork in the loan files.
An investor charges an ____________ ___ for underwriting the submitted loan file and all of its paperwork.
This report form is designed to report an appraisal of a one-unit property or a one-unit property with an accessory unit, including a unit in a planned development
Uniform Residential Appraisal Report
This report form is designed to report an appraisal of a unit in a condominium project or a condominium unit in a planned development
Individual Condominium Unit Appraisal Report
This report form is designed to report an appraisal of a one-unit manufactured home, including a manufactured home in a planned development
Manufactured Home Appraisal Report
This report form is designed to report an appraisal of a two-to-four unit property, including a two-to-four unit property in a planned developmen
Small Residential Income Property Appraisal
Lenders who have met FHA standards are called
Direct Endorsement Lenders
the percentage of a borrower's monthly gross income that is used to pay the monthly housing expense.
For homeowners, the monthly housing expense is the amount of _______ _______ _____ ___ _______ (____)
principal, interest, taxes, and insurance (PITI).
he percentage of income needed to pay for all recurring debt
The basic FHA loan program is the FHA 203(b) Loan that offers financing on the purchase or construction of owner-occupied residences of 1-to-4 units.
FHA 203b Loan
b2 for veterans
a loan that enables elderly homeowners to borrow against the equity in their homes and receive monthly payments and/or a line of credit from a lender.
a loan program for homeowners who are 62 or older and who have paid off their existing home loan or have only a small balance remaining.
Home Equity Conversion Mortgage (HECM)
helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost for adding energy-efficient features to new or existing housing.
Energy Efficient Mortgages Program (EEM)
the maximum guaranty that the VA will provide for the veteran's home loan.
The appraisal for VA loans is known as a ________ __ _________ _____ (___) and must be issued by a certified VA appraiser
Certificate of Reasonable Value (CRV)
The Department of Veterans Affairs (VA) does not make loans. It ________ _____ made by approved lenders, much like the FHA.
the amount of net income remaining after deducting debts, obligations, and monthly shelter expenses that is used to cover family living expenses, such as food, health care, clothing, and gasoline.
the gross income less federal and state income taxes and any Social Security or retirement contributions
VA Loan Programs
30 year fixed rate loan
VA adjustable rate mortgage
VA Graduated Payment Mortgage
Construction/ Permanent Home Loan
Manufactured Home Loan
A _____ ________ ____ is a Government insured 100% purchase loan for properties in rural areas
USDA Guaranteed Loan
________ ____ loans are subordinate (inferior) to the mortgage or deed of trust that secures a first lien and have a subordination clause.
any loan used to take cash out of a property.
hard money loan
______ ____ __ ______ ____ is a temporary, short-term, hard money loan made on a borrower's equity in his or her present home.
swing loan or bridge loan
The interest rate on a swing loan is about _% higher than on a 30-year fixed-rate loan
is a hard money loan made against the equity in the borrower's home
home equity loan
Home equity loans provide homeowners cash for a number of reasons, but they also strip the ________ out of the property
A ____ ______ ____ __ ______ (_____) is a typical open-end loan. An open-end loan is expandable by increments up to a maximum dollar amount.
home equity line of credit (HELOC)
a loan for anything movable that is not real property.
personal property loan
A member of a cooperative possesses the right to live in the apartment unit through an occupancy agreement or a _______ _____.
a type of loan that is made to finance the purchase of shares in a corporation
a short-term loan that finances construction costs such as the building of a new home
________ _____ can be used to pay off any interim construction loans taken out prior to the construction project
Letter that promises to deliver a takeout loan in the future if the property is built according to plans and specifications and leased at the target rental rate.
Forward takeout commitment
a loan secured by several properties
a blanket mortgage or blanket deed of trust contains a _______ ______ that enables the borrower to obtain partial release of specific parcels of land that are no longer required as security for the loan.
Before applying for a VA loan, a veteran must possess a _________ __ __________, which is available from the Department of Veterans Affairs.
Certificate of Eligibility
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