1. Payment of the debt based solely on the borrower's ability to pay, with security provided by the mortgage; neither insured nor guaranteed by government agency.
4. If the loan-to-value ratio exceeds a given level, 80 percent for example, the lender may require private mortgage insurance (PMI).
B. Federal Housing Administration (FHA) insured
1. FHA insures approved lenders against loss on loans made on new or existing one to four family housing.
3. The borrower finances an up-front FHA insurance premium of 1.50?% ; then pays a monthly insurance premium (MIP) based on 1/2 percent of the mortgage amount.
4. Mortgaged property must be appraised by an FHA- approved appraiser.
5. FHA does not allow a prepayment penalty.
7. Discount points are generally used to reduce the interest rate
8. (1 point = 1 percent of the loan balance); these are generally negotiated between the seller and the buyer.
9. FHA mortgage insurance makes it possible to reduce down payments to as little as 3.5 percent.
10. FHA sets limits on the amount that may be insured.
C. Department of Veterans Affairs guaranteed (DVA loans)
1. DVA does not allow a prepayment penalty.
2. A DVA loan may be assumed by a qualified nonveteran.
3. DVA guarantees home loans for eligible veterans or eligible dependents with little or no down payment.
6. Mortgaged property must be appraised by a DVA- approved appraiser.
7. DVA sets a limitation on the loan amount of the veterans entitlement guarantee but will increase the guarantee to $104,250 to allow a veteran to buy a house for up to $417,000 if the value of the house and the income of the veteran are high enough to justify the higher guarantee.
10. DVA requires appraisers to complete a certificate of reasonable Value (CRV); the DVA guarantee is based on either the amount of the CRV or the selling price, whichever is less.
F. Privately insured
3. The borrower's insurance protects the lender against loss on the upper 2 to 25 percent portion of the loan.
4. PMI insurance premiums are made a part of the borrower's monthly payments.
G. Purchase-money mortgage-- given by the buyer to the seller as part of the purchase price (owner financing); legal title passes to the buyer.
H. Blanket mortgage-- covers more than one property or lot; generally includes a partial- release clause. SWING LOAN
K. Construction loans
1. Generally short-term or interim loan to finance construction of an improvement.
2. periodic payments or draws made by the lender to the owner for work completed since the previous payment.
N. Adjustable-rate mortgage (ARM)
1. Contains interest-rate provision related to a selected index.
2. The interest rate may be adjusted periodically (either up or down). A margin is added to the index to determine the interest rate.
3. ARMs can be converted to fixed-rate mortgages (FRMs). They are fixed for either 5 or 7 years and then are annually adjusted.
1. Temporary-- to help the borrower qualify for a loan, the seller agrees to subsidize the buyer's PI payment.
2. Permanent-- In order for the borrower to qualify for a larger than usual loan, discount poins can be paid at closing to permanently buy down the existing interest rate. For ex., if a borrower qualified to make an $1,100 PI payment amortized over 3 years at 5.50% ($5.68 per$1,000), then the amount mortgage would be ($1,100 divided by 5.68) $193,662. However, if the sellers paid enough discount points to permanently buy down the interest rate to 5.00% (instead of 5.50%), then the amount mortgaged would be increased to ($1,100 divided by 5.37) $204,842.