ch.10 Real estate principles Applying for a Residential Loan

Flashcards covering the process of applying for residential loans, including types of lenders, loan costs, legal disclosures, underwriting standards, and specific loan programs like FHA, VA, and Cal-Vet.

How do mortgage companies differ from commercial banks in their source of funding?

Unlike banks which use depositor funds, mortgage companies use funds from investors to originate loans.

What is a 'loan correspondent'?

An intermediary, often a mortgage company, between an investor with money to lend and a home buyer looking for financing.

In thrift institutions, what percentage of assets does federal law require to be kept in residential mortgages?

Approximately $\frac{2}{3}$ of their assets.

What Federal Act requires mortgage loan originators (MLOs) to be licensed or registered through the Nationwide Mortgage Licensing System and Registry?

The Secure and Fair Enforcement for Mortgage Licensing Act, known as the SAFE Act.

What is a 'soft money loan' in the context of seller financing?

A loan where the borrower receives credit toward the purchase instead of actual cash.

If Andrea takes out a loan for $100,000 and the bank charges 'two points' as an origination fee, how much will she pay?

100,000 \times 0.02 = $2,000

Why would a borrower choose to pay discount points at closing?

To obtain a lower interest rate on the loan by increasing the lender's up-front yield.

Which federal regulation implements the Truth in Lending Act (TILA)?

Regulation Z.

Under the TRID rule, which document provides information about a proposed loan's features and estimates of closing costs within three business days of application?

The Loan Estimate.

What is the difference between the Annual Percentage Rate (APR) and the Total Interest Percentage (TIP)?

The APR includes interest plus fees like origination and mortgage insurance, while the TIP expresses only the total interest paid over the life of the loan as a percentage.

To which types of loans does the Truth in Lending Act's 'Right of Rescission' apply?

Home equity loans and refinancing with a new lender (it does not apply to purchase or construction loans).

What is the maximum commission a broker can charge for a junior deed of trust for less than $20,000 with a term of three years or more under California's Mortgage Loan Broker Law?

$15\%$ of the principal.

What are the three main considerations an underwriter focuses on?

Credit history, income, and net worth.

How is a housing expense-to-income ratio calculated?

By dividing the proposed monthly housing expense by the applicant's pretax stable monthly income.

What is 'payment shock'?

A very sharp increase in monthly mortgage payments that can cause many borrowers to default, often associated with adjustable-rate mortgages.

What is 'loan flipping'?

A predatory lending practice where homeowners are encouraged to refinance repeatedly when there is no advantage to doing so.

How is a Loan-to-Value (LTV) ratio calculated?

The relationship between a loan amount and the property's value, expressed as a percentage ($\text{Loan Amount} \div \text{Value}$).

What is 'negative amortization'?

When the monthly payment on an ARM is not enough to cover the interest owed, and the unpaid interest is added to the principal balance.

What defines a 'jumbo loan'?

A conventional loan that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.

At what LTV ratio is a lender required to automatically cancel Private Mortgage Insurance (PMI) according to the Homeowners Protection Act?

$$78\%$$

What is the standard maximum LTV for an FHA loan with a credit score of 580 or higher?

$$96.5\%$$

What document is used in a VA loan transaction to set forth the property's appraised value?

A Notice of Value (NOV), also called a Certificate of Reasonable Value.

In a Cal-Vet loan, how is the property transaction structured?

The State of California purchases and takes title to the property and then sells it to the veteran through a land contract.