Real Estate Lenders

Flashcards based on Real Estate Principles, Chapter 9 Part I: Real Estate Lenders

What are the three key aspects lenders consider when qualifying a buyer?

Character, Capacity, and Capital

Why is a buyer's credit history important to a lender?

It is the most important factor that influences a lender's decision.

What is contained in a credit report?

A detailed history of the borrower’s indebtedness over time

What are the three major credit bureaus in the United States?

Equifax, Experian, and TransUnion

What is a FICO score?

A system of scoring developed by Fair Isaac Company that compares a person’s credit report with many others to determine lending risk

What are some advantages of using credit scores over credit reports?

Faster results, fairer decisions, reduced impact of older problems, more available credit, and lower rates

What are the five components of a FICO score and their percentage weights?

Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%), and Diversity of Credit (10%)

How do you calculate the front-end ratio?

Divide monthly housing payments (PITI) by gross monthly income

What does the monthly housing payment include?

Principal, Interest, Taxes, Insurance, Dues, and PMI

How do you calculate the back-end ratio?

Divide total monthly expenses (housing payments + long-term debt) by gross monthly income

What are the components of total monthly expenses?

Monthly housing payments and monthly long-term debts

What are the general guidelines for front-end and back-end ratios for Conventional, FHA, and VA loans?

Conventional: Front End 28%, Back End 36%. FHA: Front End 31%, Back End 43%. VA: Back End 41%

What is LTV?

Loan-to-value

How to calculate the maximum loan amount using LTV.

Multiply the appraised price or sales price (whichever is less) by the LTV percentage (e.g., 80%)

What does PITI stand for?

Principal, Interest, Taxes, and Insurance

What are some factors contributing to California's high demand loan market?

High demand, increasing population, numerous large financial institutions, use of mortgage companies, fast escrow/title services, Trust Deed security, active secondary market

Name some institutional lenders.

Savings & Loan, Banks, and Insurance Companies

Name some non-institutional lenders.

Mortgage Companies, Mortgage Brokers, Real Estate Investment Trusts (REIT), Pension Funds, Credit Unions, Individuals

Under what circumstances is Private Mortgage Insurance (PMI) required?

When the Loan-to-Value (LTV) is greater than 80%

Who pays for Private Mortgage Insurance (PMI)?

Premiums paid by borrower