Recording-2025-03-12T12:54:39.064Z

Immortalization Chart

• Visual tool to track payments over time for homeowners.

• Displays principal vs. interest payments breakdown over a period, usually 12 months.

  • Initial payments heavily weighted towards interest.

  • As time goes on, more payments go towards the principal.

• The bank's interest in collecting upfront payments as the average mortgage term is commonly short-term.

Amortization Explanation

• Closing on a house yields an amortization chart detailing monthly payments over the mortgage term.

• Making additional payments can disrupt the amortization schedule, impacting calculations.

Negative Amortization

• Occurs when monthly payments do not fully cover the interest charges, resulting in the unpaid interest being added to the mortgage balance.

Types of Mortgages

Fixed-Rate Mortgage

• Interest rate remains the same over the mortgage term (e.g., 30 years).

Adjustable Rate Mortgage (ARM)

• Initial interest rates fixed for a set period (3, 5, 7, or 10 years). Then adjusts based on market rates.

  • Rate changes can increase or decrease but have caps (e.g., adjustable only by 1% per period).

  • Initially lower payments but can lead to higher long-term costs if rates increase significantly.

Federal Housing Administration (FHA) Loans

• Designed for low to moderate income borrowers.

• Requires low down payments (as low as 3.5%).

• Similar interest rates regardless of credit score (e.g., a borrower with 620 and another with 820 receive the same rate).

• Upfront and annual mortgage insurance premiums required.

• Can only be used for primary residences.

VA Loans

• Available to active-duty military and veterans, backed by the Department of Veteran Affairs.

• No down payment required, effectively 100% financing.

• No private mortgage insurance (PMI) but may include a funding fee (1% to 3%).

USDA Loans

• Guaranteed by the Department of Agriculture; designed for low-income borrowers in rural areas.

• Focus on providing homes in low-cost housing markets.

Other Loan Types

Reverse Mortgages

• Allows seniors (62+) to convert home equity into income, drawing from the equity built in their homes.

Home Equity Loans

• Borrowing against the equity in one's house.

Construction Loans

• Short-term loans that provide funding to build a house, transitioning to a traditional mortgage after construction.

Rehab Loans

• Financing for purchasing homes that require renovation.

Bridge Loans

• Short-term financing that helps cover the gap between selling one property and purchasing another.

Seller Financing & Rent-to-Own

• Buyer makes payments directly to the seller until the purchase price is satisfied.

• Rent-to-own agreements allow leasing with the option to buy later.

Secondary Loans & Junior Mortgages

• Secondary loans are subordinate to the primary mortgage, often with higher interest rates.

• Wraparound mortgages combine existing mortgage balance with new loan amounts.

Real Estate Settlement Procedures Act (RESPA)

• Federal law ensuring transparency in closing costs and procedures between buyers and lenders.

• Lenders must provide detailed cost disclosures within three days after loan application.

Consumer Financial Protection Bureau

• Oversees RESPA adherence and ensures consumer protection.

Kickbacks & Fraudulent Practices

• Kickbacks are illegal in real estate, defined as bribing agents for referrals.

• Lending practices that involve charging excessive fees or falsely inflating prices are against the law.

Truth in Lending Act (TILA)

• Mandates clear disclosure of credit costs and conditions.

• Requires lenders to inform borrowers of loan estimates within three days of application.

  • Closes transactions with a closing disclosure three days before closing.

Predatory Lending Practices

• Includes tactics like loan flipping and targeting subprime borrowers.

• Protects against harmful transaction terms and requires fair disclosure of all loan features.

Important Timeframes in Real Estate Transactions

• Disclosures following RESPA must be given three days before closing.

• HOA document reviews also require three days.

• Earnest money deposits are due within five days.

Goal of Homeownership Counseling

• Aimed to educate potential borrowers about managing their finances, avoiding overspending and informing them about the journey of home ownership.

Key Terms and Concepts

• Loan to Value (LTV): Ratio of loan amount compared to property value.

• Primary Market: Where loans are originated by lenders.

• Secondary Market: Where existing loans are sold to investors or banks.