Freddie Mac - Credit Smart Flashcards
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Questions and Answers

What is the percentage of your gross monthly income that goes toward paying for your housing expenses called?

Housing expense ratio

Lenders include your future housing payment in your debt-to-income ratio.

False (B)

The principal amount is the total amount borrowed.

True (A)

Do lenders use gross income or net profits when calculating mortgage affordability for self-employed borrowers?

<p>Net profits</p> Signup and view all the answers

An escrow account is a special account managed by the borrower that holds funds for property taxes and property insurance payments.

<p>False (B)</p> Signup and view all the answers

Having adequate cash reserves demonstrates to your lender that you have responsibly managed your money.

<p>True (A)</p> Signup and view all the answers

Capital - or cash to close - refers to the funds you need to save for down payment and closing costs.

<p>True (A)</p> Signup and view all the answers

Acceptable sources of capital include:

<p>All of the above (D)</p> Signup and view all the answers

Lenders consider investments to be:

<p>IRAs, bonds, CDs, stocks, and 401(k) plans (B)</p> Signup and view all the answers

To determine if you have adequate savings for mortgage sustainability, lenders average the last six months of your checking and savings account balances.

<p>False (B)</p> Signup and view all the answers

What are the four primary factors lenders consider when determining whether to approve a loan?

<p>Credit, Capacity, Capital, and Collateral</p> Signup and view all the answers

Derogatory information on your credit report may include collections, judgments, bankruptcies, and/or late payments.

<p>True (A)</p> Signup and view all the answers

Lenders generally don't have any guidelines when it comes to the home you want to purchase.

<p>False (B)</p> Signup and view all the answers

The home inspection is ordered through the lender and determines the market value of the home.

<p>False (B)</p> Signup and view all the answers

Manufactured homes are the same as mobile homes and don't need to meet federal construction and safety standards.

<p>False (B)</p> Signup and view all the answers

If you make extra payments on your loan, that can help pay down the principal faster.

<p>True (A)</p> Signup and view all the answers

Government insured loans, such as FHA loans, are the only low down payment mortgages available.

<p>False (B)</p> Signup and view all the answers

A fixed-rate mortgage is a loan where the interest rate stays the same for the life of the loan.

<p>True (A)</p> Signup and view all the answers

Which of the following loans are guaranteed by the federal government?

<p>All of the above (D)</p> Signup and view all the answers

There may be special loan products and programs available for first-time homebuyers in your community.

<p>True (A)</p> Signup and view all the answers

What percentage of the purchase price is required as a down payment for conventional conforming loans to avoid paying private mortgage insurance?

<p>20%</p> Signup and view all the answers

Private mortgage insurance protects the borrower if they can't make their mortgage payment.

<p>False (B)</p> Signup and view all the answers

It's okay to borrow money from a family member for your down payment, as long as you pay the family member back.

<p>False (B)</p> Signup and view all the answers

You will need to repay the seller any property or school taxes they have already paid on the property.

<p>True (A)</p> Signup and view all the answers

LTV stands for loan-to-value and indicates the amount of the loan you owe as a percentage of the value of the property.

<p>True (A)</p> Signup and view all the answers

The Annual Percentage Rate (APR) is the same as the interest rate.

<p>False (B)</p> Signup and view all the answers

What is the order of the mortgage loan process?

<p>Pre-qualification or pre-approval, loan application, loan processing, loan underwriting, loan approval or denial</p> Signup and view all the answers

Making pre-payments can help you pay off your loan sooner.

<p>True (A)</p> Signup and view all the answers

If a lender denies your loan, they're required by law to provide the applicant with an explanation.

<p>True (A)</p> Signup and view all the answers

If you can't qualify for a loan on your own, you may have other options including:

<p>All of the above (D)</p> Signup and view all the answers

You should never sign a loan document that has blank lines.

<p>True (A)</p> Signup and view all the answers

What is negative amortization?

<p>Both A and B (C)</p> Signup and view all the answers

A pre-payment penalty makes it costlier to pay off your loan early.

<p>True (A)</p> Signup and view all the answers

The seven protected classes under the Fair Housing Law include race, color, national origin, religion, sex, family status, and disability.

<p>True (A)</p> Signup and view all the answers

It's easier not to have funds caught up in an escrow account.

<p>False (B)</p> Signup and view all the answers

Real estate agents must take a test to become licensed in their state.

<p>True (A)</p> Signup and view all the answers

Real estate agents can help with:

<p>All of the above (D)</p> Signup and view all the answers

Real estate agents are generally paid a commission by the seller when the sale closes.

<p>True (A)</p> Signup and view all the answers

The Multiple Listing Service (MLS) is an online tool that is publicly available and widely used by homebuyers.

<p>False (B)</p> Signup and view all the answers

If a homebuyer works with a friendly real estate agent, no further 'homework' is needed.

<p>False (B)</p> Signup and view all the answers

The neighborhood you choose to live in is not as important as the home you choose to purchase.

<p>False (B)</p> Signup and view all the answers

When you make a purchase offer, you should always offer less than the asking price.

<p>False (B)</p> Signup and view all the answers

Contingencies are factors that must be satisfied for the deal to go forward.

<p>True (A)</p> Signup and view all the answers

Buyers may request that some items within the home convey with the purchase.

<p>True (A)</p> Signup and view all the answers

Earnest money is a non-refundable fee the buyer pays to the seller upon making an offer.

<p>False (B)</p> Signup and view all the answers

A home inspection is ordered and paid for by the seller.

<p>False (B)</p> Signup and view all the answers

If the home inspector finds an issue, the buyer has the right to walk away from the deal with no penalty.

<p>True (A)</p> Signup and view all the answers

Tenancy in Common allows two or more people to own a property with equal ownership.

<p>False (B)</p> Signup and view all the answers

The lender orders an appraisal which substitutes for a home inspection.

<p>False (B)</p> Signup and view all the answers

All perils are included in homeowner's insurance policies.

<p>False (B)</p> Signup and view all the answers

The final walk-through gives the buyer a chance to ensure everything is in order at the property.

<p>True (A)</p> Signup and view all the answers

The buyer will have plenty of time at closing to read all documents in their entirety.

<p>False (B)</p> Signup and view all the answers

The mortgage secures the loan with the home as collateral.

<p>True (A)</p> Signup and view all the answers

If you get a fixed-rate mortgage, your monthly payment won't change.

<p>False (B)</p> Signup and view all the answers

If you have an emergency fund, you've saved enough for home maintenance and repairs.

<p>False (B)</p> Signup and view all the answers

Property taxes and insurance are part of a monthly housing payment and will not change.

<p>False (B)</p> Signup and view all the answers

Home equity is the difference between what your home is worth and how much you owe.

<p>True (A)</p> Signup and view all the answers

How can you build equity?

<p>All of the above (D)</p> Signup and view all the answers

What is a Home Equity Line of Credit?

<p>A revolving line of credit secured against your home.</p> Signup and view all the answers

Routine home maintenance refers to tasks that keep things running smooth and efficient in a home.

<p>True (A)</p> Signup and view all the answers

When searching for a contractor, you need to only get one bid.

<p>False (B)</p> Signup and view all the answers

What items should be included in your emergency kit?

<p>All of the above (D)</p> Signup and view all the answers

What should you do when disaster strikes?

<p>All of the above (D)</p> Signup and view all the answers

Home safety practices include:

<p>All of the above (D)</p> Signup and view all the answers

What is the term for someone who offers fast cash for the title to your home, leaving you with the mortgage obligation?

<p>Home Title Scam</p> Signup and view all the answers

What is the term for a contractor who asks for money upfront and completes little or no repair work?

<p>Home Improvement Loan Scam</p> Signup and view all the answers

What is the term for someone offering to loan you money for home repairs while waiting for insurance payments?

<p>Post-Disaster Insurance Scam</p> Signup and view all the answers

What is the term for a homeowner charged rent to remain in their home with promises of mortgage debt relief?

<p>Foreclosure Rescue Scam</p> Signup and view all the answers

It's important for consumers to be aware of online scams and practice good cybersecurity habits.

<p>True (A)</p> Signup and view all the answers

What is selling your home for less than what you owe on the mortgage called?

<p>Short Sale</p> Signup and view all the answers

What permits a qualified buyer to take over your mortgage debt and payments?

<p>Assumption</p> Signup and view all the answers

What term is used when the loan servicer allows you some time to sell your home during a foreclosure?

<p>Selling Your Home</p> Signup and view all the answers

What does the loan servicer accept in exchange for cancellation of your mortgage debt?

<p>Deed in Lieu of Foreclosure</p> Signup and view all the answers

Which of the following are alternatives to foreclosure?

<p>All of the above (D)</p> Signup and view all the answers

Homebuyers who don't have a 20% down payment saved might have which options?

<p>All of the above (D)</p> Signup and view all the answers

Many lenders require an escrow account to hold funds for property taxes and property insurance payments.

<p>True (A)</p> Signup and view all the answers

When determining whether to make a loan to a homebuyer, lenders consider which aspect?

<p>Collateral</p> Signup and view all the answers

It's not possible for people with student loan debt to become homeowners.

<p>False (B)</p> Signup and view all the answers

How can you build home equity?

<p>Having a home's value increase and/or paying down the mortgage</p> Signup and view all the answers

What makes up a credit score based on the FICO model?

<p>All of the above (D)</p> Signup and view all the answers

The first step in the homebuying process is to apply for a loan.

<p>False (B)</p> Signup and view all the answers

Your PITIA payments may change each year, even if you have a fixed-rate mortgage.

<p>True (A)</p> Signup and view all the answers

What is your income before taxes and other deductions called?

<p>Gross monthly income</p> Signup and view all the answers

Contingencies are items within a property that the homebuyer would like to have included in the purchase.

<p>False (B)</p> Signup and view all the answers

Flashcards

Housing Expense Ratio

Percentage of gross monthly income used for housing costs (principal, interest, taxes, insurance, and fees).

Debt-to-Income Ratio

Ratio of monthly debt payments to gross monthly income, excluding future housing payments.

Principal Amount

Total amount borrowed for a loan.

Self-Employed Borrowers

Mortgage affordability calculated using net profits, not gross income.

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Escrow Account

Account managed by lender to pay property taxes and insurance.

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Cash Reserves

Savings for emergencies, reassuring lenders about your financial stability.

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Closing Costs

Expenses associated with loan closing, including down payment.

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Investment Consideration

IRAs, bonds, CDs, stocks, and 401(k)s.

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4 C's

Credit, Capacity, Capital, and Collateral - Lenders' primary assessment factors.

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Derogatory Information

Collections, bankruptcies, and late payments on credit reports.

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Property Guidelines

Lender's criteria for the property (condition, type).

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Home Inspections

Buyer's responsibility; not ordered by lenders.

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Manufactured vs Mobile Homes

Different federal standards for manufactured and mobile homes.

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Fixed-Rate Mortgage

Mortgage with a consistent interest rate.

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VA, USDA, FHA Loans

Government-backed loan options with different requirements.

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PMI

Private Mortgage Insurance; 20% down payment for conventional loans often avoids it.

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Pre-payment Penalties

Costs for paying off a loan early; avoid if possible.

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Fair Housing Law

Protects against discrimination in housing based on protected characteristics.

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Real Estate Agent

Licensed professional assisting in the homebuying process.

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Contingencies

Necessary conditions for a real estate transaction to proceed.

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Home Equity

Difference between home value and remaining loan amount.

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Home Inspections Responsibility

Buyers are responsible for home inspections; can cancel deal if issues are found.

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Emergency Preparedness

Having essentials like water, food, and first aid for emergencies.

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Credit Scores

Scores reflecting your creditworthiness; impact loan terms.

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Study Notes

Housing Expenses and Ratios

  • Housing expense ratio measures the percentage of gross monthly income dedicated to housing costs, including principal, interest, taxes, insurance, and association fees.
  • Debt-to-income ratio excludes future housing payments; it only accounts for current outstanding debts.

Loan Information

  • The principal amount refers to the total amount borrowed.
  • Self-employed borrowers' mortgage affordability calculations depend on net profits.
  • An escrow account is not managed by the borrower; it is typically managed by lenders for paying property taxes and insurance.

Financial Preparedness

  • Cash reserves indicate financial responsibility, reassuring lenders of the borrower's ability to handle emergencies.
  • Capital required for closing includes down payment and closing costs, which can come from various sources, including family gifts or assistance programs.
  • Investments considered by lenders include IRAs, bonds, CDs, stocks, and 401(k) plans.

Approval Factors

  • Lenders evaluate four primary factors known as the 4 C's: Credit, Capacity, Capital, and Collateral.
  • Derogatory information on credit reports includes collections, bankruptcies, and late payments, which negatively influence creditworthiness.

Property and Mortgage Guidelines

  • Lenders have guidelines regarding the condition and type of home for purchase, irrespective of the borrower's credit status.
  • Home inspections are not ordered by lenders; they provide an appraisal to assess the market value of the property.
  • The distinction exists between manufactured homes and mobile homes, which must adhere to federal standards.

Loan Types and Down Payments

  • Fixed-rate mortgages maintain the same interest rate throughout the loan, while other loan types, such as VA, USDA, and FHA loans, are government-backed options with various requirements.
  • To avoid private mortgage insurance (PMI), a 20% down payment is generally necessary for conventional loans.

Pre-Payment and Penalties

  • Making extra payments on loans can help reduce principal and save on interest.
  • Pre-payment penalties can impose additional costs for paying off a loan early and should be avoided.

Fair Housing and Real Estate Practices

  • The Fair Housing Law protects against discrimination based on race, color, national origin, religion, sex, family status, and disability.
  • Real estate agents must be licensed and assist in various stages of the homebuying process, including negotiations and offer submissions.

Contingencies and Buyer Rights

  • Contingencies are necessary conditions that must be fulfilled for real estate transactions to proceed.
  • Buyers can request that certain items, like appliances, convey with the purchase of a home.

Home Equity and Repair Options

  • Home equity represents the value of a home against the remaining loan amount.
  • To increase home equity, homeowners should pay down the principal and make capital improvements.

Scams and Fraud Awareness

  • Be cautious of scams related to home titles, home improvement loans, and post-disaster financing.
  • Consumers should maintain good cybersecurity habits to protect against online scams.

Home Buying and Closing Process

  • Buyers should carefully review all documents before closing, which usually occurs within a tight timeframe.
  • Home inspections are the buyer's responsibility, and they can walk away from deals if issues are found, provided there is a contingency in their offer.

Emergency Preparedness

  • Households should maintain an emergency kit, including essentials like water, food, and a first aid kit.
  • Effective home safety practices include maintaining landscaping and ensuring functional electrical systems.

Credit and Financing Considerations

  • Credit scores are affected by factors such as the amount owed (30% of score), and improving credit is essential for securing favorable loan terms.
  • Consumers can still qualify for loans despite student loan debt, with various paths available to homeownership and financial stability.

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Test your knowledge on key terms related to housing finance with these flashcards. Learn about important concepts like housing expense ratio and debt-to-income ratio that are essential for understanding mortgage lending. Perfect for students and professionals in the finance sector.

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