Questions and Answers
Can we deduct mortgage closing costs?
What is equity?
Equity is the amount of ownership a homeowner has in their home.
What is defaulting?
Failing to meet financial obligations.
What is a creditor?
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How do credit card accounts help or hurt your credit?
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What score does FICO top out at?
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Can you get your credit score and credit report for free?
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What is the single best way to improve your credit?
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How long do late payments, judgments, and foreclosures stay on your record?
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Will checking your credit report hurt your score?
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How can you get your credit score?
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What's the difference between fixed expenses and flexible expenses?
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How do you calculate discretionary income?
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What is a Homeownership Advisor?
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What is a Real Estate Attorney?
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What's a good idea in terms of savings from a Homeownership Advisor?
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What is the purpose of an underwriter?
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What is a mortgage broker?
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What is the purchase agreement?
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What is a facilitator in real estate?
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What is the principal?
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How was underwriting done before, and how is it done today?
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Who is the closing agent?
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What is amortization?
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What is an escrow account?
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What's the difference between prequalification and preapproval?
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Study Notes
Mortgage and Closing Costs
- Mortgage closing costs can be deducted and tax credits are available for home upgrades like solar panels.
Equity
- Equity represents a homeowner's ownership in their property, calculated by subtracting the mortgage balance from the current market value.
Defaulting
- Defaulting occurs when a borrower fails to fulfill their financial obligations.
Creditor
- A creditor is any individual or company to whom money is owed.
Credit Card Impact
- Long-standing credit card accounts can positively impact credit scores, while inactive accounts may harm scores. Opening multiple accounts in a short period can also negatively affect credit.
FICO Score
- The highest possible FICO credit score is 850.
Free Credit Report
- Credit reports can be obtained for free annually; credit scores are available for purchase.
Improving Credit
- The most effective way to improve credit is by consistently paying bills on time.
Record of Payments
- Late payments, judgments, and foreclosures remain on credit records for 7 years; bankruptcies can last 7-10 years.
Checking Credit Report
- Checking your credit report does not affect your credit score if done through the authorized website, www.annualcreditreport.com.
Obtaining Credit Score
- Credit scores can be purchased from credit reporting bureaus.
Expense Types
- Fixed expenses are regular and consistent (e.g., rent), while flexible expenses are discretionary (e.g., dining out). Periodic expenses occur less frequently, like car insurance.
Discretionary Income Calculation
- Discretionary income is calculated by subtracting fixed expenses from total monthly income.
Homeownership Advisor
- A Homeownership Advisor provides guidance during the home buying process.
Real Estate Attorney
- A Real Estate Attorney reviews purchase offers and helps resolve issues like title insurance and compliance with environmental laws.
Savings Tips
- Homeownership Advisors recommend setting aside a specific amount from each paycheck into savings and allocating tax refunds or raises to savings.
Role of Underwriter
- An underwriter assesses and approves loans on behalf of lenders.
Mortgage Broker
- A mortgage broker assists clients in comparing and shopping for different loan options.
Purchase Agreement
- A purchase agreement is a contract signed by the buyer and seller detailing the terms and conditions of the sale.
Facilitator
- A facilitator is a real estate agent who facilitates the purchase agreement without representing the buyer.
Principal
- The principal is the total amount borrowed from a lender.
Underwriting Process
- Underwriting has evolved from manual processes taking up to 2 months to automated systems that can make decisions in a few days.
Closing Agent
- A closing agent, also known as an "escrow officer," represents the title company and manages the final transaction process.
Amortization
- Amortization entails spreading payments across a predetermined period, typically the term of the loan (e.g., 30 years).
Escrow Account
- An escrow account collects monthly payments for property taxes and insurance, integrated into the mortgage payment, allowing the lender to cover these expenses on behalf of the borrower.
Prequalification vs. Preapproval
- Prequalification offers an informal borrowing estimate based on income and debts, while preapproval is a formal agreement indicating the lender's readiness to finance a specific amount when actively searching for homes.
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Description
Test your knowledge with these flashcards designed for the Framework Homebuyer Course. Each card tackles essential concepts like mortgage deductions, equity, and financial obligations. Great for anyone preparing to navigate the home buying process!