Podcast
Questions and Answers
A client wants to pay their property taxes and insurance separately from their mortgage. What is the MOST appropriate advice to give them?
A client wants to pay their property taxes and insurance separately from their mortgage. What is the MOST appropriate advice to give them?
- Recommend they switch to a lender that allows independent tax and insurance payments without fees.
- Instruct them to inform their lender immediately to avoid penalties.
- Suggest they inquire with their lender about any potential fees associated with this arrangement. (correct)
- Advise them to pay an extra 1/12th of the annual amount monthly to ensure timely payments.
Which scenario would MOST likely result in a lender using the appraised value, rather than the contract price, when calculating the loan-to-value (LTV) ratio?
Which scenario would MOST likely result in a lender using the appraised value, rather than the contract price, when calculating the loan-to-value (LTV) ratio?
- The contract price includes personal property, like furniture, that are rolled into the sale.
- The borrower is making a large down payment, resulting in a lower loan amount requested.
- The appraised value comes in lower than the contract price due to unforeseen property defects. (correct)
- The contract price is significantly higher than recent comparable sales in the neighborhood.
A potential borrower has a FICO score of 610. What is the MOST likely outcome regarding their mortgage application?
A potential borrower has a FICO score of 610. What is the MOST likely outcome regarding their mortgage application?
- They will be approved but required to undergo mandatory credit counseling.
- Their application will be automatically rejected, as the score is below the minimum threshold.
- They will likely be required to make a larger down payment to offset the increased risk. (correct)
- They will receive the best available interest rates due to their near-prime credit score.
A borrower's housing expense ratio (PITI) is 35% of their gross monthly income. Their back-end ratio, including all debts, is 45%. Under what circumstances might a lender approve their mortgage application?
A borrower's housing expense ratio (PITI) is 35% of their gross monthly income. Their back-end ratio, including all debts, is 45%. Under what circumstances might a lender approve their mortgage application?
Which of the following scenarios would trigger a 'Due on Sale' clause in a mortgage agreement?
Which of the following scenarios would trigger a 'Due on Sale' clause in a mortgage agreement?
Which of the following scenarios BEST illustrates the importance of 'marketability/time' as a factor banks consider when evaluating a property for a mortgage?
Which of the following scenarios BEST illustrates the importance of 'marketability/time' as a factor banks consider when evaluating a property for a mortgage?
A borrower's mortgage payment is not covering the full interest amount. What situation does this create?
A borrower's mortgage payment is not covering the full interest amount. What situation does this create?
A veteran is seeking to purchase a home in a rural area where traditional financing options are limited. Which type of mortgage is specifically designed to assist veterans in such situations, often with no down payment?
A veteran is seeking to purchase a home in a rural area where traditional financing options are limited. Which type of mortgage is specifically designed to assist veterans in such situations, often with no down payment?
A homeowner needs funds to build an addition to their existing house. Which type of mortgage would be MOST suitable for this purpose?
A homeowner needs funds to build an addition to their existing house. Which type of mortgage would be MOST suitable for this purpose?
Which of the following best describes the role of a 'mortgagee' in a mortgage agreement?
Which of the following best describes the role of a 'mortgagee' in a mortgage agreement?
A homeowner wants to access the equity they've built up in their home for various expenses. Which of the following financial products would allow them to do so as a revolving line of credit?
A homeowner wants to access the equity they've built up in their home for various expenses. Which of the following financial products would allow them to do so as a revolving line of credit?
When a borrower obtains a mortgage and is required to pay for Private Mortgage Insurance (PMI), what does this typically indicate?
When a borrower obtains a mortgage and is required to pay for Private Mortgage Insurance (PMI), what does this typically indicate?
Which element is NOT part of the PITI (Principal, Interest, Taxes, and Insurance) which comprises a mortgage payment?
Which element is NOT part of the PITI (Principal, Interest, Taxes, and Insurance) which comprises a mortgage payment?
Flashcards
Mortgage
Mortgage
Legal agreement where a bank lends money, taking title of the debtor's property as security until the debt is paid.
Promissory Note
Promissory Note
A signed promise to pay a specific sum to a person/institution on a specific date or on demand.
Mortgagor
Mortgagor
The borrower, often a homeowner, who receives funds from a lender.
Mortgagee
Mortgagee
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"Due on Sale" Clause
"Due on Sale" Clause
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Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI)
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Negative Amortization
Negative Amortization
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Principal, Interest, Taxes and Insurance (PITI)
Principal, Interest, Taxes and Insurance (PITI)
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Appraisal
Appraisal
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Loan To Value (LTV)
Loan To Value (LTV)
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Housing Expense Ratio
Housing Expense Ratio
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Back End Ratio
Back End Ratio
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Tri-Merge Credit Report
Tri-Merge Credit Report
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Study Notes
- Mortgage is a legal agreement where a bank lends money and takes title of the debtor’s property, which becomes void upon debt repayment.
- Promissory Note is a signed document promising to pay a specific sum to a person/institution at a specific date or on demand.
- Mortgagor refers to the borrower, usually a homeowner.
- Mortgagee refers to the lender or bank providing the loan.
- "Due on Sale" Clause (Alienation Clause) permits the lender to demand full loan repayment if the property is sold.
- Private Mortgage Insurance (PMI) insures the lender or a pool of securities and may be required when obtaining a mortgage loan.
- Conventional Mortgage: A loan secured by real property, including Fixed and Adjustable Rate Mortgages.
- FHA Mortgage: Backed loans that usually require a lower down payment and may sometimes have a lower interest rate.
- Negative Amortization occurs when the loan payment is less than the interest, increasing the outstanding loan balance.
- Mortgage Insurance Premium (MIP) is the payment made by a mortgagor for mortgage insurance to a government agency like the FHA or a private company.
- VA Mortgage offers long-term financing to eligible American veterans or their surviving spouses (if they don't remarry).
- A key goal of the VA direct home loan program is to provide financing to veterans in areas lacking private options and to facilitate purchases with no down payment.
- Reverse Annuity Mortgage involves the lender making payments to the borrower, using the borrower’s home equity to satisfy the mortgage.
- Construction Mortgage: A loan secured by real estate to fund construction or improvements on the property.
- Home Equity Line Of Credit (HELOC) extends a line of credit to a homeowner, using their home as collateral.
- Principal, Interest, Taxes, and Insurance (PITI) make up a mortgage payment.
- Clients can pay taxes/insurance separately but should ask their lender about potential extra fees.
- Paying an extra 1/12th of the annual amount with the monthly mortgage payment is advisable.
Mortgage Sources
- Commercial banks
- Savings and loans banks
- Credit unions
- Mortgage bankers
- Mortgage brokers
Property Assessment Factors for Banks
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Appraisal
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Property condition
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Neighborhood
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Marketability/time
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Comparables
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Title
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The Loan to Value (LTV) ratio is based on the appraised value or the contract price, whichever is lower.
Borrower Assessment Factors for Banks
- Income
- W2
- Self employment
- Social security
- Disability
- Lottery
- Lending
- Credit
- FICO scores (minimum 620 to qualify; higher score = lower interest rate; lower score = higher down payment)
- Tri Merge credit report (valid for 120 days)
- Ratios:
- Debt to income ratio
- Housing expense ratio (PITI)
- Front end ratio (should not exceed 33% of gross monthly income)
- Back end ratio = housing expenses + all other payments (car loans, student loans, etc)
- Assets
- Cash funds:
- Down payment
- Closing costs
- Minimum 2 months PITI
- Savings
- Checking
- Money market
- 401K
- Life insurance policy
- Second mortgage
- Gift
- Cash funds:
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Description
Understand key mortgage terminologies. Learn about mortgages, promissory notes, mortgagors, and mortgagees. Explore clauses like 'Due on Sale' and the role of Private Mortgage Insurance.
