Podcast
Questions and Answers
A closing disclosure is prepared for one party listing all charges and credits.
A closing disclosure is prepared for one party listing all charges and credits.
False (B)
A 15-year loan has smaller payments, and the total interest paid is much less compared to a 30-year loan.
A 15-year loan has smaller payments, and the total interest paid is much less compared to a 30-year loan.
False (B)
If a home is selling for $405,000 and its appraised value is $400,000, and the buyer obtains a $360,000 loan, the loan-to-value ratio is 90%.
If a home is selling for $405,000 and its appraised value is $400,000, and the buyer obtains a $360,000 loan, the loan-to-value ratio is 90%.
True (A)
A 90% loan is riskier than a 95% loan for the lender.
A 90% loan is riskier than a 95% loan for the lender.
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The lender typically pays for mortgage insurance which protects them against losses from default.
The lender typically pays for mortgage insurance which protects them against losses from default.
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Which of the following fees are typically NOT included in the finance charge?
Which of the following fees are typically NOT included in the finance charge?
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A longer loan term, such as 40 years, can impact a buyer's ability to qualify for a loan by:
A longer loan term, such as 40 years, can impact a buyer's ability to qualify for a loan by:
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What is the main difference between a prequalification and a preapproval letter?
What is the main difference between a prequalification and a preapproval letter?
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What is the primary role of an escrow agent in a real estate transaction?
What is the primary role of an escrow agent in a real estate transaction?
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What does interim interest refer to in the context of a mortgage closing?
What does interim interest refer to in the context of a mortgage closing?
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What is the primary purpose of a loan origination fee?
What is the primary purpose of a loan origination fee?
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Which of these is the purpose of discount points?
Which of these is the purpose of discount points?
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Typically, who is responsible for paying the loan origination fee?
Typically, who is responsible for paying the loan origination fee?
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If a seller pays discount points, how is the payment typically handled?
If a seller pays discount points, how is the payment typically handled?
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Under the Truth in Lending Act (TILA), what are lenders required to do?
Under the Truth in Lending Act (TILA), what are lenders required to do?
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What is a primary factor most buyers consider when selecting a lender?
What is a primary factor most buyers consider when selecting a lender?
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What does a mortgage broker primarily do?
What does a mortgage broker primarily do?
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What does a single ‘point’ represent in the context of loan costs?
What does a single ‘point’ represent in the context of loan costs?
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Why is it recommended to interview multiple lenders when seeking a loan?
Why is it recommended to interview multiple lenders when seeking a loan?
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What is a primary goal of home buyer counseling programs?
What is a primary goal of home buyer counseling programs?
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Study Notes
Financing Process
- Learning Objectives: Students should be able to explain the benefits of preapproval, perform prequalification steps, understand loan costs (origination fees, discount points), discuss Truth in Lending Act requirements, describe loan application steps, understand underwriting reasoning, and explain closing procedures.
Suggested Lesson Plan
- Review previous chapter (Basic Features of a Residential Loan) using Exercise 7.1.
- Briefly review Chapter 7 and its learning objectives.
- Present lesson content, including: shopping for a loan, assessing buyer financial circumstances, and preapproval (Exercise 7.2).
- Discuss the Chapter 7 Quiz questions
Chapter 7 Outline: The Financing Process
- Shopping for a Loan: Consumers should comparison shop for loans, considering their needs and finances, as well as comparing rates and fees.
- Preapproval: A formal process by a lender creating a letter stating a maximum loan amount based on buyer income and net worth. Preapproval benefits include making an offer more appealing to the seller and streamlining the closing process.
- Choosing a Lender: Buyers should research lenders by comparing interest rates and fees, considering referrals and reputation, and focusing on expertise and efficiency.
Loan Costs
- Loan fees: Loan fees are typically expressed in terms of points (1% of the loan amount).
- Origination fee: A one-time fee charged for administrative expenses of processing a loan, typically around 1% of the loan amount.
- Discount points: Additional charges imposed by lenders to increase their upfront yield, can be used to lower interest rate.
- Other fees: Application, underwriting or document preparation fees, including mortgage broker fees. Mortgage brokers' fees are disclosed in the loan estimate and closing disclosure.
Comparing Loan Costs
- Truth in Lending Act (TILA): Federal consumer protection that requires lenders to disclose loan costs, like the annual percentage rate (APR), to help borrowers understand true loan costs.
- Evaluating Financing Options: Homebuyers weigh considerations other than loan costs such as financial priorities, length of home ownership, and other investment opportunities. Homebuyer counseling programs are available.
Applying for a Loan
- Loan Interview and Application: Buyers provide information to loan originator enabling loan approval/preapproval. This includes employment, income, current monthly expenses, assets, and liabilities.
- Disclosure Statements: Lenders provide loan estimate forms disclosing the loan's overall costs including APR, closing costs, prepaid expenses.
Application Processing
- Underwriting Decision: Underwriters evaluate applications and decide whether to approve, reject, or approve with conditions, based on application and terms. This process involves an automated underwriting system. If denied, a written explanation is provided within 30 days.
- Closing the Loan: The closing agent or escrow agent manages funds and documents until the transaction is ready to close. This includes clearing title, conducting inspections, managing impound accounts (for taxes and insurance), and paying interim interest until the first full payment.
Closing Process
- Closing Disclosure: This form details all costs and credits for both buyers and sellers, required three days before closing.
- Closing Agent (or Escrow Agent): Manages funds, documents, and closing process for buyer and seller. This includes funding the loan, recording documents, ensuring buyer deposits, and disbursing funds to the seller. The closing agent can be independent or an employee of the lender, title company, lawyer or real estate broker
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Description
This quiz covers essential concepts in real estate financing, including the closing disclosure, loan types, and loan-to-value ratios. Understand the implications of different loan terms and the necessity of mortgage insurance for lenders. Test your knowledge on these critical financial aspects of home buying.
