The financial process can be broken down in four stages, what are they?
1. Shopping for a loan
2. Applying for a loan
3. Application processing
When shopping for a loan what are four main things that should be looked into on a loan?
-Assessing their own wants, needs, and finance; before shopping for house, buyers should know how much they qualify for; Preapproval
-Choosing a lender; Consumers can rely on research (online) or referrals**; buyer's own bank
-Comparing rates and fees; interest rates, origination fees, discount points
-Evaluating financing options; buyers should consider how each different financing options are going to affect short term and long term situations; they should ask questions
Before House shopping, buyers should find out what?
-how much they qualify for
What is the difference between preapproved and prequalified?
-preapproval is lender conformation of a possible loan amount
-prequalify is done by someone other than a lender, such as broker, other bank person, or online calculator, that gives the buyers an estimate of how much of a loan they might be qualified for.
Why should a prospective buyer get preapproved?
-gives the buyers an idea of their price range
-receive a preapproved letter that can be a great tool in negotiating with the seller
-so the parties only have to focus on inspection, appraisal, and title report
What consists of information needed for preapproval?
-complete a loan application; their income, assets, debts, and credit history
-A lender may underwrite the application before or after they found the house; mainly after; title, appraisal, etc.
Many newspapers include a handy "______________________" to help consumers see at a glance the various lenders and mortgage products available to them when choosing a lender.
Mortgage Comparison Chart
Buyers can ask for referrals from family, and friends, but they mainly ask who?
-real estate agent; they may know a few good lenders or they can ask their broker;
-mortgage brokers are also a good idea, but buyers have to still do their research to find them
-specializes in bringing buyers and lenders together, but buyers still need to do research and depend on referrals to find them.
Buyers should interview at least three or four lenders before making a choice. Agents should ensure buyers to ask questions and to not be intimidated.
-true; it is advised that buyers receive 3 to 4 written estimates from different lenders before committing to a formal loan
Buyers, when choosing a lender, should look for expertise, efficiency, and honesty, not just low interest rates and fees.
true; can ask for customer referrals, online customer ratings and other real estate lending regulations websites
What is an Origination fee?
-fee the covers lender's administrative costs
-aka: administrative charge, a transaction fee, a service fee, or simply a loan fee
-charged in almost every mortgage-loan transaction unless loan is a "no fee" loan.
Typically how much is an origination fee?
1% of loan amount; usually paid by the buyer rather than the seller.
A home buyer is borrowing $325,000, and the lender is charging an origination fee of one point (one percentage point). How much is the origination fee?
$3,250 ($325,000 x 1% = $3,250)
What is are Discount Points?
-increase lender's upfront yield or profit on the loan
-aka; loan discount, a discount fee or points
-Discount points lower the interest rate; can be helpful or not to the buyer depending on how long they plan to live at the property
Discount points are not charged in all transactions.
true; but they are very common
Lenders who offer below-market interest rate charge more points.
Discount points can include the...
origination fee, but depends on the lender; make sure buyers find out
The calculation of how many points it will take to reduce the interest rate is affected by...
market conditions and other factors
Ex: In recent years the number of points required for a one percentage point reduction in the interest rate has ranged from four to six points. What is the cost of a $225,000 loan amount at 4% discount of 4 points?
$225,000 x 4% = $9,000 cost of loan discount
Either buyer or the seller can pay the discount points.
True; depends on the market; sellers market or buyers market
What is a buydown?
-when buyers or sellers pay points to reduce the loan's interest rate; making the buyer's monthly loan payments smaller and easier to qualify for.
When does the buyer pay for the discount points?
-paid to lender in cash at closing
-If seller pays, it is taken out of the sellers proceeds at closing
Other than interest, a loan origination fee, and discount points, a lender may charge other fees. These can include, application fee, a document preparation fee, or an underwriting fee. Buyer can ask the lender to do what about these fees?
-waive them or reduce them
If a buyer goes to a mortgage broker to obtain a loan from a lender, what is usually the common fee amount?
-one to two person of the loan amount; mortgage brokers get their loans from lenders at wholesale prices; the wholesale price plus the broker's fee generally equals what the borrower would have encountered else where.
What is Truth in Lending Act (TILA)?
-a law that's intended to help loan applicants with comparing cost of two or more loans.
-Under TILA, lenders must make certain disclosures to consumers to help them understand exactly how much they are paying for credit.
What is the most important disclosure required by TILA?
-annual percentage rate (APR)
What is Annual Percentage Rate (APR)?
-expresses the relationship of the finance charge to the amount financed
-can include: the originated fee, discount points, mortgage broker's fee, finder's fee, or service fee, mortgage guaranty or insurance fees.
APR of a mortgage loan is generally always less than interest rate charges of a mortgage loan.
false; APR is almost always higher than the quoted interest rate; because the APR takes into account the origination fee and the mortgage insurance as well as the interest.
**To help determine which of two or more loans is the least expensive, compare the APRs quoted by the lender.
-lender doesn't charge the usual loan fees up front; for buyers who don't have much cash for closing; interest rate is higher because of the added fees; pay fees with loan over time
What is the difference between Fee Loans and No-fee loans?
-paying fees up front or paying additional interest over the long term.
What are some good questions buyers should ask themselves when evaluating financing options?
-How much money would we have left in savings after the transaction closes?
-How much spending money would we have left over each month after paying the mortgage payment?
-At what pace do we anticipate that our income will grow?
-How long do we plan to stay in the home we're buying?
-How rapidly would our equity build, based on reasonable marker projections?
-How soon would the mortgage be paid off?
-Are we more concerned with the short-term cost of financing or the long-term cost?
-What alternative investment opportunities are available for money we don't put onto the house?
When buyers don't expect to own the house they're buying for very long, it doesn't make sense to pay a lot of...
discount points to get a lower interest rate
Buyers who hope to retire early or reduce their workload may be most concerned with building equity and paying off their mortgage as soon as possible. What loan might they prefer?
-15 year or 20 year term
Many first-time buyers with limited buying power want to purchase the largest, most expensive home they can possibly afford. What financing arrangements should they look into to boost their price range?
-a downpayment assistance program
-an adjustable interest rate
-a high loan-to-value ratio
-a 30-40 year loan term
First time home buyers can benefit from participating in...
home buyer counseling; help them decide what financing option will be best for them.
-The Department of Housing and Urban Development (HUD) administers a Housing Counseling Assistance Program open to anyone who is house hunting and applying for a mortgagee
When applying for a loan lenders will discuss at the loan interview, qualification, deposit, and if buyers have already found a house, the lender may review and change financing terms on contract.
Even if the loan qualification comes back good at the loan interview, that doesn't mean the buyers have been preapproved. When does preapproval take place?
-doesn't take place until the buyers' background information has been documented and verified.
Most lenders require buyers to make a deposit to cover initial costs when application is submitted.
The prime information needed for a loan application form is.... The real estate agent working with the buyers should make sure they know in advance what information will be needed for the loan application, to avoid delay.
Almost all mortgage lenders use what kind of loan application?
Uniform Residential Loan Application
Real estate agents should go over a ________________ to help buyers prepare for the application process for a loan.
Federal law requires lenders and mortgage brokers to make certain disclosures. Most of these disclosures are made on a single loan estimate form; loan costs. Lenders and Mortgage brokers are also required to give loan applicants a special info booklet on loans. Lenders are required to provide these disclosures within how many days from receiving a written loan application?
-3, unless the loan application was declined before that.
Buyers should address during the loan application a lock-in rate. If they don't the rate will float with the market; go up or down before the transaction closes. What does the lock-in rate guarantee and how long is the period?
-lender guarantees certain interest rate for specified period; 30-60 days; usually a fee to lock-in, a % of the loan amount, usually added to closing costs
-if buyers don't inquire about a lock-in rate, their stated interest rate can go up and affect their ability to qualify for the loan
-Get IN Writing
What is all consisted in loan application verification?
-forms are sent out to applicants employers, banks, or other financial institutions.
-Credit reports and credit scores are checked
-if buyers have already entered into a contract to buy a house, lender orders title report and sends an appraiser to appraise the property.
When the completed verification forms, reports, and other documents have been received for the loan application, a loan processor puts together a loan package and sends it to the...
Underwriting a mortgage loan involves examining what?
-buyers financial situation
-evaluating the property that they want to buy
If the underwriter decides the buyers meet the lender's standards, the lender gives the buyers a _____________, approving the loan on specific terms and subjects to conditions stated in the letter.
Commitment letters state what?
-buyers will qualify for loan depending if conditions stated are fulfilled.
What is the difference between a preapproval letter and a commitment letter?
-a preapproval letter is usually intended for use in negotiations with sellers, so it often lists only the main feature of the loan; 30 year fixed, etc.
-most lenders give buyers several preapproval letters so that the sellers don't know the max the buyers qualify for
-Commitment letter has more detail and contidtions, might be given after entered into a purchase agreement with seller.
When all conditions have been met on the commitment letter, the lender will give the buyers a final approval letter, stating what?
-states exact terms on which loan will be made and expiration of loan
If the buyers loan application is rejected, the lender is required by federal law to provide the buyers with a written statement explaining why within ___ days after submitting their completed application.
At the Closing of the Loan, the closing agent aka __________, disburses the purchase price to the seller and delivers the deed to the buyer.
The closing agent, aka ________, is usually responsible for handling all of the details that must be taken care of before the transaction can close. Some of the details involve requirements imposed by the lender, which include...
-clearing liens from title
-establishing condition of title
-buyer's funds for closing
-document preparation and recording
What is an impound account?
-aka reserve account or escrow account;
-is a trust account set up by the lender to ensure that the buyer's real estate taxes and insurance premiums are paid on time
-buyer puts deposits into impound account at closing
-Federal law caps the amount buyers can be required to deposit at no more than two months worth of escrow payments
What is interim interest?
-aka prepaid interest
-the advance payment of interest due at closing.
-covers interest acquired from the date of closing to the last day of the closing month.
Buyer's first payment is due when?
-on the first day of the second month following the month in which closing occurs
-Ex: Jan 23 is closing, Jan 23-30 buyers pay interim interest, first payment is March 1st which includes Feburary's interest.
When the loan documents have been executed and all of the lender's conditions have been satisfied, the lender releases the buyer's loan funds to the closing agent. This is referred to as...
funding the loan
Closing disclosure form is a detailed listing of each party's credits and debits at closing. RESPA requires the ___________ to provide an itemized list of each party's settlement charges and credits on a closing disclosure form which must be given to the buyer at least ___ business days before closing.
The best way to compare the cost of loans is by using the...
-annual percentage rate (APR)
The Masons are buying a house. The sales price is $163,500, and they're borrowing $139,000. They've agreed to pay a loan discount fee of two points, which amounts to...
$2,780 (139000 x .02)
The portion of a borrower's monthly payment that goes toward property taxes and insurance will be held in an
The exact charges payable by or to each of the parties in a residential real estate transaction are listed on the...
What is reflected in the loan's APR?
-interest, points paid by borrower, loan origination fee, mortgage insurance