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CHAPTER EIGHT

CHAPTER EIGHT. UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES. Chapter Objectives. Differentiate conventionally insured, a FHA insured, and a VA guaranteed mortgage Qualification requirements for the above mortgage types. Classification of Mortgage Loans. Conventional mortgages

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CHAPTER EIGHT

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  1. CHAPTER EIGHT UNDERWRITING AND FINANCING RESIDENTIAL PROPERTIES

  2. Chapter Objectives • Differentiate conventionally insured, a FHA insured, and a VA guaranteed mortgage • Qualification requirements for the above mortgage types

  3. Classification of Mortgage Loans • Conventional mortgages • Insured conventional mortgages • FHA insured mortgages • VA guaranteed loans

  4. Insured Conventional Mortgage Loans • Private Mortgage Insurance (PMI) • Loans that have a LTV > 80% • The loan in excess of 80% of the property (LTV) is usually covered under the policy • Private insurance companies

  5. FHA Insured Mortgage Loans • FHA- Federal Housing Administration • Insures the lender 100% against any default • FHA created in 1934 to stabilize housing industry • FHA charges a premium • FHA loans usually have lower loan limits

  6. VA Guaranteed Mortgage Loans • Department of Veteran Affairs • VA provides guarantees to lenders for loan losses • The guarantee usually equals or exceeds 25% of loan amount

  7. The Underwriting Process- Income • Employment • Working spouse • Rentals • Alimony or child support • Commissions • Self employment • Bonuses

  8. The Underwriting Process- Income Continued • Dividends or interest • Retirement annuity • Social security • Public assistance

  9. The Underwriting Process- Other Conditions • Borrower assets • Credit history • Estimated housing expense • Other obligations and debt

  10. Affordability Ratios • Payment to income • PITI/ gross income equals or is less than 28% • Total obligations to income • PITI plus other obligations/ gross income equals or is less than 36% • Percentages vary with kind of loan program

  11. Closing Costs- Financing • Loan application • Credit report fee • Loan origination • Attorney fees • Appraisal fees • Fees for survey

  12. Closing Costs- Financing Continued • Loan documentation fees • Discount points • Prepaid interest

  13. Closing Costs- other • Property taxes, prorations and escrow accounts • Mortgage insurance • Hazard insurance • Title insurance • Pest inspection • Real estate commissions • Statutory costs

  14. Real Estate Settlement and Procedures Act (RESPA) • Consumer information • Advance disclosure of settlement • Title insurance • Prohibition of kickbacks and referral fees • Uniform settlement statement • Advance inspection of settlement statement • Escrow deposits

  15. Federal Truth in Landing (FTL) • Effective cost of mortgage credit (since 1968) • Commercial real estate transactions excluded • APR is the most important required disclosure • ARMs and determining APR is more difficult

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