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LTV loan to value ratio
- A lender will normally base loans on the sale price or appraised value, whichever is less.
- A loan to value ration expresses the relationship between the loan amount and the value of the property
a loan that is not FHA insured or VA guaranteed is called a conventional loan. ON loans that are 80% or less, the lender is relying solely on the value of the property and the ability of the borrower to repay debt
Private Mortgage Insurance (PMI)
Conventional lenders normally require private mortgage insurance on loans over 80%. Private mortgage insurance normally covers the top 25% to 30% of the loan. As a general rule, a borrower pays the first years premium for PMI at the closing and then makes a monthly payment which is included in the mortgage payment
FHA Federal Housing Administration
was created in 1934 under the National Housing Act to encourage improvements in housing standards and conditions.
FHA operates under the Department of Housing (HUD)
FHA insures loans, it does not make loans
VA guaranteed loans
- Veterans Administration guarantees loans made by lending institutions to qualified veterans or spouses of deceased qualified veterans
- The main purpose of obtaining a VA loan is the 100 % loan to value ratio.
- VA will only guarantee loans on properties that are owner occupied
- VA will guarantee a portion of a loan, not 100% of the loan. A certificate of Eligibility determines the amount of guarantee a veteran has
- A Certificate of Reasonable Value (CRV) indicates the value of the property for guarantee purposes.
Department of Agriculture
- Under the Department of Agriculture there are two organizations that provide for direct or guarenteed loans on rurualproperties.
- The farm Service Agency provides for direct or guaranteed loans on farms, while Rural Development provides for direct or guaranteed loans on single family homes
purchase money mortgage
is the instrument given by a purchaser to the seller who "takes back" a note for part or all of the purchase price. IN a purchase money mortgage, title passes at the closing and the seller takes a lien (mortgage) on the property
includes both real and personal property
covers more than one parcel or lot and is entered into when financing development projects. A blanket loan usually includes a partial release clause which allows the borrower to obtain a release of any one lot or parcel.
is a junior loan that wraps around an existing loan. In order to create a wraparound loan, the original loan that is to be wrapped must be assumable.
open end loan
allows the borrower to secure additional funds under the original loan without redoing the original paperwork
Construction loan or short term or interim loans
the lender commits to full amount of the loan but requires the borrower to withdraw funds in a series of "draws" as the building is being constructed
Sale and leaseback
is a simultaneous selling and leasing back of a property. The seller(grantor) becomes the lesse-tenant, the buyer (grantee) becomes the lessor-landlord
Advantages: seller raises capital that could be used for investment, rent payments are tax deductable, real estate property taxes may be deductible. For buyer-lessor: immediate return on the investment and taking depreciation on the building
typically provides for a reduced interest rate of one to three percent over the first on to three years of the loan
Truth-in Lending (Regulation Z)
requires a lender to disclose the cost of credit (APR) and finance fees to the one-to four family residential borrower. Regulation Z covers new loans, refinancing, and consolidation loans. True loan assumptions are not covered under Regulation Z.
Equal Credit Opportunity Act
prohibits lenders and others who grant or arrange credit to consumers from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or dependence on public assistance.
Fair Credit Reporting Act
regulates the actions of credit bureas. requires a bank or credit company to make the customer's credit file available.
Home Mortgage Disclosure Act
requires a lender to disclose geographic distributions of loans in standard metropoltans statistical areas, to prevent redlining.
Community Reinvestment Act
requires a lender to adopt a community reinvestment statement which delineates the area in which the lender will make a loan, to maintain a public comment file, and to post CRA notice.