1. 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

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

3. 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

4. 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

5. 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

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

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

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

9. Affordability Ratios Payment to income Total obligations 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

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

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

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

13. 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

14. 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