General Mortgage Knowledge
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1. Conventional Mortgages: ¢NOT obtained through the FHA, VA, or USDA
• Fannie Mae and Freddie Mac purchase mortgages that meet these limits, thereby creating additional funds lenders
can use to make new mortgages
2. Conforming Loans: • Conforms to loan limits, down payment requirements, borrower income require-
ments, debt-to-income ratios, and other underwriting guidelines established by Fannie and Freddie
• Loan Limits:
• Base = $417,000
• High-Cost Areas = $625,500
• Income Qualifications
• Standard income documentation for salaried and hourly individuals typically includes paystubs for the most recent
30-day period and W-2s for the most recent 2 year period
• Individuals earning more than 25% of their income in commission must provide up to 2 years' tax returns
• Individuals who own more than 25% of a business are required to provide up to 2 years' tax returns
• Individuals who earn non-taxed income (Social Security, public assistance, or disability) must provide comprehensive
documentation relevant to the type of income
¢Permitted to "gross up" those earnings by 25%
• Multiply the income by 125%
• Credit Qualifications
• Minimum credit score of 620-700
• Seller Concessions
• Permit borrowers to obtain seller concessions
¢Limited to 6%for borrowers who make a down payment of 10% or more
¢Limited to 3% for borrowers who make a down payment of less than 10%
3. Non conforming Mortgages: • Exceeds current maximum loan limits and underwriting requirements
established by Fannie and Freddie
• Examples:
- Jumbo loans
- Alt- A
- Subprime Loans
- Nontraditional mortgages
- Niche Loans
- Super Conforming Loans
, General Mortgage Knowledge
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- Option Arms
- Hybrid Arms
4. Jumbo Loans: Exceed loan limits established by Fannie and Freddie (417,000)
5. Alt- A loans: • Alternate A Paper
• For those who are Self Employed
• Designation for loans made to borrowers who do not represent the greatest credit risk of subprime but who still do
not quite meet the underwriting requirements for conforming prime rate loans
6. Subprime Loans: • Higher interest loans made to borrowers with blemished credit or other qualification
issues that do not conform with Fannie and Freddie underwriting requirements
• High interest rate and dangerous terms
7. Niche Loans: Loans for borrowers with unique circumstances or needs
8. Nontraditional Mortgages: Any mortgage product other than a 30 year fixed rate mortgage
9. Super Conforming Loans: Used in certain high-cost areas and may be made for amounts up to $729,750
10. Option ARMS: • Offer flexible payment options prior to the date of adjustment
• Ex. Fully amortized (i.e. 30 year fixed rate), interest-only or special introductory rate such as 1%
¢Paying the introductory rate can result in negative amortization
11. Hybrid ARMs: • Mortgage loan with a fixed rate during the first 3-5 years of the loan
¢After the initial fixed-rate period expires, the loan becomes an adjustable-rate loan
• Good for borrowers who know that they will only live in a home for a few years
12. Non-Conventional Mortgages: Obtained through government agencies like the FHA, VA, and USDA
13. FHA loans: DOES NOT buy, make, or sell loans.
• It INSURES loans
• In the event of foreclosure, the lender is protected by mortgage insurance issued by the government through the FHA
• Insurance covers the full value of the loan
• Eliminated the risk of loss from foreclosure, thereby encouraging lenders to make new mortgages
• Advantages:
• Low down payments
• No prepayment penalties
• Fee limits on closing costs
• Requires borrower to invest in the loan transaction by making a 3.5% down payment based on the sales price or
appraisal (whichever is less)
• Upfront and Annual MIP (Mortgage Insurance Premium)
, General Mortgage Knowledge
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• Used to insure loans in the event of default
• Expressed in basis points and calculated based on the loan term and LTV
• Seller Concessions
• Limited to 6% of sales price
• Cash-out Refinance
• If a borrower has owned a property as their principal residence for at least 12 months or more, they are eligible for
a max of 85% of the appraised property value
• If the borrower has owned the property less than 12 months, they are limited to 85% of the lesser of the appraised
value or the initial sales price
14. 203 (b) Home Mortgages: Fixed-rate program used to purchase or refinance family dwellings
15. 251 Adjustable Rate Mortgages: • Based on the 203 (b) with the added feature of an adjustable
rate
• Different arms include 1, 3, 5 ,7, and 10 year versions
16. 2-1 Buy Downs: • Borrowers can buy down the rate on their fixed-rate loan
¢Lenders are required to qualify the borrower at the note rate and not the buy down rate
• Borrower deposits funds in an escrow account in order to offset lower interest payments the first 2 years of the loan
¢Incentive for borrower - escrow funds often from seller or builder
• Example: borrower might qualify at 6.5% (note rate). They would pay 4.5% the first year, 5.5% the second year, and
begin paying the note rate after that
17. VA Loans: • Department of Veterans Affairs guarantees home loans
• Veterans must obtain a Certificate of Eligibility (COE)
• Include a non-refundable funding fee, which the veteran can finance
• Ranges from .5-3.3% depending on what type of loan they are obtaining and whether it is their first time use of loan
eligibility or subsequent use
• First time use = 2.15%
• Disabled veterans, spouses of disabled veterans, and surviving spouses of veterans who died in service DO NOT pay
the funding fee
• Based on a total (back) debt ratio of up to 41%
• VA underwriting does not look at housing (front) debt ratio
• Does consider residual income (money left over at the end of each month) when qualifying borrowers
• Must occupy subject property as primary residence
• VA Loans are assumable
Study online at https://quizlet.com/_i3o3xp
1. Conventional Mortgages: ¢NOT obtained through the FHA, VA, or USDA
• Fannie Mae and Freddie Mac purchase mortgages that meet these limits, thereby creating additional funds lenders
can use to make new mortgages
2. Conforming Loans: • Conforms to loan limits, down payment requirements, borrower income require-
ments, debt-to-income ratios, and other underwriting guidelines established by Fannie and Freddie
• Loan Limits:
• Base = $417,000
• High-Cost Areas = $625,500
• Income Qualifications
• Standard income documentation for salaried and hourly individuals typically includes paystubs for the most recent
30-day period and W-2s for the most recent 2 year period
• Individuals earning more than 25% of their income in commission must provide up to 2 years' tax returns
• Individuals who own more than 25% of a business are required to provide up to 2 years' tax returns
• Individuals who earn non-taxed income (Social Security, public assistance, or disability) must provide comprehensive
documentation relevant to the type of income
¢Permitted to "gross up" those earnings by 25%
• Multiply the income by 125%
• Credit Qualifications
• Minimum credit score of 620-700
• Seller Concessions
• Permit borrowers to obtain seller concessions
¢Limited to 6%for borrowers who make a down payment of 10% or more
¢Limited to 3% for borrowers who make a down payment of less than 10%
3. Non conforming Mortgages: • Exceeds current maximum loan limits and underwriting requirements
established by Fannie and Freddie
• Examples:
- Jumbo loans
- Alt- A
- Subprime Loans
- Nontraditional mortgages
- Niche Loans
- Super Conforming Loans
, General Mortgage Knowledge
Study online at https://quizlet.com/_i3o3xp
- Option Arms
- Hybrid Arms
4. Jumbo Loans: Exceed loan limits established by Fannie and Freddie (417,000)
5. Alt- A loans: • Alternate A Paper
• For those who are Self Employed
• Designation for loans made to borrowers who do not represent the greatest credit risk of subprime but who still do
not quite meet the underwriting requirements for conforming prime rate loans
6. Subprime Loans: • Higher interest loans made to borrowers with blemished credit or other qualification
issues that do not conform with Fannie and Freddie underwriting requirements
• High interest rate and dangerous terms
7. Niche Loans: Loans for borrowers with unique circumstances or needs
8. Nontraditional Mortgages: Any mortgage product other than a 30 year fixed rate mortgage
9. Super Conforming Loans: Used in certain high-cost areas and may be made for amounts up to $729,750
10. Option ARMS: • Offer flexible payment options prior to the date of adjustment
• Ex. Fully amortized (i.e. 30 year fixed rate), interest-only or special introductory rate such as 1%
¢Paying the introductory rate can result in negative amortization
11. Hybrid ARMs: • Mortgage loan with a fixed rate during the first 3-5 years of the loan
¢After the initial fixed-rate period expires, the loan becomes an adjustable-rate loan
• Good for borrowers who know that they will only live in a home for a few years
12. Non-Conventional Mortgages: Obtained through government agencies like the FHA, VA, and USDA
13. FHA loans: DOES NOT buy, make, or sell loans.
• It INSURES loans
• In the event of foreclosure, the lender is protected by mortgage insurance issued by the government through the FHA
• Insurance covers the full value of the loan
• Eliminated the risk of loss from foreclosure, thereby encouraging lenders to make new mortgages
• Advantages:
• Low down payments
• No prepayment penalties
• Fee limits on closing costs
• Requires borrower to invest in the loan transaction by making a 3.5% down payment based on the sales price or
appraisal (whichever is less)
• Upfront and Annual MIP (Mortgage Insurance Premium)
, General Mortgage Knowledge
Study online at https://quizlet.com/_i3o3xp
• Used to insure loans in the event of default
• Expressed in basis points and calculated based on the loan term and LTV
• Seller Concessions
• Limited to 6% of sales price
• Cash-out Refinance
• If a borrower has owned a property as their principal residence for at least 12 months or more, they are eligible for
a max of 85% of the appraised property value
• If the borrower has owned the property less than 12 months, they are limited to 85% of the lesser of the appraised
value or the initial sales price
14. 203 (b) Home Mortgages: Fixed-rate program used to purchase or refinance family dwellings
15. 251 Adjustable Rate Mortgages: • Based on the 203 (b) with the added feature of an adjustable
rate
• Different arms include 1, 3, 5 ,7, and 10 year versions
16. 2-1 Buy Downs: • Borrowers can buy down the rate on their fixed-rate loan
¢Lenders are required to qualify the borrower at the note rate and not the buy down rate
• Borrower deposits funds in an escrow account in order to offset lower interest payments the first 2 years of the loan
¢Incentive for borrower - escrow funds often from seller or builder
• Example: borrower might qualify at 6.5% (note rate). They would pay 4.5% the first year, 5.5% the second year, and
begin paying the note rate after that
17. VA Loans: • Department of Veterans Affairs guarantees home loans
• Veterans must obtain a Certificate of Eligibility (COE)
• Include a non-refundable funding fee, which the veteran can finance
• Ranges from .5-3.3% depending on what type of loan they are obtaining and whether it is their first time use of loan
eligibility or subsequent use
• First time use = 2.15%
• Disabled veterans, spouses of disabled veterans, and surviving spouses of veterans who died in service DO NOT pay
the funding fee
• Based on a total (back) debt ratio of up to 41%
• VA underwriting does not look at housing (front) debt ratio
• Does consider residual income (money left over at the end of each month) when qualifying borrowers
• Must occupy subject property as primary residence
• VA Loans are assumable
