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Financing Residential Real Estate

Lesson 7:

The Financing Process

Introduction

In this lesson we will cover the stages of the financing process, including:

1. shopping for a loan,

2. applying for a loan,

3. application processing, and

4. closing.

Shopping for a Loan

For home buyers, shopping for a mortgage loan involves:

�assessing wants, needs, and finances;

�choosing a lender;

�comparing rates and fees; and

�evaluating financing options.

Shopping for a Loan

Buyers should get a realistic idea of what they can afford before they start house hunting.

lTo establish a price range, they need to findout how much financing they can qualify for.

Assessing the buyers’ circumstances

Shopping for a Loan

Buyers should get a realistic idea of what they can afford before they start house hunting.

lTo establish a price range, they need to findout how much financing they can qualify for.

Two ways of doing that:

¡Prequalifying

¡Preapproval

Assessing the buyers’ circumstances

Assessing Buyers’ Circumstances

Prequalifying

lInformal process that can be done by real estate agent or using online mortgage calculator

Prequalifying vs. preapproval


Prequalifying


lRough estimate of maximum loan amount



Prequalifying



Preapproval

lFormal process that can be done only by lender (through loan officer or mortgage broker)



Prequalifying



Preapproval

lFormal process that can be done only by lender (through loan officer or mortgage broker)

lSpecific maximum loan amount



For preapproval, buyers must:

�complete a loan application, and

�provide documentation of income, assets, debts, and credit history.



For preapproval, buyers must:

�complete a loan application, and

�provide documentation of income, assets,debts, and credit history.

Lender gives buyers a preapproval letter, agreeing to loan up to a specified amount.



Advantages of preapproval:

�Tool in negotiations with sellers

�Streamlines closing process

lPreapproval now widely used.

lIn active market, seller might not even consider offers from buyers who aren’t preapproved.



Before preapproval became common, prequalifying was standard practice of real estate agents.

lPrequalifying is still useful for buyers who aren’t ready to apply for preapproval.

�May want to get idea of what’s available and what they can afford.

lKnowing how to prequalify a buyer can also help agent understand underwriting process.



Basic steps in prequalifying:

1. Apply income ratios to monthly income to find maximum monthly payment.

� Must cover principal, interest, taxes, and insurance (PITI).

How to prequalify buyers


Basic steps in prequalifying:

1. Apply income ratios to monthly income to find maximum monthly payment.

� Must cover principal, interest, taxes, and insurance (PITI).

2. Subtract percentage (representing property taxes and insurance) from PITI figure to find maximum principal and interest payment.



3. Use current market interest rate to calculate maximum loan amount based on maximum principal and interest payment.



3. Use current market interest rate to calculate maximum loan amount based on maximum principal and interest payment.

4. Divide maximum loan amount by LTV ratio to determine ceiling of price range.



While prequalifying can be useful, buyers should be encouraged to get preapproved as soon as possible.

lApply to lender or to mortgage broker.

Getting preapproved


While prequalifying can be useful, buyers should be encouraged to get preapproved as soon as possible.

lApply to lender or to mortgage broker.

lAsk mortgage broker to obtain preapproval letter issued directly by lender.

�Preapproval letter issued by mortgage broker doesn’t actually commit lender.

Getting preapproved


Preapproval letter valid only for limited period (such as 30 days).

lTo get preapproval extended, buyers’ information will have to be verified again.

Getting preapproved

Choosing a Lender

To choose mortgage lender, buyers need to identify prospects and use proper criteria to evaluate them.

Choosing a Lender

Several ways to find lender:

¡ research,

¡ referrals,

¡mortgage broker, or

¡buyer’s bank.

Identifying prospects

Choosing a Lender

Research

Involves reviewing print, online, and other media advertisements.

�Should be followed with phone calls.

�Talk to loan officers.

Newspaper may have Mortgage Comparison Chart.


Choosing a Lender

Referrals

Often the best way to find a good lender.

�Ask family, friends, and co-workers.

�Talk to real estate agent.

Real estate agents should not accept referral fees.


Choosing a Lender

Mortgage broker

Specializes in bringing buyers and lenders together.

�Presents buyers with options offered bymultiple lenders.

�Research still necessary to find goodbroker.


Choosing a Lender

Buyer’s bank

Banks sometimes offer special financing to their established customers.

�One location for handling financial matters.


Choosing a Lender

Government consumer protection publications encourage buyers to talk to 3-4 lenders before submitting an application.

lAsk each lender for written good faith estimate of loan costs and other closing costs.

lGood loan originator takes care to put buyers at ease and explain process thoroughly.

Interviewing prospective lenders

Choosing a Lender

In addition to interest rates and loan fees, buyers should consider lender’s reputation.

lExpertise, efficiency, stability, honesty.

lAsk loan originator for references from lender’s recent customers.

lLook for customer satisfaction information on the web.

Interviewing prospective lenders

Summary

Preapproval and Choosing a Lender

ÄPrequalifyingÄPreapprovalÄPreapproval letter

ÄPITIÄLoan originatorÄLoan officer

ÄMortgage brokerÄReferralÄGood faith estimate of costs

Loan Costs

Primary consideration for most buyers in choosing lender is how much loan will cost.

Loan Costs

Primary consideration for most buyers in choosing lender is how much loan will cost.

In addition to interest rate, cost of loan may include:

¡ loan origination fee,

¡discount points,

¡miscellaneous charges, and

¡mortgage broker’s fee.

Loan Costs

Point = percentage point

1 point = 1% of loan amount

Points

Loan Costs

Point = percentage point

1 point = 1% of loan amount

Usage issue:

¡Some lenders use “points” to refer to origination fee and discount points together.

¡Others use “points” to refer only to discount points.

Points

Loan Costs

Origination fee pays for lender’s expenses, such as staff compensation, facilities costs, and other overhead.

�Charged in almost every mortgagetransaction.

�Typically around 1% of loan amount.

�Paid at closing, usually by borrower.

Loan origination fee

Loan Costs

Discount points are a lump sum paid at closing to increase lender’s upfront yield (profit) on loan.

�In exchange for upfront payment, lendercharges borrower lower interest rate.

�May save borrower money in long run,depending on how long she owns home.

Discount points

Loan Costs

How many discount points lenders charge varies depending on market conditions and other factors.

¡Might charge 4 to 6 points for1% interest rate reduction.

Discount points

Loan Costs

Example:

Market rate for mortgage: 5.25%

Lender charges 4 points for 1% rate reduction

$300,000 Loan amountx 4% 4 points$12,000 Cost of discount

If lender is paid $12,000 up front, will charge borrower only 4.25% interest on loan.

Discount points

Loan Costs

Discount points may be paid by buyer or seller.

Buydown = Paying lender discountpoints to “buy down” buyer’s interest rate.

Discount points

Loan Costs

Discount points may be paid by buyer or seller.

Buydown = Paying lender discountpoints to “buy down” buyer’s interest rate.

lWhen buyer pays points, pays lender in cash at closing.

lWhen seller pays points, amount is withheld from loan amount and deducted from seller’s proceeds at closing.

Discount points

Loan Costs

In addition to an origination fee and discount points, lenders often charge borrowers other fees, such as:

¡application fee

¡document preparation fee

¡underwriting fee

Miscellaneous fees

Loan Costs

In addition to an origination fee and discount points, lenders often charge borrowers other fees, such as:

¡application fee

¡document preparation fee

¡underwriting fee

lThese vary widely from one lender to another.

lBorrower should ask loan originator if any can be reduced or waived.

Miscellaneous fees

Loan Costs

Buyers working with mortgage broker are generally charged a mortgage broker’s fee.

lMay be separate fee or included in points quote for loan.

Mortgage broker’s compensation

Loan Costs

Buyers working with mortgage broker are generally charged a mortgage broker’s fee.

lMay be separate fee or included in points quote for loan.

lShouldn’t make loan more expensive than one obtained without a broker’s help.

�Broker gets loan at wholesale price, marksit up to retail price, keeps overageas fee.


Loan Costs

Controversy over another form of mortgage broker compensation: yield spread premium(YSP).


Loan Costs


lBroker persuades borrower to accept a loan at “above par” (higher-than-market) interest rate.


Loan Costs



lLender pays broker YSP based on difference between market rate and borrower’s rate.


Loan Costs



lLender pays broker YSP based on difference between market rate and borrower’s rate.

lPractice gives mortgage brokers incentive to steer borrowers to more expensive loans.


Comparing the Cost of Loans

The various fees charged in addition to interest make it hard to compare loans offered by different lenders.

Truth in Lending Act (TILA): federal consumer protection law that requires lenders to disclose the cost of a loan using certain figures and terminology, to make comparison easier.

Truth in Lending Act


Most important TILA disclosure: annual percentage rate (APR).

lAPR expresses relationship between all of the financing charges and the amount borrowed as a percentage.

lTo determine which of two loans is more expensive, compare APRs, not just interest rates.

Annual percentage rate


Another key TILA disclosure: total finance charge.

Total finance charge includes:¡ interest,¡origination fee,¡discount points paid by borrower,¡mortgage broker’s fee,¡ finder’s fee,¡service fee, and/or¡mortgage guaranty or

insurance fees.

Total finance charge


Total finance charge does NOT include:

¡ title insurance costs,

¡credit report charges,

¡appraisal fee, or

¡discount points paid by seller.

Total finance charge


Lenders aren’t legally required to make disclosures about loan costs until written application received.

lFor comparison shopping, better for buyers to get some of the information in advance.

Requesting estimates in advance


Lenders aren’t legally required to make disclosures about loan costs until written application received.

lFor comparison shopping, better for buyers to get some of the information in advance.

lBefore submitting application, they should ask 3 or 4 lenders for estimates of:

�APR�closing costs, including loan costs

Requesting estimates in advance

Loan Costs

Some lenders offer no-fee loans or low-fee loans .

lNo major lender charges such as origination fee or discount points.

lOnly (or almost only) financing charge is interest.

lInterest rate often much higher than rate for loan with standard fees.

lHelpful for buyers with little cash for closing.

No-fee or low-fee loans

Evaluating Financing Options

When considering a loan, buyers should ask themselves the following questions :

�How much money would we have left in savings after closing?




�How much spending money would we have left over each month after the mortgage payment?




�How much spending money would we have left over each month after the mortgage payment?

�How much will our income grow in the future?


�How long do we plan to stay in this home?



�How rapidly will our equity build, based on reasonable market projections?




�How soon would the mortgage be paid off?





�Are we more concerned with the short-term or long-term costs of financing?





�Are we more concerned with the short-term or long-term costs of financing?

�What alternative investment opportunities are available for money we don’t put into the house?


Many first-time buyers with limited buying power want to purchase the largest, most expensive home they can afford.


Many first-time buyers with limited buying power want to purchase the largest, most expensive home they can afford.

Other buyers don’t want to borrow as much as lenders would allow them to.


First-time buyers may benefit from home buyer counseling before deciding what financing option is best for them.

Home buyer counseling


Department of Housing and Urban Development (HUD) has developed Housing Counseling Assistance Program.

�Open to anyone looking for a home or applying for a mortgage.

�Also for renters and people who already own a home.



Program intended to educate people about home ownership responsibilities:

�making mortgage or rent payments,

�maintaining home,

�avoiding foreclosure or eviction, and

�other related topics.

Counselor prepares “action plan” to help buyer achieve goals.


Summary

Loan Costs and Financing Options

ÄOrigination feeÄDiscount pointsÄBuydown

ÄMortgage broker’s feeÄTruth in Lending ActÄAPR

ÄTotal finance chargeÄNo-fee or low -fee loanÄHome buyer counseling

Applying for a Loan

After buyers have chosen a lender, next step is to apply for a loan (or for preapproval).

lLoan interview: buyers talk with loan originator

�in person, on phone, by fax, or online

Loan interview

Applying for a Loan

After buyers have chosen a lender, next step is to apply for a loan (or for preapproval).

lLoan interview: buyers talk with loan originator

�in person, on phone, by fax, or online

lOriginator helps buyers:

�choose best financing option

�prepare application

Loan interview

Loan Interview

During loan interview, originator may enter information into automated underwriting system.

lSystem provides preliminary evaluation of what buyers are likely to qualify for.

�This does not guarantee preapproval.

Prequalifying during interview

Loan Interview

Loan originator may require buyers to make a deposit to cover certain expenses.

May include:

¡application fee,

¡credit report fee, and

¡other preliminary charges.

Deposit

Loan Interview

If buyers have already signed purchase agreement, loan originator reviews contract.

Main concerns:

¡ terms of financing contingency

¡closing date

Contract and closing date

Applying for a Loan

Mortgage lenders almost always use Uniform Residential Loan Application form.

Loan application form

Loan Application Form

First section of form asks about:

¡ type of loan

¡ loan amount

¡ loan term

¡ interest rate

¡whether rate is fixed or adjustable

¡any special amortization arrangement

Types and terms of loan


Second section asks about property:

¡address

¡ legal description

¡when house was built

Property information and purpose


Second section asks about property:

¡address

¡ legal description

¡when house was built

Also asks about purpose of loan:

¡purchase, construction, refinancing

¡primary residence, secondary residence, investment property



Second section also asks about:

¡how buyers will take title

¡source of downpayment and other funds for closing

¡secondary financing



Third section asks for this info about each applicant:

¡name¡social security number¡phone number¡date of birth¡years of schooling¡marital status¡number and age of any dependents¡address or addresses during

past two years

Borrower/co-borrower information


lLegal for lender to ask about marital statusand dependents.

�Illegal for lender to use this information in a discriminatory way.

Borrower/co-borrower information


Each applicant must also provide:

¡name and address of employer

¡number of years employed at this job

¡number of years in this line of work

¡position held and title

¡ type of business

¡business phone number

Employment information


This section asks about:

¡primary employment income

¡overtime, bonuses, or commissions

¡dividends and interest

¡net rental income

¡other sources of income

¡current rent or mortgage payment

Income and monthly housing expense


Assets may include:

¡good faith deposit¡money in bank¡ investments

¡ life insurance policy¡ retirement account¡automobile

¡personal property¡ real property

Assets and liabilities


Liabilities may include:

¡student loan¡car loan¡ real estate loan

¡other installment loan¡charge accounts¡credit cards

¡alimony/child support¡ job-related expenses

Assets and liabilities


Application also asks for information about transaction, including:

¡purchase price

¡cost of alterations/improvements

¡cost of land

¡prepaid expenses

¡closing costs

Details of transaction


Applicants must answer questions about:

¡outstanding judgments

¡bankruptcies

¡ foreclosures or deeds in lieu

¡ lawsuits

¡alimony/child support

¡citizenship

Declarations


Applicants also must state:

¡whether any portion of downpayment was borrowed

¡whether property is to be primary residence

¡whether they have owned any other property in last three years

Declarations


Applicants agree to several provisions regarding application and loan by signing and dating form.

�For example, they agree to correct or update information on application if necessary.

Acknowledgement and agreement


Form also has optional questions regarding applicants’ ethnicity, race, and sex.

lUsed by federal government to assess lender’s compliance with fair lending laws.

Information for government monitoring


Last page of application form is for applicants to use if they need more room to answer any of form’s questions.

Continuation sheet


Real estate agent should let buyers know what information they need to collect for loan application.

Application checklist

Applying for a Loan

Two federal laws require lenders to disclose information to loan applicants:

Federal disclosure requirements

Applying for a Loan


lTruth in Lending Act (TILA)

�APR, total finance charge, lender’s charges


Applying for a Loan


lTruth in Lending Act (TILA)

�APR, total finance charge, lender’s charges

lReal Estate Settlement Procedures Act (RESPA)

�Good faith estimate of closing costs

�Booklet about closing process

�Mortgage servicing disclosure


Applying for a Loan

Lenders must provide all of these within three business days after loan application is submitted.

�Disclosures not required if application rejected before three-day deadline.

�If any costs change, new disclosuresmust be made before closing.


Applying for a Loan

Buyers should ask loan originator about locking in the interest rate.

Lock-in = lender guarantees certain interest rate for specified period.

Float = interest rate will move up or down with market interest rates until closing.

Locking in the interest rate

Applying for a Loan

If interest rate not locked in, sharp increase in rates might increase monthly payment so much that buyers no longer qualify.


Applying for a Loan

If interest rate not locked in, sharp increase in rates might increase monthly payment so much that buyers no longer qualify.

lTerms of lock-in agreement should be in writing.


Locking in the Interest Rate

Lock-in agreement should state how long the rate will be locked in.

lLock-in period should extend beyond expected loan processing time.

lSome lenders provide free automatic extension if closing delayed.

Lock-in period


Lender may charge fee to lock in rate.

lIf loan approved, fee usually applied to closing costs.

lIf application rejected, fee usually refunded.

Lock-in fee


If market interest rates are more likely to go down than up, doesn’t make sense to lock rate.

lLender can usually charge locked-in rate even if market rates have gone down.

Rate decreases

Summary

Applying for a Loan

ÄUniform Residential Loan Application formÄReal Estate Settlement Procedures ActÄGood faith estimate of closing costs

ÄRate lock-inÄFloat

Application Processing

After application form filled out:

lverification forms sent to applicants ’ employersand banks;

lcredit reports and credit scores obtained; and

lif buyers have entered into a purchase agreement:

�appraisal ordered

�title report ordered

Application Processing

After verification forms returned and reports received, loan processor puts together loan package and sends it to underwriting department.

The Underwriting Decision

Underwriter carefully reviews loan package and applies appropriate qualifying standards to buyers.

�May use automated underwriting systemto perform these steps.


Underwriter carefully reviews loan package and applies appropriate qualifying standards to buyers.

�May use automated underwriting systemto perform these steps.

�Loan is:

¡approved,

¡ rejected, or

¡approved subject to conditions.


If loan denied, lender must provide explanation.

�Written statement within 30 days.

Rejection


If loan denied, lender must provide explanation.

�Written statement within 30 days.

lBuyers may want to:

�apply to different lender

�apply for different type of loan

�wait and take steps to improve finances

Rejection


Conditional commitment commits lender to making loan if buyers:

�fulfill specified conditions, and/or

�submit additional documentation.

Conditional commitment


Preapproval is a form of conditional commitment. Approval contingent on:

�satisfactory appraisal

�satisfactory title report

Preapproval letter


Preapproval letter states that lender will loan buyers up to a specified amount to buy a house.

�Expires at end of specified period.

�Lender may agree to extension if buyers’information reverified.

Preapproval letter


When all conditions for approval are satisfied, lender issues final commitment letter.

¡Confirms loan terms.

¡Has expiration date.

Final commitment

Closing the Loan

Last stage of financing process coordinated with closing of property sale.

In many areas, closings are handled through escrow.

lEscrow: neutral third party holds money and documents for buyer and seller until transaction ready to close.

Escrow

Closing the Loan

Closing agent (escrow agent):

lmakes sure all requirements are taken care of before closing date, and

ldisburses purchase price and delivers deed when conditions in purchase agreement are satisfied.

Closing agent

Closing the Loan

Closing agent may be:

¡ independent escrow agent

¡employee of lender

¡ title company

¡ lawyer

¡ real estate broker

Closing agent

Closing the Loan

¡Clearing and insuring title

¡ Inspections and repairs

¡Loan documents issued and signed

¡Funding the loan

¡Preparing settlement statements

¡Recording documents

¡Disbursing funds

Steps in closing process

Steps in Closing Process

Any liens that would have higher priority than new mortgage or deed of trust must be removed.

�Doesn’t include property tax or special assessment liens.

Clearing and insuring title


Any liens that would have higher priority than new mortgage or deed of trust must be removed.

�Doesn’t include property tax or special assessment liens.

To remove lien:

lseller pays amount owed

lrelease obtained and recorded



Lender will require extended coverage title insurance policy to protect lien priority.

�Usually paid for by buyer.



Lender may require inspections or tests, such as:

¡pest control inspection

¡soil percolation test

¡ flood hazard inspection

Inspections and repairs


Lender may require inspections or tests, such as:

¡pest control inspection

¡soil percolation test

¡ flood hazard inspection

lBased on inspection report, lender decides whether to require repairs or other corrective steps.

�May or may not have to be completed by closing date.

Inspections and repairs


Once loan has been approved, lender forwards loan documents to closing agent.

Buyer:

ldeposits funds required for closing (such as downpayment, closing costs) into escrow, and

lsigns loan documents.

Loan documents and buyer’s funds


Lender often requires buyer to make a deposit into an impound account at closing.

Impound account



lImpound account ensures taxes and insurance will be paid on time.

�Portion of buyer’s monthly payment goes into impound account.

�Lender pays taxes and insurance out of account when due.

Impound account



lImpound account ensures taxes and insurance will be paid on time.

�Portion of buyer’s monthly payment goes into impound account.

�Lender pays taxes and insurance out of account when due.

lIllegal to require deposit of more than two months of impounds at closing.

Impound account


Buyer will also pay interim interest (prepaid interest) at closing.

Interim interest



Interim interest necessary because:

1. Buyer’s first payment is not due on first day of month immediately after closing.

�Instead, due first day of month after that.

Interim interest



Interim interest necessary because:

1. Buyer’s first payment is not due on first day of month immediately after closing.

�Instead, due first day of month after that.

2. Mortgage interest paid in arrears, after it accrues.

�Monthly payment includes theinterest that accrued during previous month.

Interim interest


Example: Closing date is January 23.

lFirst mortgage payment will be due March 1.

�No mortgage payment due February 1.

Interim interest





lBut interest begins accruing on closing date.

Interim interest






�March 1 payment will cover interest that accrues during February.

Interim interest







�But won’t cover interest accruing from January 23 to January 31.

Interim interest







�But won’t cover interest accruing from January 23 to January 31.

lInterim interest payment at closing covers those 9 days.

Interim interest


Funding the loan: When lender releases buyer’s loan funds to closing agent.

lLoan funded only after:

�buyer signs loan documents,

�lender reverifies buyer’s employment and other information, and

�any other conditions imposed by lender have been satisfied.

Funding the loan


Closing agent prepares final settlement statements for buyer and seller.

�Itemizes charges and credits for each party.

Settlement statements


Closing agent prepares final settlement statements for buyer and seller.

�Itemizes charges and credits for each party.

lTo comply with RESPA, closing agent must:

�use Uniform Settlement Statement form, and

�allow buyer to review statement at least one day before closing, if buyerasks to.

Settlement statements


lClosing agent:

�records deed, mortgage or deed of trust,lien releases, and other documents;

�disburses funds to appropriate parties.

lTitle company issues policies.

lLender gives buyer copy of loan documents in final form.

lBuyer gives lender copy of hazard insurance policy.

Final steps

Summary

Application Processing and Closing

ÄLoan packageÄRejectionÄConditional commitmentÄPreapproval letterÄFinal commitmentÄClosing agentÄEscrowÄInterim interestÄImpound accountÄFunding the loan

Real Estate Finance Lesson 7 Cumulative Quiz

1. A buyer sits down with a lender, completes a loan application, and submits supporting documentation. The lender evaluates the application and states that it will lend the buyer up to a specified amount. This describes:

A. preallocation B. preapproval C. predetermination D. prequalification

2. Which of the following is not a question that an agent would ask during a prequalification interview?

A. Do you own your current home? B. What is the price of the home you have selected to buy? C. What is your monthly income? D. Where are you currently employed?

3. All of the following are true statements about choosing a lender, except:

A. Internet research on lenders should be followed up by talking to loan officers B. Referrals are an excellent way to find a good lender C. The buyer's own bank may have special financing offers for existing customers D. The lender with the lowest interest rate is always the best choice

4. Which of these is charged in almost all mortgage loan transactions?

A. Buydown B. Mortgage broker's fee C. Origination fee D. Mortgage insurance premium

5. The Truth in Lending Act creates which requirement?

A. It prohibits discrimination in lending based on race, color, religion, or sex B. It requires closing agents to provide a good faith estimate of closing costs C. It requires lenders to notify applicants of reasons why their application was denied D. It requires lenders to disclose a loan's annual percentage rate

6. Which of the following items would not be included in a borrower's total finance charge?

A. Buyer-paid discount points B. Mortgage broker's fee C. Origination fee D. Title insurance fee

© 2009 Rockwell Publishing 1

7. A lender will usually charge discount points in order to:

A. provide a lower interest rate B. prevent fraud C. pay for mortgage insurance D. comply with TILA

8. Which of the following types of loans would not help buyers purchase the most expensive house they possibly can?

A. 15-year loan B. 40-year loan C. 97% LTV loan D. Adjustable-rate mortgage

9. In a buydown:

A. the lender charges a percentage of the loan amount to cover administrative costs B. the lender will charge the borrower an additional fee for underwriting services C. the lender will forego all loan costs in exchange for charging a higher interest rate D. the seller will pay discount points to lower the buyer's interest rate

10. Which of the following costs is included in a borrower's total finance charge?

A. Appraisal fee B. Buyer-paid discount points C. Credit report fees D. Seller-paid discount points

11. Which of the following will not usually happen during the loan interview?

A. Completion of the loan application B. Final loan commitment C. Prequalification D. Submitting a deposit to cover certain expenses

12. Which of the following is not asked on a Uniform Residential Loan Application?

A. Borrower's credit score B. Borrower's employment information C. Borrower's marital status D. Sources of borrower's income

13. Which of the following is not considered a liability for an applicant?

A. Alimony payments B. Life insurance policy C. Revolving credit line D. Student loan


14. Documents an applicant will always need for a loan application include all of the following, except:

A. address and legal description of property being purchased B. names, addresses, and account numbers for all bank accounts C. payroll stubs for previous 30 days D. W-2 forms for previous two years

15. If an applicant decides to lock in an interest rate, this prevents what from happening?

A. An increase in the loan's interest rate between the application and the closing date B. Negative amortization C. Periodic adjustments in the loan's interest rate over the loan term D. Use of a prepayment penalty if the borrower repays the loan early

16. Which of the following does not in any sense commit a lender to making a loan?

A. Conditional commitment B. Final commitment C. Preapproval letter D. Prequalification letter

17. What is the role of an escrow agent?

A. To decide whether or not to approve the loan application B. To hold money and documents on behalf of the buyer and seller until the transaction is ready to

close C. To provide counseling to first-time home buyers D. To search the chain of title to make sure that title is marketable

18. Which of the following is not a step in the closing process?

A. Insuring title B. Obtaining a credit report C. Obtaining an inspection D. Preparing a settlement statement

19. A loan closes on March 15. When will the first mortgage payment be due?

A. March 15 B. April 1 C. April 15 D. May 1


20. The interest paid at closing for the period between the closing date and the end of the month in which closing occurs is known as:

A. interest in arrears B. interim interest C. prorated interest D. temporary interest


Graphic Summaries Quizzeschabot-classes.wdfiles.com/local--files/financing-class/... · 2012. 9....

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