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CHAPTER 8

CHAPTER 8. Underwriting and Financing Residential Properties. Classification of Mortgage Loans. Conventional Mortgages Usually 80% loan to value ratio No government guarantee or insurance required Conforming loans Meet GSE loan limit requirements (< $417K) Nonconforming “jumbo” loans

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CHAPTER 8

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  1. CHAPTER8 Underwriting and Financing Residential Properties

  2. Classification of Mortgage Loans • Conventional Mortgages • Usually 80% loan to value ratio • No government guarantee or insurance required • Conforming loans • Meet GSE loan limit requirements (< $417K) • Nonconforming “jumbo” loans • Large dollar amount loans • Higher interest rate

  3. Classification of Mortgage Loans • Insured Conventional Mortgages • LTV usually > 80% • Private Mortgage Insurance • Insurer assumes default risk of the larger loan • Covers loan amount > 80% LTV • Generally no loan maximum

  4. Classification of Mortgage Loans • FHA Insured Mortgage loans • Lender completely insured against default loss • Lower borrower down payments • Loan maximums • VA Guaranteed Mortgage Loans • Qualified veterans meeting length of service requirements • Guarantee usually around 25% of loan • Veteran pays a funding fee

  5. Underwriting Process • Borrower Income • Verify employer, wages, expected continuity • Verify other income • Will it continue? • Is it verifiable on prior tax returns? • Dual income • Stability of joint income

  6. Underwriting Process • Borrower Assets • Verify closing cost and down payment funds • Additional savings and investments • Credit History • Credit reports • Credit scoring models

  7. Underwriting Process • Housing Expenses • Principal & Interest & Taxes & Insurance (PITI) • Additional Expenses • Installment loans • Credit cards

  8. Affordability Ratios • Payment to income • PITI/ gross income < = 28% • Total obligations to income • PITI + other obligations/ gross income equals to or is less than 36% • Percentages vary with kind of loan program • Lower ratio (25%) for ARMs/GPMs/Insured Mort.

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