Mortgage Acceptance.... FAQ

Loan Products
Loan to Value
Contributions
Occupancy
Property Types
Underwriting
Loan Application
Consistency in Loan Applications

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Prior to 1980, practically all residential real estate loans were financed by fixed rate mortgages. Since 1980, many new products have been created.

Common types of mortgage products are:

Fixed Rate/Fixed Payment Mortgages
Fixed Rate / Changing Payment Mortgages (Buydowns)
Adjustable Rate Mortgages
Balloons
Convertible Mortgages
Graduated Payment Mortgages (GPM's)
Reverse Annuity Mortgages (RAM's)
Shared Appreciation Mortgages (SAM's)
Affordable Housing Loans
97% LTV Programs (3% Downpayment)
100% LTV Programs (no downpayment)

Loan to Value (LTV): Is the relationship between the amount of money borrowed and the lesser of the sales price or appraised value of the property.

For Example: If a borrower was applying for a 80,000 mortgage, and the property was appraised and sold at $100,000 The LTV would be 80%.

Combined LTV(CLTV): Is the relationship between the combination of money borrowed for the first and second mortgage and the appraised value of the property.

The LTV/CLTV limits are set by each investor, usually by product type. Depending on the characteristics of any given loan, a borrower will be eligible for a maximum LTV.

Closing costs that are typically paid by the borrow are considered “contributions” if they are paid by an interested party.

Interested Parties
Seller
Developer
Building
Lender

Occupancy Categories:

Owner Occupied

A 1-4 Unit property that is the borrower's primary residence.

A primary residence is:

Residential property physically occupied by the owner for the major portion of the year.

In a location relatively convenient to the owners employment

The address of record for tax reporting and voter registration.

Second Home Use

A single family property that the borrower occupies in addition to his or her principle residence

Rental income may not be used to qualify

Investment Property

A property owned to generate income and the borrower does not intend to occupy the property.

Properties must be occupied for residential use.

The occupancy status of a property is considered when determining the maximum loan amount, maximum LTV, available product types, etc.

For most mortgage products, FNMA will no longer impose any limitations on the number of mortgaged properties that a borrower can currently be financing.

Investor's traditionally only purchase mortgages secured by residential properties.

Single Family or One Unit Dwelling:	Designed for occupancy of one family.
Multifamily Dwelling	A house divided into two to four dwelling units with separate living facilities.
Condominium	Property ownership which separates property into individual ownership and common ownership.
Cooperatives:	Property ownership in which individuals own shares of a corporation which in turn owns the real estate.

The six C's of Underwriting

Underwriting parameters allow lenders greater flexibility than do eligibility requirements. Loans that fall outside of an underwriting guideline may still be approved and sold in the secondary market based on compensating factors.
There are many guidelines to keep in mind when taking a mortgage loan application.
These guidelines can be sorted into the “Six C's of Underwriting” The Six C's stand for:

Character:Credit	The evaluation of the applicant's willingness to make monthly payments.
Capacity:(income)	The evaluation of applicant's ability to make the monthly payments.
Capital:(Assets)	The evaluation of the borrower's liquid assets available to make the down payment, pay all required closing costs and have reserves on hand to make the initial mortgage payments.

Collateral:(Appraisal)	The evaluation of the subject property as security sufficient to recover the outstanding loan in the case of default.
Common Sense
Compliance(Eligibility)	Meeting all lender and investor requirements of the loan.

This section reviews each section of the Loan Application and defines what data is required to complete the section.

Types of Mortgage and Terms of Loan

Mortgage Applied For:

FHA Loan: Backed by the Federal Housing Authority

VA Loan: Backed by the Veteran's Administration

FmHA: Backed by the Farmer's Home Administration

Conventional: Salable to Fannie Mae and /or Freddie Mac

Other: Jumbo loans, Affordable Housing Programs, State Housing

Loan Amount: The mortgage amount requested by the borrower.

Interest Rate: The initial interest rate charged, regardless of loan type.

No. of Months: The term of the loan, usually, 360,300,240 or 180 months.

Amortization Type: Type of loan product applied for. (Fixed, ARM, GPM, Other)

The loan application is the basis for the entire credit package. The information in the application will be the basis for the verifications and documentation obtained. Comparing the application information to the information obtained in the supporting loan documents is critical.

Information taken in one section of the application often corresponds to similar information in other sections of the application and/or is verified by supporting documentation.

Inconsistencies within the application may be a sign of fraud. Fraud has significant impact on individual lenders as well as the industry as a whole. “Red Flags” are items that could be a warning of Fraud if discovered in the Loan Application.

Any discrepancies or inconsistencies in the loan application must be investigated by:

-Asking additional questions and / or

-Obtaining additional information