Chapter 10 Conventional Financing

Chapter 10 Conventional Financing - Financing Residential...

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Financing Residential Real Estate Lesson 10: Conventional Financing
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Introduction In this lesson we will cover: conforming and nonconforming loans, characteristics of conventional loans, qualifying standards for conventional loans, and special programs and payment plans.
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Introduction Loans made by mortgage lenders can be divided into two main categories: conventional loans government-sponsored loans
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Introduction Conventional loan Any institutional loan that isn’t insured or guaranteed by a government agency.
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Most conventional loans comply with underwriting guidelines set by Fannie Mae and Freddie Mac. Conforming loan: complies with those guidelines. Nonconforming loan: doesn’t comply.
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Conventional Loan Characteristics Fannie Mae/Freddie Mac underwriting guidelines are widely followed in the mortgage industry because lenders want to be able to sell their loans on secondary market. Many of the rules covered here are based on their guidelines.
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Conventional Loan Characteristics Topics: Property types and owner-occupancy Loan amounts Repayment periods Amortization Loan-to-value ratios Risk-based loan fees Private mortgage insurance Secondary financing
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Conventional Loan Characteristics Fannie Mae and Freddie Mac buy loans secured by residential property: detached site-built houses townhouses condominium units cooperative units manufactured homes Property types and owner-occupancy
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Conventional Loan Characteristics Fannie Mae and Freddie Mac don’t require owner- occupancy, but different (generally stricter) underwriting rules apply to investor loans. Investor loan: Borrower purchasing property doesn’t intend to occupy it. Property types and owner-occupancy
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Conventional Loan Characteristics Conventional loan may be secured by: I Principal residence Up to 4 dwelling units I Second home No more than 1 dwelling unit I Investment property Up to 4 dwelling units Property types and owner-occupancy
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Conventional Loan Characteristics Conforming loan limits are set annually by Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. I If loan amount exceeds applicable limit, the agencies won’t purchase the loan. I Different loan limits for different areas, based on area median home prices. I Different limits for one-, two-, three-, and four-unit dwellings. Loan amounts
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2009 conforming loan limits for one-unit dwellings In most areas: $417,000 In high-cost areas: 125% of area median house price, up to a maximum of $729,750. Higher limits for Alaska, Hawaii, Guam, and Virgin Islands. Loan amounts
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Chapter 10 Conventional Financing - Financing Residential...

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