IN THIS CHAPTER Various loans the buyer may use to finance real property. The types of mortgage loans: 1. Conventional loans 2. FHA or VA mortgage loans Methods of closing, items required at closing, and proration calculations.
CONVENTIONAL LOANS A loan that has is not government insured or guaranteed. Can be either uninsured or insured Private mortgage insurance (PMI)
FHA-INSURED LOANS Insured by an agency of the U.S. Department of Housing and Urban Development (HUD) Created during the Depression of the 1930s FHA-insures loans to protect lenders against financial loss Popular program is the FHA 203(b) loan FHA Mortgage Insurance Premium (MIP)
VA-GUARANTEED LOANS The VA guarantees repayment of the top portion of the loan to the lender in the event of default by the borrower Certificate of reasonable value (CRV) Loan amount may be 100 percent
Eligibility To be eligible for a VA-guaranteed loan, the borrower must qualify as a veteran or the surviving spouse of a veteran under requirements of the Department of Veteran Affairs.
CLOSING COSTS 1. Discount points 2. loan origination fee or loan service charge 3. Appraisal fee 4. Attorney’s fee 5. Survey fee 6. Credit report charge 7. Assumption fee if buyer is assuming loan 8. Private mortgage insurance premium 9. Mortgage title insurance premium 10. Cost of termite inspection and certification
Loan Origination Application Authorizations 1. Verification of employment. 2. Verification of rent or mortgage. 3. Verification of bank account balance. 4. Verification of outstanding loans. 5. Verification of sales contract deposit. 6. Verification of pension (if applicable). 7. Authorization to release information. 8. Consent to credit check and verification.
FINANCING LEGISLATION Truth-in-Lending Simplification and Reform Act (TILSRA) Disclosure of APR Three day right of rescission Regulation Z State of Michigan Usury Laws – Private party lender is limited to a maximum rate of 11% interest on loans secured by a first lien on residential real property, a land contract, or a land lease.
CLOSING Face-to-Face Closing Escrow Closing Title Companies
Closing Preliminaries Survey Pest Inspection Title Examination, Insurance, and Defects Property Inspection Insurance Perc, Soil, Well, and Septic Tests
Additional Documents Bill of sale of personal property Certificate of occupancy Closing or settlement statement Deed Note Disclosure statement Estoppel certificate Flood insurance policy Hazard insurance policy Land contract Lease Lien waivers Mortgage Mortgage guarantee insurance policy Option and exercise of option Sales contract
PRORATIONS Unpaid real estate taxes Rents Interest on seller’s mortgage assumed Prepaid taxes and insurance premiums Utilities billed and paid in advance
Rules and Methods Buyer pays the costs for the day of closing (for exam purposes.) Every year is considered to have 360 days; every month has 30 days. Real estate taxes & interest may be paid in arrears or advance.