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Obtaining a Mortgage

Obtaining a Mortgage . Joe Howard . This Unit will cover typical mortgage a situation. The lesson is designed to show the student what happens behind the desk at a typical bank. It discusses banks competition and touches on competitions advantages and disadvantages .

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Obtaining a Mortgage

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  1. Obtaining a Mortgage Joe Howard

  2. This Unit will cover typical mortgage a situation The lesson is designed to show the student what happens behind the desk at a typical bank. It discusses banks competition and touches on competitions advantages and disadvantages 11th Grade Banking

  3. Objectives • To expose the students to what a lender does on a dally bases. • To show the student how many things go into doing a mortgage loan. • To help the student understand the lending world.

  4. Materials Needed • Notebook • Calculator • Text Book • Pencil

  5. Web-Sites • www.truecredit.com • www.lcnb.com • www.usbank.com • www.freddiemac.com • www.fanniemae.com

  6. Activities • I would like the students to get hands on experience. • Role play loan officer and customer. • Try to find “debit ratios” for fake customers. • Look at fake customers information and try to decide if it is a good loan or not.

  7. Introduction to Consumer Credit

  8. What is Consumer Credit? • Consumer Credit is any loan or credit line that is given to a consumer and not to a business. • These loan can be used personally, family, or for household purposes. Ex would be cars, homes, or remodeling.

  9. Types of Businesses designed to give loans. • Because banking was deregulated there have been a number of different competitors. • Ex. Credit Union • Saving and loan associations and savings banks • Finance companies • Mortgage companies • Insurance companies

  10. Differences between each competitor. • Bank: Offer a wide variety of banking needs for individuals and businesses. One stop shopping • Credit Union: Typically members only. Offer their members lower leading rates than most other lenders. Typically not as stringent on credit requirements. • Saving and Loan Assoc.: Specialized in residential mortgages, home improvement loans, and savings-secured loans, but offer deposit services also. • Finance companies: Provide a variety of consumer loans and credit cards. These companies charge higher rates and cater to higher risk consumers. • Mortgage companies: Act a broker between lender and loan customer. Often charge additional fees. • Insurance companies: Have low-interest loans for customers that already have secured cash insurance policies through them.

  11. Home Lending 101 • The next slides will discuss how typical a mortgage, at a bank, is done from start to finish. From the time the customer walks through the door until it is closed

  12. Mortgages • There are many different types of mortgages however for the sake of the lesson we are going to go through an over view of a homebuyer getting a 30 year fixed mortgage.

  13. Fixed: means exactly what is says. There will be no changes to your interest rate as long as you have this loan. Adjustable: Explains it self also. This rate is subject to change in a particular time frame or is tied directly to the federal governments lending rate. Fixed vs. adjustable:

  14. All loans roughly go through the same questions What is the purpose of this loan? Is the request reasonable? Is this loan with in policy? Step 1 Loan Request Review

  15. At this point you will ask the customer many personal questions What is your monthly income? How long have you been on your current job? Do you have any taxes liens? Have you filed for bankruptcy in the past three years? Step #2 Take Loan Application

  16. Once you have taken the application you should then begin collecting finical information from the costumer. Bank Statements Pay stubs Personal Tax Returns Any other investments, savings, assets, etc Collect Finical information

  17. Underwriting Begins: Credit History • Once the application is taken you begin working on the decision-making information. • Run their beacon score. Beacon scores fall between 350-850. • Average is between 650-690. Anything above 700 you typically have a good customer.

  18. What to Look for in Credit Reports • Late payments • High credit card debit • Credit history longer than 12 months • Frequency of credit requests

  19. Underwriting: Debit Ratio • Check repayment sources • Does their “debit ratio” work with their income? • Debit ratio is their total monthly fixed expenses divided by their total monthly income. • Ex. $1,000 Fixed expenses divided by $2,000 total monthly income = 50% of their wages already going out every month. This is not good to add more debits to.

  20. Once the lender and the institute decides to go forward with the loan they begin to investigate the property. The first investigation is the Title Search. This search looks at the properties history to see if there are any leans against the property. Ex. Some older homes can have 8 to 9 owners before you. If someone in 1920 still did not pay their taxes the property cannot be sold to a new party. Departmental Work: Title Search

  21. Departmental Work: Flood zone determination • Some homes are located in flood zones. • All Ohio flood zone determinations work off of 100-year flood evaluation. Not all institutions will do flood zone homes, if the institution does do the loans they will require proof of flood insurance before going forward with the loan.

  22. Departmental Work: Collateral Appraisal • The institution also orders an appraisal of the property. In a 30-year purchase loan the appraisal would be very extensive. • If the property is selling for $150,000 and the appraisal comes back at $155,000 the lender will do the loan. • Obviously if the property comes back short on the appraisal the institution will not go forward with the loan.

  23. Loan Approval • Once the loan has been approved it is now time for the signing process to begin. There is what is called a “first signing” done after all underwriting has been done. • At this time the customer signs documents and receives disclosure statements.

  24. First Signing Disclosers • The Flood Disasters Protection Act (FDPA) (if in flood zone) • The Fair Housing Act (FHA) • The Home Mortgage Disclosure Act (HMDA) • The Home Equity Loan Consumer Protection Act (HELCPA)

  25. First Signing • The customer also signs all documents they receive on the last slide. • Promissory Note: A promissory note is similar to a check. It is the written agreement to pay a certain amount of money back by a certain time. • Proof of Home Owners Insurance: The buyer must have home owners before the loan is completed

  26. Tying Up the Loose Ends • Now the first signing is done the customer now must set up a final signing date. • What happens at the Final Signing? • Final deeding of the home occurs • Both the buyer and the seller agree to the terms. • Everything is notarized and some times the final signing needs to be done in the present of a lawyer.

  27. The American Way! • Now the customer can gain access to the home and begin the wonderful time of pay a mortgage every month. :)

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