So its the time for you to buy your first home and you need a mortgage. In this seminar learn about all of the options for a mortgage, and how you can qualify for a loan. We will cover all of the details and answer your questions. If you are a professional, this is the perfect seminar to help your customer learn about the mortgage loan process and we can customize it to your needs. Just contact us for details.

1. So You Want a
Home Loan
Seminar
Saunders Learning Group, LLC, Andover, KS

2. The Home Buying Process
Saunders Learning Group, LLC, Andover, KS

3. What is Mortgage
• A mortgage is a loan to finance the purchase
of real estate, usually with:
 specified payment periods
 and interest rates which is paid to the bank
 secured by the property to loan is used to
purchase .
 The borrower (mortgagor) gives the lender
(mortgagee) a lien on the property
as collateral for the loan.
• The actual loan amount is referred to as
the principal, and the mortgagor is
expected to repay that principal, along with
interest, over the repayment period of the
mortgage.
Saunders Learning Group, LLC, Andover, KS

4. What is Mortgage
• A mortgage can be used for financing many different
things, including:
 Purchasing or constructing a new house.
 Purchasing an existing house.
 Refinancing to consolidate debts.
 Financing a renovation.
 Financing the purchase of other investments.
 Financing the purchase of investment property.
• Since a mortgage is a fully secured form of
financing, the interest you pay is usually less than
with most other types of financing.
Saunders Learning Group, LLC, Andover, KS

5. A Brief History
• Mortgages were used in the 1880s, but massive defaults in the agricultural
recession of 1890 made long-term mortgages difficult to attain.
• Until post-WWII, most mortgage loans were short-term balloon loans with
maturities of five years or less.
• Balloon loans, however, caused problems during the depression. Typically, the
lender renews the loan. But, with so many Americans out of work, lenders could
not continue to extend credit.
• As a part of the depression recovery program, the federal government assisted in
creating the standard 30-year mortgage we know today.
• The U.S. government established the Federal National Mortgage Association
(FNMA or Fannie Mae) in the 1930s to buy mortgages from thrifts so they could
make more mortgage loans, this created a “secondary market” for mortgages.
• FHA and VA insured loans make securitization easier
• Government National Mortgage Association (GNMA or “Ginnie Mae”) and Federal
Home Loan Mortgage Corp. (FHLMC or “Freddie Mac”) created in the 1960s
 encouraged continued expansion of the housing market
 provided direct and indirect guarantees that allow for the creation of
mortgage-backed securities
Saunders Learning Group, LLC, Andover, KS

6. What is Mortgage Company
• A mortgage company is a company engaged in
the business of originating and/or funding
mortgages for residential or commercial
property.
• This is a type of regulated lender that
specifically lends money for people to purchase
"Real Property" (homes).
• A Mortgage bank specializes in originating
and/or servicing mortgage loans.
• A mortgage broker acts as an intermediary
whose brokers mortgage loans on behalf of
individuals or businesses.
• A mortgage bank is a state-licensed banking
entity that makes mortgage loans directly to
consumers.
Saunders Learning Group, LLC, Andover, KS

7. Mortgage Banking Functions
Mortgage Banking
Loan Origination Loan Servicing
Provides consumers with a wide range of Processes payments, adjustments, collects funds to
mortgage loan products, pay property taxes and insurance, arranges for payoff
or transfer of loans
Application Payment Processing
Processing (or
Escrow Accounts
Underwriting)
Loan Closing Loan payoffs
Saunders Learning Group, LLC, Andover, KS

8. Steps in Loan Origination
Stage 6
Closing
Loan
documents
signed
and
recorded
Saunders Learning Group, LLC, Andover, KS

9. Typical Loan Decision Process
Saunders Learning Group, LLC, Andover, KS

10. Saunders Learning Group, LLC, Andover, KS

11. Current U.S. Mortgage Requirements
• Credit Scores — A credit score of 600 or higher for FHA loans, and 620 or higher for
conventional mortgages.
• Down Payments — A veteran or VA loan does not require a down payment. With an FHA the
down payment could be as low as 3.5%. Conventional mortgages generally require a down
payment of at least 5%, and often 20%.
• Debt Ratios — Lenders are concerned with your combined debt ratio (a comparison between
monthly earnings and debt expenditures). Generally not more of 45% of your income to cover
your debts (including the new mortgage payment).
• Funds for Closing — Your lender will check your bank account to make sure you have enough
money to cover your closing costs. There are the various fees and charges you’ll accrue during
the home-buying process. You may need to have these funds on deposit for at least 60 days
in advance of loan closing.
• Employment — Many lenders want to see at least two years of steady employment,
documented with W-2s and paystubs.
• Documents — As of 2012, documentation requirements became more stringent These include
federal tax returns for the last two years, bank statements, pay stubs, employment letters and a
list of any other assets you have. Most lenders today want the tax records to be sent directly
from the IRS
• Cash Reserves —Some leaders require extra money in the bank at closing, theoretically
earmarked for your first few mortgage payments. Other lenders only care that you
have enough to cover your down payment and closing costs.
Saunders Learning Group, LLC, Andover, KS

12. Down Payments and PMI
Avoid Private Mortgage
Insurance with 20% or
more down.
Saunders Learning Group, LLC, Andover, KS

13. Mortgage Interest Rates
• The stated rate on a mortgage loan is determined by
three rates:
 Market Rates: general rates on Treasury bonds
 Term: longer-term mortgages have higher rates
 Discount Points: a lower rates negotiated for
cash upfront
• The next slide shows the relationship between
mortgage rates and long-term treasury rates.
• As can be seen, mortgage rates are typically higher
than Treasury rates, but the spread (difference)
between the two varies considerably.
Saunders Learning Group, LLC, Andover, KS

14. Mortgage Interest Rates
Lenders typically match
the interest rate on a
mortgage to an index
like 10 year treasury
bonds.
Saunders Learning Group, LLC, Andover, KS

15. Mortgage Interest Rates & Points
A difficult decision when getting a mortgage is whether to pay points (cash) upfront in
exchange for a lower interest rate on the mortgage. Suppose you had to choose
between a 12% 30-year mortgage or an 11.5% mortgage with 2 discount points.
Which should you choose? Assume you wished to borrow $100,000.
First, examine the 12% mortgage. Now, examine the 11.5% mortgage. Using
Using a financial calculator, the required a financial calculator, the required
payments is: payments is:
n = 360, i = 1.0, PV = 100,000, n = 360, i = 11.5/12, PV =
100,000,
Calculate the PMT. PMT =
$1,028.61
Calculate the PMT. PMT =
$990.29
Saunders Learning Group, LLC, Andover, KS

16. Mortgage Interest Rates & Points
• Paying points will reduce your mortgage payment
each month. However, you pay interest $2,000 upfront. (Which
may be tax-deductible)
• You can see that the decision depends on how long you want to
live in the house, keeping the same mortgage.
 If you only want to live there 12 months, clearly the $2,000
upfront cost is not worth the monthly savings.
 If you plan to live in a home for more than five years, paying
points might be worth it.
Saunders Learning Group, LLC, Andover, KS

17. Mortgage-Lending Institutions
Saunders Learning Group, LLC, Andover, KS

18. Loan Servicing
• Most mortgages are immediately sold to another investor by the
originator.
• This frees cash to originate another loan and generate additional fee
income.
• Still, someone has to collect the monthly payments and keep records.
This is knows as loan servicing, and servicers usually keep a portion of
the payments received to cover their costs.
There are three elements in the life of a mortgage loan:
 The originator packages the loan for
an investor
 The investor holds the loan
 The servicing agent handles the paperwork
Saunders Learning Group, LLC, Andover, KS

19. Mortgage Loan Servicing
Saunders Learning Group, LLC, Andover, KS

20. Types of mortgage loans
Saunders Learning Group, LLC, Andover, KS

21. Primary Mortgage Market
• Four basic types of mortgages are issued by
financial institutions
 home mortgages are used to purchase one- to
four-family dwellings
 multifamily dwellings mortgages are used
to purchase apartment complexes, townhouses, and
condominiums
 commercial mortgages are used to finance
the purchase of real estate for business purposes
 farm mortgages are used to finance the
purchase of farms
Saunders Learning Group, LLC, Andover, KS

22. Conventional Mortgage Loans
• A type of mortgage in which the underlying terms and
conditions meet the funding criteria of Fannie Mae
and Freddie Mac.
• About 35-50% of mortgages in the United States,
depending on market conditions and consumer
trends, are conventional mortgages.
• In other words, Fannie Mae and Freddie Mac
guarantee or purchase 35-50% of all mortgages.
• Conventional mortgages may be fixed-rate or
adjustable-rate mortgages.
• Conventional Mortgage Loans are eligible to be
resold by the loan originator in the secondary
mortgage markets.
Saunders Learning Group, LLC, Andover, KS

23. Non-Conforming Loans
Non-conforming loans are offered to borrowers who do not qualify for conforming loans. Though they are
the only borrowing option for some home buyers, they typically have higher interest rates, and may carry
additional upfront fees and insurance requirements. Loans can be non-conforming for several different
reasons. The best-known type of non-conforming loan is the jumbo loan.
• Jumbo Loans
 Jumbo loans are too large to meet the guidelines of a conforming loan. For example, if
you are buying a home and the conforming loan limit is $417,000, but need a single
mortgage for $500,000, it would be jumbo loan. As jumbo loans do not meet the
standards of a conforming loan, they are more difficult to sell on in the secondary market.
 Reasons for Non-Conforming Loan:

 Loan-to-Value Ratio (LTV).

 Credit Score and History.
 Documentation Problems.
 Total Debt.
 Recent Bankruptcy.

 Debt-to-Income Ratio (DTI).
Saunders Learning Group, LLC, Andover, KS

24. Federal Home Administration
Saunders Learning Group, LLC, Andover, KS

25. Types of Mortgages
• The two basic types of Mortgages are :
 Fixed Rate Mortgage
 The Adjustable Rate Mortgage (ARM)
• While the marketplace offers numerous varieties within these two categories, the
first step when shopping for a mortgage is determining which of the two main loan
types - the fixed-rate mortgage or the adjustable-rate mortgage - best suits your
needs.
• Other types of Mortgages are :
 Interest Only Mortgage
 Biweekly Mortgage
 Two step Mortgage
 Federal Housing Authority (FHA) Mortgage
 Veterans Affairs Loan
Saunders Learning Group, LLC, Andover, KS

26. Fixed Rate Mortgage
• This is the most common type of residential home loan.
• It is repaid through fixed monthly payments of principal and interest.
Saunders Learning Group, LLC, Andover, KS

27. Fixed Rate Mortgage
Advantages
• Stability: With your mortgage rates fixed, the loan period
set, you know what your mortgage payment will exactly be
for the whole life of the residential loan.
Given the certainty of your mortgage loan payment,
you can plan your finances accordingly.
Lower payments in a low mortgage interest rates
environment: A lower monthly mortgage payment
frees up your purchasing power and gives you greater
financial flexibility.
Using a 30 year fixed mortgage of $150,000 as an
example, if the borrowing rate is 6.50%, the monthly
payment would be $948.10.
If the mortgage interest rate is 8.50%, the mortgage
monthly payment would amount to $1,153.37.
The difference in monthly payments is $205.27.
Saunders Learning Group, LLC, Andover, KS

28. Fixed Rate Mortgage
Disadvantages
• Affordability: If mortgage interest rates are high, you might
have difficulty making the high mortgage payments. The
home loan in this situation might not be approved.
• High payments in a high mortgage rate environment: Nobody
wants to be saddled with high home mortgage payments
over the long term.
 When borrowing rates are lower, you can refinance your
mortgage.
 A refinance mortgage is the process of replacing your
current mortgage with a new residential mortgage with
better borrowing terms.
Saunders Learning Group, LLC, Andover, KS

29. Adjustable Rate Mortgage
The adjustable rate mortgage or ARM is a combination of a fixed rate mortgage and a
floating rate mortgage.
Saunders Learning Group, LLC, Andover, KS

30. The Adjustable Rate Mortgage (ARM)
Saunders Learning Group, LLC, Andover, KS

31. The Adjustable Rate Mortgage (ARM)
• With low interest rates, more people will select a fixed-rate loan as they
will be more affordable.
• An ARM is more attractive when interest rates are rising, as you can still
qualify for a mortgage, and plan for a rate increase if it happens.
Saunders Learning Group, LLC, Andover, KS

32. Adjustable Rate Mortgage
Advantages
 Teaser Rate: The starting interest rate of an adjustable rate
mortgage. It is usually referred to as the teaser rate, since it
is lower than the fully indexed rate.
 The initial low mortgage rate is used to attract people.
 An arm mortgage is ideal for people who intend to stay
in their homes for no more than 5 to 7 years.
 The benefits of an arm are realized at the beginning.
 Affordability: If current mortgage rates are high this may be
the only option available to you.
 You may have a better chance of getting the home loan
since the lender incorporates the gross monthly income
and the monthly loan payment amount to determine
how much you qualify.
 The monthly amount will be less with a lower interest
rate so you might qualify for more.
Saunders Learning Group, LLC, Andover, KS

33. Adjustable Rate Mortgage
Disadvantages
 Complicated to understand: Unlike a fixed rate mortgage that
is simple to understand,
 there are many variables that go into calculating
adjustable rate mortgage loans.
 Interest rates have bottomed out: By going with an adjustable
rate mortgage arm at the bottom of the interest rate cycle,
successive borrowing rates will likely go higher as interest
rates go down.
 Your monthly mortgage payments will become less
affordable.
 Uncertainty: If you plan to be at your property for more than 7
years, you will be dealing with the uncertainty associated with
an ARM mortgage.
 After each adjustment period, you will be getting new
mortgage payments.
Saunders Learning Group, LLC, Andover, KS

34. Interest Only Mortgage
• No payments of principal made at the beginning of the loan.
• Monthly payments consist only of interest only. Due to lower
monthly mortgage payments, you qualify for a bigger loan.
Saunders Learning Group, LLC, Andover, KS

35. Interest Only Mortgage
Advantages
 Lower mortgage payments
The lower monthly mortgage payments let you purchase
a home where a fixed mortgage loan would not.
 You get to jump on the housing bandwagon
 Free up cash to invest the money elsewhere
Instead of using the cash to pay down your mortgage
principal, you can invest in other vehicles such as stocks
and mutual funds to generate a superior return.
Saunders Learning Group, LLC, Andover, KS

36. Interest Only Mortgage
Disadvantages
 Income Risks: There are no assurances that your income
will rise fast enough to cover the higher monthly mortgage
payments.
 Property Risks: Instead of the property rising fast enough
to pay off your interest only home mortgage, it could stay
at current levels or even drop.
As a result, you might require another loan just settle the
interest only mortgage loans.
 No guarantee of getting superior returns in other
investments: If you used the money to generate returns in
investments such as equities and mutual funds, there is
no guarantee you’ll make money.
Saunders Learning Group, LLC, Andover, KS

37. Biweekly Mortgage
• Mortgage payments are made every two weeks. You make 26 biweekly mortgage payments.
• You’ll save significant amounts in mortgage interest and pay off your home mortgage years earlier.
 Example: 30 year fixed mortgage $175,000 Interest Rate: 6.75%
 you will be saving $54,257.52 in mortgage interest.
 your mortgage will be paid off 5 years 9 months earlier.
Saunders Learning Group, LLC, Andover, KS

38. Common Mortgage Terms
• Annual percentage rate (APR)-The actual cost of borrowing money, expressed in the form of an
annual rate to make it easier to compare the cost of borrowing money among several lenders or
sellers on credit. The APR includes all the financing costs of a mortgage, including points,
origination fees and other finance charges and the mortgage interest.
• Point- A fee or charge equal to one percent (1%) of the principal amount of the loan which is
collected by the lender at the time the loan is made. It is collected only once. Generally the lower
the interest rate, the more points you'll pay.
• PITI – Principal, interest, taxes, insurance. The total monthly payment if fully amortized. PITI also
used to calculate reserve requirements for asset documentation .
• LTV – Loan to Value – Percentage of a homes value owed on a mortgage.
• CLTV – Combined Loan to Value – This is the total percentage of a home’s value owed on all
mortgages combined
• DTI – Debt to Income Ratio – Represented as a percentage, this is the ratio between debts and
income.
• Amortize-Paying off a debt by making regular installment payments over a set period of time, at the
end of which the loan balance is zero.
• Deed-A legal document under which ownership of a property is conveyed.
• 3-Day Right of Rescission – A period of 3 full business after the signing of a mortgage
that the borrower has to rescind, or change his mind, and cancel the loan
without any negative consequences.
Saunders Learning Group, LLC, Andover, KS

39. Questions
Saunders Learning Group, LLC, Andover, KS