Unit 13—TYPES OF MORTGAGES AND SOURCES OF FINANCING

You can expect to see four questions on the end-of-course exam and four questions on the state exam from this unit.

Learning Objectives

After successfully completing this unit, you will be able to
• describe the mechanics of an adjustable rate mortgage and the components of an ARM,
• describe the features of an amortized mortgage and amortize a level-payment plan, mortgage when given the principal amount, the interest rate and the monthly payment amount,
• distinguish among the various types of mortgages,
• describe the characteristics of FHA mortgages and common FHA loan programs,
• identify the guarantee feature of VA mortgage loans and the characteristics of VA loan programs,
• explain the process of qualifying for a loan and how to calculate qualifying ratios,
• distinguish among the primary sources of home financing,
• describe the role of the secondary mortgage market and know the features of the major agencies active in the secondary market,
• describe the major provisions of the federal laws regarding fair credit and lending procedures, and
• recognize and avoid mortgage fraud.

Key Terms

adjustable rate mortgage (ARM)mortgage broker
amortized mortgagemortgage fraud
balloon paymentmortgage loan originator
biweekly mortgagenegative amortization
conforming loannonconforming loans
disintermediationpackage mortgage
home equity loanpartially amortized/balloon mortgage
indexpayment cap
intermediationperiodic cap
level payment planpurchase money mortgage
lifetime capreverse annuity mortgage
marginteaser rate
MIPUFMIP

Overview

This unit will help you to understand the various mortgage payment methods, such as the amortized mortgage, the adjustable-rate mortgage, and the biweekly mortgage. You’ll learn about the benefits and requirements of FHA, VA, and conventional mortgages, and how to financially qualify for each of them. You’ll also become acquainted with some of the important federal laws regarding fair credit lending. And finally, you’ll learn about the different types of mortgage fraud, a major factor in the financial crash of 2007.