MLPP3e C06 Conventional

Chapter 6
Conventional
Financing
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 1

Chapter 6: Conventional Financing
Overview
• Nearly half of all residential real estate lending
is completed with conventional financing
programs
• This chapter discusses:
– Different types of conventional loans (15-
year, 30-year, conforming, non-conforming)
– How private mortgage insurance and
secondary financing have made
conventional loans easier to obtain

Key Terms
• Amortization • Negative
• Conforming Loan Amortization
• Conventional Loan • Prepayment
• Declining Market Penalties
• • Private Mortgage
Fixed Rate Loan
Insurance (PMI)
• Jumbo Loan
• Secondary
• Loan-to-Value Financing
Ratio (LTV)
• Self-Liquidating
Conventional Loans
• One that is usually made by a bank or lender that is
not insured or guaranteed by a government entity or
agency, such as FHA or VA
• Most are guaranteed or purchased by government-
sponsored entities (GSEs) in the secondary market
and must meet appropriate guidelines
• Conventional loans may be conforming (meeting
criteria to be sold in the secondary market) or
nonconforming
• Just under half of all residential mortgages are
handled as conventional financing
– Percentage can change depending on market
conditions or consumer trends

Traditional Conventional Loans
• Typically long-term, fully amortized, fixed

rate real estate loans
• Type of loan with which borrowers are most
familiar
• Anything other than 30-year fixed is
considered nontraditional

Long-Term Loan
• Payments generally spread out over 25-30
years (even 40)
• Before the FHA was formed in 1934,
home loans were typically 5, 7, or 10
years
– Payments were high, required balloon
payments, and/or frequent refinancing
• Provide reasonable payment and security
so borrowers can choose if, when to
refinance
Fully Amortized
• Amortization: The reduction of the balance of the
loan by paying back some of the principal owed on
a regular basis
– Payments applied to principal and interest
• Fully amortized loan: Total payments over the life
of a loan pay off the entire balance of principal and
interest due at the end of the term
– Also known as self-liquidating
– Payments stay constant for the entire loan
term
Fully Amortized
• Different from how things were before FHA
– When loans had only partial amortization
or none, resulting in negative amortization
• Negative amortization: Occurs when loan
balances increase rather than decrease due to
deferred interest
– With even larger balloon payments then
due from the borrower

Fixed Rate Loans

• Interest rates remain constant for the duration
of the loan
• Borrower can refinance if rates decrease
• Lenders have a guaranteed rate of return
• Benefit borrower or lender, depending on
interest rates

15-Year Mortgage Loans

• Often get better interest rates from lenders
because shorter term means less risk
• Over life of the mortgage, its total interest paid
are about one-third less than a 30-year
mortgage at the same interest rate
• Homebuyer can attain full ownership in half the
time of a 30-year mortgage

15-Year Mortgage Loans

• Disadvantages:
– Higher payments
– Larger down payments required
– Borrower loses the income tax deduction more
quickly because home is paid for sooner
• Disciplined borrower could make additional
payments each month on a 30-year mortgage (if
allowed)
– Borrower gets benefits of a 15-year mortgage
without the contractual burden of higher payments

Conforming vs.
Nonconforming Loans
• Conforming loans meet Fannie Mae/Freddie
Mac standards and can be sold on the
secondary market
• Lenders prefer these loans because the ability
to sell them on the secondary market allows
them to liquidate if they need more funds

Conforming vs.
Nonconforming Loans
• In order to obtain a conventional loan, borrower
must qualify under both of the following:
– 28% total housing expense ratio
– 36% total debt service ratio
• Borrower should have:
– 5% of their own funds for a down payment
– 2 months of reserves on deposit
• For some lenders, these guidelines may be less
rigid when automated underwriting is used

Conforming vs.
Nonconforming Loans
• Nonconforming loans do not meet the previous
standards and cannot be sold to Fannie Mae or
Freddie Mac
• Some other secondary markets will purchase
nonconforming loans
• Lenders that have the option of keeping loans in
their own portfolio (e.g., banks and S & Ls) can,
within limits of the law, deviate from the standards
set by the secondary market

Conforming vs.
Nonconforming Loans
• The distinctions between the two loans are
becoming blurred
• Fannie Mae and Freddie Mac constantly
implement new loan program standards to
meet the needs of consumers
– Conforming market follows into territory that
once was domain of nonconforming market

What Makes a Loan

Nonconforming
1. Size of the Loan
− Jumbo loans exceed the maximum loan amount
established by Fannie Mae and Freddie Mac for
conforming mortgage loans
1. Credit Quality of Buyer
− Doesn’t meet standards and is classified as a B
or C borrower by Fannie Mae/Freddie Mac
− Loans can still be offered, but they can’t be sold
to Fannie Mae or Freddie Mac

A-Minus Conventional Loans

• Allow a borrower with less than perfect credit
history, limited money for down payments, or
higher debt service ratio to get a loan that could be
sold on the secondary market
• Instituted to meet increasing consumer demand
and limit loss of market share to nonconforming
lenders
• Note: Final interest rate and fees are determined
on basis of risk factors present in loan

Conventional Loan Programs

• Can be classified by the percentage of down
payment
• Conditions and standards presented here are
most typical
• Remember some lenders offer high LTV loans
where PMI is not necessary, but fees may be
higher, or conditions and standards imposed

80% LTV Conventional Loan

• LTV ratio refers to the amount of money
borrowed (the loan amount of a first
mortgage) compared to the value of the
property
• Lender will always use the lower of the
appraised value or the sale price in order to
protect its interest
• Lower LTV = Higher borrower down
payment, which means the loan is more
secure
Higher LTV Loans

• If buyer wants a conventional loan but doesn’t
have enough for a 20% down payment he can still
try to get a:
– 90% conventional with a 10% down payment
– 95% conventional with a 5% down payment
• Loan with an LTV higher than 80% are possible
due to PMI and secondary financing

Higher LTV Loans

• Qualifying standards tend to be more stringent
• Lenders adhere to those standards more
strictly even if the loan is insured through PMI
• May have higher interest rate, higher loan
origination fees, or impose additional
conditions and standards

90% Conventional Loan

• At least half of the 10% payment (5%) must
be made from personal cash reserves
• Remainder may be gift from family
member, equity in other property, or credit
for rent already paid

95% Conventional Loan

• Requires owner occupancy
• Down payment must be made from
personal cash reserves (no secondary
financing or gifts)

Loans for Special Needs
• For people who:

– Can’t pass a stringent credit review, but
have a larger down payment
– Have good credit, but have a hard time
proving stability of income
• May be referred to as “no doc,” “low doc,”
“stated income,” “no-ratio,” “NINA,” or
“easy qualifier” loans

Loans for Special Needs

• Lenders modify qualifying standards or loan
criteria based on customers’ needs
– May require same documentation, but relax
qualifying standards due to increased equity
borrower is putting into the home
– May relax income verification standards for
borrowers with good credit or down payments
of at least 20%
• Current market conditions will drive the
availability of such loans
Private Mortgage
Insurance (PMI)
• Offered by private companies to insure lender
against default on loan by a borrower
• Evolved to compensate lender for reduced
borrower equity, making loans easier for
borrowers and safer for lenders
• Both Fannie Mae and Freddie Mac require
mortgage insurance on home loans with less
than 20% down

How Mortgage Insurance Works
• When insuring a loan, mortgage insurance

company shares lender’s risk, but only part of
the risk
• Insurer does not insure entire loan amount
– Rather the upper portion of the loan that
exceeds the standard 80% LTV
• Amount of coverage is typically 20% - 25% of
loan amount

How Mortgage Insurance Works
• In event of default and foreclosure, insurer

will take over property or allow lender to sell
it
• Lender can make a claim for
reimbursement of actual losses (if any) up
to the face amount of the policy

PMI Premiums
Three ways a buyer can pay for PMI:
1. Fee at closing and renewal premium
• Traditional way
• One-time fee at closing when loan is made
• Recurring fee
1. One-time PMI premium
• Some PMI companies offer a one-time
mortgage insurance premium, with no
renewal fee
continued on next slide 

PMI Premiums
3. No PMI premium, but higher interest rate
• Interest rate adjustment made at the time of
closing in exchange for lender agreeing to
“insure” home loan themselves
• This allows money to be deducted as interest
on a borrower's federal income tax
• Higher payment will be in effect for the life of
the loan—there is no cancellation

PMI Cancellation
• When increased risk of borrower default is gone
(LTV 80% or less), PMI has fulfilled its purpose
• Homeowners Protection Act (HPA) of 1998
requires lenders to automatically cancel PMI
when home has been paid down to 78% of its
original value if borrower is not delinquent
– Exceptions: Multi-family units, non-owner
occupied homes, mortgages on second homes,
and second mortgages
– Law sets a minimum, market moves bar higher

PMI Cancellation
Fannie Mae and Freddie Mac have:
• Applied the 78% rule to all their mortgages
– Even those closed before July 1999
• Expanded rules to cover investment
properties and 2nd homes
• Will consider present value of home, not just
original value as required by law
– Effectively cancels PMI more quickly
(assuming home appreciates)

PMI Cancellation
• For loans closed after July 29, 1999, lenders
must drop PMI at a borrower’s request if:
– A new lender-approved appraisal shows loan
has been paid down to 80% or less of
home’s original value.
– The borrower shows a history of repayment
over the past 12 months.

PMI Cancellation
• Fannie Mae and Freddie Mac:
– Allow borrowers to use 80% of home’s current value if
no payments have been more than 30 days late in
prior 12 months for fixed rate loans (24 months for
ARMS)
– Rules apply to all loans, but can require up to 5 years
of seasoning before they apply
• When PMI is terminated, lender cancels policy
and reduces monthly mortgage payment by PMI
amount
• Law and Fannie Mae/Freddie Mac rules do not
apply to any upfront or one-time PMI premium
paid

Underwriting PMI
in Declining Markets
• Many factors could go into determining
whether or not a market area is declining
• May seem reasonable, but label can create
problems
– Label may not account for specific
neighborhoods where properties may still
be highly desirable
• Some may simply refuse to offer PMI in
these markets or may raise the premiums
for PMI
Secondary Financing
• When a buyer borrows money from
another source (other than primary
lender) to pay part of the purchase
price or closing costs
− Another way buyer can get a
conventional loan without a 20%
down payment
• Often seller "carries" the extra financing

Combined Loan to Value

• The percentage of property value borrowed
through a combination of more than one loan
• When borrower chooses to subordinate a
junior lean, this loan amount would also be
included in the CLTV
• Calculated by adding all loan amounts and
dividing by the home’s appraised value or
purchase price, whichever is lower

Combined Loan to Value

• Example: Buyer purchases property valued at
$100,000, taking out 2 loans:
$80,000 + $10,000
------------------------- = 90% CLTV
$100,000
• Remember: LTV ratio considers only that first
mortgage and would therefore be just 80%
($80,000 ÷ $100,000)
• Both LTV and CLTV can be used to determine the
amount of home equity a borrower has

Conditions
•Down Payment
– Borrower must make a 5% down payment
– For owner-occupied property, CLTV must not
exceed 95% of appraised value or sale price,
whichever is less
• Loan Terms
– Term of second loan cannot exceed 30 years, or
be less than 5 years
•Interest Rate
– Can be fixed or adjustable
– First and second mortgages cannot both have
adjustable rate
Conditions
• No Prepayment Penalty
– 2nd mortgage must be payable in full or in part
at any time, without penalty for paying debt
early
• Regularly Scheduled Payments
– Payments must be due on regular basis,
although not necessarily monthly
– Payments can fully or partially amortize debt, or
pay interest only

Conditions
• No Negative Amortization
– Payments on second mortgage must, at least, equal
the interest on the loan
– Loan balances cannot grow due to deferred interest
• Ability to Qualify
– Buyer must afford payments on 1st and 2nd
mortgages
• Subordination Clause
– Insures primary lender’s lien will take priority, even if
2nd mortgage is recorded first

Lender First and

Lender Second
• It’s not always the seller that carries a 2nd
mortgage
– Can be carried by any lender, investor, or
financial institution
• Sometimes the same lender may finance the
1st and 2nd mortgage
– Allows lender to charge a higher interest
rate on 2nd mortgage

Lender First and

Lender Second
• Some lenders offer conventional 80-20 loans,
which can be sold to Fannie Mae and Freddie
Mac if the loans meet all standards and criteria
• When upper portion of loan represented by the 2nd
mortgage is paid off, the risk is gone and borrower
still has a 1st mortgage at a good interest rate
• Repayment plan is a matter of agreement
between borrower and lender

Repayment Methods
on Second Mortgages
• As with any loan, there are various ways to
repay a 2nd mortgage:
– Fully amortized
– Partially amortized
– Interest only

Repayment Methods
on Second Mortgages
• A house costs $66,667
• Buyer makes $6,667 (10%) down payment
and gets a:
− $50,000 (75%) 1st mortgage for 30 years
at 6%
− $10,000 (15%) 2nd mortgage for 5 years at
7 7/8%

Fully Amortized
Second Mortgage
• One with the total payments over the life of a loan
paying off the entire balance of principal and interest
due at the end of the term
• The shorter the term, the higher the payments
$299.78 Payment on 1st Mortgage

+ $202.17 Payment on 2nd Mortgage
$501.95 Total housing expense
• After 5 years, 2nd mortgage paid in full

Partially Amortized
Second Mortgage
• Payments applied to principal and interest,
but the payments do not retire the debt when
the agreed upon loan term expires
– Thus, a balloon payment is required as a
final payment at the end of the loan term

Partially Amortized
Second Mortgage
• To keep payments low, lender and borrower
calculate monthly payment as if borrower were
going to pay off entire debt over a longer
period of time
– For example, payments may be calculated as
if 2nd mortgage would be repaid over 30
years, but borrower agrees to make a balloon
payment of the loan balance after 5 years

Partially Amortized
Second Mortgage
$ 299.78 Payment on 1st mortgage
+ $ 72.51 Payment on 2nd mortgage
• Smaller monthly payment makes total housing
expense less—easier for borrower to qualify
• Risk is that borrower can’t deliver loan balance of
2nd mortgage (or can’t refinance) after 5 years
• If 2nd mortgage is to be paid at the time, there will
be a substantial balloon payment due (or
refinance)
Interest Only Second Mortgage

• One with scheduled payment that pay only
accrued interest, and not any portion of
principal
• Reduces monthly payments even more
– With interest only loans, no amortization is
used
• Payment can be determined:
– Monthly interest rate: Loan amount multiplied
by interest rate then divided by 12 months
– Daily interest rate: Loan amount multiplied by
interest rate, divided by 360 or 365, then
multiplied by number of days in the month
Interest Only Second Mortgage
$299.78 Payment on 1st mortgage

+ $ 65.63 Payment on 2nd mortgage
• Interest only gives borrower the lowest
housing expense
• If no principal is paid, the balloon payment
will be the original amount borrowed

Assumption of
Conventional Loans
• Assumption: One party (buyer) takes over
primary liability for the loan of another party
(seller), usually implying no change in loan terms
• When a buyer assumes seller’s mortgage, seller
remains secondarily liable unless lender provides
a release
• Loan assumption is not always an option today
– A new loan allows a lender to change interest
rates, charge fees, or change loan terms for a new
party

Assumption of
Conventional Loans
Lender has several options in response to
an assumption request:
• Accept assumption and leave loan terms intact
• Accept assumption, but charge an assumption fee
and/or increase loan’s interest rate
• Allow assumption, but keep original holder (seller)
secondarily liable if new owner defaults
• Not allow assumption and exercise a call provision
− This would need to be stated in the note or mortgage

Prepayment Penalties
• Fees that a lender charges the borrower for
paying off a loan early
• Time periods and amount of penalty may vary
• Fannie Mae and Freddie Mac do not enforce
prepayment penalties
• Lenders who sell loans to Fannie and Freddie
cannot keep prepayment penalties
• Prepayment penalties are prohibited in FHA and
VA loans

Exercise 6-1
A potential borrower is applying for a
conventional loan to purchase a primary
residence. Currently he pays $500 in rent,
$420 for an auto loan, $170 toward his VISA
bill, and $300 on a student loan each
month. His gross monthly income totals
$4,900, and his take-home pay after taxes
is $3,700.

Exercise 6-1
1. What is the maximum house payment—including principle, interest,
taxes, and insurance—for which the borrower will qualify?
The borrower’s monthly debt is $890 (auto loan + VISA +

student loan); rent does not count as debt since he will no
longer pay that once he’s in his house. Conventional
qualifying guidelines allow a total housing expense ratio of
28% and a total debt service ratio of 36%, based on gross
monthly income. Under the first ratio, the borrower would
qualify for $1,372 ($4,900 x .28). Under the second ratio,
the borrower would qualify for $874 ($4,900 x .36 = $1,764;
$1,764 - $890 = $874). Remember that you must accept
whichever ratio is lower.
Exercise 6-2
A borrower is seeking a fixed rate, conventional
loan to purchase a home. The sale price is
$189,500 and the property has been appraised
at $191,500. The buyer will make a 10% down
payment and finance the balance with a 75%
conventional first mortgage at 6% interest for 30
years and a 15% second mortgage. The second
mortgage bears interest at 11% and calls for a
balloon payment after five years (amortized on
the basis of a 30-year schedule). There will be a
1.5% loan fee on the first mortgage.

Exercise 6-2
• What will the loan amounts for the first and

second loans be? What are the LTV and the
CLTV?
1st loan amount:
$189,500 (purchase price) x 0.75 (% of 1st loan) = $142,125
2nd loan amount:

$189,500 x 0.15 (% of 2nd loan) = $28,425
LTV = 75%
Combined LTV = 90% (75% 1st loan + 15% 2nd loan)

Exercise 6-2
2. How much will the buyer pay at closing for down payment and loan fees?
Down Payment:
$189,500 (purchase price) x 0.10 (10% down) = $18,950
Loan Origination Fee:

$142,125 (loan amount) x 0.015 (fee %) = $2,131.88
Total Due at Closing:

$18,950 (down) + $2,131.88 (origination fee) = $21,081.88

Exercise 6-2
3. What is the monthly payment on the first
mortgage, including principal and interest?
Monthly Principal and Interest on 1st Loan:

($142,125 ÷ 1,000) x 6.00 payment rate = $852.75
(This solution uses the Payment Rate Chart found in

the Appendix. Note that the numbers there are
rounded to the nearest cent. For a more precise total,
you can use a financial calculator.)
Exercise 6-2
4. What is the total monthly payment for both loans?
2nd Loan:
$189,500 (purchase price) x 0.15 = $28,425
Interest on 2nd Loan:
($28,425 ÷ 1,000) x 9.53 payment rate) = $270.89
(This solution uses the Payment Rate Chart found in the
Appendix. Note that the numbers there are rounded to
the nearest cent. For a more precise total, you can use a
financial calculator.)
Total Monthly Principal and Interest Payment:
$852.75 + $270.89 = $1,123.64
Exercise 6-2
5. The review appraisal just came back at $185,000. What
happens now?
You must use the lower of the appraised value or

the purchase price. The buyer would either need to
bring an additional $4,500 to closing, or the
purchase price—and therefore the loan amounts—
would need to be adjusted accordingly.

Summary
1. Conventional loans are not insured or guaranteed by a
government entity. Traditional conventional loans are long-term,
fully amortized, and have a fixed rate. An amortized loan has
payments applied to principal and interest; fully amortized loans
have total payments over the life of the loan that pay all principal
and interest due. Conventional loans may be 15- or 30-year,
conforming or nonconforming. A 15-year loan retires sooner and
saves interest, but requires higher payments and, sometimes, a
higher down payment. Conforming loans meet Fannie
Mae/Freddie Mac standards and can be sold on the secondary
market. Qualifying standards are 28% and 36%. Nonconforming
loans do not meet these standards and cannot be sold to Fannie
Mae/Freddie Mac, but can be sold on the secondary market to
other buyers. Nonconforming can be due to credit quality or loan
size (jumbo loans exceed Fannie Mae/Freddie Mac maximum
loan amount).

Summary
2. Conventional loan programs include 80%, 90%,
95%, and some loans for special needs. An 80%
conventional loan means the loan-to-value ratio
(LTV) is 80% of the appraised value or sale price
of property, whichever is less. For an 80% loan,
buyer must make a 20% down payment; for a
90% loan, buyer must make a 10% down
payment with 5% from personal cash reserves
(no gifts, loans, etc.); for a 95% loan, buyer must
make a 5% down payment, all from personal
monies. For these loans, interest rates and fees
may be higher on higher LTVs, and PMI is
always higher.

Summary
3. Private mortgage insurance (PMI) insures lenders
against borrower default, compensating lenders for
lower borrower equity, and shares partial risk (upper
part) with the lender. PMI can be fee paid at closing
and as a renewal premium, one-time PMI premium,
or no PMI premium but with a higher interest rate.
Federal law says that loans after July 1999 must
drop PMI when LTV is 78% of original property value
and the borrower is not delinquent, or if the borrower
requests and the appraisal is 80% of original property
value. Fannie Mae/Freddie Mac rules require a drop
of PMI if LTV is 78% (or borrower-paid appraisal is
80%) of property’s current value.
Summary
4. Secondary financing is when buyer borrows money for
part of the purchase price or closing costs. To determine
the combined loan-to-value ratio (CLTV) when there is
more than one loan, add all loan amounts and divide by
the home's appraised value or purchase price, whichever
is lower. Typical conditions for secondary financing:
1. Borrower must make a 5% down payment; 2. Term
of second loan must be five to 30 years; 3. No
prepayment penalty; 4. Scheduled payments due on a
regular basis; 5. No negative amortization; 6. Buyer
must be able to afford payments on first and second
mortgages; and 7. Required subordination clause.

Summary
5. A second mortgage can be fully amortized,
partially amortized with balloon payment, or
interest-only with a balloon to pay off the
principal at end of the loan. Partial amortization is
when payments are scheduled as if the loan term
is longer (e.g., 30 years), but the balance is due
sooner (e.g., in 5 years). Partially amortized and
interest-only loans have smaller payments than
fully amortized loans, so they may help a buyer
qualify. One lender can provide both loans at
different interest rates.

Summary
6. Assumption means that one party (buyer) takes
over primary liability for the loan of another party
(seller). When trying to assume a loan: 1. Lender
can accept assumption and leave loan terms in
tact; 2. Lender can accept assumption and
charge a fee or increase the interest rate; or 3.
Lender will not allow assumption and call the
note payable immediately. Prepayment penalties
can be charged for paying a loan early. FHA/VA
prohibit this. Always consult the original lender or
a lawyer concerning assumptions.
Quiz
1. What is the term that describes a
second mortgage holder agreeing to
accept a second position in a refinance
transaction?
a. alienation
b. assumption
c. subrogation
d. subordination

Quiz
2. A loan that is repaid with periodic
payments of both principal and interest
so that the entire loan amount is paid in
full at the end of the loan term is a(n)
a. annualized loan.
b. conventional loan.
c. fully amortized loan.
d. partially amortized loan.

Quiz
3. All of the following are disadvantages
of 15-year mortgages, EXCEPT
a. earlier loss of interest deduction for income
tax purposes.
b. higher interest rates.
c. higher monthly payments.
d. larger down payments usually required.

Quiz
4. You are pre-qualifying a buyer for a
purchase loan of $160,000. They state
they do not want to pay PMI on the loan.
In that case, what is the maximum loan
amount they can receive?
a. $32,000
b. $128,000
c. $136,000
d. $144,000

Quiz
5. Which type of mortgage is traditionally
defined as NOT being insured or
guaranteed by the government?
a. conventional mortgage
b. FHA mortgage
c. rural home mortgage
d. VA mortgage

Quiz
6. When seeking an 80% conventional
loan with the seller taking back a
second mortgage, the buyer
a. can expect to pay a higher interest rate than
with a 90% loan.
b. may choose which mortgage (first or second)
will have lien priority.
c. must make at least a 5% down payment from
personal funds.
d. must make at least a 20% down payment from
personal funds.
Quiz
7. Which would likely have the highest
PMI cost?
a. 80% loan
b. 90% loan
c. 95% loan
d. house purchased for cash

Quiz
8. PMI must be cancelled
a. anytime the buyer requests it.
b. only if the lender is satisfied that the buyer
is no longer a credit risk.
c. when a home has been paid down to 78%
of its original value for loans made after
July 1999.
d. whenever a new appraisal is ordered,
regardless of the value.

Quiz
9. A provision that penalizes borrowers
who pay off their loans sooner than
agreed is a(n)
a. alienation clause.
b. assumption clause.
c. incorporation clause.
d. prepayment penalty clause.

Quiz
10. Lenders are often willing to charge lower
interest rates for 15-year mortgages
because the
a. borrower is always a better risk.
b. interest rate is fixed for a longer period of
time.
c. loan funds will be repaid more quickly.
d. loan qualifications are much more stringent.

Quiz
11. You are pre-qualifying a buyer for a
purchase loan of $140,000 and they
stated they do not want to pay PMI.
How much of down payment will they
need?
a. $7,000
b. $14,000
c. $21,000
d. $28,000

Quiz
12. A buyer is paying $200,000 for a house.
He makes a $30,000 down payment,
gets a first mortgage for $160,000, and
a second mortgage to cover the
balance. What is his CLTV?
a. 70%
b. 80%
c. 85%
d. 90%

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Chapter 6

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 1

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 2

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 4

Traditional Conventional Loans

• Typically long-term, fully amortized, fixed

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 5

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 8

Fixed Rate Loans

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15-Year Mortgage Loans

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15-Year Mortgage Loans

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What Makes a Loan

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A-Minus Conventional Loans

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Conventional Loan Programs

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80% LTV Conventional Loan

Higher LTV Loans

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Higher LTV Loans

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90% Conventional Loan

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95% Conventional Loan

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Loans for Special Needs

• For people who:

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Loans for Special Needs

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How Mortgage Insurance Works

• When insuring a loan, mortgage insurance

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How Mortgage Insurance Works

• In event of default and foreclosure, insurer

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Combined Loan to Value

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Combined Loan to Value

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Lender First and

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Lender First and

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$299.78 Payment on 1st Mortgage