Finance
What is 'seasoning' of funds in a mortgage transaction?
AA. The process of gradually reducing the interest rate
BB. The requirement that down payment funds have been in the borrower's account for a specified period (typically 2-3 months) to prove they are not borrowed✓ Correct
CC. Adjusting the loan payment for seasonal income fluctuations
DD. A waiting period after a bankruptcy before qualifying for a loan
Explanation
Fund seasoning refers to the lender's requirement that down payment and closing cost funds have been in the borrower's bank account for a specified period (often 60-90 days). This demonstrates the funds are genuine assets, not undisclosed loans that could affect the borrower's debt ratios.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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