10 Financing Sources Flashcards
Discount Rate
The amount of interest banks pay for money.
Fed Four Tools
- Create money
- Regulate the reserve requirements
- Set the discount rate
- Open market operations
Reserve Requirements
What the banks must keep in reserve.
Prime Rate
Banks best customers rate, influenced by the Feds discount rate.
Amortized Loan
Same monthly payment. End of term, balance is zero. P + I.
Adjustable Rate
Rate is tied to an index, and fluctuates. Has rate caps.
Blanket Loan
Covers more that one parcel, and used to finance developments. Contains a partial release clause which releases liens on those properties which are sold.
Bridge Loan
Short term loan when a person needs to close on a purchase of a new home before closing on the old one.
Budget Mortgage
Most common. Lender takes tax and insurance from Borrower and holds in an impound account until they need to be paid.
Construction Loan
Short term loan used by developer/builder while construction is being completed. Builder takes out draw, then pays off the loan with a take out loan.
Home Equity Loan
Fixed amount of line of credit. Owner uses equity instead of refinancing.
Interest Only Loan (Term Loan)
Borrower pays interest for a stated period of time with the entire principle balance due at the end. This is called a balloon payment.
Package Loan
Includes both personal and real property together.
Reverse Annuity Mortgage
Lender makes payments to the borrower. The total debit becomes payable upon sale of the property or from the borrowers estate at death.
Wraparound Loan
Wrap a new loan with an old loan. The borrower makes payment to the new lender, which in turn makes payments to the old lender.
Seller Carry Back
Seller takes a portion of the equity which is usually in the form of a second trust deed and then defers payment of that equity until a later date while collecting interest from the buyer.
Benefit: To the buyer they can avoid PMI by not having to put 20% down.
Conventional Loans
LTV value is lowest. Buyer putting down most money. Not guaranteed or insured by FHA or VA. Usually putting down 20% down. Considered most secure. Bank, Investor or Mortgage broker are lenders.
PMI
Private insurance that protects the lend against loss if the borrower defaults. Exceeds 80% to be applicable.
Qualifying Ratios
Front end - Monthly payment cannot be more than 28% of gross monthly income.
Back end - Monthly payment cannot be more than 36% of ALL monthly expenses.
FHA
Established 1934. Part of HUD. Insures loans made by approved lenders. FHA sets maximum loan amounts. 203B is most common FHA loan, for SFR less than 4 family residence. No prepayment penalty. Max loan origination is 1%.
VA
Guaranteed loans for eligible veterans and widowers. Eligible at 90 days, 180 days or 2 years depending on when time was served. Must apply for a Certificate of Eligibility. Guaranteed up to 4 times amount of loan max. 2-3% funding fee paid by buyer unless disabled. Max origination fee is 1%. Assemble by veterans and nonveterans. Veteran is secondary liable if assumed defaults unless a ‘release of liability’ is arranged.
Truth In Lending
Within 3 days of applying, you are entitled to this good faith estimate on the cost of credit. True cost of borrowing is computed as APR. Have 3 business days to rescind loan.
Equal Credit Opportunity
1974 passed legislation prohibiting lenders from discriminating on:
- Race
- Color
- Religion
- National Origin
- Sex
- Marital Status
- Age
- Public Assistance
Uniform Commercial Code
All laws related to commercial transactions are uniform.
