10 Financing Sources

Question 0

Discount Rate

Answer 0

The amount of interest banks pay for money.

Question 1

Fed Four Tools

Answer 1

1. Create money
2. Regulate the reserve requirements
3. Set the discount rate
4. Open market operations

Question 2

Reserve Requirements

Answer 2

What the banks must keep in reserve.

Question 3

Prime Rate

Answer 3

Banks best customers rate, influenced by the Feds discount rate.

Question 4

Amortized Loan

Answer 4

Same monthly payment. End of term, balance is zero. P + I.

Question 5

Adjustable Rate

Answer 5

Rate is tied to an index, and fluctuates. Has rate caps.

Question 6

Blanket Loan

Answer 6

Covers more that one parcel, and used to finance developments. Contains a partial release clause which releases liens on those properties which are sold.

Question 7

Bridge Loan

Answer 7

Short term loan when a person needs to close on a purchase of a new home before closing on the old one.

Question 8

Budget Mortgage

Answer 8

Most common. Lender takes tax and insurance from Borrower and holds in an impound account until they need to be paid.

Question 9

Construction Loan

Answer 9

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.

Question 10

Home Equity Loan

Answer 10

Fixed amount of line of credit. Owner uses equity instead of refinancing.

Question 11

Interest Only Loan (Term Loan)

Answer 11

Borrower pays interest for a stated period of time with the entire principle balance due at the end. This is called a balloon payment.

Question 12

Package Loan

Answer 12

Includes both personal and real property together.

Question 13

Reverse Annuity Mortgage

Answer 13

Lender makes payments to the borrower. The total debit becomes payable upon sale of the property or from the borrowers estate at death.

Question 14

Wraparound Loan

Answer 14

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.

Question 15

Seller Carry Back

Answer 15

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.

Question 16

Conventional Loans

Answer 16

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.

Question 17

PMI

Answer 17

Private insurance that protects the lend against loss if the borrower defaults. Exceeds 80% to be applicable.

Question 18

Qualifying Ratios

Answer 18

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.

Question 19

FHA

Answer 19

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%.

Question 20

VA

Answer 20

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.

Question 21

Truth In Lending

Answer 21

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.

Question 22

Equal Credit Opportunity

Answer 22

1974 passed legislation prohibiting lenders from discriminating on:

1. Race
2. Color
3. Religion
4. National Origin
5. Sex
6. Marital Status
7. Age
8. Public Assistance

Question 23

Uniform Commercial Code

Answer 23

All laws related to commercial transactions are uniform.