5 - Finance Practical Application

Question 1

When working with a buyer, when should you check their financial ability?

Answer 1

Prior to beginning a property search for the buyer

Question 2

Using equity in their property, a retired couple negotiated a loan with a private lender.
They now receive a monthly check from the lender for their lifetime… what did they establish?

Answer 2

RAM … Reverse Annuity Mortgage

Question 3

A buyer agrees to give the seller a down payment and receive a loan from the seller for the balance.

At closing what legal interest will each party receive?

Answer 3

Purchaser = Possession and Equitable Title

Seller = retains Legal title until the loan is paid in Full

Question 4

Which loan would most likely require private mortgage insurance?

• FHA Graduated Payment Plan Loan
• 90% LTV conventional loan
• 100% LTV conventional loan
• a purchase money mortgage second, mortgage loan

Answer 4

90% LTV conventional loan

Question 5

Package Loan

Answer 5

Mortgage loan includes appliances and patio furniture etc.

Question 6

If a buyer purchases a home “subject to” the seller’s existing loan, it would be accurate to say:

Answer 6

The buyer has legal liability to the seller but none to the sellers lender

Question 7

Seller provides a 15 year amortized loan. At closing, the seller transfers title to the buyer- making them the legal owner of the property while also giving them a loan:

Answer 7

Purchase Money Mortgage

Question 8

What loan includes:

• interest rate caps
• applicable economic index
• margin added to that index by the lender

Answer 8

Adjustable Rate Mortgage

Question 9

PMI & MIP for FHA loans are calculated on:

Answer 9

The loan amount used to finance the property sale.

Question 10

Lenders may assess prepayment penalties on FHA and VA loans under what circumstances?

Answer 10

Under NO CIRCUMSTANCES, as the VA and HUD do not allow this penalty.

Question 11

Making a loan is usually based on ________ or _______ for the LTV (Loan to Value Ratio)

Answer 11

Appraised Value OR Sales Price

Whichever is lower

Question 12

Who makes the final decision regarding a loans approval or denial?

Answer 12

The Underwriter

Question 13

Straight Term Mortgage

Answer 13

Interest only until the end of the loan term. Then the principal is due in FULL.

A balloon payment.

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Question 14

Which of the following loans require mortgage insurance?

• a Loan assumption
• a purchase money mortgage
• FHA loan
• VA loan

Answer 14

FHA LOANSSSSS

Question 15

A fully amortized loan is characterized by:

Answer 15

Level payments - which cover all interest charged and reduce the principal to zero by maturity.

Question 16

A business owner has title to the RE where his business operates. He wants to expand to a second location and retain possession.

Answer 16

A sale and leaseback

Question 17

Negative amortization will most m always be a part of:

Answer 17

A GPM

Graduated Payment Mortgage

Question 18

The maximum FHA loan amount for a borrower is determined by:

Answer 18

GEOGRAPHICAL AREA where the property is located.

Question 19

Explain a Budget Mortgage

Answer 19

A mortgage with payments including taxes and insurance.

Question 20

Construction loan… aka:

Answer 20

An interim loan… super short. Maybe 6 months.

Question 21

Front End Ratios

Answer 21

Calculated by dividing the borrowers TOTAL MONTHLY HOUSE PAYMENT by their GROSS MONTHLY INCOME

Question 22

Back End Ratios

Answer 22

Divide the:

TOTAL REOCCURRING MONTHLY DEBT.

Aka

TOTAL MONTHLY HOUSE PAYMENT ///// GROSS MONTHLY INCOME