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Real Estate > Chapter 11 - Lending Practices > Flashcards

Chapter 11 - Lending Practices Flashcards

1
Q

Term Loan

A

Requires interest payments only until the last day of its life
- 3-5 years
- Borrower agrees to pay interest on loan every 6 months
- Agrees to repay the entire loan amount upon maturity

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2
Q

Amortized Loan

A

Loan requiring periodic equal payments that include both interest and partial repayment of principal

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3
Q

Variables on an Amortization Table

A

1) Frequency of payment
2) Interest Rate
3) Maturity
4) Amount of the loan
5) Amount of the periodic payment
* If you know 4 variables, you can figure out the 5th

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4
Q

What are amortization tables used for

A

Used to determine the amount of loan a borrower can support

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5
Q

Impound or Reserve account

A

an account into which the lender places monthly tax and insurance payments (aka Escrow)

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6
Q

Balloon Loan

A

Any loan in which the final payment is larger than the preceding payments
- Final payment called balloon payment
- Gives the borrower 3-5 years to find a cheaper and long term financing elsewhere

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7
Q

Partially Amortized Loan

A

A portion of the debt is paid with regular monthly payments, then a balloon payment on the loan maturity date
Advantage: Payments are smaller
Disadvantage: Large payment may be borrowers downfall

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8
Q

Loan Balance Table

A

Shows the balance remaining to be paid on an amortized loan

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9
Q

Loan-to-Value Ratio (L/V or LTV ratio)

A

A percentage reflecting what a lender will lend divided by the sale price or market value of the property (whichever is less)
- Prevents lenders from over lending on a property just because the borrower overpaid for it

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10
Q

Equity

A

The market value of a property less the debt against it

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11
Q

Point

A

1% of the loan amount

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12
Q

Origination Fee

A
  • The expenses a lender incurs in processing a mortgage loan
  • Upfront fee charged by lender to process a new loan application
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13
Q

Discount Points

A
  • Points charged to raise the lender’s monetary return on a loan
  • Each point of discount raises the effective yield by about 1/8 of 1%
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14
Q

Effective Yield

A

A return on investment calculation that considers the price paid, the time held and interest rate

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15
Q

Tight Money

A

Periods where discount points are most often charged
- Mortgage money is in short supply

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16
Q

Loose Money

A

Periods when lenders have adequate funds to lend are are actively seeking borrowers

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17
Q

Conventional Loans

A

Real estate loans that are not insured by FHA or guaranteed by the VA

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18
Q

Federal Housing Administration (FHA)

A
  • Purpose of encouraging new construction as a means of creating jobs
  • Offered to insure lenders against losses due to nonrepayment when they have loans on both new and existing homes
  • Charged borrower an annual insurance fee of about 0.5% of the balance owed to the loan
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19
Q

Simple Assumption

A
  • The property is sold and the loan is assumed by the buyer without notification tot he FHA or its agents
  • Seller remains fully liable to the FHA for full repayment
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20
Q

Formal Assumption

A

The property is not conveyed until the new buyer’s creditworthiness has been approved by the FHA or its agents
- Once a buyer assumes the loan, the seller may obtain a full release of liability from the FHA

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21
Q

Up-Front Mortgage Insurance Premium (UFMIP)

A
  • A one time charge by FHA for the insuring of a loan
  • 1% of the loan amount
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22
Q

FHA Loan Requirements

A

1) 2 years of steady employment (preferable with same employer)
2) The last 2 years income should be the same or increasing
3) The borrowers credit report should typically have less than two 30-day late payments in the past 2 years - with a minimum score of 620
4) If borrower has declared bankruptcy it must be at least 2 years old with perfect credit since the bankruptcy discharge
5) If borrower has been through foreclosure proceedings, it must be at least 3 years old with perfect credit since
6) The new mortgage payment should be about 30% of the gross income before taxes
***requirements are the most flexible. Easiest type of real estate mortgage loan to qualify for

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23
Q

Department of Veteran Affairs (VA)

A

Government would be held liable for a portion of the first mortgage real estate loans made to veterans
- Objective to allow a veteran to buy a home with no cash down payment

24
Q

VA Loan Requirements

A

Must have completed:
- At least 24 months
- The full period of ordered active duty (90 day during wartime & 180 day during peacetime)
Needed to Obtain:
- Certificate of eligibility
- A copy of veteran’s discharge papers

25
Q

Certificate of Reasonable Value (CRV)

A

Reflects the estimated value of the property as determined by the VA staff appraiser

26
Q

VA Fixed-Rate Loans

A
  • Up to 30 years
  • No prepayment penalty
  • No due-on-sale clause
27
Q

VA Loans

A
  • In the event of default or foreclosure, the veteran is required to repay the VA on the loan
  • If property is sold and buyer assumes VA loan, veteran is still financially responsible if the buyer defaults
28
Q

To be release from liability in a VA loan

A
  • Loan payment must be current
  • Prospective purchasers must meet credit worthiness standards held by VA
  • Prospective purchaser must assume full liability for repayment of the loan - including indemnity liability to the VA
29
Q

Funding Fee

A
30
Q

Private Mortgage Insurance (PMI)

A
  • Insures lender against foreclosure loss
  • Only up to 20-25% of loan
31
Q

A loan where the principal is all repair but the final payment is larger than any of the previous payments on the loan is an example of a

A

Balloon Note

32
Q

The last day of a loan’s life is known as the

A

Maturity date

33
Q

The amount of each periodic payment needed to amortize a loan in a given time can be determined by consulting a

A

Amortization Table

34
Q

When a loan is fully amortized…

A

Principal payments are scheduled so that the entire principal is repaid by the loan’s maturity date

35
Q

A buyer borrowed money to purchase a home under terms which require him to make monthly payments which included loan amortization plus 1/12 of the insurance premium and annual real property tax. What is this type of loan called?

A

A budget loan

36
Q

The relationship between the amount of money a lender is willing to loan and the lender’s estimate of the market value of the property that will serve as security is called

A

the loan-to-value ratio

37
Q

A borrower wants to know what portion of a 30 year, fully amortized loan would be paid off by the 4th year of the loan’s life. she should consult a

A

Loan to balance table

38
Q

Would a higher or lower interest rate be more effective in reducing interest paid by the borrower for mortgage loan repayments?

A

The higher the interest rate, the more effective earlier mortgage loan repayments would be in reducing interest payments.

39
Q

Compared to monthly payments, biweekly payments of one-half of the monthly payment will

A

shorten the life and amount of interest paid over the life of the loan

40
Q

A lender will make a loan on a residential property at an 80% loan-to-value ratio. The house is appraised at $98,000, but the actual sales price is $96,000. What would be the cash down payment?

A

$96,000 x 80% = $76,800
$96,000 - $76,800 loan = $19,200 down payment

41
Q

The difference between a property’s market value and the debts against it is known as

A

Owner’s equity

42
Q

The loan origination fee stated to a purchaser for setting up a loan may be charged as a percentage of the loan or

A

An itemized billing for expenses incurred by the lender

43
Q

Discount points on mortgage loans will tend to do what during periods of tight money

A

Increase

44
Q

When a lender charges discount points to make a loan, the

A

Yield to the lender will increase

45
Q

Does the FHA operate at the taxpayers expense?

A

No, it charges borrowers a mortgage insurance premium

46
Q

The premium for FHS mortgage insurance is based on what?

A

The loan amount

47
Q

Regarding the loan amount the FHA will insure. The maximum FHA -insured loans…

A

Change from time to time as average sales prices increase and the amount that the FHA will insure varies city by city

48
Q

Both FHA & VA loans are assumable

A

with prior approval

49
Q

Does the FHA rules allow for a junior mortgage on the property at loan origination?

A

No

50
Q

The FHA has played a major role in

A

Formulating loan qualification criteria and the imposition of minimum construction standards

51
Q

Does the FHA lend money

A

NO. They only insure loans

52
Q

Under the VA loan guarantee programs,

A

the VA loan guarantee is a substitute for the protection normally provided a lender by a down payment requirement

53
Q

A home-selling veteran who took out a VA loan can be sure of being relieved of liability to the loan by

A

Requiring the buyer to obtain new financing.

54
Q

Because of loan default losses being suffered by the VA, the VA now charges new VA borrowers

A

a one-time funding fee when the loan is made

55
Q

A buyer purchased a home for $90,000 and secured a 90% L/V loan which was protected by a private mortgage insurance, the premium for which was 1/2 of 1% for the first year and 1/4 of 1% annually thereafter. What is the premium for the first year?

A

$90,000 x 90% = $81,000
$81,000 x .005 = $405

56
Q

The Rural Housing Service Administration makes loans on farms and rural homes as well as

A

Guaranteeing loans on farms and rural homes.

Real Estate (10 decks)

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