Chapter 12: Financing: Loan Types Flashcards
How much is the loan origination fee and what does it cover?
The loan origination fee is typically 1% of the loan amount. It covers the lender’s cost for generating the loan.
What kind of problem can result from a straight loan?
A straight loan is an interest-only loan. If the property doesn’t appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.
What kinds of limits are placed on the interest rate in an adjustable rate mortgage?
Interest rate caps limit the amount of interest the borrower can be charged. Periodic caps limit the amount the rate can change at any one time. Overall (or aggregate) caps limit the amount the interest can increase over the life of the loan.
Describe a reverse annuity mortgage.
With this type of mortgage, the lender makes payments to the borrower. Popular among senior citizens who are on fixed incomes and would like to benefit from their home’s equity without having to sell.
Define the term loan-to-value ratio.
The term loan-to-value ratio means the ratio of debt to the value of the property. If the loan-to-value ratio is low, the borrower is paying a higher down payment on the property. If the loan-to-value ratio is high, the borrower is making a low down payment.
When is a lender required to terminate a borrower’s private mortgage insurance?
After the borrower has accumulated 22% of equity in the property and is current with the loan payments.
What is the difference between an FHA loan and a VA loan?
FHA insures loans and VA guarantees them.
What is the major difference between a CalVet loan and other loans?
Unlike other loans, the CalVet loan is actually a land contract. When a veteran is approved for a CalVet loan, the state purchases the property and resells it to the veteran using a contract of sale. The state retains the title to the property until the loan is paid off, after which California will issue a grant deed to transfer legal title to the veteran.
Define a purchase money mortgage.
With a purchase money mortgage, the buyer borrows from the seller in addition to the lender. This is sometimes done when a buyer cannot qualify for a bank loan for the full amount; so the seller “takes back” a portion of the purchase price as a second mortgage. A purchase money mortgage can also be a first mortgage.
What’s the difference between a lease purchase and a lease option?
In a lease purchase arrangement, a tenant enters into two agreements simultaneously - an agreement to purchase and a lease.
A lease option is a clause in a lease that gives the tenant the right to purchase the property under specific conditions - usually at a predetermined price and within a set period of time.
Greg and Joyce purchased a home from the builder who offered to pay $5,000 at closing as an incentive to get them to buy. What kind of mortgage might they get?
A buydown mortgage.
What are grant programs typically used for?
Down payment assistance.
Which of the following is a low loan-to-value ratio?
Jake is getting a VA loan with no down payment.
Sandy and Bill are putting 30% down on their home purchase.
Alice is getting a conventional loan and making a 15% down payment.
Tim and Gail have qualified for an FHA loan.
Sandy and Bill are putting 30% down on their home purchase.
A blanket mortgage:
Covers more than one piece of property.
Entails entering into two agreements simultaneously.
Is subordinate to a first mortgage.
Reduces the monthly payment for a borrower during the initial years.
Covers more than one piece of property.
Which of these statements is true about a CalVet loan?
Loan terms are from 15 to 25 years.
If the loan is VA guaranteed, no down payment is required.
There is a 6-month pre-payment penalty for paying off the loan early.
Interest rates are typically fixed rate.
If the loan is VA guaranteed, no down payment is required.
