Chapter 14 - Financing 1: Conventional, FHA, and VA Loans

Question 0

Amendatory clause

Answer 0

Fore either a FHA or VA mortgage loan, a clause is added that if the appraisal comes in less than the agreed upon sale price, the buyer is not obligated to complete the purchase.

Question 1

Adjustable-rate mortgages (ARM)

Answer 1

Shift the risk and reward of changing interest rates from the lender to the borrower, with corresponding changes in the monthly payments who stand to benefit if interest rates drop during the period of the loan.

Question 2

Amortization schedule

Answer 2

Table that shows the payment of principal, interest and remaining balance.

Question 3

Amortized loan

Answer 3

Most frequently used mortgage plan. It requires the mortgagor to pay a constant amount, usually each month

Question 4

Assumable

Answer 4

Of a mortgage, able to be transferred to another owner of the property.

Question 5

Biweekly mortgage

Answer 5

Involve half payments every two weeks instead of monthly. Twenty six half payments, the equivilent of 13 monthly payments a year. Can reduce time on a fixed-rate loan from30 years to to 22 or 23 years.

Question 6

Brokers price opinion (BPO)

Answer 6

Licensee’s written estimate of market value, used by lenders and mortgage companies where they believe the expense and delay on appraisal is not needed.

Question 7

Budget loan

Answer 7

Includes a PITI type loan.

Question 8

Buydown

Answer 8

With some mortgage plans, lending institutions are willing to lower the interest rate in return for an extra payment of points. This arrangement is know as a buydown.

Question 9

Cap

Answer 9

Limit on increase or single adjustment.

Question 10

Ceiling

Answer 10

Sometimes referred to as a lifetime cap) is a maximum interest rate.

Question 11

Certificate of reasonable value

Answer 11

A VA appraisal. As with FHA, the contract must contain a clause stating that if the appraisal comes in lower than the purchase price, the veteran can get out of the contract at no penalty - or at the veterans option, make up the difference.

Question 12

Federal Housing Administation

Answer 12

Insures low-down-payment loans.

Question 13

FHA 203B(b)

Answer 13

Most widely used FHA mortgage and includes certain requirements. An upfront MIP either added to the loan or paid in cash at 1.75%, down payment can be a gift (not a loan). for FHA loans placed between January 1, 2001 and June 2, 2013, mortgage insurance premium can be dropped when equity reaches 78% of the original appraisal at the time of purchase, but only after the first five years of the loan.

Question 14

Index

Answer 14

The index rate on an adjustable rate loan - may go up or down, following the trend for interest rates across the country.The lender must use a national indicator of current rates. The most widely used is the one-year US Treasury bills.

Question 15

Interest

Answer 15

A charge for the use of someone else’s money.

Question 16

Loan-to-value (LTV) ratio

Answer 16

The mortgage loan in relation to the value of a home. Increased from 40% in 1920 to as much as 95% or 100% today.

Question 17

Margin

Answer 17

Borrower pays a specific percentage above the index on a mortgage.

Question 18

Negative amortization

Answer 18

When the monthly payment isn’t enough to cober the interest due, the shortfall is added to cover the interestr due. As a result the debt increases.

Question 19

New Jersey Housing and Mortgage Finance Agency (NJHMFA)

Answer 19

Offers below-market interest loans, with low or no down payment, to qualified buyers who purchase homes in urban target areas, located in mainly inner cities. Outside the target areas loans may be offered to first-time buyers. Loans are possible on one-four family dwellings and are not available to investors. The maximum allowable family income ranges depending on the size of the family and the county in which the property is located.

Question 20

PITI

Answer 20

Principal interest taxes and insurance.

Question 21

Points

Answer 21

With some mortgage plans, lending institutions are willing to lower interest rates in return for extra payment of pints. the arrangement is know as a budown.

Question 22

Private mortgage insurance (PMI)

Answer 22

With any down payment below 20%, a conventional loan must be accompanied by private mortgage insurance. The borrower pays a monthly premium for insurance that protects the lender in case of loss at a foreclosure.

Question 23

Straight(term) loan

Answer 23

?Calls for periodic payments of interest only. Such plan are generally used for home improvement loans and second mortgages rather than first mortgage loans.

Question 24

Target area

Answer 24

See New Jersey Home Mortgage Finance Agency (NJHMFA) for qualified buyers who purchase home in urban areas.

Question 25

VA (Veteran Affairs) Mortgage

Answer 25

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veteran Affairs.