Financing Flashcards
Lenders charge ____ ____ as compensation for processing a new mortgage loan.
Loan points
Aka loan origination fees
Borrowers may choose pay ____ ____ at closing to permanently reduce a loan’s interest rate.
Discount Points
The ratio of the loan amount to the property value.
sales price or appraised value | whichever is lower
Loan-to-value ratio
LTV
A fee paid back to a lender for the use of its money.
Interest
A measure of both the interest rate and other fees associated with a mortgage loan.
APR
Annual percentage rate
When a down payment is less than 20% on a conventional loan, lenders may require this.
Private mortgage insurance PMI
Most common mortgage loan payment includes:
Portion of the principal balance,
Current accrued interest
1/12th portion of the annual property tax
Homeowner’s Insurance
Also known as budget mortgage
PITI
Principal
interest
Taxes
Insurance
Documents that are executed (signed) when a borrower receives a mortgage loan.
Financing instruments
The borrower’s promise to repay the mortgage loan.
Promissory note
This type of deed involves three parties:
The trustor (borrower) The beneficiary (lender) The trustee (third party who holds deed of trust)
Deed of trust
States that use a deed of trust as the primary security instrument are referred to as ____ ____ states because the lender/trustee holds legal title to the property until the mortgage loan is paid in full.
Title Theory
When a borrower has the possessory rights and the right to obtain legal title once they’ve paid the loan off.
Equitable Title
Whenever foreclosure becomes necessary in a deed of trust, the lender can use a non-judicial foreclosure.
What is this called?
Power of Sale Clause
When the loan is paid in full the lender issues this?
Trustee issues a reconveyance deed.
Release of deed of trust
This type of deed involves two parties:
The lender
The borrower
Mortgage
States that use a mortgage as the security instrument are referred to as ____ ____ states because the mortgage places a lien against the property it secures.
The lender holds the lien, and the borrower holds legal title to the property.
Lien Theory
If foreclosure becomes necessary, the lender may have to use a ____ ____ in order to process.
Judicial foreclosure
Orders the lender or trustee to immediately release full title to the borrower once the loan is paid in full.
Defeasance clause
Makes the entire debt due immediately if there’s borrower default.
Acceleration clause
Requires the borrower to repay the loan when transferring ownership to another.
Due-on-sale clause
Permits the lender to charge a specified amount for interest lost when a borrower sells or pays off a loan early.
Pre-payment penalty clause
These type of loans can be conforming or non-conforming.
Lenders view these as some of the most secure because they require a down payment of 20%, thus reducing the LTV to 80%
Conventional loans
This type of loan meets the loan limit and other criteria (related to borrower qualifications) that Fannie Mae and Freddie Mac set.
Conforming loan
A conventional loan that fails to meet Fannie Mae and Freddie Mac guidelines for credit scores, LTV or loan amount is a what?
Non-Conforming loan
A conventional non-conforming loan because it exceeds conforming loan limits but meets other conforming loan requirements.
Jumbo loan
Insures lenders against loss in case of borrower default.
Borrowers must pay a minimum down payment of 3.5%
FHA
The Federal Housing Administration
This charge applies to all FHA loans for the life of the loan.
It’s paid upfront at closing and then as an annual premium until the loan is paid off or refinanced.
MIP
Mortgage insurance premium
Guarantees loans made to qualifying veterans.
VA guaranteed loans
Offers some state and local mortgage loan programs.
USDA
U.S. Department of Agriculture
Offers direct guaranteed loans to farmers and ranchers and for rural housing.
FSA
USDA Farm Service Agency
The loan principal is paid down over the life of the loan.
The monthly principal and interest payment amount is the same each month.
Amortized loan
Will be paid in full after the last scheduled loan payment (or sooner if the borrower makes additional principal payments during the loan term).
Fully amortized loan
Includes partial amortization over the loan term and a balloon payment at the end of the term, where the borrower pays off the loan in one lump sum.
Partially amortized loan
A rate in which the interest rate fluctuates based on some selected economic index.
ARM
Adjustable-rate mortgages
This occurs when a payment fails to cover the amount of interest due.
Negative amortization
A temporary, short-term loan that provides funds until buyers can obtain permanent financing.
Bridge or Swing Loan
This financing strategy requires the buyer to make installment payments to the seller for property purchase.
The seller retains the title while buyer gets equitable title.
Land contract | Contract for deed
This financing strategy is a loan that the seller issues to the buyer as part of the purchase transaction.
This typically occurs in situations where the buyer cannot qualify for a mortgage through traditional means.
Purchase money mortgage
The seller holds a mortgage that wraps the new buyer’s mortgage around the seller’s existing mortgage.
The seller continues to make payments on the first mortgage, and buyer makes payments to the seller.
Wrap-around mortgage
Provides loans to borrowers (mortgagors) and is made up of several lender types
Primary mortgage
National banks that offer consumer and business loans for resale on the secondary mortgage market
Commercial banks
Take savings deposits and make loans
Savings and loan associations
Member-based cooperatives that take deposits, offer savings vehicles, and provide credit for auto and home loans
Credit unions
Match consumers with lenders; don’t fund loans
Mortgage brokers
Make loans using in-house loan processors and underwriters
Mortgage bankers
Lenders in the primary mortgage market put together packages of conforming loans and sell them to the ?
Secondary mortgage market
Secondary mortgage market payers purchase lender loan packages and re-package them into ?
MBS
Mortgage-backed securities
Lending institutions that buy loans from other lenders and investors make up the secondary market.
Fannie Mae
Freddie Mac
Farmer Mac
Ginnie Mae
A privately-held corporation that has a public purpose.
GSEs
Government Sponsored Enterprises
Functions in the secondary market by buying qualified agricultural loans from lenders.
Farmer Mac
Purchase mortgage loan packages from lenders
Fannie Mae and Freddie Mac
Guarantees MBSs that are made up of government insured or guaranteed loans.
Ginnie Mae
Requires lenders to disclose credit terms and conditions when advertising triggers loan terms, so as not to mislead consumers.
TILA
Truth in Lending Act of 1968
Ads that would require the full disclosure of all terms include down payment, payment amount, number of payments, and interest rate (other than APR).
Trigger terms
Requires mortgage lenders to follow TILA disclosure requirements for real estate advertisements that include credit terms.
Regulation Z
A consumer protection statute designed to protect homebuyers from unscrupulous lending and settlement practices.
Real Estate Settlement Procedures Act (RESPA) of 1974
Prohibits lenders from making credit unavailable or offering less-favorable terms based on protected class status (race, color, religion, national origin, sex, marital status, or income source) vs. creditworthiness.
Equal Credit Opportunity Act (ECOA) of 1974
