Financing Flashcards
An interest-only loan used primarily for
short-term purchases
Straight term loan
Fully amortized loan: paid off in periodic
payments of principal and interest over
the life of the loan (fifteen, twenty, or thirty
years),• Partially amortized loan (balloon mortgage):
paid off with a series of periodic payments for a
set period of time followed by a single balloon
payment to satisfy the loan
Fully
amortized loan
Vs. partially
amortized loan
When the mortgage payment is smaller than the
interest due, which causes the loan balance to
increase instead of decrease
Negative
amortization
The interest rate for the ioan is tax loan
economic index, so the payments Will be adjusted
trom time to time as interest rates rise and fall
Adjustable-Rate
Mortgage (ARM)
A loan that is not government insured,Private mortgage insurance (PMI) is required for
Dorrowers who borrow more than 80% of the
Purciase price, Once the borrower has paid off
at least 20% of the property, they can request
for the PMI to be rermoved. These loans typically
have the highest down payment requirements.
Conventional
loan
A loan for home owners 62 and older that
allows them to borrow against the value of
their property so that they can receive either
monthly payments, a lump sum, or credit,This type of loan is good until the borrower dies,
moves, or sells their property.
Reverse
Annuity
Mortgage
(RAM)
A type of second mortgage that borrows
against the homeowner’s equity in their
property,The loan amount is calculated based on the
home’s current market value and the remaining
debt the borrower has on their first mortgage.
Lenders typically require the homeowner to have
a certain percentage of equity in their home in
order to qualify.
Open-end mortgage
(home equity loan)
The riskiest types of loan for lenders The interest rate on subprine loans often use
high to account for the to Lenders with four interest rates
to determine the interest rate) the on there
credit score, 2) the numbet of late payment of
delinquencies showing on the borower’s credit score
report, 3) the types of delinguenies (euch as 30 day,
60-day, or 90-day lates, for example), and d) he size
of the borrower’s down payment
Subprime loans
A loan that a buyer takes out that is paid
directly to the seller,The buyer’s loan is incorporated into the seller’s
loan. The seller takes on the full responsibility
and riskS associated with this type of loan and
Drofits based on the difference in mortgage
amounts and interest rate variation.
Wrap-around
mortgage
A variable-rate loan in which the loan amaunt
is disbursed at agreed-upon stages of the
construction process,Interest is charged only on money disbursed, not
the full amount of the loan.
Construction loan
An arrangement where someone sells a property
to someone else, then immediately purchases a
lease on that same property
Sale and lease back
Helps cover the initial expense of purchasing a
property,Some lenders offer second mortgages and
deferred payment loans. The state may offer
grants to help cover the down payment which do
not require repayment to those who qualify.
Down Payment
Assistance (DPA)
• Conventional loans: These are not,government insured, but they offer flexibility
in terms and interest options compared to
government-backed FHA or VA loans.
. Insured conventional loans: These are
conventional loans with private mortgage
insurance (PMI).
Conventional
loans vs. insured
conventional loans
A military benefit that is only given to
eligible service members, veterans, and
qualifying spouses,The loans are private but guaranteed by the VA,
which offers certain protections to the lenders.
Because of this, loans can be made with zero money
down and with easier qualifying requirements.
VA loans do not have a minimum credit score
requirement, often have lower interest rates, and
do not require mortgage insurance.
U.S.,14,Department
of
Veterans Affairs
(VA) loans
A government-backed loan that requires no
down payment but has strict requirements
to qualify for,They are designed to assist rural low- to
moderate -income borrowers with purchasing
homes. Borrawers must purchase the home as a
primary residence in designated areas, must be US
residents or permanent resident aliens, and cannot
have an income higher than 115% of the median
income in the area where the property is located.
USDA loan
A financial institution that is funded atid
controlled by the custormers who own
stock in
the company,Customers can borrow money agairist theif
stocks to purchase a horne. These iristitutiotis
also offer a wide variety of bank-like services,
such as CDs and checking accounts.
Savings and loans
association (S&L)
Local and national financial institutions
that primarily make money by offering different
types of loans to customers and then collecting
the interest,These offer a full range of services in addition to
loans, including savings and checking accounts
and investment vehicles like CDs.
Commercial
banks
Originate and close loans with multile
institutions
Mortgage
brokers
Originate and close loans in their own name using ,their own funds
Mortgage
bankers
Non-bank lenders that are used primarily in
real estate investments for properties that
would not be approved fora traditional loan,They establish a set interest rate that is typically
higher than any bank and a repayment term that
will be much shorter. A private money lender has
the right to foreclose in the event of non-payment.
Loan decision is based on property value and
return-on-investment (ROI).
Private money
lenders
Cooperative organizations that are similar to
banks but are owned and controlled by their
members,They offer lower rates and fees because savings
are passed to the members. They tend to service
the loans themselves and provide more stable and
personalized service, and they may have ways to help
non-traditional borrowers get a loan. Borrowers nust
be a member of the credit union to be approved fora
loan.
Credit unions
The seller allows the buyer to move onto the
property while making installment pazmenss
directly to the seller.,The seller retains full legal title until the buyer has
fulfilled a predetermined percentage of the financed
amount, at which point the seller records the deed
and passes the title to the buyer, The installment land
contract gives equitable title to the buyer until the full
title is transferred.
Contract for deed
(installment land
contract)
The seller essentially becomes the
mortgage company, receiving any down
payment and mortgage payments directly from
the buyer.,This type of financing usually is a short-term
arrangement, up to five years or so. The buyer
retains the title to the property, as with all other
mortgage arrangements.
Purchase money
mortgage
The seller agrees to carry a mortgage for
the balance of the sales price when the primary
lender will not cover it..,The seller’s mortgage is subordinated to the
primary mortgage will need to be satisfied before
primary mortgage; if the buyer defaults, the
the seller can collect any payments.
Junior
(subordinate)
mortgage,
Allows the buyer to take the seller’s place on an
existing mortgage,Once the assumption process is completed, the
The buyer will pay off the mortgage according to its
terms.
Assumable
mortgage
Requires repayment upon the property’s sale or
conveyance,A portion of the property’s sale proceeds may be
used to satisfy the original mortgage.
Due-on-sale clause
