Financing Market and Loan Programs Flashcards
Who is involved in a primary mortgage market?
Lenders who originate loans
What is the primary function of a savings and loan association?
To promote thrift and home ownership
What is the primary function of a commercial bank?
To act as a depository for funds and as a lender for commercial activities
Why does a borrower retain a mortgage broker?
To help obtain financing for a specific commercial property
What are the most common types of repayment plans?
Straight (interest only)
Amortized
Balloon payment
Adjustable rate
What is a balloon mortgage?
A loan that has one large final payment due when the loan matures
What is an index
A measure of economic conditions
What is a payment cap?
A set monthly payment that remains the same although the actual interest rate may fluctuate throughout the year
List two advantages of conventional loans over government-backed loans.
Processing a conventional loan usually takes less time. Loan approval from a conventional lender can take 30 days or less, while approval on a government-backed loan seldom, if ever, can be done in less than 30 days.
There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.
Most conventional loans require the borrower to make how much of a down payment?
Most conventional loans require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property’s sale price.
What are the two distinct features of fixed-rate fully amortized loans?
The interest rate remains fixed for the life of the loan.
The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
What does federal law say about the termination of private mortgage insurance?
Federal law requires that any loans originated after July of 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.
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 will they get?
A buydown mortgage
What is a release clause and in what type of mortgage would you find this clause?
This clause, found in a blanket mortgage, allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan. The lender will issue the partial release for the one lot, with the provision that the mortgage will continue to cover the remaining lots.
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.