Financing Principles Flashcards
The Loan-to-Value (LTV) ratio is the maximum amount a lender will lend to finance a loan collateralized by real estate. The loan is based on a percentage of either the purchase price or the appraisal, whichever is less. The 20% down payment lenders traditionally required with conventional financing put homeownership beyond the reach of many Americans. FHA fully-insured financing substantially lowers the down payment lenders require for the purchase of a home because FHA mortgage insurance minimizes lender risk in the event of borrower default. All of the following statements are incorrect, except:
FHA insurance premiums may be paid at the close of escrow or financed into the loan.
What is the name of the lender in a three-party security instrument that hypothecates real estate?
Beneficiary
- A three-party security instrument that hypothecates real estate is called a Deed of Trust. The Deed of Trust (aka a “Trust Deed”) is one of the documents the borrower signs when getting a loan using real estate as collateral. A Deed of Trust creates a voluntary lien on the real estate of the borrower. The three parties to this legal instrument are the lender (beneficiary), the borrower (trustor) and the trustee (the third party to whom the borrower conveys bare legal title for the lifetime of the loan).
A lender is required under the Truth-in-Lending Act (Regulation Z) to furnish an applicant for a real estate loan with a copy of a _____________. This document must be given to the borrower before the borrower can be obligated to repay the loan.
Disclosure Statement
- Regulation Z requires that lenders furnish an applicant for a real estate loan with a statement that discloses the finance charges associated with a loan. The Truth in Lending Disclosure Statement shows the annual percentage, which is the borrower’s cost of credit as an annual rate; and the total amount the borrower will repay to the lender in comparison with the amount financed.
