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Pre-Licensure Real Estate > Level 12 - Real Estate Financing > Flashcards

Level 12 - Real Estate Financing Flashcards

1
Q

amortization

A

the process of paying off a debt/mortgage in regular installments based on a fixed payment schedule

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2
Q

amortization table

A

a schedule tat details how much of a monthly payment will go toward principal and how much will go toward interest each month

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3
Q

debt service

A

amount of money needed for a specific time period in order to cover the payment of principal and interest portion on a loan

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4
Q

equity

A

the portion of a property’s total value owned outright by the holder to title

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5
Q

interest

A

additional money paid to a lender for the use of their money

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6
Q

loan value

A

the amount of money being loaned

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7
Q

loan to value ratio

A

the amount of money being loaned compared to the value of the property

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8
Q

PITI

A

the components of a mortgage payment; principal, interest, taxes & insurance

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9
Q

principal

A

the amount borrowed in a loan from which interest is accrued

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10
Q

points

A

fees that the borrower pays when they take out a loan; two kinds are origination points and discount points.

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11
Q

usury

A

illegally lending money at unfair interest rates

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12
Q

yield

A

the profit a lender makes on a loan

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13
Q

acceleration clause

A

a clause in a security instrument (mortgage/deed of trust) which makes the entire loan amount due immediately upon default

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14
Q

alienation clause

A

a clause in the mortgage contract that triggers the right of the lender to demand payment in full of the loan upon the sale or conveyance of the property; aka due on sale clause

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15
Q

beneficiary

A

the recipient of advantage or gain from an act or instrument such as a trust , will, or insurance policy

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16
Q

bond

A

a type of financial instrument (like a promissory note) that is secured by collateral

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17
Q

deed of trust

A

a security instrument that pledges the property being purchased as the collateral for the promissory note and conveys the title to a trustee until the debt is paid off.

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18
Q

grantor/trustor

A

a security instrument that pledges the property being purchased as the collateral for the promissory note and conveys the title to a trustee until the debt is paid off.

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19
Q

hypothecation

A

the pledging of an asset as collateral to secure a loan without delivery of title, possession, or other ownership rights.

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20
Q

lien theory

A

state that employs security instruments allowing the borrower to retain title while the lender places a lien on the property to secure the loan.

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21
Q

mortgage

A

a legal agreement between a creditor and borrower in which the creditor lends money with interest to the borrower for the purchase of property with the condition that the creditor takes ownership of the title if the borrower defaults in repayment of the loan

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22
Q

mortgagee

A

the organization or person who lends the money in a loan (the lender)

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23
Q

mortgagor

A

the person who takes out the loan (the borrower)

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24
Q

negotiable instrument

A

a note that is transferable and assignable

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25
Q

nonnegotiable note

A

a note that cannot be transferred to another party

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26
Q

prepayment penalty clause

A

a fee charged to a borrower for prepaying a loan

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27
Q

promissory note

A

a negotiable financial instrument that is evidence of a debt and a promise to pay that debt; aka note

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28
Q

title theory

A

state that conveys the title to the lender or, more commonly, to a third-party trustee (operating on behalf of the lender) for the life of the loan

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29
Q

trustee

A

a third party holding the title to a property in a deed of trust.

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30
Q

default

A

the failure of a borrower to perform according to one or more of the terms and conditions of their mortgage loan agreement

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31
Q

deficiency judgment

A

a court’s decision to attach a judgment (lien) against a debtor in the event that a property’s sale price does not cover outstanding debts.

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32
Q

foreclosure

A

the legal process whereby a lender takes control of a property held by a borrower in a default and sells it to recover the lender’s losses.

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33
Q

judicial foreclosure

A

a foreclosure that is processed through the court

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34
Q

power of sale (nonjudicial foreclosure)

A

a foreclosure that is not processed through the court

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35
Q

right of defeasance

A

a clause in a security document that indicates that the loan has been satisfied and that either the title will be conveyed to the borrower or the lien on the borrower’s title will be removed.

36
Q

right (equity) of redemption

A

a borrower in default’s right to pay an entire mortgage (plus fees) and regain the property before foreclosure

37
Q

short sale

A

selling a property in default for less than the loan amount (with the lender’s permission)

38
Q

strict foreclosure

A

a foreclosure that is processed through the court, but does not involve selling a property.

39
Q

subordination

A

a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage.

40
Q

certificate of reasonable value (CRV)

A

an estimate of the market value on the date of inspection for the property being purchased

41
Q

conforming loan

A

a loan that meets the standards of purchase for Fannie Mae and Freddie Mac

42
Q

conventional loan

A

any loan that is neither insured by the government nor guaranteed by the government

43
Q

nonconforming loan

A

a loan that does not fit Fannie Mae or Freddie Mac guidelines.

44
Q

private mortgage insurance (PMI)

A

insurance that protects the lender if a borrower defaults on a conventional loan; usually required when the borrower has less than 20% equity.

45
Q

VA certificate of eligibility

A

reflects whether the individual is eligible for a veterans affair (VA) loan under the law, based on military service.

46
Q

adjustable rate mortgage loan (ARM)

A

a mortgage with an interest rate that can be adjusted based on fluctuations in the cost of money

47
Q

balloon mortgage loan (partially amortized)

A

a loan with a short term, usually five or seven years, but with payments based on a longer term, creating a balloon payment at the end of the term.

48
Q

blanket mortgage loan

A

a loan for which more than one collateral property acts as security

49
Q

bridge mortgage loan

A

short term loan used to transition from one loan to another; can connect borrower from construction loan to eventual mortgage loan )or current home to their new home)

50
Q

buy down mortgage loan

A

a loan that enables the borrower to pay money upfront to reduce a loan’s interest rate and monthly payments

51
Q

construction mortgage loan

A

a temporary mortgage used to finance a construction project

52
Q

fixed rate mortgage (level payment mortgage)

A

a mortgage with equal monthly payments that contribute to both principal and interest until the entire loan is paid

53
Q

graduated payment mortgage loan (GPM)

A

a blanket term for a family of loans characterized by low initial payments that increase (or “graduate”) at set intervals and by set amounts during the term of the loan.

54
Q

growing equity mortgage loan (GEM)

A

a loan with a fixed interest rate and payments that gradually increase, and as the payment increase, so does the borrower’s equity.

55
Q

home equity loan

A

a loan in which funds are borrowed using the homeowner’s equity for collateral, the funds can be used for any purpose

56
Q

home equity line of credit (HELOC)

A

a line of credit that allows the borrowers to draw on money as needed using the equity of their home

57
Q

index

A

the benchmark rate that an ARM is tied to

58
Q

lifetime (or aggregate) cap

A

the maximum increase of interest over the life of the loan

59
Q

negative amortization

A

when a borrowers payments are not large enough to cover the interest due on a loan and the unpaid interest is added to the principal balance (aka deferred interest)

60
Q

package mortgage loan

A

a loan that includes the real estate as well as all personal property and appliances installed on the premises

61
Q

payment cap

A

the maximum monthly payment a borrowed can be charged

62
Q

periodic (or anniversary cap)

A

the maximum amount an interest rate can change between adjustment periods

63
Q

purchase money mortgage

A

instrument given by the purchaser to a seller who “takes back” a note for part or all of the purchase price.

64
Q

term mortgage loan (straight mortgage)

A

a type of short-term balloon-payment loan where payments go towards paying only the loan’s interest (not the principal)

65
Q

Federal Home Loan Mortgage Corporation (Freddie Mac)

A

a government sponsored enterprise created in 1970 to further support the secondary mortgage market, and specifically, to support smaller thrift banks

66
Q

Federal National Mortgage Association (Fannie Mae).

A

the first government-sponsored enterprise, created in 1938, which buys and securitizes loans; specializes in buying loans from large, commercial banks.

67
Q

Government National Mortgage Association (Ginnie Mae)

A

a government-owned entity created in 1968 to further support the secondary mortgage market; focuses on buying loans to help housing assistance and support programs.

68
Q

loan pooling

A

the packaging of mortgages into blocks or pools of mortgages so they can be sold on the secondary mortgage market

69
Q

mortgage-baked securities

A

investment instruments that have mortgages as collateral.

70
Q

Dodd-Frank Act

A

a law passed in response to the subprime mortgage crisis that created the Consumer Finance Protection Bureau

71
Q

Equal Credit Opportunity Act (ECOA)

A

a fair lending law that aims to bar discriminatory lending practices

72
Q

Real Estate Settlement Procedures Act (RESPA)

A

passed to eliminate kickbacks in lending and disclose the costs of closing a loan

73
Q

Regulation Z

A

the part of the Truth in Lending Act (TILA) that seeks to protect consumers by requiring proper disclosures and fair lending practices.

74
Q

trigger terms

A

loan information included in an advertisement that triggers full disclosure of the loan terms, so as not to be deceptive.

75
Q

credit report

A

contains information regarding an individual’s credit history (loan payments, etc.) as well as the present credit status of all open credit accounts.

76
Q

debt-to-income ratio

A

used to measure a borrower’s creditworthiness; calculated by dividing all debt (monthly payment + other debt) by monthly income.

77
Q

FICO score

A

a credit scoring system created by the Fair Isaac Corporation

78
Q

loan commitment

A

a lender’s approval of a specific loan for a specific property; occurs upon completion of final loan approval step.

79
Q

loan estimate

A

combines and replaces the Good Faith Estimate and the initial Truth-in-Lending (TIL) statement; highlights the most important elements of the transaction.

80
Q

loan origination

A

the process through which a buyer obtains a mortgage loan from a lender

81
Q

liquid assets

A

assets than can be quickly converted to cash without losing their value

82
Q

long-term debt

A

financial obligations often paid as installments over a predetermined time frame, which can extend for years

83
Q

payment-to-income ratio

A

used to measure a borrower’s creditworthiness; calculated by dividing monthly payment by monthly income.

84
Q

rate lock

A

a guarantee that the lender will give the borrower a mortgage at a certain interest rate

85
Q

underwriting

A

the process of determining the level of risk a lender is willing to take in extending a loan to a borrower.

Pre-Licensure Real Estate (15 decks)

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