Maryland Financing Flashcards
lenders must generally research and document a borrower’s income, assets, employment, credit history, and loan ratios to help ensure that the borrower has the ability to repay the loan, referred to as
ability-to-repay rule
a mortgage loan that meets specific ability-to-repay rules, including a prohibition on interest-only loans, negative amortization, balloon payments, or excessive loan terms (longer than 30 years)
qualified mortgage
Where loans are sold, held, and serviced
Secondary mortgage market
The Fed regulates two things:
interest rates and available funds.
The Fed regulates two things:
interest rates and available funds.
This is the process of paying off a loan by making periodic payments of principal and interest. Initially, most of the payment will go toward interest, with ever-increasing amounts going toward principal until the loan is paid off.
Amortization
This is the process of paying off a loan by making periodic payments of principal and interest. Initially, most of the payment will go toward interest, with ever-increasing amounts going toward principal until the loan is paid off.
Amortization
This is a lump sum payment, usually at the end of a loan period.
Balloon Payment
This is a loan where the principal and interest payment remains the same over the life of the loan.
Fixed-Rate Loan
This is a fixed-rate mortgage with payments that gradually adjust (usually upward) based on a predetermined schedule and amount. The initial payments are less than what would be a fully amortizing payment, which creates negative amortization. However, this type of payment plan can make payments easier in the beginning when perhaps income is lower.
Graduated Mortgage
This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule. The interest rate remains the same, and there is no negative amortization; the first payment is a fully amortizing payment. As the payments increase, the amount above what would be a fully amortizing payment is applied directly to the principal balance. This reduces the life of the term and increases the interest savings for the borrower.
Growing Equity Mortgage
With this type of graduated payment mortgage, the buyer deposits funds into a savings account held by the lender. This fund, plus any earned interest, is used to supplement mortgage payments. The purpose is to reduce payment amounts in the early years.
Pledged Account Mortgage
With this type of mortgage, the amount applied to principal remains constant over the life of the loan. Each payment becomes lower as the loan balance is reduced with each payment.
Straight-Line Mortgage (Constant Amortization)
This is a mortgage in which the periodic payments go to interest only and the entire principal amount is due at the end of the term
Straight Mortgage/Term Mortgage (Interest Only)
This is a loan in which the borrower’s home equity is used as collateral. If the property is owned free and clear, the home equity loan is a first mortgage. If not, it is a second or junior mortgage. Rates on home equity loans tend to be higher than conventional loans, and their term rates shorter.
Home Equity Loan
Also called a reverse annuity mortgage, this loan is made using the equity in the property, but the homeowner continues living in the home while the lender makes payments to the homeowner and gains corresponding ownership of the property over time. When the homeowner leaves the home, the lender sells the property to pay back the amount of the loan and interest. This is designed for older homeowners who want to use the equity in their homes to stay in their homes.
Reverse Mortgage
Also known as a swing loan, this is a temporary (for example, 90-day) loan that provides funds for a homebuyer to use as a down payment for a new home, prior to selling the current home. A bridge loan is more expensive than an equity loan, but often doesn’t require repayment of principal for a few months. It’s somewhat risky since the homeowner could be paying for a mortgage on the new home, the mortgage on the old home (until it sells), and the bridge loan all at the same time. A bridge loan is best used when the buyer’s current home is already under contract.
Bridge Loan
This is a form of seller financing in which the seller gives the buyer a mortgage toward the purchase price. Buyers use this as down payment financing. The seller is the mortgagee and the buyer is the mortgagor. The purchase money mortgage may be a first mortgage, a junior mortgage, or a junior wrap-around mortgage.
Purchase Money Mortgage
This is a form of seller financing in which the seller’s mortgage remains in place, but the seller is receiving payments from the new buyer and therefore financing the purchase. The mortgage payments the buyer makes are expected to be higher than the payments on the seller’s original loan, so the seller isn’t paying out of pocket. It’s generally a relatively short-term arrangement (perhaps five years), made until the buyer is able to qualify for a conventional mortgage, and will then pay off the remaining principal to the seller.
Wrap-Around Mortgage
Also known as a contract for deed, a land installment contract, or an installment sale agreement, this is a contract between a seller and buyer in which the seller finances the buyer’s purchase by retaining the deed to the property while the buyer makes payments toward the purchase price. The buyer has the right of possession. Often, there is both a down payment, and at the end of the contract, a balloon payment (which may be a result of the buyer qualifying for a conventional loan). When the loan balance is paid in full, the seller gives the buyer title.
Land Contract
This is temporary financing for construction purposes. The developer will submit plans for a proposed project, and the lender will make a loan based on the value of the appraisal of the property and the construction plans. The entire loan is not given at once; disbursements are made at intervals as phases of construction are completed. Upon completion, the lender makes a final inspection, closes the construction loan, and converts the loan into permanent, long-term financing. Construction loans involve risk for the lender (they are essentially loaning on land, air, and a promise to build) and usually come with a higher rate.
Construction Mortgage
This is used in commercial applications where two or more properties are pledged as security for repayment of the loan. For example, a developer may purchase property and subdivide using a construction loan. Once the parcels are ready for sale, the construction loan is converted to a blanket mortgage that covers all the parcels in the subdivisions. When a parcel sells, the release clause allows that individual parcel to be removed from the developer’s loan without initiating a due-on-sale clause, which would require the entire loan to be repaid.
Blanket Mortgage
This is used most often in commercial lending. The borrower agrees to the lender’s participation in the net income from the commercial property or enterprise in order to obtain the loan. The lender may receive interest and a share of the owner’s profits.
Shared Equity Mortgage
This is a mortgage in which personal property is included with the real property in the sale. This might be used in the case of a furnished condominium, for instance, but it’s more commonly used in commercial real estate where business assets are included as collateral.
Package Mortgage
provides 100% financing and allows the investor to realize the tax benefits of real property ownership as well as the security of owning a building with a solid tenant.
A sale leaseback
