Mortgages And Finance Flashcards
VA Mortgage (GI Mortgage)
Made by private lenders to eligible veterans. The VA guaranty on the loan protects the lender against loss if the payments are not made.
Benefits of a VA loan
- equal opportunity for all qualified veterans to obtain a VA loan
- reusable
- no down payment
- no mortgage insurance
- one-time VA funding fee that can be included in the loan
- Veterans receiving VA disability compensation are exempt from the VA funding fee
- VA limits certain closing costs a veteran can pay
- can be assumed by qualified persons
- minimum property requirements to ensure the property is safe, sanitary and sound
- VA staff dedicated to assisting veterans who become delinquent on their loan
Who is eligible for a VA loan?
- Veterans who meet length of service requirements
- Service members on active duty who have served a minimum period
- Certain reservists and National Guard members
- Certain surviving spouses of deceased veterans
203b
FHA program whose purpose is to provide mortgage insurance for a person to purchase or refinance a principal residence
- eligible properties are 1 to 4 unit structures
- borrower may borrow up to 97% of purchase price
Conventional Mortgage
A loan not guaranteed by the VA nor insured by the FHA
*generally they are fixed-rate, fixed-principal-and-interest-payment type
Conforming Loan
A loan that is eligible for purchase by FNMA or FHLMC
*limit is revised every year according to the change in average sales price of conventionally financed single family homes
Jumbo Loan
A loan whose principal is too large to be purchased by FNMA or FHLMC
*may be insured privately with private mortgage insurance (PMI)
Subprime Mortgage
Loans that don’t conform to FHLMC or FNMA guidelines.
*carry higher risks, will have a higher interest rate
Purchase Money Mortgage
A mortgage given by a buyer to a seller in part payment of the purchase price
*the seller is providing financing to the purchaser
Construction Loan
Used by builders or developers to improve land
- funds construction by advancing money in steps as the project is developed
- once completed, a permanent loan is used to pay off the construction loan
Term Loan
Requires only interest payments until maturity. At the end of the maturity term, the entire principal balance is due
Amortizing loans
Regular, periodic payments. Each payment is greater than the interest charged for that period so that the principal amount is reduced at least slightly with each payment
Balloon Payment Loan
The final payment on a loan. Requires interest and some principal to be repaid during its terms but the debt is not fully liquidated (because the term is too short to allow for the loan to be repaid). Upon its maturity, there is still a balance to be repaid.
First Mortgage
The mortgage loan that is recorded first in the courthouse against a property remains a first mortgage until it is fully paid off. In the event of default or foreclosure, the lender who holds the first mortgage receives payment in full before other mortgage lenders receive anything.
Junior Mortgages
Any mortgage recorded after the first mortgage. The earlier a mortgage is recorded, the earlier the mortgagee’s claim in a foreclosure action.
Home Equity Lines of Credit
like a second mortgage but the borrower does not have to take possession of all the money at one time.
- offers a flexible way to access home equity
- good for borrowers who anticipate they will need more money in the future but don’t need it immediately
Budget Mortgage
Requires a homeowner to pay, in addition to monthly interest and principal payments, one-twelfth of the estimated taxes and insurance into an escrow account.
*reduce a lender’s risk - assured that adequate cash will be available when an annual tax or insurance bill comes due
Package Mortgage
Include appliances, drapes, and other items of personal property in the amount loaned
*both realty and personalty serve as collateral
Chattel Mortgage
A mortgage on personal property (car, boat, furniture)
*a pledge of personal property as security for a debt
MORTGAGE
A written instrument that creates a lien upon real estate as security for the payment of a specified debt
Blanket Mortgage
Covers more than one parcel of real estate
*release provisions/clauses- allow individual parcels to be released from the mortgage upon payment of part of the mortgage principal
Open End Mortgage
A mortgage under which the borrower may secure additional funds from the lender, usually stipulating a ceiling amount
Wraparound Loan
A mortgage that includes in its balance an underlying mortgage.
*really a second mortgage that includes an existing first mortgage in its balance
Swing Loan
Provided by a bank for a short term to use as equity in a new house
(Ex: a homeowner is buying a new house but hasn’t sold the old one yet)
Bridge Loan
Short term loan to cover the period between construction loan and permanent loan
Home Equity Loan
Likely to be a second mortgage but carries a lower rate than other types of consumer finance
*for a household that is house rich and cash poor
Sale-Leaseback
Simultaneous purchase of property and lease back to the seller
- at the end of the lease term there may be a purchase option at a small amount for the property user
- sometimes used to arrange 100% financing and control of property without a legal purchase
Fixed Rage Mortgage (FRM)
Features an interest rate that does not change over the life of the loan
*most popular modern mortgage instrument
Graduated Payment Mortgage (GPM)
Payment is increased by some amount or percentage every year until it becomes high enough to fully amortize the loan over the remaining term
- designed to allow a relatively low monthly payment in the first years of the loan
- the loan amount actually goes up instead of down at first because the payments during the first 3-5 years aren’t enough to pay the accumulating interest on the loan
Essential elements of a note
(a) a promise to pay at (b) a fixed or determinable time (c) a certain sum of money (d) to a payee or to bearer, (e) signed by the borrower
Adjustable Rage Mortgages (ARM)
Mortgages that feature interest rate changes every so often (leading to a change in the amount of the monthly payment)
*all ARMs have periodic adjustment, an interest rate based on some index of interest rates, and both periodic and lifetime caps on interest rates
Caps
Limits in changes in interest rates (in an adjustable rate mortgage)
- periodic cap- limits the amount of change for any one period
- lifetime cap- provides upper and lower interest rate limits that apply for the entire life of the loan
Convertibility Feature
Allows the borrower in an ARM to convert to a FRM loan at some time in the future
*typically a fee is charged for conversion
Teaser Rates
Unusually low initial interest rates in an ARM
*used as an enticement to potential borrowers
Reverse Mortgage
The lender makes the payments to the borrower, gradually advancing money to a homeowner
*typically for the elderly
Primary Mortgage Market
Consists of institutions that originate mortgages. The mortgages can then be sold on the secondary mortgage market
- Savings and Loans Associations
- Commercial banks
- Mutual Savings Banks
- Life Insurance Companies
- Mortgage Companies
Secondary Mortgage Market
FNMA- Freddie Mae
FHLMC- Freddie Mac
GNMA- Ginnie Mae
FmHA
Underwriting
A process performed by institutional lenders to asses the risks of making the loan
*look at the property (appraisal) and the borrower (credit reports, financial statements, letters from employers, bank accounts, assets and liabilities)
Usury
A rate of interest that is higher than that permitted by law
- each state has its own usury laws, with different ceiling interest rates applying to each type of loan
- penalties are severe
Assumption of Mortgage
The purchase of mortgaged priest whereby the buyer accepts liability for the debt that continues to exist. The seller remains liable unless the lender agrees to release him.
Estoppel Certificate
A document by which, for example, the borrower certifies that the mortgage debit is a lien for the amount stated
Equity of Redemption
The borrower on a foreclosed property has the right to redeem the property by repaying in full the principal owed
*must be exercised within the time period prescribed by state law
