Prin 2 Math

Question 1

Whole Number:

Answer 1

Any number between zero and infinity. Whole numbers are not fractions or negative numbers.

Question 2

Synonyms:

Answer 2

Positive integers, basic numbers

Question 3

Fraction:

Answer 3

A fraction is part of a whole — a fraction is not a whole number.

Question 4

Numerator:

Answer 4

The number on top of a fraction’s division line or the number of the parts with which you are working; also called the divisor.

Question 5

Denominator:

Answer 5

The number below the fraction’s bottom line or the number of equal parts in total; also called the divisor.

Question 6

Improper Fractions:

Answer 6

When the value of the numerator (the number on top) is greater than the denominator (the number on the bottom), the fraction is an improper fraction.

Question 7

Mixed Numbers:

Answer 7

A number consisting of a whole number and a fraction.

Question 8

Decimal:

Answer 8

A fraction whose denominator is a power of ten and whose numerator is expressed by figures placed to the right of a decimal point.

Question 9

Decimal Definition in Normal, Real Life Words:

Answer 9

A number that involves a decimal point.

Question 10

Ratio:

Answer 10

The quantitive relation between two numbers.

Question 11

Percentage:

Answer 11

A fraction or ratio with a denominator of 100.

Usually written as just the numerator and a % symbol.

Question 12

Profit:

Answer 12

A financial gain. Making more money selling a product than was spent buying or producing the product.

Question 13

Loss: A financial loss —

Answer 13

Making less money selling a product than was spent buying or producing the product.

Question 14

Interest:

Answer 14

Money repaid regularly at a specified rate as compensation for money lent.

Question 15

Principal:

Answer 15

amount lent to a borrower to purchase a house — the borrower pays the lender interest in exchange for the principal.

Question 16

Mortgage:

Answer 16

A mortgage is a secured loan that is tied to real estate, where the borrower has to pay the money back to the lender on a set schedule and amount of payments. Mortgages are also considered “liens against property” or “claims on property.”

Question 17

Down Payment:

Answer 17

initial payment made when buying something on credit; a down payment is paid directly by the buyer to the seller. The standard down payment is 20% of the overall house price, and while a 20% down payment is recommended, it is not required. The minimum down payment required by mortgage lenders is 3% of the house’s price.

Question 18

Amortization:

Answer 18

The repayment of a loan over time in equal installments that include principal and interest.

Question 19

TREC has its own requirements for calculator use on the licensing exam. TREC-acceptable calculators must:

Answer 19

Be silent
Be battery-operated
Not have paper tape printing capabilities
Not have an alphabet keyboard

Question 20

Percent comes from a Latin phrase “per centum ”, percent essentially means

Answer 20

Per hundred

Question 21

You can never solve a problem while a percentage is still in percentage form — it must be changed into its

Answer 21

Decimal form

Question 22

Percentage:

Answer 22

A rate or amount in each hundred (3⁄4 is 75% written as a fraction)

Question 23

Part:

Answer 23

A portion of the total amount, the numerator (3 of 3⁄4)

Question 24

Total:

Answer 24

The “final” or “end result” number, the denominator (4 of 3⁄4)

Question 25

A commission is a

Answer 25

Percentage of the sales price

Question 26

Here are my key tips for reading word problems:

Answer 26

Identify key words

Write down key info

Identify what you need to solve

Identify info you need to find

Cross out all unnecessary info

Question 27

total, part, and percentage come together to create a nifty formula.

Answer 27

The part divided by percentage will equal the total.

Question 28

Here are some of the variables that will impact a seller’s potential profit on a sale:

Answer 28

Any remaining mortgage balance left on the house
Any repairs that must be made
Any liens on the house
The commission of the sale given to the listing agent and buyer’s agent
Any closing costs related to a survey, title, etc.

Question 29

non-amortized loans

Answer 29

means that the borrower will be paying interest only throughout the life of the loan.

principal will remain the same and will be due as a balloon payment at the end of the loan’s term.

These loans are more common in commercial and investment real estate.

Question 30

Mortgage:

Answer 30

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

Question 31

Origination points are

Answer 31

fees charged to the borrower by the lender to pay for the loan origination.

Question 32

Discount points are

Answer 32

paid by the borrower to lower the interest rate.

Question 33

Proration:

Answer 33

The allocation or distribution of an annual expense across smaller chunks of time

Question 34

assessed value is

Answer 34

value placed on a property by a governmental unit for use in calculating property taxes.

Question 35

Assessing units employ

Answer 35

assessors to perform these assessments

Question 36

An assessing unit or approved assessing unit is a

Answer 36

department that has the power to assess real property (such as a city, town, or county).

These units evaluate every piece of real property in their jurisdiction.

Question 37

Tax rates are commonly written as

Answer 37

a certain number of dollars per $100, but they can also appear in percentage form.

Question 38

expressing a tax rate in dollars per $100 is the same as

Answer 38

expressing the tax rate as a percent.

Question 39

The amount that a homeowner pays in property taxes are based upon two things:

Answer 39

The tax rate

The assessed value of the property

Question 40

there are two ways that a homeowner’s taxes can increase:

Answer 40

Property tax rate increases.

Property’s assessed value increases.

Question 41

Accrued items are

Answer 41

costs that have been incurred, but have not been paid for yet.

Question 42

360-day year is known as a

Answer 42

“banker’s year”; it is commonly used in banking to make calculations easier. That way, the year is cleanly divided into 12 months of 30 days each.

Question 43

365-day year is sometimes also called the

Answer 43

“conventional calendar year,” because its divisions reflect the actual months of the calendar that most of us use.

To calculate the daily charge for an item using the conventional calendar year, divide the yearly charge by 365 (366 in a leap year).

Question 44

Before you begin calculating prorations, then, you will need to answer the following questions:

Answer 44

What kind of item is being prorated? Is the charge for the item assessed daily, monthly, annually, or according to some other schedule?

Is this item accrued or prepaid?

Which calculation method should be used?

Where is my calculator? 😮

Question 45

When calculating prorated expenses for a prepaid item, it is first necessary to

Answer 45

determine the period of time for which the expense has been prepaid.

Question 46

Square footage:

Acreage:

Answer 46

A unit of area measurement used to compare the size of buildings (length x width)

A unit of area measurement used to determine the size of land — 1 acre = 43,560 square feet. (acreage)

Question 47

The most common measurement that buyers consider when searching for a home is the home’s

Answer 47

Square footage

Square footage is a unit of area measurement, equal to 1 ft. by 1 ft. Buyers and sellers will often use square footage as a way to compare the size of buildings.

Question 48

If a real estate license holder incorrectly calculates the square footage of a house, they may be

Answer 48

liable for misrepresentation. For this reason, license holders should always search for and cite a source for square footage instead of calculating square footage on their own.

Question 49

1) 1 yard is equal to

2) 1 square yard is equal to

Answer 49

1) 3 feet

2) 9 square feet

Question 50

The finished area of a home is considered

Answer 50

The Livable area

Finished areas include rooms within the house or connected to the house that are typically heated and/or air-conditioned, making them suitable for habitation year-round.

Question 51

The unfinished area of a home includes

Answer 51

external areas such patios, porches, decks, and garages. A basement or attic could also be considered unfinished, depending on the functionality of the room.

Question 52

Volume is measured in

Answer 52

Cubic feet

Question 53

1 acre =

Answer 53

43,560 sq ft

Question 54

1 section = 1 square mile =

1 township = 36 sections =

Answer 54

640 acres

36 square miles

Question 55

1 linear mile is equal to

Answer 55

5,280 linear feet.

Question 56

The frontage is the portion of

Answer 56

the boundary of a lot that borders the street. Frontage is measured in front feet.

Question 57

A front foot is the unit used to measure

Answer 57

a property that borders a street. One front foot is one foot of property bordering the street.

Question 58

When giving the dimensions of a property, the front feet are always

Answer 58

Stated first.

For example, if a property is 150’ x 313’, the property has a frontage of 150 feet, or, 150 front feet.

Question 59

Related to frontage, the depth of a lot is how far the lot goes back. So, if a rectangular lot is 150’ x 313’, the frontage is

Answer 59

150 front feet and the depth is 313 feet.

Question 60

The perimeter is

Answer 60

the boundary of the property.

To find out what the perimeter is of a property, all you have to do is add the boundary lines together.

Question 61

Appraisal:

Answer 61

The value of a property, based on factors determined by the opinion of a certified appraiser

Question 62

When Selling: If your client is selling a house, you usually want the house to appraise for

Answer 62

as much as possible, that way the client has the potential to get the most money possible (and you the commission).

Question 63

When Buying:

Answer 63

If your client is buying a house, they want the appraisal to go at least as high as their offer. If not, the buyer could be liable to pay the difference* between their offer and the appraisal.

Question 64

An appraiser’s job is to supply

Answer 64

impartial and unbiased information in order to estimate the value of a property.

Question 65

To be an appraiser, you need:

Answer 65

Strong analytical skills 💪

The ability to observe and assess market trends 📈

The ability to separate opinion from fact 🔎

to be licensed

Question 66

licensed real estate agent cannot perform an

Answer 66

appraisal unless they are also a licensed appraiser.

Question 67

Lenders, not buyers or sellers, usually choose the

Answer 67

Appraiser

Question 68

Even though the lenders choose who will be appraising the property, the lenders are legally not allowed to be

Answer 68

affiliated with the appraisers.

Question 69

To come up with the official value assessment of a home, the appraiser:

Answer 69

Researches the right market areas

Assesses and analyzes information about the property

Uses their own professional judgment

Question 70

Appraisals can be used for any number of things, including:

Answer 70

Mortgage lending

Government acquisitions

Tax assessments/assessment appeals

Buyer/seller negotiations

Question 71

The Uniform Standards of Professional Appraisal Practice (USPAP) is

Answer 71

the ethical code that appraisers in the United States must follow. All state-certified, practicing appraisers must follow these guidelines.

Question 72

All appraisers are regulated b

Answer 72

Appraiser Qualifications Board (AQB) of the Appraisal Foundation.

Question 73

Appraisal Foundation is authorized by

Answer 73

Congress to set the minimum requirements for Certified General Real Property Appraisers and Certified Residential Real Property Appraisers.

Question 74

The AQB also sets recommended minimum requirements for the

Answer 74

Licensed Real Property Appraiser and Trainee classifications.

Question 75

Appraisers in Texas are regulated by the

Answer 75

Texas Appraiser Licensing & Certification Board (TALCB).

Question 76

TALCB is very closely related to

Answer 76

TREC

Question 77

TREC and TALCB even share the same

Answer 77

resources and staff members!

Question 78

as an appraiser supervisor, they can only supervise

Answer 78

three trainees at a time

Question 79

There are three different levels of appraiser that a trainee can aspire to attain.
A trainee can become a:

Answer 79

Licensed Residential Appraiser

Certified Residential Appraiser

Certified General Appraiser

Question 80

Licensed Residential Appraisers cannot:

But are qualified to appraise:

Answer 80

1)appraise subdivisions

One-to-four family non-complex residential units where the transactions are valued at less than $1,000,000

One-to-four family residential complex units having a transaction value of less than $250,000

Question 81

To become a Licensed Residential Appraiser, an Appraiser Trainee needs:

And will also:

And:

A student wanting to become a Licensed Residential Appraiser will need either an

Answer 81

75 additional education hours on top of the 79 they’ve already taken.

need to verify that their National USPAP course (15 hours) was taken after Feb. 1, 2002.

the student will need 2,000 hours of logged appraisal experience logged over a minimum of one year (12 months). This experience must be logged and signed by their supervisor.

Associate’s Degree or 30 course credit hours from an accredited college or university.

Question 82

After Licensed Residential Appraiser, the next level is

Answer 82

Certified residential appraiser

Question 83

At the level of Certified Residential Appraiser, an appraiser can participate in

Answer 83

one to four residential unit transactions, no matter the value.

Question 84

Certified Residential Appraiser: Requirements
For this level, the Appraiser Trainee will need:

Also:

To become a Certified Residential Appraiser, a trainee needs:

Certified Residential Appraisers are required to have a

Answer 84

125 hours of education on top of the 79 hours they’ve already taken.

make sure their National USPAP course (15 hours) was taken after Feb. 1, 2002.

2,500 hours of logged appraisal experience over a minimum of two years (24 month). And these must also comply with USPAP.

Bachelor’s Degree (or higher) from an accredited college or university.

Question 85

Leveling Up: Certified General Appraiser
To progress from Appraiser Trainee to Certified General Appraiser needs

A Certified General Appraiser can

Trainees must have:

Will need:

To qualify to be a Certified General Appraiser,

Answer 85

On top of the 79 hours of education they’ve already taken, the trainee will need to take 225 hours of additional education.

appraise any kind of property, anywhere, anytime, anyhow.

completed their 15 hours of National Universal Standards of Professional Appraisal Practice Course after Feb. 1, 2002.

a Bachelor’s Degree (or higher) from an accredited college or university.

trainee will need 3,000 hours of appraisal experience

Question 86

Once a trainee completes the requirements for the level of appraiser they want to become, they’ll have to take the

Answer 86

state appraiser test before they can become an appraiser.

Question 87

General data is information about the

Answer 87

area surrounding the property. This could include the city, region, and neighborhood in which the property is situated. 🏙

Question 88

Specific data, on the other hand, is information regarding

Answer 88

The property

Question 89

A limited appraisal is a

Answer 89

abbreviated version of a regular appraisal. The appraiser generally makes this kind of assessment by checking out the exterior of the property only.

Question 90

There are three types of value in the real estate world. They are:

Answer 90

Market value
Appraised value
Assessed value

Question 91

Market value is

Answer 91

the price for which a property will sell if offered openly under normal conditions.

Question 92

Only licensed appraisers can give an

Answer 92

Appraised value

Question 93

The assessed value is the value

Answer 93

governmental unit for use in levying annual real estate taxes.

Reminder: Property taxes are ad valorem taxes, which means “according to value.”

Question 94

Taxes are based on the

Answer 94

assessed value of the property,

…not the price that the homeowner paid for it, so there may be a difference between these two prices.

Question 95

Why are these lenders so interested in the appraisal of a property for which they are offering a loan?

Answer 95

If things go bad and the borrower stops making mortgage payments, the lender may have to foreclose on the property. Lenders do not want to be stuck with a house that is worth less than the amount the borrower owes on the property.

Question 96

lenders limit the amount of the loan to a certain

Answer 96

percentage of the home’s appraised value or sales price, whichever is lower. This limit is expressed as a loan-to-value ratio, or LTV.

Question 97

The subject property is the

Answer 97

property that is being evaluated in any given appraisal.

Question 98

The principle of anticipation is the idea that the present value of a property is

Answer 98

affected by the anticipated income or utility that property will give its property owner.

Question 99

A property’s overall value is made up of the combined value of each of its parts. The value of each component contributes to the total value. This is the

Answer 99

Principle of contribution

Question 100

contributory value of an item is not always

Answer 100

equal to the price of that item.

Ex:Some improvements are really smart because the value they add is higher than the expense.

Ex: seller could renovate an area of the home or add an improvement, only to be disappointed that the amount they spent doesn’t directly correlate with the additional amount they can fetch for the house.

Question 101

The principle of substitution states

Answer 101

that the value of something is affected by the cost of getting a similar (substitute) item elsewhere.

Question 102

The principle of change reminds us that the condition of a property, the desirability of its location, and the market in which it exists can always

Answer 102

Change

Any change could affect the value of the property, which is why appraisals are only good (acceptable to lenders) for a few months. An outdated appraisal may not reflect important zoning changes, damage to the building, or changes in the housing market.

Question 103

there is a principle of conformity that says values are highest when

Answer 103

the houses in a neighborhood look roughly the same.

Value suffers when a house is much nicer, much worse, or just plain weirder than the other houses on the block.

Question 104

principle of conformity is that maximum value is realized when land use is in

Answer 104

harmony with surrounding standards.

Question 105

Principle of Regression:

Answer 105

When lower-value properties surround a subject property, they can drag down the value of the property via the principle of regression.

Question 106

Principle of Progression:

Answer 106

If the subject property is located among properties that have a higher value, that can bump up the subject property’s value because of the principle of progression.

Question 107

Sales comparison approach:

Answer 107

Determining value by comparing the subject property to similar properties (“comps”) that have sold recently. It’s most commonly used for single-family residences.

Question 108

Cost approach:

Answer 108

Determining value by considering how much the same property would cost to build brand new at current prices (replacement cost), then adjusting for depreciation.

Question 109

Income approach:

Answer 109

Determining value by considering how much income the property could generate when used as rental property.

Question 110

Depreciation, a concept well known by appraisers, is the

Answer 110

loss of value because of obsolescence (becoming obsolete) or deterioration.

Question 111

Undeveloped land is never subject to

Answer 111

Depreciation

Question 112

Functional obsolescence:

Answer 112

Loss of value because a property’s function or appearance has gone out of style or has been replaced by a more appealing version

Question 113

Economic obsolescence:

Answer 113

Loss in value caused by negative forces outside the property which are beyond the control of the owner (unfavorable changes in the environment or market)

Question 114

Deterioration:

Answer 114

Loss of value caused by physical wear and tear over time

Question 115

Chronological age:

Answer 115

literal age of the property. If the home was built 30 years ago, it’s chronological age is 30.

Question 116

Effective age:

Answer 116

estimated age that is influenced by the updates and quality of maintenance of the property. A 30-year-old house that has been well cared for might have an effective age of 15.

Question 117

Since different methods will yield different results for the same property, the appraiser will

Answer 117

reconcile these differences and come to a single number.

Question 118

Appraisal Report:

Answer 118

report from a licensed appraiser that sums up a property’s market value based on collected data

Question 119

Appraisal Review:

Answer 119

review of the appraisal report to make sure the appraisal meets the lender’s standards

Question 120

Desk Review:

Answer 120

When the lender carries out an appraisal review at their desk (as opposed to sending someone out into the field) to make sure the original appraisal is accurate

Question 121

Field Review:

Answer 121

When a third-party appraiser is sent back out to the property to check the validity of the first appraisal

Question 122

The appraisal report is usually paid for by the

Answer 122

Buyer

Question 123

There are eight steps to completing an appraisal:

Answer 123

Stating the objective
Listing the data needed
Gathering and recording data
Determining the highest and best use
Estimating the land value
Estimating value using applicable approaches to appraisal
Reconciling the final value estimate
Completing and presenting the value report

Question 124

The first thing an appraiser does is state their task. The appraiser identifies the

Answer 124

purpose of the appraisal, the date, the property location, and any other aspects that make the specific appraisal project unique.

Question 125

When stating the objective, an appraiser:

Answer 125

Identifies the property with a complete legal description

Establishes which property’s rights are to be appraised (Typically this will be fee simple ownership, which is full ownership, but it may be less than full ownership, like a tenant’s leased occupation rights, right-of-way, or an easement.)

States the type of value the appraisal seeks to define, which is typically the market value (an investment value, value in use, or appraised value; however, it also determines property value in certain situations)

Determines the effective date of the valuation because value changes over time

Clarifies any limitations (this part protects the appraiser!)

Question 126

The Appraisal Standards Board, or ASB, is responsible for establishing the

The ASB also enforces the

Answer 126

rules for completing an appraisal and compiling its report.

Uniform Standards of Professional Appraisal Practice, or USPAP, which outlines the ethical and professional standards of real estate appraisal.

Question 127

The lender’s underwriter might even call for an appraisal review to double check the accuracy of the appraisal. This review is conducted by

Answer 127

another professional (either an independent or in-house specialist).

Question 128

Things to Know About Market Value

Answer 128

It’s not the same thing as the sales price.

It’s an opinion, not a fact.

Not all appraisers will agree on the same value.

Question 129

Here are a few examples of conditions that are NOT fair and normal:

Answer 129

wealthy clairvoyant sees the house of her childhood visions, but it’s not for sale. She makes an offer to the homeowners that’s well above market value to convince them to move. 🔮

An elderly man wants to sell the house he has lived in for decades in a city that’s seen massive growth. A buyer offers to buy it in cash for an amount that seems like a lot to the elderly man, but it’s actually below market value.

A doctor gets a job offer in a new city, and they need her to start ASAP. She accepts a below-market offer on her condo after having it listed for one day. She needs to sell quick!

Question 130

DUST is a pretty handy acronym used in the real estate biz to help us remember the four characteristics that make real estate valuable:

Answer 130

Demand
Utility
Scarcity
Transferability

Question 131

Demand is an obvious component of value. If no one wants the property,

Answer 131

It’s not valuable

Question 132

Utility: Properties need to be useful or serve some kind of

Answer 132

Purpose to have value

Question 133

sales comparison (or direct sales comparison) approach, also referred to as

Answer 133

Market days approach

Question 134

The sales comparison approach to appraisal uses two value principles:

Answer 134

The principle of substitution

The principle of contribution

Question 135

When an appraiser uses the sales comparison approach, they collect data from

Answer 135

previous sales of similar properties in the area with similar features: amenities, square footage, number of rooms, and location.

Question 136

Appraisers rely heavily upon the sales comparison approach for

Answer 136

appraising owner-occupied residential properties and vacant land.

Question 137

The Sales Comparison Approach is

Answer 137

100%linear

Question 138

To estimate a property’s current market value using the cost approach, an appraiser needs to determine

Answer 138

how much it would cost to replace the building or other improvements. Then they would subtract the cost of depreciation from that value. Lastly, they would add the value of the land itself.

Question 139

Here’s an overview of the steps involved in using the cost approach:

Answer 139

Estimate the value of the land itself.
Estimate the new construction cost of improvements (using replacement cost, reproduction cost, or another method).
Add up any and all types of depreciation.
Subtract the accrued depreciation from new construction cost to get the estimated value of current improvements.
Add the land value and improvement value together.

Question 140

There are several methods used for determining the new construction cost of improvements within the cost approach:

Answer 140

The quantity survey method is quite intense. This involves the appraiser individually tallying up the value of everything that goes into the cost: labor and equipment, raw materials, business overhead, and other fees.

The unit-in-place method is less granular. It takes direct and indirect costs into account, but combines them into a simplified cost for a building component.

The square foot method is possibly the least accurate method, but it’s the simplest and most widely used. The appraiser estimates a cost per square foot for that specific type of building and then multiplies it by the square footage of the structure

Question 141

quantity survey method

Answer 141

involves the appraiser individually tallying up the value of everything that goes into the cost: labor and equipment, raw materials, business overhead, and other fees.

Question 142

unit-in-place method

Answer 142

takes direct and indirect costs into account, but combines them into a simplified cost for a building component.

Question 143

square foot method is possibly the least accurate method, but it’s the simplest and most widely used. The appraiser estimates

Answer 143

a cost per square foot for that specific type of building and then multiplies it by the square footage of the structure.

Question 144

Most appraisers do not use this method, but the cost approach is a great method to use when

Answer 144

putting a value on new construction.

Question 145

Here’s what the appraiser is tasked with while calculating the replacement cost:

Answer 145

Establishing the improvement’s reproduction or replacement cost
Estimating the existing building’s depreciation (loss in value)
Establishing the value of a comparable land parcel
Making the appropriate adjustments to the comparable parcel
Combining the figures from the previous steps into the cost approach formula
Stating the value of the subject property

Question 146

The replacement cost is

Answer 146

the cost of giving the new building similar features using comparable modern materials at current prices.

Question 147

The reproduction cost is

Answer 147

the cost of procuring exact copies of the building’s components, preserving the styles and materials used at the subject property’s original construction.
(You probably wouldn’t do this unless the goal was to recreate the look of a historical building.)

Question 148

Common types of depreciation include physical deterioration and obsolescence.

Answer 148

Physical deterioration is the loss of value caused by physical wear and tear over time.

Obsolescence is a property’s loss of value due to economic or functional factors.

Question 149

Straight-line cost recovery is

Answer 149

an accounting method in which depreciation expenses are deducted from a property’s value.

Question 150

Depreciation can be classified as either

Answer 150

curable or incurable.

Question 151

Curable physical deterioration:

Answer 151

broken window that can be replaced

Question 152

Incurable physical deterioration:

Answer 152

a major foundation problem that would cost more to fix than the structure is worth

Question 153

Curable functional obsolescence:

Answer 153

electrical wiring that can easily meet current safety standards if updated

Question 154

Incurable functional obsolescence:

Answer 154

a very outdated floor plan and no HVAC system

Question 155

Curable external (economic) obsolescence:

Answer 155

No examples, because there is no such thing! By definition, the owner cannot fix the external factors causing depreciation of the property.

Question 156

Economic life is

Answer 156

the length of time for which an improvement on property is expected to remain functional and useful.

Question 157

The income capitalization approach determines an investment property’s value based on

Answer 157

its return.

It does this by dividing its net operating income (NOI) by the capitalization rate (cap rate) of the property. Cap rate is the ratio of NOI to property value.

Question 158

Sometimes, cap rates and NOI figures are contained

Answer 158

in a property’s published listing documentation. Other times, only the the sales price is.

Question 159

The IRV Formula

The basic formula for this approach is commonly referred to as IRV.
You can break this formula down even further into three steps:

Answer 159

Estimate the net operating income.

Determine the capitalization rate.

Apply the IRV formula to arrive at a value estimate.

Question 160

three common income calculations done in real estate investment:

Answer 160

Potential gross income (PGI)
Effective gross income (EGI)
Net operation income (NOI)

Question 161

potential gross income (PGI)

Answer 161

amount of income the property would bring in if it was at 100% occupancy (all units rented out).

add up all the rents and BAM

Question 162

If you subtract the income loss from the PGI, you get the

Answer 162

effective gross income (EGI).

Question 163

Operating expenses are the occasional or continuous

Answer 163

expenses required for the operation of an income-producing property. Examples include the salary of the building staff or maintenance costs.

Question 164

in order to have an even more accurate account of how much money a property brings in, you can subtract a property’s operating expenses

Answer 164

from its EGI. When you do that, the number you get is the net operating income (NOI).

Question 165

Because NOI takes into account both income loss and operating expenses, it is the

Answer 165

most accurate representation of how much money a property actually brings in.

Question 166

Fair Market Value:

Answer 166

The price for which a property will sell if offered openly under normal conditions

Question 167

Comparative Market Analysis: Also known as

Answer 167

CMA, this is a report generated by a license holder that compares the prices of recently sold homes (“comparables”) in order to estimate the fair market value of a similar property (the “subject property”)

Question 168

Subject Property:

Answer 168

The property that is the “subject” of the CMA

Question 169

Comparables:

Answer 169

The recently sold homes that are compared to the subject property in a CMA

Question 170

Pricing a property is a magical mix of research, math, and art.

the benefits that make that effort worthwhile include:

Answer 170

Promotes a fast response -

Creates competition-

Sets realistic expectations-

Question 171

A CMA is NOT

Answer 171

An appraisal

Question 172

Let’s get this out of the way right now. A CMA is NOT an appraisal.
Here are a few of the more significant differences:

Answer 172

You must have an appraiser’s license to create an appraisal
An appraisal is usually done for a fee

A CMA can be done by a license holder

A CMA is usually done for free

A CMA is less detailed AND less reliable than an appraisal

Question 173

CMA and an appraisal have a few things in common:

Answer 173

Both are used to arrive at a fair market value of a property.

Both use a sales comparison approach that is based on the principle of substitution and the principle of contribution.

Question 174

next in how they approach the creation of a CMA, most address these steps in one fashion or another:

Answer 174

Evaluate the neighborhood.

Evaluate the subject property.

Get your comparables.

Compare and adjust selected comparables.

Establish a listing price range.

Question 175

The location of the subject property is

Answer 175

one of the primary factors that determines its value.

Question 176

three principles from Chapter 2 are at play when evaluating the subject property and its neighborhood:

Answer 176

Principle of Conformity says that values are highest when the houses in a neighborhood look roughly the same.

Principle of Regression says that a subject property situated in the midst of lower-value homes will experience a downward pull on its own value.

Principle of Progression says that a subject property situated in the midst of higher-priced homes will experience an upward pull on its own value.

Question 177

Other things to look for when collecting neighborhood info that can influence subject property market value:

Answer 177

Percentage of rentals vs. owner-occupied homes (high rental percentage lowers location value)

Presence of vacancies or foreclosures (lowers location value)

HOA codes in place to regulate appearance, maintenance, and use of homes

How zoned? In transition? Mixed use?
Street width and condition

Utilities: electric, gas, sewer, cable, internet, etc.
Public services: transportation, police, and fire
Access to major roads, stores, entertainment, employers, schools, etc.

Environment: noise, traffic, smells, wind
Geography: varied or uniform, flat, barren, steep, hilly, etc.

Property taxes

Question 178

Some of the lot features you will want to make note of and consider as you build your CMA include:

Answer 178

Size and dimensions (standard shapes are more desirable)

Frontage (can increase value if it gives access to certain features)

Landscape (flat, hilly, wooded, etc.)

Orientation to sun and amount of shade

Exposure to the elements and environment (wind, noise, etc.)

Title concerns (easements, encroachments, etc.)

Question 179

As you continue to focus on the exterior of the home, pay attention to details like:

Answer 179

Do the gutters go completely around the home?

Is there a garage? If so, how many cars does it hold and is it attached to the home?

Is there a front porch? A back patio?

Is the yard fenced in? If so, in what condition is the fence?

Are there additional structures on the lot? A workshop? Storage shed?

Are there any gardens or flower beds? How about sprinklers?

What is the condition of the sidewalks and driveway?

Is the home due for a new roof or paint job? These can be expensive maintenance issues that will need to be considered.

Question 180

The size of the home is one of the

Answer 180

primary factors that influence the market value of a property. This is why appraisers prefer to stay within 10% of the net square footage when comparing one home to another.

Question 181

Count the total number of rooms, making note of number of bedrooms and bathrooms. And remember that bathrooms are further broken out by

Answer 181

whether they are a full bath (tub, sink, toilet), three-quarter bath (shower, sink, toilet), or half-bath (sink, toilet).

Question 182

Infrastructure and systems that can differentiate a property should be documented. These include things like:

Answer 182

A/C, heating, gas, and electric
Energy-efficiencies (solar panels, double-paned windows, insulation, appliances)
Electronics, internet, cable-readiness, etc.

Question 183

The MLS listing for recently sold homes will also provide

Answer 183

the original listing price and days on market, which may be useful to you in the property pricing discussion.

Question 184

You want to have at least

Answer 184

three recently sold comparables in your CMA report.

Question 185

A good comparable is a property that is within a

Answer 185

quarter-mile to a half-mile of the subject property.

Question 186

On one hand, pending sales are great because they reflect the most

On the other hand, they are NOT final, so the ultimate

Answer 186

immediate buyer/seller behavior in the market.

sales price is unknown.

Question 187

Sellers see current listings as their

Answer 187

competition and can be tempted to price their own home according to what others are asking.

Question 188

More than anything else, expired listings and re-listed properties can serve as

Answer 188

teaching opportunities in the listing agreement conversation.

Question 189

The primary cause for expired listings is

Answer 189

improperly priced properties, and the re-listed property can show the importance of getting that right the first time.

Question 190

If you’re going to make note of a re-listed property that eventually sold, be sure to

Answer 190

add the days-on-market together from both listing episodes.

Question 191

One of the best things to look at when trying to determine the price of a property is

Answer 191

the price that willing buyers have recently paid for similar structures.

It’s most accurate way to get sale price without an appraisal.

Question 192

there are ways to account for the differences between one apple and the next by making a few small adjustments.

remember about this:

Answer 192

The adjustments needed should be relatively small or the apples aren’t really “comparable.”

Question 193

Typical adjustments for comparables found on a CMA include:

Answer 193

Number of bathrooms
Number of bedrooms
Size of lot
GLA (gross living area) square footage
Garage (how many cars fit)
Basement (finished or unfinished)

Question 194

But brand-new license holders can figure this out by looking at recently sold homes that are identical in all ways except for one feature and, then,

Answer 194

attribute the price difference between the two homes to that one feature.

Question 195

Where the comparable home has features or amenities the subject property lacks, you will need to

Answer 195

subtract the feature’s price value from the comparable’s sales price.

Question 196

if the comparable lacks a feature or amenity that the subject property has, you need to

Answer 196

add the feature’s price value to the comparable’s sales price.

Question 197

Once you have those adjusted comp sales prices, you can create a

Answer 197

suggested price range for your prospective client.

Question 198

The comparables that required the least amount of adjustments will be

Answer 198

the ones you lean on the most in your creation of that suggested price range for the subject property.

Question 199

When settling on a listing price, you will want to help the seller understand

Answer 199

the market environment, and how that might impact the list price.

Question 200

If the last comparable sale closed a few months back, but the median price for homes in the area have inched upward 1% per month,

Answer 200

add that amount to the list price for every month that has gone by since that last comparable closed.

Question 201

In a seller’s market where prices are moving up and inventories are shrinking, the seller can add

Answer 201

10-12% to the last comparable sale and attract buyers.

Question 202

There are seller considerations that might influence how aggressive they want to be in pricing the home for a quick sale. Things like:

Answer 202

Contingency purchase of another home

Job transfer

Financial issues

Question 203

Primary Mortgage Market:

Answer 203

The arena in which borrowers and lenders meet up for the purposes of negotiating loans terms of a mortgage transaction

Question 204

Secondary Mortgage Market:

Answer 204

The marketplace where home loans and their servicing rights are bought and sold between lending institutions (that originated the loans) and investors

Question 205

Government-Sponsored Enterprises:

Answer 205

Publicly-traded institutions that were created by Congress to provide liquidity, stability, and affordability to the mortgage market

Question 206

Federal Agricultural Mortgage Corporation:

Answer 206

A government-sponsored enterprise (GSE) providing a secondary market for agricultural and rural mortgage loans; also known as Farmer Mac

Question 207

Depository Lenders:

Answer 207

Institutions that make mortgage loans from funds derived from their customers’ savings accounts

Question 208

Savings Associations:

Answer 208

Specialize in long-term residential loans; primary function is to promote thrift and homeownership

Question 209

Federal Home Loan Bank System:

Answer 209

Eleven private, wholesale regional U.S. banks chartered to regulate member organizations, set reserve requirements, establish discount rates, and provide insurance for depositors

Question 210

Federal Deposit Insurance Corporation:

Answer 210

Created by Congress in 1933 to insure deposits, supervise financial institutions, make large financial institutions resolvable, and manage receiverships

Question 211

Commercial Banks:

Answer 211

Designed to be safe depositories and lenders for a multitude of commercial banking activities, relying mainly on demand deposits (checking accounts) for their basic supply of funds

Question 212

Credit Unions:

Answer 212

Provide members with a source of funding for personal property and, more recently, real estate mortgage loans

Question 213

Savings Banks:

Answer 213

Play an active and important role in local real estate financing activities, providing long-term mortgage loans with funds derived from customer savings accounts

Question 214

Life Insurance Companies:

Answer 214

Prefer investments in large projects such as shopping centers as opposed to smaller loans for home mortgages and construction loans

Question 215

Mortgage Bankers:

Answer 215

Not bankers in the traditional sense, but as private entrepreneurs, their income is derived from fees received for originating and servicing real estate loans

Question 216

Mortgage Brokers:

Answer 216

Bring together borrowers and lenders and earns a fee for that service

Question 217

Savings and loans, commercial banks, credit unions, mortgage bankers and mortgage brokers, and investment groups represent a few of the players that make up the

Answer 217

Primary market

Question 218

When sold to investors, these repackaged loan bundles are presented as

Answer 218

mortgage-backed securities (MBS).

Question 219

The three major players in the secondary mortgage market are:

Answer 219

Fannie Mae - Federal National Mortgage Association (FNMA)

Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMC)

Ginnie Mae - Government National Mortgage Association (GNMA)

Question 220

Fannie Mae and Freddie Mac are both what is known as a

Answer 220

government-sponsored enterprise (GSE), created by Congress to provide liquidity, stability, and affordability to the mortgage market.

Question 221

The GSEs provide liquidity (the ready access of affordable funds) to

Answer 221

thousands of banks, savings and loans, credit unions, and mortgage companies that make loans in the primary mortgage market.

Question 222

The GSEs make those funds available to these members of the primary mortgage market by

Answer 222

being willing purchasers of the loan bundles the lenders put together — as long as the loans meet the underwriting criteria of the GSEs.

Question 223

Fannie Mae and Freddie Mac purchase loans from lenders that meet their guidelines. This influx of cash allows

Answer 223

lenders to then give out more loans to potential homebuyers.

Question 224

only significant difference between Fannie Mae and Freddie Mac is

Answer 224

the size of the financial institutions from which they purchase their mortgage loan bundles. Fannie Mae deals with larger commercial banks whereas Freddie Mac works with the smaller “thrift” banks.

Question 225

For a fee, Ginnie Mae guarantees timely payment of

Answer 225

principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government insured or guaranteed mortgages.

Question 226

Whereas Ginnie Mae deals exclusively with FHA, VA, and other government-supported mortgage loans, Fannie Mae (since the 1970s) and Freddie Mac (always) engage primarily in

Answer 226

conventional conforming mortgage loans.

Question 227

And, as a final thought about the secondary mortgage market, comes this information from the Farm Credit Administration:

Answer 227

The Federal Agricultural Mortgage Corporation (Farmer Mac) is a Government-sponsored enterprise (GSE) with the mission of providing a secondary market for agricultural real estate mortgage loans, rural housing mortgage loans, and rural utility cooperative loans.

Question 228

Savings accounts are fundamental to establishing the foundation for

Answer 228

mortgage lending by organizations known as depository institutions.

Question 229

Thrifts are organized in two different ways

Answer 229

either stock companies or mutual companies.

Question 230

thrifts were comparatively free from public regulation up until

Answer 230

Federal Home Loan Bank System (FHLB) was created in 1932.

Question 231

the FHLB was chartered to do four things:

Answer 231

Regulate member organizations

Set reserve requirements

Establish discount rates

Provide insurance for depositors

Question 232

The FHLB operates 11 district banks that are regulated by the

Answer 232

Federal Housing Finance Agency.

The accounts in these banks are insured up to $250,000 per title per account by the Federal Deposit Insurance Corporation (FDIC).

Question 233

The member savings associations were chartered and regulated by

Answer 233

Office of Thrift Supervision (OTS),

which now falls under the Office of the Comptroller of the Currency (OCC).

Question 234

In response to the thousands of bank failures that occurred in the 1920s and early 1930s, the (created?)

Answer 234

FDIC was created by Congress in 1933 to:

Question 235

In response to the thousands of bank failures that occurred in the 1920s and early 1930s, the FDIC was created by Congress in 1933 to:

Answer 235

Insure deposits

Supervise financial institutions for safety and soundness

Make large financial institutions resolvable

Manage receiverships

Question 236

the FDIC insures deposits up to

Answer 236

250,000 per depositor, per account.

Question 237

Savings associations specialize in

Answer 237

Long term residential loans

Question 238

The primary function of these savings associations is to

Answer 238

promote thrift and home ownership.

Question 239

real estate-related assets are the main source of investment for savings associations which includes:

Answer 239

residential mortgage loans, residential construction loans, home equity loans, and mortgage-backed securities.

Question 240

Savings associations offer

Answer 240

conventional, FHA-insured, and VA-guaranteed loans.

Question 241

Commercial banks are designed to

Answer 241

be safe depositories and lenders for a multitude of commercial banking activities.

They have a variety of sources of capital, including savings, loans from other banks, and the equity invested by their owners.

Question 242

demand deposits

Answer 242

Known as checking accounts

Question 243

Commercial banks were originally designed primarily to make loans to

Today, they often diversify into loans in the

Answer 243

businesses to finance their operations and inventories.

Real estate sector

Question 244

Commercial banks participate in real estate financing in several ways, including:

Answer 244

Operation of their trust departments

Acting as mortgage bankers (including the ownership of mortgage banking companies)

Through direct or indirect ownership of other lending businesses

Question 245

In the role of mortgage bankers, commercial banks represent:

Answer 245

Life insurance companies

Real estate investment or mortgage trusts

Other commercial banks seeking loans in a specific community

Question 246

Commercial banks participate, either directly or indirectly, as owners of

Answer 246

real estate mortgage trusts (REMTs) or as members in a regional bank-holding company.

Question 247

What’s an REMT? A real estate mortgage trust (REMT) is a

Answer 247

registered company that owns and operates real estate mortgages; investors can buy and sell interests in mortgages.

Question 248

Savings banks provide

Answer 248

long-term mortgage loans with funds derived from customer savings accounts.

Question 249

The insurance industry is one of the largest industries in terms of

Answer 249

tax revenue at both the state level as well as the federal level according to the Department of Commerce.

Question 250

Life insurance companies prefer investments in

Answer 250

large retail projects such as shopping centers as opposed to office, industrial, or multifamily properties.

Question 251

the mortgage banker assumes the role of

Answer 251

an intermediary. They search out and develop new mortgage businesses by originating loans, selling the loans to investors, and collecting the payments on the loans for the benefit of the investors.

Question 252

Some of the larger mortgage banking companies maintain

Answer 252

hazard insurance and escrow departments as well as loan origination and servicing divisions.

Question 253

The income of mortgage bankers is derived from

Answer 253

fees received for originating and servicing real estate loans

Question 254

There are laws in each state that regulate mortgage banking companies. However, these companies are

Answer 254

less regulated than commercial banks because they are not lending the funds of depositors.

Question 255

mortgage broker brings together a

And Mortgage brokers, unlike mortgage bankers, seldom invest capital in

Answer 255

borrower and a lender and earns a fee for that service.

real estate loans and do not service the loans they help bring about.

Question 256

Servicing a loan refers to

Answer 256

overseeing the collection and processing of payments and following up on delinquencies in payment of loans.

Question 257

Credit unions are typically owned by their

Answer 257

members, and as member-owned and cooperative institutions, credit unions can provide a “safe place” for borrowers.

And pool loans into REMIC’s

Question 258

Fannie Mae:

Answer 258

government-sponsored enterprise created to act as a secondary mortgage market facility that could purchase, hold, and sell FHA-insured loans

Question 259

Freddie Mac:

Answer 259

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

Question 260

Ginnie Mae:

Answer 260

Government National Mortgage Association (Ginnie Mae) is a government-owned entity that supports the secondary mortgage market by guaranteeing timely payment of principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government-insured or guaranteed mortgages

Question 261

Balloon Payment:

Answer 261

payment made at the mortgage term’s end that is comparatively much larger than the payments that preceded it

Question 262

The word “mortgage” means

Answer 262

“death pledge” in Old French.

means that the pledge of the mortgage will die through fulfillment of the loan for the property or die via default and repossession by the lender.

Question 263

housing GSEs are the:

Answer 263

Federal National Mortgage Association (Fannie Mae)

Federal Home Loan Mortgage Corporation (Freddie Mac)

Federal Home Loan Bank System (FHLBank System), which currently consists of 11 Federal Home Loan Banks (FHLBanks)

Question 264

The federal government began its response to the housing crisis in 1932, with the enactment of the

Which created:

Then government also created:

Answer 264

Federal Home Loan Bank Act (the Bank Act).

the FHLBank System and the Federal Home Loan Bank Board (FHLBank Board) as its regulator.

Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and Fannie Mae.

Question 265

Federal Home Loan Bank System (FHLBank System) was designed to

Answer 265

serve as a reserve credit system to support housing finance and provide relief to troubled homeowners and lending institutions.

It consists of 11 member banks.

Question 266

The Bank Act provided the FHLBanks with budgetary

Answer 266

authority to borrow up to $215 million from Treasury and issue tax-free bonds as a source of funds for the benefit of member institutions.

Question 267

The National Housing Act was enacted in:

And established:

Answer 267

1934 as part of the New Deal.

Federal Housing Administration (FHA)

Question 268

Federal Housing Administration (FHA)

Answer 268

which offered loans funded by approved lenders

Question 269

FHA insurance protected these approved lenders against

Answer 269

losses, giving lenders added security and also expanding the pool of potential homebuyers for whom lenders were willing to underwrite loans.

Question 270

A 1938 amendment to the National Housing Act established the Federal National Mortgage Association (FNMA), known as

Answer 270

Fannie Mae

Question 271

Fannie Mae was a federal government agency. Its mandate was to act as a

Answer 271

secondary mortgage market facility that could purchase, hold, and sell FHA-insured loans.

Question 272

By purchasing FHA-insured loans from private lenders, Fannie Mae created

Answer 272

liquidity in the mortgage market, providing lenders with cash to fund new home loans.

Question 273

The 1968 HUD Act also created a new housing finance organization, the

Answer 273

Government National Mortgage Association

Question 274

Ginnie Mae was established as a

Answer 274

government-owned corporation within HUD, a structure it retains to this day.

Question 275

For a fee, Ginnie Mae guarantees

Answer 275

timely payment of principal and interest on privately issued mortgage-backed securities (MBS) collateralized by FHA, VA, or other government-insured or guaranteed mortgages.

Question 276

Fannie Mae and Freddie Mac (the government-sponsored enterprises) typically purchase

Answer 276

conventional conforming mortgage loans.

issue and guarantee MBS collateralized by these mortgage loans or hold mortgage loans and MBS in their portfolios.

Question 277

In 1970, the secondary mortgage market was expanded when Congress passed the

Answer 277

Emergency Home Finance Act, which established the Federal Home Loan Mortgage Corporation known as Freddie Mac, to help thrifts manage the challenges associated with interest rate risk.

Question 278

Federal Home Loan Mortgage Corporation known as Freddie Mac, was created to help

Answer 278

thrifts manage the challenges associated with interest rate risk.

Question 279

The FHLBanks originally capitalized Freddie Mac with a

Answer 279

$100 million contribution.

Question 280

Freddie Mac began to purchase long-term mortgages from thrifts, increasing their

Answer 280

capacity to fund additional mortgages and reducing their interest rate risk.

Question 281

The Act also authorized Fannie Mae and Freddie Mac to

Answer 281

buy and sell mortgages not insured or guaranteed by the federal government.

Question 282

In 1971, Freddie Mac issued the first

Answer 282

conventional loan MBS (mortgage-backed security).

Question 283

During the mid-2000s, several FHLBanks also purchased large volumes of

Answer 283

private-label MBS for their mortgage investment portfolios.

Question 284

During the mid-2000s, several FHLBanks also purchased large volumes of private-label MBS for their mortgage investment portfolios. Subsequently, many FHLBanks suffered financial deterioration due to

Answer 284

their investments in private-label MBS collateralized by subprime mortgages.

Question 285

Congress enacted the Housing and

Answer 285

Economic Recovery Act of 2008 (HERA) in July.

Question 286

Congress enacted the Housing and Economic Recovery Act of 2008 (HERA) in July. Less than six weeks later, FHFA placed

Answer 286

Fannie Mae and Freddie Mac into conservatorships, where they remain today.

Question 287

The FHFA Office of Inspector General is

Answer 287

an independent oversight and law enforcement arm of FHFA

Question 288

The FHFA Office of Inspector General, an independent oversight and law enforcement arm of FHFA,

Answer 288

conducts an array of audits and evaluations examining FHFA’s regulation of the housing GSEs and its conservatorships of Fannie Mae and Freddie Mac.

Question 289

Pre-qualification:

Answer 289

first step in the loan application process where lenders take prospective borrowers at their word and give borrowers a general estimate of the amount for which they will be approved

Question 290

Pre-approval:

Answer 290

second step in the loan application process where lenders thoroughly review the borrower’s qualifications and, if approved, offer a pre-approval letter indicating the borrower’s ability to obtain financing.

Question 291

Loan Approval:

Answer 291

final step in the loan application process, here lenders review the borrower’s creditworthiness and the value of the property.

Question 292

One important distinction between pre-qualification and pre-approval is that pre-qualification does NOT

Answer 292

involve an evaluation of your credit report.

Question 293

the pre-qualification decision is only as good as

Answer 293

the information supplied by the borrower.

Question 294

Note: Financial status is the only thing a lender can discriminate on. They CANNOT discriminate based on

Answer 294

things like age, relationship status, etc.

Question 295

The primary difference between pre-approval and final loan approval is that the property information is NOT

Answer 295

considered (or known).

Question 296

Before a lender ultimately approves a mortgage loan they will have evaluated two things:

Answer 296

The creditworthiness of the borrower

The value and title marketability of the property to be used as collateral

Question 297

But the two primary benefits a borrower experiences after going to the trouble of getting pre-approved (vs. only pre-qualified) prior to finding a property to buy are:

Answer 297

First, it makes the borrower’s offer a preferred offer.

Second, pre-approval makes the closing process go more smoothly.

Question 298

The seller of a home that receives multiple offers will likely give preference to the

Answer 298

pre-approved buyer if all other aspects of the offer are equal.

Question 299

During this final review, the lender will evaluate two things:

Answer 299

Property Approval (value of the property)
Buyer Approval (creditworthiness of the buyer)

Question 300

Evaluating the property’s value is what differentiates the -

why do lenders need to evaluate the property?

Answer 300

final step of the loan approval process from the other loan approval steps.

The Reason: If the borrower were to default on the loan, the lender wants assurance that the price of the property is similar to the amount of the loan. If the amount of the borrower’s loan was much greater than the appraised value of the property, the lender would be risking that loss if the borrower defaulted.

Question 301

To appraise the property, the lender will review the particulars of the property. This includes the legal description, improvements, title, survey, and taxes. For income-producing property or loans made to corporations,

Answer 301

additional information is required. This includes financial and operating statements, schedules of leases and tenants, and balance sheets.

Question 302

FICO scores range from

Answer 302

300 to 850.

Question 303

Normally FHA requires a minimum FICO score of 580; prospective borrowers with scores under 500

Answer 303

are not eligible for FHA loans.

Question 304

let the borrower (your client) know that purposely making a materially false or misleading written statement in order to acquire property or credit, including a mortgage loan, is a violation of

Answer 304

Texas Penal Code, Section 32.32, and — depending on the amount of the loan or value of the property — is punishable by imprisonment for a term of two to 99 years and a fine not to exceed $10,000.

Question 305

The Uniform Residential Loan Application (or URLA) is a

Answer 305

standardized document jointly owned and maintained by the government-sponsored enterprises Fannie Mae and Freddie Mac for loans intended to conform to their underwriting requirements.

Question 306

The Uniform Residential Loan Application (or URLA)

The purpose of the form is to allow borrowers to

Answer 306

apply for a mortgage loan and to allow consistency in data-gathering by lenders that is needed to evaluate borrower eligibility.

Question 307

An electronic network for handling loan applications through remote computer terminals linked to several lenders’ computers is a

Answer 307

computerized loan origination (CLO) system.

Question 308

A computerized loan origination system allows a real estate broker or sales agent to

Answer 308

pull up a menu of mortgage lenders, interest rates, and loan terms, then help a buyer select a lender and apply for a loan right from the brokerage office.

Question 309

Although multiple lenders may be represented on an office’s CLO computer, consumers must be informed that

Answer 309

other lenders are available outside of the CLO system.

Question 310

The broker, in whose office the computerized loan origination system terminal is located, may earn

Answer 310

origination fees of up to one half percent of the loan amount.

Question 311

the primary method for making an underwriting decision is via

Answer 311

Automated underwriting

Question 312

Automated underwriting

Answer 312

which is a process of electronically evaluating a loan application and subsequently providing a recommendation for or against loan approval.

Question 313

Referring to loan process

Real estate brokers and sales agents should advise borrowers not to

Answer 313

take on additional debt between the time of loan application and the date of closing.

Question 314

Amortization:

Answer 314

Refers to the process of allocating the cost of an asset or the repayment of loan principal over time

Question 315

Fixed-Rate:

Answer 315

When the interest rate does NOT change over the life of a loan

Question 316

Adjustable-Rate:

Answer 316

When the interest rate can change over the life of a loan; adjustable-rate mortgages are known as “ARMs”

Question 317

Flexible-Payment Loan:

Answer 317

specific type of adjustable-rate mortgage that starts with a lower payments for the first several years then shifts to larger payments for the remainder of the term

Question 318

Balloon Payment Loan: Employs periodic payments that will

Answer 318

not fully amortize the the loan, thereby requiring a final payment that is larger than previous payments

Question 319

Interest-Only Loan:

Answer 319

type of balloon payment loan that calls for periodic payments of interest with the principal is to be paid in full at the end of the term as a balloon payment

Question 320

A fixed-rate amortized loan payment plan features

Answer 320

constant payments of principal and interest throughout the life of the loan.

Question 321

a straight amortized loan features a payment plan wherein

Answer 321

each total monthly payment amount is different.

Question 322

With an ARM, the interest rate

Answer 322

changes periodically, usually in relation to an index, and payments may go up or down accordingly.

Question 323

Depending on the type of ARM loan, the interest rate and monthly payment will

Answer 323

change every month, quarter, year, three years, or five years.

Question 324

The period between rate changes is called the

Answer 324

Adjustment period

Question 325

If you take out an adjustable-rate mortgage, the company that collects your mortgage payments (your servicer) must notify you about

Answer 325

first interest rate adjustment at least seven months before you owe a payment at the adjusted interest rate

Question 326

How ARMs Work: The Index

If the index rate moves up, your interest rate will also go up in most circumstances, and you will probably have to make

Answer 326

higher monthly payments.

Question 327

To set the interest rate on an ARM, lenders add a few percentage points to the index rate, called the

Answer 327

Margin

Question 328

The fully indexed rate is equal to the

Answer 328

margin plus the index. For example, if the lender uses an index that currently is 4 percent and adds a 3 percent margin, the fully indexed rate would be 7%.

Question 329

Interest-rate caps come in two versions:

Answer 329

A periodic adjustment cap, which limits the amount the interest rate can adjust up or down from one adjustment period to the next after the first adjustment.

A lifetime cap, which limits the interest-rate increase over the life of the loan. By law, virtually all ARMs must have a lifetime cap.

Question 330

By law, virtually all ARMs must have a

Answer 330

lifetime cap.

Question 331

Negative amortization is

Answer 331

unpaid interest + the balance of the loan.

Question 332

What are the benefits to an ARM?

Answer 332

Lower initial interest rates

Larger loan amounts

Likelihood of falling interest rates

(However, circumstances could change)
(Risky and not solid)

Question 333

What are the disadvantages of an ARM?

Answer 333

Early redemption penalties that come into play when selling or refinancing early in the loan term

Lack of predictability of monthly payment amounts

Greater full-term loan expense

Overall complexity

Question 334

A flexible-payment loan, is a specific type of

Answer 334

adjustable-rate mortgage.

These will sometimes appeal to younger buyers and buyers who have uneven or fluctuating income levels in times of high interest rates to purchase real estate.

Question 335

An interest-only loan, also known as a straight loan or term loan, is a type of

Answer 335

balloon payment loan that calls for periodic payments of interest.

Question 336

One reason borrowers might select an interest-only residential loan would be if they

Answer 336

expected strong appreciation of the property over the short term they planned to own it.

Question 337

Just beware: If the property doesn’t appreciate in value over time, the borrower could end up with

Answer 337

less in proceeds on the sale than what they need to pay off the loan.

Question 338

When a mortgage or deed of trust loan employs periodic payments that will not fully amortize the amount of the loan by the time the final payment is due, the final payment is larger than the others. This is called a

Answer 338

Balloon payment

Question 339

The major problem with a balloon payment loan is that

Answer 339

borrower has to come up with a large sum of money at the end of the term.

Question 340

the four components of a monthly mortgage payment.

Answer 340

Principal, Interest, Taxes, and Insurance

Question 341

Conventional Loan:

Answer 341

loan that is not underwritten by any agency of the federal government

Question 342

Government-backed Loan:

Answer 342

loan that is insured, guaranteed, or provided by any government agency.

Question 343

Loan-to-value Ratio:

Answer 343

loan-to-value ratio (LTV) is a ratio of debt to value of the property.

Question 344

Nonconforming Loan:

Answer 344

Loans that do not meet Fannie Mae/Freddie Mac guidelines

Question 345

There are two general categories of real estate loans:

Answer 345

Conventional and

government-backed

Question 346

If Conventional loans are nonconforming when they do not meet Fannie Mae/Freddie Mac guidelines. They may be nonconforming because they exceed the

Answer 346

conforming loan limit or buyers may lack sufficient credit or collateral.

Question 347

Loan terms (such as minimum credit scores required, interest rate charged, and the necessity for mortgage insurance) are based on a

Answer 347

loan-to-value ratio. The loan-to-value ratio (LTV) is a ratio of debt to value of the property.

Question 348

Typically, the LTV on a conventional loan has been 80 percent of the value of the property or less, requiring

Answer 348

a down payment of 20 percent or more.

Question 349

Fannie Mae records indicate that loans on which a borrower has made a 3% down payment (a 97% LTV) are foreclosed four times more often than loans with

Answer 349

10% down payment (a 90% LTV).

Question 350

private mortgage insurance (PMI) is required on

Answer 350

conventional loans for which the borrower has invested less than 20%

Question 351

Federal law requires that, for any loans originated after July 1999, the PMI must be

Answer 351

terminated after the borrower has accumulated 22% of equity in the property (the loan-to-value ratio is 78%) and is current with all loan payments.

Question 352

Two notable advantages of nonconforming conventional loans:

Answer 352

1. The Advantage of Time

2. The Advantage of No Limits

Question 353

There is usually no legal limit on loan amounts with

Answer 353

conventional loans whereas government-backed loans have dollar limits that vary by agency.

Question 354

The common term FHA loan refers to

Answer 354

a loan that is insured by the agency.

Question 355

There are several types of FHA loans, but the most common are

Answer 355

Section 203(b), Section 203(k), Section 251, and streamline refinance loans.

Question 356

When the FHA issues an insurance commitment to a lender, it promises to repay the balance of the loan in full if the borrower defaults. This guaranty is funded by

Answer 356

imposing an upfront mortgage insurance premium (MIP) that must be paid by the borrower when obtaining an FHA-insured loan.

Question 357

FHA borrowers must also pay an

Answer 357

annual premium, which is payable monthly as part of the regular PITI payment.

Question 358

This MIP applies to all types of FHA loans and is known as the

Answer 358

Mutual Mortgage Insurance, which may be dropped when the remaining loan balance has an 80% loan-to-value ratio or less.

Question 359

The Department of Veterans Affairs (VA) is

Answer 359

authorized to guarantee loans to purchase or construct homes for eligible veterans and their spouse.

This includes the spouse of a veteran whose death was service-related or the spouse of a serviceperson missing in action/a prisoner of war (providing the spouse has not remarried).

Question 360

Va loans can be used for

Answer 360

owner-occupied houses or condominiums, improvements, manufactured homes, land, farms, and refinancing or assuming VA loans.

Question 361

VA-guaranteed loans help veterans finance a home purchase with:

Which means:

Answer 361

Little or no down payment.

VA loans can be used for 100% of the purchase price.

Question 362

the term VA loan refers to a loan that is not made by the agency but

Answer 362

guaranteed by it.

Question 363

To determine the portion of a mortgage loan that the VA will guarantee, the veteran must apply for

Answer 363

A certificate of eligibility

Question 364

certificate of eligibility for vet is

Answer 364

the veteran’s entitlement to VA home loan benefits under the law, based on military service (see chart).

Question 365

As of January 2018, the conforming loan limit was

Answer 365

$453,100 for most of the country.* (The actual limit is established on a county-by-county basis.)

Question 366

VA Loan Qualification

Two methods are used to determine a veteran’s ability to qualify for a loan:

Answer 366

Debt-to-income ratio

Residual income

Question 367

Residual income is defined as the

Answer 367

amount of monthly income remaining after all the debts are deducted, including:

Income tax
Social security tax
Maintenance and utilities

Question 368

After an appraisal is done by a VA-approved appraiser, the VA issues a

Answer 368

Certificate of Reasonable Value

Question 369

Certificate of Reasonable Value (CRV) is:

Answer 369

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

Question 370

In the event that the purchase price is greater than the amount cited in the CRV, the veteran may

Answer 370

withdraw from the contract without penalty and have the earnest money refunded or pay the difference in cash at closing — as long as their agent makes sure the sales agreement contains a VA Option Clause.

Question 371

The Farm Service Agency (FSA) offers

Answer 371

both direct and guaranteed ownership or operating loans to purchase and maintain farmland and to construct or repair buildings and other fixtures

Question 372

Using government funds, direct farm loans are made and serviced by

Answer 372

FSA

Question 373

Guaranteed farm loans are made and serviced by local lenders and guaranteed by the

Answer 373

FSA in the event of the borrower’s default.

Question 374

Rural Development (RD) provides both

Answer 374

direct and guaranteed loans for the purchase or construction of single-family homes, repair of existing homes, and the development of affordable rental housing.

Question 375

The program’s full name is USDA Rural Development Guaranteed Housing Loan, but is usually referred to as simply a

Answer 375

USDA loan

Question 376

The program’s full name is USDA Rural Development Guaranteed Housing Loan, but is usually referred to as simply a USDA loan. It is also called a Section 502 Loan, referring back

Answer 376

to its origins found in Section 502(h) of the Housing Act of 1949.

Question 377

These no-down-payment loans are 100% backed by the U.S. Department of Agriculture (USDA) and are available for

Answer 377

suburban and rural home buyers throughout the country.

Question 378

Texas Veterans Land Board (VLB):

Answer 378

division of the General Land Office of Texas that administers three programs to assist Texas veterans in purchasing a principal residence and/or land and in financing home improvements

Question 379

Texas Bootstrap Loan Program:

Answer 379

A self-help housing construction program that provides very low-income families (owner-builders) an opportunity to purchase or refinance real property on which to build new housing or repair their existing homes

Question 380

Veterans Land Loan Program:

Answer 380

program that gives Texas veterans the opportunity to borrow up to $150,000 to purchase land at competitive interest rates while typically requiring a minimum 5% down payment for tracts of one acre or more — only one of its kind in the nation

Question 381

Targeted Area:

Answer 381

A census tract in which 70% or more of the families have incomes that are 80% or less of the statewide median income or an area of chronic economic distress

Question 382

The Texas Department of Housing and Community Affairs (TDHCA) has over 30 years’ experience and expertise in working with

Answer 382

low to moderate-income first-time homebuyers with two programs,
My First Texas Home and
Texas Mortgage Credit Certificate Program.

Question 383

A quick overview of the main benefits of the TDHCA programs are:

Answer 383

Homebuyers may combine TDHCA programs for maximum benefit

TDHCA’s programs are available statewide

The first time homebuyer requirement is waived for veterans

Households who have not owned a home in the previous three years may qualify

A homebuyer education course is required

Question 384

My First Texas Home program allows

Answer 384

qualified Texans access to competitive interest rate home loans and down payment and closing cost assistance.

Question 385

Homebuyers who meet the following minimum requirements are eligible to apply for a loan under the My First Tx Home program:

Answer 385

First-time homebuyer or a homebuyer who has not owned a home as primary residence within the past three years

Homebuyer(s) income does not exceed program’s income limit guidelines

Purchase price of home does not exceed program’s purchase price limit guidelines

Question 386

The Texas Two Steps to finding a targeted area property:

Answer 386

Get the census tract code and enter the address.

Check to see if the census tract is included on the Targeted Area Census Tracts by County.

Question 387

Properties eligible for loans through My First Texas Home include:

Answer 387

Single family units

Single units in condominium developments and planned unit developments

Duplexes as long as one unit of the duplex is occupied by the eligible borrower as the principal resident and the duplex was first occupied for residential purposes at least five years prior to the closing date

Question 388

Texas REALTORS® who have successfully completed the TDHCA Down Payment Assistance/Texas Homeownership Programs continuing education 12-hour training are

Answer 388

certified as “Texas Affordable Housing Specialists.”

Question 389

My First Texas Home also provides down-payment/closing cost assistance to eligible homebuyers. Presently, assistance amounts up to

Answer 389

5% are possible.

Question 390

The Texas Department of Housing and Community Affairs created its Texas Mortgage Credit Certificate Program (MCC) for the residents of Texas, to help

Answer 390

make ownership of new and existing homes more affordable for individuals and families of low and moderate income, especially first-time buyers.

Question 391

What Is a Mortgage Credit Certificate?

Answer 391

A Mortgage Credit Certificate allows the homebuyer to claim a tax credit for some portion of the mortgage interest paid per year. It is a dollar-for-dollar reduction against their federal tax liability. In other words, a Mortgage Credit Certificate reduces the amount of taxes owed to the federal government.

Question 392

Mortgage Credit Certificate reduces

Answer 392

amount of taxes owed to the federal government.

Question 393

Who Is Eligible to Receive an MCC?

The program is open to those individuals and families who:

Answer 393

Meet income and home purchase requirements

Have not owned a home as primary residence in the past three (3) years

Meet the qualifying requirements of the mortgage loan

Will use the home as their principal/primary residence

Question 394

The MCC may not be used in connection with the refinancing of an existing loan. For targeted areas, the first time homebuyer requirement is

Answer 394

waived, and there are increased income and purchase price limits.

Question 395

A mortgage interest deduction differs from a mortgage tax credit in a number of ways. For example, all homebuyers, regardless of income, may take a mortgage interest deduction, whereas mortgage tax credits are available only to

Answer 395

holders of MCCs.

Question 396

The Texas Statewide Homebuyer Education Program - Homebuyers can complete an in-person/face-to-face course available through a

Answer 396

certified homebuyer education provider — A HUD-approved, non-profit organization or government entity

Question 397

The Texas Bootstrap Loan Program is a self-help housing construction program that provides very low-income families (owner-builders) an opportunity to purchase or refinance

Answer 397

real property on which to build new housing or repair their existing homes through “sweat equity.”

Question 398

All owner-builders are required to provide at least 65% of the

Answer 398

labor necessary to build or rehabilitate their housing by working with a state-certified Nonprofit Owner-Builder Housing Provider (NOHP).

Question 399

There are various ways for how owner-builders may fulfill their sweat equity requirement. They may

Answer 399

contribute the labor personally;

they may build or rehabilitate housing for others;

and/or they may receive non-contract labor assistance from friends, family, or volunteers.

Question 400

The maximum Bootstrap loan may not exceed $45,000 per household. Owner-builders may obtain additional loan funds from other department and non-department sources as long as the total amount of amortized repayable loan funds from all sources does not exceed

Answer 400

$90,000

Question 401

The three VLB loan programs available to a Texas veteran are:

Answer 401

Home Loans
Land Loans
Home Improvement Loans

Question 402

(Tx veterans land board)

To qualify for one or all of their three programs they need to meet one of the following service criteria:

Answer 402

An active-duty military member

A member of the Texas National Guard

A reserve component military member having completed 20 qualifying years for retirement

A Veteran having served at least 90 active duty days unless discharged sooner due to service connected disability and not discharged dishonorably

A surviving spouse of a Veteran listed as missing in action or whose death was service-connected

Question 403

VLB programs are financed with bonds, which are serviced by

Answer 403

loan payments from Veteran participants.

Question 404

In 1983, the Legislature created the VLB Veterans Housing Assistance Program (VHAP), to aid

Answer 404

Texas veterans in purchasing a home.

Question 405

Veterans, military members and their spouses may receive up to

Answer 405

$424,100* on a fixed-rate loan for 15, 20, 25, or 30 year terms.

Question 406

Veterans with a VA service-connected disability rating of 30% or greater

Answer 406

qualify for a discounted interest rate.

Question 407

The VLB Veterans Land Loan Program is the only one of its kind in the nation, giving Texas veterans the opportunity to borrow up to

Answer 407

$150,000 to purchase land at competitive interest rates while typically requiring a minimum 5% down payment for tracts of one acre or more.

Question 408

Land Loan Requirements

To be eligible for VLB financing, the land must:

Answer 408

Be wholly within the state of Texas

Contain at least one acre, excluding any portion beneath a dedicated public roadway or navigable waterway or subject to frequent inundation or otherwise unusable

Have legal, usable access to a public road. Access must be a minimum of 60 feet wide or meet the county public road width requirements, whichever is greater. “Usable” means that it can be driven on by a standard passenger car in inclement weather

Be properly described by either a Field Note description of the tract with the surveyor’s official seal and signature (original or copy), or a complete copy of the recorded subdivision plat if the description is by lot & block

Not be zoned strictly for commercial use

Not have been owned by you or your spouse within the previous three years

Question 409

The VLB helps veterans, military members and their spouses buy homes and then helps them pay to improve it through the

Answer 409

Texas Veterans Home Improvement Program (VHIP).

1986

Question 410

Texas Veterans Home Improvement Program (VHIP). This program was introduced in 1986 to provide

Answer 410

below-market interest rate loans to qualified Texas veterans for home repairs and improvement to their existing homes.

Question 411

VLB Home Improvement Loans in the amount of $25,000 or less are

Answer 411

insured by the Federal Housing Administration (FHA).

Question 412

VLB Home Improvement Loans in the amount of $25,000 or less are insured by the Federal Housing Administration (FHA). To qualify, the following requirements must be met:

Answer 412

The home being repaired must be wholly located in the state of Texas.

The home must be the applicant’s primary residence.

Single family dwellings, condominiums, duplexes, triplexes and four-plexes are eligible. Duplexes, triplexes and four-plexes must be at least 5 years old.

Modular or manufactured homes that are on a permanent foundation and are part of the real estate (real property) may also be eligible, but the final decision on these types of loans will be determined by the VLB.

The VLB must be in first or second lien position.

The borrower cannot advance funds to the contractor or purchase material prior to receipt of the loan proceeds from VLB. Loan proceeds will be available on the fourth business day after closing.

The borrower must secure a general contractor.

Question 413

A VLB home improvement loan can be used for alterations, repairs and improvements that are eligible for financing under the

Answer 413

Department of Housing & Urban Develop (HUD) federal Housing Administration (FHA) Title I Loan Program.

Question 414

Federal Reserve:

Answer 414

nation’s central bank operates to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate

Question 415

Federal Funds Rate:

Answer 415

Rate banks charge other banks to lend money — the Fed indirectly controls this rate.

Question 416

Discount Rate:

Answer 416

Rate the Fed charges banks to lend money — the Fed directly controls this rate.

Question 417

Prime Rate:

Answer 417

Rate banks charge their most creditworthy customers — this rate is strongly influenced by the rates above.

Question 418

Open market operations (OMOs):

Answer 418

The purchase and sale of securities in the open market by a central bank

Question 419

The Federal Reserve System divides the country into

Answer 419

12 federal reserve districts, each served by a federal reserve bank.

Question 420

It is said that the Federal Reserve is “independent within the government.” This is due to the following reasons:

Answer 420

Since it charges member banks interest, the Fed generates revenue independently without a need for Congressional funding.

It has the authority to act on its own without permission from Congress.

Members on its Board of Governors are appointed to long-terms, which limits the ability of Congress and the President to influence its day-to-day operations.

Question 421

The Fed’s job is to ensure

Answer 421

stability in the economy.

Question 422

The Fed Tools: Reserve Funds Requirement

Tool Number 1: Reserve Federal Fund Requirement:

Answer 422

All nationally chartered banks must join the Federal Reserve and purchase stock in its district reserve banks. The Federal Reserve requires each member bank to keep a set amount of its assets on hand as reserve funds; these funds are unavailable for any other use, including for loans.

Question 423

The Fed Tools: Reserve Funds Requirement

When the Federal Reserve increases the fund reserve requirement for its member banks, it primarily affects the economy in two ways:

Answer 423

Protects consumer saving deposits as banks have more money in reserves

Discourages banks from lending money as they have less disposable funds

Question 424

The Fed Tools: Reserve Funds Requirement

When banks hold funds in excess of their required reserves (maybe they had a lot of customer deposits that day), these excess funds are known as federal funds. Why?

Answer 424

The excess funds are held at one of the twelve Federal regional banks.

Question 425

The Fed Tools: Reserve Funds Requirement

The federal funds rate is the rate

Answer 425

a bank charges when lending funds to other banks.

Question 426

The Fed Tools: Reserve Funds Requirement

Federal Reserve member banks are also permitted to borrow money from the 12 district reserve banks to meet their fund reserve requirements but not to expand their lending operations. The interest rate charged by the district banks for the use of this money is called

Answer 426

the discount rate.

Question 427

The Fed Tools: Reserve Funds Requirement

the prime rate is often the basis for determining a bank’s interest rates on

Answer 427

other loans, including mortgages.

Question 428

How do the federal funds rate and discount affect the prime rate?

Answer 428

If banks can get such-and-such percentage for their excess reserves (fed funds rate), they are going to want a higher rate from consumers in exchange for loans.

And if banks need to pay the Fed an interest rate for money lent (discount rate), they are going want a higher percentage (prime rate) from borrowers.

Question 429

The government influences activity in the secondary mortgage market in a couple of ways, most notably through

Answer 429

government-sponsored enterprises (GSEs) and government agencies that have major roles in the secondary mortgage market.

Question 430

Most lenders use Fannie Mae/Freddie Mac standardized forms and follow the underwriting guidelines issued by those entities so they can sell their mortgages into the agencies’ secondary mortgage markets. Their standardized documents include

Answer 430

loan applications, credit reports, appraisal forms, notes, and deeds of trust.

Question 431

Both GSEs, Fannie Mae and Freddie Mac, support the activities in the secondary market in two ways:

Answer 431

Buying individual or bundles of mortgages in the primary market that allow lenders to finance their business to loan origination for consumers

Repackaging those purchased loans into mortgage-backed securities (MBS) for sale to investors who might not otherwise be willing to invest in the loans

Question 432

What Ginnie Mae does is guarantee securities issued by

Answer 432

private institutions and backed by pools of federally insured or guaranteed loans — mainly FHA, VA, and USDA Rural Development mortgage loans.

Question 433

Regardless of whether the mortgage payment is made, investors in Ginnie Mae securities will receive

Answer 433

full and timely payment of principal as well as interest.

Question 434

Farmer Mac provides a secondary market for first-mortgage agricultural real estate loans by purchasing

Answer 434

USDA guaranteed loans from agricultural mortgage lenders, pooling or bundling those loans, and issuing mortgage-backed securities, increasing the availability of credit for farmers, ranchers, and rural homeowners.

Question 435

Graduated Payment Mortgage:

Answer 435

fixed-rate mortgage that has a lower initial interest rate in its first years, but includes gradual increases each year

Question 436

Bridge Loan:

Answer 436

Short-term loans used to transition from one loan to another — can connect borrower from their current construction loan to their eventual mortgage loan (or present home to their new home)

Question 437

Wraparound Loan:

Answer 437

Like a bridge loan, enables a borrower to obtain additional financing from a second lender without paying off the first loan – gives borrower new, increased rate at higher interest rate and assumes payment of existing loan

Question 438

Subprime Mortgage:

Answer 438

A mortgage with an interest rate higher than prime mortgages due to the higher risk associated with a less qualified borrower

Question 439

Predatory Lending:

Answer 439

The act of a lender putting their welfare above that of their borrowers

Question 440

A graduated payment mortgage has the following attributes:

Answer 440

It’s a fixed-rate mortgage. (All interest rates are pre-determined.)

It starts off with a lower interest rate.

The interest rate increases over the first few years of the loan until it levels off.

Most often used by younger borrowers who anticipate an earnings increase as they mature in their careers.

Question 441

Why would a borrower want a buydown mortgage?

Answer 441

Typical buydown arrangements provide for a reduced interest rate over the first one- to two-years of the loan term and generally do not involve deferred interest or negative amortization.

Question 442

Pledged Account Mortgage

This type of mortgage loan is a graduated payment mortgage, much like a buydown mortgage, wherein funds are drawn from a

Answer 442

savings account to subsidize interest payments during the initial years of a loan term. Once those funds are depleted, the borrower assumes responsibility for making a full monthly mortgage payment.

Question 443

A package mortgage includes not only the real estate but also

Answer 443

all personal property and appliances installed on the premises.

Question 444

A blanket mortgage or deed of trust pledges more than:

usually used by:

But can finance:

Answer 444

One parcel out lot

land developers to finance subdivision projects;

purchase of improved properties or consolidate loans as well.

Question 445

A blanket loan usually includes a partial

Answer 445

release clause that permits the borrower to obtain the release of any one lot or parcel from the lien by paying a specified amount of the loan.

Question 446

Title to property purchased on a contract for deed normally does not

Answer 446

transfer to the purchaser until the full price has been paid.

Question 447

In a purchase-money mortgage, the buyer borrows from the

Answer 447

seller in addition to the lender.

Question 448

In the event of a foreclosure, a purchase-money deed of trust is valid against

Answer 448

Against homestead

Question 449

A due-on-sale clause (alienation clause) in the original deed of trust generally prevents a sale with a

Answer 449

wraparound loan; therefore, it is not used often.

Question 450

An alienation clause or due-on-sale clause is a provision in the mortgage contract that

Answer 450

triggers the payment in full of the loan upon the sale or conveyance of the property.

Question 451

Reverse mortgages enable homeowners who are 62 years old or older to

Answer 451

borrow against the equity in their homes.

Question 452

If a seller-financed loan is decided upon, the seller should execute a promissory note addressing the same concerns that the document from a third-party financier would provide:

Answer 452

Interest Rate
Repayment Schedule
Late payment penalties
Explanation for what constitutes default and the ramifications of default

Question 453

Under a construction loan, the lender commits the full amount of the loan but disburses the funds, known as

Answer 453

Draws

Question 454

Construction loans are generally short-term or interim financing. The ultimate buyer/borrower is expected to arrange for a permanent loan, also known as a

Answer 454

takeout loan,

..that will repay or “take out” the construction financing lender when the work is completed.

Question 455

Sale-and-leaseback arrangements are used to finance

Answer 455

large commercial or industrial properties.

Question 456

A subprime mortgage carries an interest rate higher than the rates of

Answer 456

Prime mortgages

Question 457

Interest-only loans, option arm loans, negative amortization loans, extended fixed-rate loans that had 40- to 50- year terms, low- or no-money down loans, and balloon loans are examples of some of the forms

Answer 457

these subprime loans took.