RE Finance I Flashcards
Lenders who make money available directly to borrowers and originate loans are called what?
Primary mortgage market lenders
Construction loans, home improvement loans, and manufactured housing loans are all loans typically made by whom?
Commercial banks
Life insurance companies typically invest what portion of their assets in real estate loans?
Up to a third
To process applications and decide whether to accept or reject a loan, lenders use who?
Loan underwriters
A balloon payment loan is considered what type of loan?
Partially amortized loans
Index, adjustment period, interest rate caps, and margins are all key components to what?
Adjustable-rate mortgages (ARMs)
What is the major difference between pre-qualification and pre-approval?
- Pre-qualification is an informal process in which a lender or an agent can do.
- Pre-approval is a formal process that only a lender can do and it involves an actual loan application.
What is the purpose of 80-10-10 financing?
To avoid having to pay private mortgage insurance (PMI)
*The buyer gets an 80% loan from one lender and then a 10% from the same or another, and then finally a 10% from someone else. This means there’s a 1st, 2nd, and 3rd lien on the property.
What are the two distinct features of fixed-rate, mortgage style loans?
- The interest rate remains fixed for the life of the loan.
- The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
What does federal law say about the termination of private mortgage insurance?
Any loans originated after July 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments.
However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.
What does a buyer receive until the debt is fully paid in case of installment land sales contract?
Equitable title
What type of loan is considered an expandable one?
Open-end
When a buyer borrows from the seller in addition to the lender, this is known as what?
Purchase money mortgage
What are some of the risks included in construction loans?
- Inadequate protection against mechanics’ liens
- Financial failure of contractors or subcontractors
- Potential delays in construction completion
Which type of mortgage usually includes all the personal property and appliances that are installed on the property?
A package mortgage
Making home improvements, paying college tuition, paying medical expenses, and/or taking a vacation would be all good reasons to utilize what type of loan?
Home equity loan
Credit unions
Nonprofit banks that can offer higher interest rates on deposits because they don’t pay income tax.
Real Estate Investment Trusts (REIT)
A method of pooling investment money using a trust to avoid corporate tax (can only be used if certain tax requirements are met)
Mortgage bankers
Work for lending institutions (like a bank)
Mortgage broker
an intermediary working with many financial institutions
Mortgage
A financing instrument that creates a lien against property
Primary mortgage market lenders:
People who originate loans
(i.e make the money available directly to borrowers)
Savings and loan association
A financial institution whose primary function is to promote thrift and homeownership
Commercial bank
A bank for commercial activities, usually short-term loans
Promissory Note
Signed document describing amount of money borrowed and the terms/conditions under which it will be repaid.
*Establishes legal evidence of the debt incurred
Judicial foreclosure
Sale of property under supervision of the court.
Non-judicial foreclosure
*Sometimes referred to as a “power-of-sale” foreclosure
The process whereby the lender gives the borrower a notice of default (NOD) and the intent to sell the property in a form prescribed by that state’s statute.
Deed in lieu of foreclosure
The voluntary transfer of the deed from a defaulting borrower to lender transferring legal title
*This does not terminate any existing liens on the property
Right of Redemption
*Also called Equity of Redemption
The right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs
Deficiency judgment
A court order sought by lender when a property sale does not cover the amounts owed on the loan.
Points (in terms of loans)
Fee charged by lender
(1 point = 1 % of loan amount)
Underwriting
Determining borrower’s ability to repay a loan.
(i.e the level of risk for the lender in approving the loan).
Straight line loan
*Also called interest-only loans
Loan structured with the monthly payments allocated only to interest.
No principal is paid off. At the end of the term, the borrower must pay off the entire principal amount or get another loan
Mortgage style loans
Loans structured usually as fixed-interest, long-term loans of 15 or 30 years.
At the end of the loan term, the full amount of the principal and all of the interest is paid off and the balance is zero.
Balloon mortgage
Loan with monthly payments not large enough to fully amortize the loan by end of term so borrower has one large final payment due when the loan has been paid off.
Adjustable-rate mortgages (ARMs)
A Loan where the interest rate varies according to some index not controlled by the lender.
Conventional mortgage
A non-government backed loan that usually require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property’s sale price.
Private mortgage insurance program (PMI)
Programs that insure the top 30% of a loan, protecting the lender in case the borrower defaults on the loan allowing borrowers to lower the down payment on a traditional loan.
Graduated Payment Mortgage (GPM)
Loan structured so the monthly payment for principal and interest increases by a certain percentage each year for a certain number of years then levels off for the remaining term of the mortgage.
Pledged Account Mortgage (PAM)
A type of graduated-payment mortgage under which the owner or borrower contributes a sum of money into an account that is pledged to the lender.
*The account is drawn on during the first 3-5 years of the loan to supplement the periodic mortgage payments, thereby reducing the borrower’s monthly payments in the initial years. Once the account is empty, the borrower makes the full mortgage payment.
What is a Buydown in regards to Mortgages?
When a builder or family member puts down a lump sum of the pledged mortgage to the lender at closing.
*That payment serves to reduce the interest rate on the loan for the first few years.
Open-end loan
An expandable loan which gives borrowers a limit up to which they may borrow.
Each incremental advance must be secured by the same mortgage and any advances may not exceed the original borrowing limit.
Blanket mortgage loan
Loan which covers more than one piece of property.
*Often used by land developers when they buy a plot of land and divide it into many separate lots.
Wraparound mortgage
Loan that allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan.
The second lender issues a new, larger loan to the borrower at a higher interest rate.
Bridge loan
A short-term loan that covers the period between the end of one loan and the beginning of another.
Installment land sales contract
*Also called a Contract for Deed.
Contract where the seller keeps legal title until the debt is paid in full.
Once paid, the buyer receives equitable title.
Construction loans
Loan where the lender commits to the full amount of the loan, but disburses payments over the life of the construction project.
The payments are made to the general contractor or the owner for the parts of the construction completed since the last payment.
Package mortgage
Mortgage that includes all the personal property and appliances that are installed on the property.
*This type of loan has been used extensively in the sale of furnished condominiums
Reverse annuity mortgage (RAM)
A mortgage where the lender is making payments to the borrower.
This allows older owners to receive regular monthly payments from the equity in their paid-off property without having to sell.
The borrower pays a fixed rate of interest and then repays the loan either when the home sells or from the borrower’s estate upon his or her death.
Shared equity mortgage
A participation mortgage in which the lender shares in the appreciation of a mortgaged property if and when the property sells.
Sale and leaseback
This arrangement is when the owner of real estate sells the property and then leases it back from the buyer.
The buyer becomes the owner and the former owner becomes the tenant.
