RE Financing

Question 1

Equity

Answer 1

Equity is the difference between a home’s value and the debt owed on it.

Equity = value - amount owed

Question 2

Being upside on mortgage

Answer 2

If a borrower owes more on a property than its value, the borrower is in a negative equity situation. This is also referred to as being upside down on the mortgage.

Question 3

Point

Answer 3

a point is equal to 1% of the loan amount.

Buyers may pay loan points (aka discount points ) at closing to achieve a lower interest rate that lasts for the life of the
loan.

Question 4

Loan origination fees

Answer 4

Lenders charge loan origination fees as compensation for making the loan. These fees are expressed as points. In general, loan origination fees can’t exceed 3% of the loan value.

Question 5

Conventional mortgage loans

Answer 5

Conventional mortgage loans offer a wide range of loan products with more diverse loan terms.
The federal government does not insure or guarantee these loans. Conventional loans may require a down payment of up to 20% of the purchase price.

Question 6

Federal Housing Administration

Answer 6

FHA borrowers can qualify for a loan with lower credit scores and smaller down payments, making them a higher credit risk, FHA insures lenders against losses caused by borrower default.

FHA limits the amount that borrowers can finance based on regional average housing costs.
Interest rates are negotiable between the borrower and lender and change with the market.

FHA interest rates are typically
somewhat lower than conventional loan rates, though this may not always be true.

Question 7

Department of Veterans Affairs ( VA)

Answer 7

The VA-guaranteed loan program is available to a wide range of individuals who have served in the U.S. military (as well
as their spouses)

Question 8

U.S. Department of Agriculture (USDA).

Answer 8

The USDA Farm Service Agency ( FSA ) offers direct guaranteed loans to farmers and ranchers as well as for rural housing. The loans are funded by congressional appropriation. FSA loans can finance 100% of the purchase price and provide loan guarantees for up to 95% of the loss of principal and interest. Loan terms may be up to 33
years (38 for very low-income borrowers).

Rural development loans are government loans specifically for family farms and rural house financing. They
offer longer payback periods than traditional mortgage loans to reduce monthly payments.

Question 9

Lender: mortgagee

Answer 9

Borrower: mortgagor

Question 10

Promissory note

Answer 10

Both the mortgage and the deed of trust are accompanied by a promissory note , which is the borrower’s promise to repay
the loan.

Question 11

Defeasance clause

Answer 11

security instrument that require lien to be release when loan is paid off

Question 12

Accleration clause

Answer 12

cause all debt to come due immediately when borrower defaults

Question 13

due-on-sale or alienation clause

Answer 13

borrower must repay in full when transferring ownership

Question 14

FHA requirements

Answer 14

Minimum down payment of 3.5%

Seller can’t contribute to buyer down payment

Max debt ratio is 43-50%

Credit score more than 580

Question 15

VA requirements

Answer 15

No down payment

Guarantee up to 25% of loan

Minimum credit score of 620

Debt ratio 41%

Question 16

Private mortgage insurance (PMI)

Answer 16

Required on conventional loan where down payment is less than 20% and LTV more than 80%

End PMI when LTV reach 78%

Question 17

Mortgage Insurance Premium (MIP)

Answer 17

Required for all FHA loans must be paid for life of loan

Question 18

Truth in Lending Act

Answer 18

This act requires lenders to make full disclosure of terms and conditions in any offers of credit when advertising
trigger loan terms, so as not to mislead consumers.

Question 19

What is trigger terms (TILA)

Answer 19

“Trigger” terms in ads that would require the full disclosure of all terms include down payment, payment amount, number
of payments, and interest rate (other than APR).

Question 20

TILA-RESPA Integrated Disclosure (TRID)

Answer 20

The 2010 Dodd-Frank Act was implemented in part to provide stricter regulation and oversight of the financial services
industry.

Created consumer financial procession bureau (CFPB)

Include 2 disclosures: loan estimate and closing disclosure

Question 21

CPFB

Answer 21

Consumer Financial Protection Bureau

promoting fairness and transparency in mortgage loans, credit cards, and other

It also enforces disclosure requirements for all federally related loans.

The CFPB provides consumer-oriented education about all types of credit products and services, including mortgage loans.
Related to mortgage loans, the CFPB’s primary function is to require that lenders provide TRID (TILA/RESPA Integrated Disclosures) to mortgage loan applicants.

Question 22

Loan estimate

Answer 22

which the lender must provide within three days after loan application, informs buyers of the
costs they’re likely to pay at settlement and discloses the mortgage loan specifics, such as its key features, costs, and risks.

Question 23

Closing Disclosure

Answer 23

lenders must provide at least three days prior to closing, gives final loan details, including the loan terms, projected monthly payments, fees, and other closing costs.

Question 24

Real Estate Settlement Procedures Act (RESPA)

Answer 24

federal consumer protection statute implemented to help homebuyers in the homebuying process and to prohibit
discriminatory lending practices

Require written disclosures to help to make estimated and final settlement costs clear and fair to consumers.

Prohibit kickbacks and referral fees among settlement service providers

Prohibit licensees from accepting fees or gifts from settlement service providers they may refer.
Require lenders to base lending decisions on a borrower’s creditworthiness, not protected class status, and to invest in their
communities through financing rehabilitation programs and providing mortgage loans.

Question 25

Equal Credit Opportunity Act (ECOA)

Answer 25

prohibits lenders from making credit unavailable or offering less favorable terms based on protected class status vs.
creditworthiness.

Question 26

Predatory lending

Answer 26

unfair or abusive lending to buyers. Predatory lenders impose deceptive, coercive, and exploitive
practices while financing risky loans to take advantage of consumers to increase their debt.

Question 26

Predatory lending

Answer 26

unfair or abusive lending to buyers. Predatory lenders impose deceptive, coercive, and exploitive
practices while financing risky loans to take advantage of consumers to increase their debt.

Question 27

Equity skimming

Answer 27

When an investor receives title to a property- often by using a straw buyer-doesn’t make the
mortgage payments, and usually rents out the home until foreclosure occurs

Question 28

Straw buyers

Answer 28

Real identity concealed behind someone else’s name and credit

Question 29

Usury

Answer 29

involves lending money at an excessive interest rate.

Question 30

escrow closing

Answer 30

in an arrangement where
the parties never meet, but instead sign their closing documents in the presence of the closing officer

In an escrow closing, sellers usually sign first, then buyers sign at a separate meeting. Typically, this will occur on the same day. Sellers sign first so that funds and the deed can officially change hands once the buyers sign.

Question 31

Who attends closing?

Answer 31

the buyer, the seller, the respective licensees, and the closing officer. Others present may include attorneys or lenders.

Question 32

Who is responsible for ordering title insurance?

Answer 32

closing officer (closing agent/escrow officer)

After the closing meeting, the closing officer is responsible for distributing all funds appropriately and recording the deed
and other required documents

Question 32

Who is responsible for ordering title insurance?

Answer 32

closing officer (closing agent/escrow officer)

After the closing meeting, the closing officer is responsible for distributing all funds appropriately and recording the deed
and other required documents

Question 33

What item is usually prorated at closing?

Answer 33

Property taxes and HOA dues
Fuel (propane or oil tank)
Water and sewer charges
Prorated items (either accrued or prepaid)

Question 34

Accrued and prepaid prorated item

Answer 34

Accrued expenses are items the seller owes on closing day but that the buyer will eventually pay (unpaidcurrent property taxes, for example). These appear in the seller’s debit column and the buyer’s credit column.

Prepaid expenses are those the seller already paid but the buyer should pay a portion of (such as prepaid real estate taxes and utilities paid in advance). These items are credited to the seller and debited to the buyer.