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Real Estate > Real Estate Finance > Flashcards

Real Estate Finance Flashcards

1
Q

Gross Rent Multiplier

A

Average Sales Price/ Average Monthly Rent

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2
Q

Back Ratio Formula

A
  • 36% x Gross Monthly Income

- Max PITI and debts per month

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3
Q

Front Ratio Formula

A
  • 28% x Gross Monthly Income

- Max Monthly House Payment

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4
Q

Closing amounts can sometimes be paid by either party. What MUST be paid by the borrower?

A

Down payment

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5
Q

Market Value

A

Most probable price property should bring in competitive and open market

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6
Q

Ad Valorem Taxes

A
  • According to value

- Assessed value

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7
Q

Origination

A

process of creating a loan

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8
Q

Underwriting

A

evaluating loan application to determine risk

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9
Q

Funding

A

transferring funds to title or escrow

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10
Q

Servicing

A

collecting payments, maintaining records, collecting taxes, remitting funds and following up on delinquencies

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11
Q

Approaches to Appraisal

A
  • Sales Comparison
  • Cost Approach
  • Income Approach
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12
Q

Sales Comparison

A

focused on recent sales in area

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13
Q

Cost Approach

A

how much a new structure of size and type would currently cost

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14
Q

Income Approach

A
  • uses the income the property generates to estimate fair value
  • net income/capitalization rate
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15
Q

Acceptable sources for gift funds

A
  • Relative
  • Domestic Partner
  • Fiance
  • Not from party to transaction
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16
Q

Processing

A

build file to be used in underwriting

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17
Q

FHA Max LTV

A

96.5%

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18
Q

Fixed Rate

A
  • Rate does not change

- Fully amortized

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19
Q

Adjustable Rate Mortgage

A

Rate changes

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20
Q

Advantages of ARM Loans

A
  • Higher loans
  • Lower interest rate
  • Falling rates
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21
Q

Disadvantages of ARM Loans

A
  • Early Refinancing
  • Unpredictable payments
  • Long-term Cost
  • Confusion
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22
Q

Balloon Note

A
  • Principal amortized over time
  • Balance due before loan fully amortized
  • Lower interest
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23
Q

Construction to Permanent

A
  • Interest only based what you use
  • Less than 1 year, paid on withdraws
  • Unused portion used towards principal
  • The transfers to permanent mortgage
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24
Q

Collateral-Dependent Loans (Hard-Money Loans)

A
  • Higher rates

- Not based on income, but value of land

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25
Q

Blanket Mortgage

A

Covers more than one property

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26
Q

Package Mortgage

A

Includes both real and personal property

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27
Q

Budget Mortgage

A

Monthly payment includes PITI

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28
Q

Wraparound Mortgage

A
  • Low interest rate
  • Seller financing
  • New loan takes secondary lien, original not repaid
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29
Q

Open-End Mortgage

A
  • Additional borrowing on same not
  • Home Equity Line of Credit
  • Minimum withdrawal is $4,000
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30
Q

Closed-End Mortgage

A

No additional borrowing

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31
Q

Seller Financing

A

Seller takes part of equity as note

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32
Q

Reverse Mortgage

A
  • At least 62 years old

- Due upon death or sale

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33
Q

Lifting Clause

A

Replace primary instrument without affecting subordinate positions

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34
Q

Cross-Defaulting Clause

A

If default on primary, secondary also defaults

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35
Q

Prepayment Privilege Clause

A

Borrower can pay off loan before it is due with no penalties

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36
Q

Lock-In Clause

A

Prohibits prepayment prior to specific date

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37
Q

Alienation (Due on Sale) Clause

A

Balance due when borrower sells property

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38
Q

Release Clause

A

Release part of property when portion of loan is paid

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39
Q

Subordination Clause

A

Permits a subsequent mortgage to take priority

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40
Q

Exculpatory Clause

A

Limit personal liability on default, other real and personal property cannot be collateral

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41
Q

Non Recourse Clause

A

Protects seller of security from liability due to default

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42
Q

Acceleration Clause

A

In default, principal becomes due

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43
Q

Escalation Clause

A

Lender can increase interest rate

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44
Q

Assumption Clause

A

New borrower can take over loan

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45
Q

Defeasance Clause

A

Lien is defeated when debt repaid

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46
Q

Texas Veteran’s Land Board Program Eligibility

A
  • Be in texas
  • At least one acre
  • Legal, usable access to public road
  • Properly described by field note description of tract or copy of recorded subdivision plat
  • Not zoned for commercial use
  • Not owned by same veteran or spouse for past 3 years
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47
Q

Texas Veterans Land Loan Program (VLB)

A
  • Up to $150,000 to purchase land

- Minimum 5% down payment

48
Q

Up-Front Mortgage Insurance Premium

A
  • FHA Loans
  • Covers in case of default
  • Paid at closing can be added to funding
  • Can cause loan to exceed appraised value
  • 1.75%
49
Q

FHA Down Payment

A

As low as 3.5%

50
Q

Mortgagee

A

Lender

51
Q

Mortgagor

A

Borrower

52
Q

Contract for Deed

A
  • Land contract
  • Deed conveyed when all payments made
  • No lender, seller financing
53
Q

Foreclosure Excesses and Deficiencies

A
  • Excess is given to debtor

- If short, lender can sue borrower

54
Q

Useful Life

A

Number of years estimated to be in service

55
Q

Effective Age

A

Appraiser’s estimate of the house based on maintenance

56
Q

Chronological Age

A

Actual age of property

57
Q

Depreciated Age

A

27.5 years

58
Q

Index Rate

A
  • Instrument lender uses for measuring changes in interest
  • 1 Year Constant Maturity Treasury Rate (CMT)
  • 11th District Cost of Funds Index (COFI)
  • London Interbank Offered Rate (LIBOR)
59
Q

Prime Rate

A
  • Best interest rate lenders can extend

- 3.25%

60
Q

Initial Rate

A

Rate offered at beginning of loan

61
Q

Cap Rate

A

Highest limit interest rate can increase

62
Q

Promissory Note

A

Borrower’s unconditional promise to repay

63
Q

Mortgage

A

Pledges the property as security for repayment

64
Q

Point

A

1% of loan amount

65
Q

Loan to Value Ratio

A
  • Percentage of value/price lender is willing to lend

- Sales Price- Down Payment= Loan Amount

66
Q

Foreclosure

A

Legal procedure of selling property to satisfy note

67
Q

Lien

A

Right given to creditors to have debts paid out from property

68
Q

Closing Disclosure Delivery

A
  • 3 days before closing

- If changes must have 3 day waiting period

69
Q

Primary Mortgage Market

A

Borrowers and lenders come together to negotiate terms

70
Q

Secondary Mortgage Market

A
  • Sale of existing mortgages to investors

- Provides greeted liquidity

71
Q

Amortization

A

Monthly payment is applied to interest first

72
Q

Community Reinvestment Act (CRA)

A

prohibits redlining and ensures banks serve needs of community in which they do business

73
Q

Dodd-Frank Act

A
  • Established Consumer Financial Protection Bureau
  • Promote financial stability by improving accountability and transparency
  • Ending bailouts
74
Q

Secure and Fair Enforcement for Mortgage Licensing Act

A
  • Enhance consumer protection and reduce fraud by establishing minimum standards for licensing and registration of loan originators
  • Must be registered with Nationwide Mortgage Licensing System and Registry
75
Q

Appraisal Marketing Time Limits

A

-Over 6 months, can drag on property values

76
Q

Fair Housing Protected Categories

A
  • Race
  • Color
  • National origin
  • Sex
  • Religion
  • Families with children
  • Disabilities
77
Q

Required in FHA Loans

A

Escrow account, regardless of LTV

78
Q

Judicial Foreclosure

A
  • Lender files suit with judicial system
  • Borrower receives note demanding payment
  • Sold in auction by local court or sheriff’s office
79
Q

Power of Sale

A
  • Statutory Closure
  • Lender sends notice
  • Public auction
80
Q

Non-Judicial Foreclosure

A

Borrower pre-authorizes sale of property in default

81
Q

Strict Foreclosure

A
  • Lender files lawsuit
  • Ownership transferred directly to mortgage holder
  • Debt is greater than value of property
82
Q

Portfolio Loan

A

Loans not sold in secondary market

83
Q

Conventional Loan

A
  • Real estate as security
  • Does not involve government
  • Most sold on secondary market
84
Q

Calculation of Monthly Payments Using Factor Charts

A
  • Divide loan amount by 1000

- Multiply by factor

85
Q

Margin

A

Percent added to index to calculate payment interest rate

86
Q

Fully Indexed Rate

A

Index + Margin

87
Q

Adjustment Period

A

Period length between interest rate and monthly payment change

88
Q

Discounted Initial Rate

A

Lower rate during first year

89
Q

Interest- Rate Caps

A

Limit rate can increase or decrease per adjustment

90
Q

Per-Adjustment Cap

A

Limit payment can increase or decrease per adjustment

91
Q

Lifetime Cap

A

Interest rate limit over life of loan

92
Q

Initial Adjustment Cap

A

Limit rate change on first adjustment

93
Q

Subordination Instruments

A
  • Higher rates
  • Typically generate funds
  • Behind another lien
94
Q

Nationwide Mortgage Licensing System

A

Residential Mortgage Loan Originators must be registered

95
Q

Forbearance

A
  • Suspending payments

- Repay part of delinquency per month

96
Q

Recasting

A
  • Re-amortizing
  • Reduces monthly payment
  • Lower interest rate or extend term
97
Q

Deed in Lieu

A
  • Borrower deeds property in exchange for release from mortgage
  • Not accepted if they can afford payments
98
Q

Home Affordable Foreclosure Alternatives (HAFA) Program

A
  • Short sale or Deed in Lieu

- Provide relocation assistance

99
Q

Eligibility for HAFA

A
  • Documented financial hardship
  • No new home in last 12 months
  • Less than $729,750
  • Mortgage obtained before 2009
  • No felony conviction
100
Q

Streamlined Modification Program (SMP)

A
  • Refinance existing loan
  • Missed 3 or more payments before 2008
  • No have filed for bankruptcy
101
Q

Home Affordable Modification Program (HAMP)

A
  • Refinance to reach 31% front ratio
  • Verge of default
  • Mortgage before 2009
  • Up to $729,750
  • No convictions in past 10 years
102
Q

USDA’s Special Loan Servicing

A

Rural homeowners can lower payments to no more than 31% front ratio

103
Q

How governments can fund capital improvements/investments

A
  • Selling bonds
  • Exempt from tax
  • Municipal, industrial, mortgage revenue, equipment
104
Q

Fannie Mae

A

-Formerly known as Federal National Mortgage Association (FNMA)
privately-owned
-Exclusively on secondary market
-Helps accomplish following objectives
-Addresses imbalance of mortgage credit by making funds available to capital deficient areas
-Allows lenders to originate mortgages for sale
-Standardizes mortgage loans

105
Q

Ginnie Mae

A
  • Government National Mortgage Association
  • Promote homeownership
  • Issue securities with payments guaranteed
  • Does not sell securities it just insures them
106
Q

Freddie Mac

A
  • Stockholder-owned to increase supply of funds for lenders
  • Sells its own securities
  • Participation Certificates
  • Unconditionally guarantee loans
107
Q

Farmer Mac

A
  • Provide secondary market for agricultural loans
  • Agricultural Credit Act of 1987
  • Guarantees payment
  • Two programs
  • 1- purchase loans
  • 2- purchase portions of loans guaranteed by USDA
108
Q

VA Loan

A
  • Partial guarantee
  • Assumable
  • No prepayment penalty
  • No max loan amount
  • Limit max amount with no down payment and liability based on entitlement
  • Seller concessions no more than 4%
109
Q

VA Qualification

A

Residual income and debt-to-income ratio

110
Q

VA Eligible Purposes

A
  • Buy/build home
  • Improve home
  • Refinance
  • Cash-out refinance
  • Reduce interest
  • Convert from ARM to fixed- rate
  • Purchase condo
  • Purchase farm
111
Q

FHA Loans

A
  • Ratios more lenient
  • LTVs high 96.5%, low down payment 3.5%
  • Fully-amortized
  • Low interest
  • Insures full loan amount
112
Q

FHA Eligible Properties

A
  • single/multi family

- Manufactured homes

113
Q

FHA Administrator

A

Department of Housing and Urban Development

114
Q

Encumbrance

A
  • Claim attached to real property

- Diminishes rights of owner

115
Q

Texas Department of Housing and Community Affairs (TDHCA)

A
  • Affordable housing
  • Regulation of manufactured home industry
  • Low to moderate income populations

Real Estate (6 decks)

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