Real Estate Financing: Practice

Question 1

Farm Credit System (Farm Credit)

Answer 1

A federal agency of the Department of Agricultural that offers programs to help families purchase or operate family farms.

Question 2

Amortized Loan

Answer 2

A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Question 3

Buydown

Answer 3

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Question 4

conventional loans

Answer 4

A loan that requires no insurance or guarantee

Question 5

Discount rate

Answer 5

the rate charged by the Federal Reserve when it lends to its member banks.

Question 6

Fannie Mae

Answer 6

a government-sponsored enterprise. It is organized as a privately owned corporation that issues its own common stock and provides a secondary market for mortgage loans.

Question 7

Farm Service Agency (FSA)

Answer 7

An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

Question 8

Farmer Mac

Answer 8

A government-sponsored enterprise that operates similarly to Fannie Mae and Freddie Mac but for agricultural loans.

Question 9

FHA Loan

Answer 9

A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA’s regulations.

Question 10

Freddie Mac

Answer 10

A government-sponsored enterprise established to purchase primarily conventional mortgage loans in the secondary mortgage market. (Similar to Fannie Mae)

Question 11

Fully Amortized Loan

Answer 11

The mortgagor pays a constant amount, usually monthly. Repayment of the principal grows and the interest due declines as the unpaid balance of the loan is reduced.

Question 12

Ginnie Mae

Answer 12

A government agency that plays an important role in the secondary mortgage market. It guarantees mortgage-backed securities using FHA and VA loans as collateral.

Question 13

growing-equity mortgage (GEM)

Answer 13

uses a fixed interest rate, but payments of principal are increased according to an index or a schedule. Thus, the total payment increases, and the loan is paid off more quickly.

Question 14

Interest-Only Mortgage

Answer 14

Requires the payment of interest for a stated period of time with the principal due at the end of the term.

Question 15

Office of Thrift Supervision

Answer 15

A government agency that governs the practices of fiduciary lenders. OTS was created by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Question 16

PITI

Answer 16

borrower’s monthly housing expenses, including PITI, must not exceed 28 percent of total monthly gross income. Also, the borrower’s total monthly obligations, including housing costs plus other regular monthly payments, must not exceed 36 percent of his or her total monthly gross income

Question 17

private mortgage insurance (PMI)

Answer 17

Insurance to protect a lender against a loss in the event of a foreclosure and deficiency. Purchased by borrower to receive lower down payment.

Question 18

purchase-money mortgage (PMM)

Answer 18

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

Question 19

Straight Loan

Answer 19

Only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment.

Question 20

The Prime Rate

Answer 20

the short-term interest rate charged to a bank’s largest, most creditworthy customers

Question 21

VA Loan

Answer 21

A mortgage loan made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender’s possible loss.