RP UNIT12 Flashcards
What factors should be considered when deciding to rent or buy a home?
- How long resident will live in area
- Personal financial situation
- Housing affordability
- Interest rates
- Tax implications
- Impact of changes in home prices and tax laws
These factors influence the financial decision-making process regarding homeownership.
What does PITI stand for in homeownership expenses?
Principal, Interest, Taxes, Insurance
PITI represents the four primary components of a monthly mortgage payment.
What is a promissory note?
The borrower’s personal promise to repay the debt
It includes the amount of the debt, the time and method of payment, and the rate of interest.
What is usury in the context of interest?
Charging interest at maximum rate allowed by law
Federal law exempts federally related residential first mortgage loans from state usury laws.
What is a loan origination fee?
Expense paid to the lender to cover expenses in generating the loan, typically around 1% of the loan amount
This fee varies by lender and loan type.
What are discount points?
- Used to increase the yield required by an investor
- One discount point equals 1 percent of the loan amount
The number of points is determined by the difference between the interest rate and required yield.
What is a prepayment penalty?
A fee that may be assessed by the lender if the borrower pays off the loan early
Prepayment penalties can be regulated by state law and are prohibited on federally insured loans.
What is hypothecation?
Pledging property as collateral without giving up its possession
This allows the borrower to retain possession of the property while securing a loan.
What is the difference between title theory and lien theory in mortgages?
- Title theory: borrower transfers legal title, retains equitable title
- Lien theory: mortgagor retains both legal and equitable title; mortgagee has a lien
The distinction affects the legal rights of borrowers and lenders.
What is a deed of trust?
A three-party agreement that conveys ‘naked title’ to a trustee who has obligations to the lender
This arrangement generally provides simpler and faster foreclosure than a mortgage.
What are the duties of the borrower in a mortgage agreement?
- Payment of the debt
- Payment of real estate taxes
- Maintenance of adequate insurance
- Maintenance of the property
- Lender authorization before major alterations
These duties protect the lender’s interest in the property.
What is an acceleration clause?
A provision allowing the lender to accelerate the maturity of the debt in case of default
This means the entire debt becomes due immediately upon default.
What is a deficiency judgment?
A judgment issued to cover the difference between the amount received at foreclosure sale and the principal balance owed
Some states prohibit such judgments on purchase money loans for primary residences.
What is a short sale?
A sale where the sales price is less than the remaining debt, requiring lender approval
The transaction must be disclosed to all parties involved.
What is the purpose of the Dodd-Frank Act regarding mortgage disclosure?
To enhance consumer protections in the mortgage lending process
It established stricter regulations for mortgage disclosures to protect homeowners.
What is required for properties in a special flood hazard area?
Federal Flood Insurance Program
This insurance is necessary for properties located in designated flood zones.
What does RCV stand for in flood insurance policies?
Replacement Cost Value
It refers to the cost to replace damaged property with new property of like kind and quality.
What is an adjustable-rate mortgage (ARM)?
A mortgage that rises or falls based on an index to which a margin is added
Rate caps limit how much the interest rate can increase.
What is a reverse mortgage?
A loan allowing homeowners aged 62 or older to borrow against their home equity
This type of loan does not require monthly payments and is repaid upon sale or death.
