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Real Estate Principles > Section 14: Financing in CA > Flashcards

Section 14: Financing in CA Flashcards

1
Q

mortgage

A

a legally binding instrument that creates a lien on a piece of property

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2
Q

acceleration clause

A

a clause in a mortgage that makes the entire debt due immediately in the case of borrower default

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3
Q

due-on-sale clause

A

a requirement that the borrower repay the loan when transferring ownership to another

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4
Q

promissory note

A

a promise by a borrower to repay the loan

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5
Q

prepayment penalty

A

an amount charged by the lender for interest lost when a borrower sells or pays off a loan early

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6
Q

mortgagor

A

the borrower in a mortgage

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7
Q

mortgagee

A

the lender in a mortgage

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8
Q

fixed rate loan

A

a loan whose principal and interest payment remain the same over the life of the loan

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9
Q

adjustable rate mortgage

A

loan whose rate is adjusted (usually annually) based on the behavior of the economic index with which it is associated

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10
Q

bridge loan

A

a temporary loan often used by buyers who have not yet closed on their prior property

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11
Q

swing loan

A

a loan of equity in a property obtained to use to purchase another property

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12
Q

graduated payment mortgage

A

payments gradually adjust (usually upward) based on a predetermined schedule and amount over 5-10 years, and then remains consistent for the rest of the loan term

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13
Q

growing equity mortgage

A

fixed rate mortgage where the monthly payments increase over time according to a set schedule or index

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14
Q

reverse mortgage

A

allows a person to stay in one’s home while living off of the equity by “selling” it to a lender who makes payments to the homeowner in exchange for ownership interest in the property

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15
Q

renegotiable-rate mortgage

A

long-term loan made up of short-term loans; at specified periods, borrowers have the option to renew their loan or immediately pay the remaining loan balance and interest due

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16
Q

rollover mortgage

A

a type of renegotiable loan in which the interest rate is renegotiated at specified intervals (usually every 5 years)

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17
Q

shared appreciation mortgage

A

mortgage in which the borrower initially receives an interest rate below the going market rate; in exchange, the lender receives equity or a percentage of the appreciation in the property’s market value

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18
Q

discount point

A

upfront charge to make up for difference between the rate the borrower is receiving and the rate the lender normally requires; can be seen as the amount a lender charges to initiate a loan

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19
Q

promissory note

A

a promise from the borrower (the obligor) to repay a certain sum of money to another party (the lender/holder of the note–obligee) under specified terms; negotiable instrument

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20
Q

bond/mortgage bond

A

can be used to secure the mortgage instead of a promissory note; when this is used and borrower defaults, the borrower may face foreclosure

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21
Q

lien theory

A

a state that adopts a lien theory goes under the presumption that a lender’s mortgage is a lien on the property

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22
Q

deed of trust

A

(similar to a mortgage) document in which the borrower conveys title for the property to a trust, which holds it as security for the lender

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23
Q

judicial foreclosure

A

foreclosure process requiring court proceedings

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24
Q

non-judicial foreclosure

A

when a lender is able to sell a property (in the event of buyer default) without going through the court system; usually granted via a power-of-sale clause in the security instrument

25
Q

title theory

A

a title theory state says that the lender owns the property until the loan is paid off

26
Q

buydown

A

financing technique in which the buyer obtains a TEMPORARILY lower interest rate by buying down the interest rate (with a lump sum prepayment of interest) at the time that the loan is made

27
Q

principal (mortgage)

A

balance on the loan– the actual amount owed

28
Q

Interest (mortgage)

A

the “fee” paid back to the lender for the use of their money; generally decreases over the life of the mortgage

29
Q

Taxes (mortgage)

A

includes property taxes– which is the cost of public services divided by the value of property for the area)

30
Q

Insurance (mortgage)

A

may include mortgage, homeowner’s, and/or flood insurance

31
Q

amortization schedule

A

document or chart that outlines the amount of each monthly payment of a mortgage

32
Q

fully amortized loans

A

also called “constant payment method”–the borrower’s installment payment remains the same throughout the loan term; when a borrower makes mortgage payments based on the numbers outlined in an amortization schedule

33
Q

straight-line loan

A

type of mortgage wherein the portion of the payment applied to the principal remains the same with each payment, and the interest amount varies according to the outstanding loan balance; also called straight-line amortization or constant amortization

34
Q

Fannie Mae

A

Federal National Mortgage Association or FNMA; can purchase ANY type of loan, but primarily deals with conventional loans from commercial banks

35
Q

Freddie Mac

A

Federal Home Loan Mortgage Corporation or FHLMC; can purchase any type of loan, but primarily deals with conforming conventional loans from smaller lending institutions (thrifts)

36
Q

Farmer Mac

A

Federal Agricultural Mortgage Corporation; purchases agricultural loans and loans from rural lenders

37
Q

Ginnie Mae

A

Government National Mortgage Association or GNMA; guarantees mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a U.S. government agency; does NOT purchase loans

38
Q

secondary mortgage market players

A

Fannie Mae, Freddie Mac, Farmer Mac, Ginnie Mae, or any lending institution that buys loans from other lenders

39
Q

Federal Reserve System

A

(also called the Fed) keeps the U.S.’s finances in check (avoiding runaway inflation and serious deflation) by regulating the flow of available funds and interest rates at each of its banks– aka. Fed controls how much money is available and what banks can charge for that money

40
Q

primary mortgage market

A

where banks that originate loans operate; they have cash and loan it to borrowers; main players are homebuyers (borrowers) and lenders (commercial banks, credit unions, savings and loans, etc.)

41
Q

secondary mortgage market

A

a marketplace where investors buy and sell mortgages that have been securitized and packaged into groups

42
Q

qualified mortgage

A

a mortgage loan that meets specific ability-to-repay rules, including a prohibition on interest-only loans, negative amortization, balloon payments, or excessive loan terms (>30 years)

43
Q

ability-to-repay rule

A

lenders must research and document a borrower’s income, assets, employment, credit history, and loan ratios to help ensure that the borrower has the ability to repay the loan

44
Q

CalVet loan requirements

A

no residency required; currently serving or honorably discharged; buying an owner-occupied home or farm in CA

45
Q

CalVet Loan Characteristics

A

max. loan amts. vary by county; term of 30 yrs; no prepayment penalty; below-market interest rates; low or no down payment; up-front funding fees, but no monthly mortgage insurance premiums; 1% loan origination fee

46
Q

private mortgage insurance (PMI)

A

an insurance requirement that protects the lender when it approves a loan with more than 75-80% of the purchase being financed

47
Q

negative amortization

A

type of loan in which the payments do not cover the interest due, which increases the amount owed over time

48
Q

balloon mortgage

A

a nontraditional mortgage product that has lower initial payments that do not amortize and request a “catch up” lump sum payment to be paid at a specific time, usually at the end of a loan period

49
Q

savings and loan associations (thrifts)

A

specialize in taking in savings deposits and then lending out through mortgages and other loans; required to keep their commercial lending at or under 20%– so they’re tied to consumers and mortgage loans

50
Q

commercial banks

A

Bank of America, Chase, Citigroup, etc make consumer and business loans, offer investment products, and take deposits

51
Q

Credit unions

A

member-based cooperatives that provide credit for auto and home loans; they take deposits and offer savings vehicles, money markets, etc; tend to be very competitive

52
Q

mortgage bankers

A

actually DO the lending; they have in-house loan processors and underwriters; can close pretty quickly because they fund their own loans, but their range of offerings is narrow because they’re limited to their own products

53
Q

mortgage brokers

A

work with multiple lenders to search for and negotiate the best deal for a particular borrower’s circumstances; don’t loan the money out themselves

54
Q

investment groups

A

financier that lend specifically to people who want to avoid conventional financing– such as other investors; they also purchase mortgage-backed securities

55
Q

land contract

A

contract between a seller and buyer in which the seller acts as the lender for the buyer, who purchases the property for an agreed-upon price. The seller retains the title to the property while the buyer gets the right of possession– until the loan balance is paid in full.; aka “contract for deed”, “land installment contract”, or “installment sale agreement”

56
Q

purchase money mortgage

A

type of seller financing in which the seller issues a mortgage to the buyer (toward the purchase price) that buyers use as down payment financing; seller = mortgagee/lender, buyer=mortgagor/borrower

57
Q

wraparound mortgage

A

type of seller financing that wraps the new buyer’s mortgage around the seller’s existing mortgage; seller continues to make payments on the 1st mortgage and the buyer makes their own mortgage payments to the seller

58
Q

sale-leaseback

A

when an investor buys a property for cash and then leases it back to the seller; often occurs when a property is difficult to finance or when a business is strapped for cash; this provides income for the investor and allows the building owner to remain in the building while also freeing up capital that was “stuck” in real estate.

59
Q
A

Real Estate Principles (7 decks)

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