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CLI Prelicensing > Unit 12 > Flashcards

Unit 12 Flashcards

1
Q

Considering Factors of Buying or Renting

A
  1. how long a person wants to live in a particular area
  2. a person’s financial situation
  3. housing affordability
  4. current mortgage interest rates
  5. tax consequences
  6. what might happen to home prices and law laws in the future
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2
Q

Basic Costs of Owning a Home

A
  1. Principal
  2. Interest
  3. Taxes
  4. Insurance
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3
Q

FHA

A

Federal Housing Administration

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4
Q

3 major credit reporting companies

A
  1. Equifax
  2. Experian
  3. TransUnion
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5
Q

VA

A

US Department of Veterans Affairs

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6
Q

What are the 2 biggest factors when deciding whether to rent or own?

A
  1. mortgage terms

2. payment plans

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7
Q

What must purchasing decisions be weighed carefully again?

A

individual’s financial circumstances

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8
Q

FICO Score range

A

300-850

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9
Q

Loan-to-Value Ratio (LTV)

A

amount of the loan as a percentage of the purchase price of the property

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10
Q

How to calculate total housing expense allowed

A

monthly income * .28

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11
Q

How to calculat etotal housing and other debt expense allowed

A

montly income * .36

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12
Q

What is the minimum credit score for a loan determined by>

A
  1. whether the lended will sell the mortgage after initiating it
  2. borrowing is making use of government-sponsored program
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13
Q

promisory note

A

borrower’s personal promise to repay a debt according to the agreed terms

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14
Q

Who is a promisory note in a contract with?

A

lender/payee

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15
Q

Who is a promisory note executed by?

A

borrower/maker or payor

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16
Q

Other terms for promisory note

A

note, financing instrument

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17
Q

What does a promisory note state?

A

amount of debt, time and method of payment, rate of interest

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18
Q

Interest

A

charge for the use of money, expressed as a percentage of the remaining blanace of the loan

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19
Q

in arrears

A

payments made at the end of each period

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20
Q

in advance

A

payments made at the beginning of each period

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21
Q

What type of payment method is more common?

A

in arrears

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22
Q

Who charges interest on the principal

A

lender

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23
Q

Usury

A

charging interest in excess of the maximum rate allowed by law

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24
Q

Federally related transaction

A

one that involves a federally chartered or insured lending institution or an agency of the federal government

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25
Q

loan origination fee typical percentage

A

1% of the loan amount

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26
Q

Discount Point

A

used to increase the lender’s yield on its investment

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27
Q

Point

A

1% of the amount being borrowed; not 1% of purchase price

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28
Q

What do the number of points charged depend on?

A
  1. Differences between loan’s stated interest and lender yield
  2. how long the lender expects it will take the borrower to pay off the loan
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29
Q

How to determine the number of points on a loan

A

total point dollar amount / amount of loan

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30
Q

When are points paid

A

in cash at closing by buyer

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31
Q

How ar emost mortgage loans paid

A

in installments over a long period of time

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32
Q

Prepayment Penalty

A

penalty against uneared portion of the interest of mortgage interests paid ahead of schedule

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33
Q

Prepayment Clause

A

clause that requires the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule, typically during the first year

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34
Q

When might lenders not charge prepayment penalties

A
  1. on mortgage loans insured or guaranteed by the federal government
  2. loans that have been sold on the secondary mortgage market to one of the government-sponsored enterprises
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35
Q

What type of loans are mortgages?

A

secured loans

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36
Q

What are the 2 parts of mortgage loans?

A
  1. debt itself

2. security for the debt

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37
Q

Execute

A

sign

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38
Q

What must the owner execute when they have a mortgage?

A
  1. financing instrument

2. security instrument

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39
Q

What is the Mortgage financing instrument

A

promisory note

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40
Q

What is the mortgage Security Instrument

A

either a mortgage or deed of trust

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41
Q

Financing Instrument

A

creates the debt

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42
Q

Security Instrument

A

specifies the property that the debtor will use as collateral for the debt

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43
Q

bare legal title (naked title)

A

title without the right of possession

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44
Q

deed of trust

A

three party security instrument

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45
Q

Who holds legal title on behalf of the lender on a deed of trust?

A

trustee

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46
Q

who is the holder of the promisory note

A

beneficiary

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47
Q

What are the borrower’s duties?

A
  1. pay the money back
  2. payment of all real estate taxes
  3. maintenance of insurance
  4. Maintenance of the property and repair at all times
  5. receipt of lender authorization before any major alterations
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48
Q

What happens if the borrower does not uphold their duties to lender?

A

can result in default

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49
Q

Acceleration Clause

A

assists the lender in foreclosure; lender has right to accelerate the maturity of the debt; can may entire principal due and payable immediately

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50
Q

Assignor

A

original mortgagee

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51
Q

assignee

A

third party who receives a note

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52
Q

Assignment of mortgage

A

asignee becomes new owner of the debt and security instrument

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53
Q

Can you change terms of the loan when there is an assignment of mortgage?

A

no

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54
Q

How does an assignment of mortgage work?

A

the assignor endorses the note to the assignee

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55
Q

Defeasance Clause

A

lender is required to execute a satisfaction of mortgage when teh note has been fully paid

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56
Q

Satisfaction of mortgage

A

returns to the borrower all interest in teh real estate originaly conveyed to the lender

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57
Q

Deed of reconveyance

A

release deed

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58
Q

Release Deed

A

trustee conveys the title of the property back to the trustor, conveying the same rights and powers that the trustee was given under the deed of trust

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59
Q

What is the insurance premium reserve for a new insurance policy?

A

1/12 of insurance premium liability

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60
Q

Flood insurance

A

must set aside escrow funds for flood insurance on new loans for property in flood-prone areas

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61
Q

How much time do you have to purchase flood insurance

A

45 days

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62
Q

What happens if a borrowers doesn’t purchase flood insurance?

A

lender purchases it for them

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63
Q

Assumption of mortgage

A

buyer assumes the mortgage or deed of trust adn agrees to pay the debt

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64
Q

How to take property when real esatte has outstanding mortgage or deed of trust

A
  1. “subject to”
  2. Assumption of mortgage
  3. Novation
65
Q

Alienation Clause

A

provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender

66
Q

Other names for alienation clause

A

resale clause; due-on-sale clause, call clause

67
Q

Novation

A

makes the buyer solely responsible for any default on a loan adn original borrower is freed of any liability for the loan

68
Q

Other names for alienation clause

A

resale clause; due-on-sale clause, call clause

69
Q

Recording

A

gives constructive notice to the world of the borrower’s obligations

70
Q

What does recording establish?

A

lien’s priority

71
Q

Types of Loans

A
  1. straight loan
  2. amortized loan
  3. adjustable rate mortgage (ARM)
  4. Growing-equity mortgage
  5. balloon payment loan
  6. reverse mortgage
72
Q

Amortization

A

each payment including part of the loan principal so the entire principal is paid off by the end of the loan term

73
Q

Straight loan

A

term loan, interest only loan; borrower makes periodic payments of interested only, followed by teh payment of the principal in full at the end of the term

74
Q

What are straight loans used for?

A

home improvements and seond mortgages

75
Q

Amortized Loan

A

pays interest as well as a portion of the principal owned

76
Q

What type of loan are most mortgage and deed of trust loans?

A

amortized loan

77
Q

Margin

A

index + premium

78
Q

Rate Caps

A

limit the amount of the interest rate may change

79
Q

What does the margin represent?

A

lender’s cost of doing business

80
Q

Payment cap

A

sets a maximum amount for payment, but the difference between the payment made and the full payment amount will be added to the reamining mortgage balance

81
Q

Growign Equity Mortage

A

rapid-payoff mortgage; uses a fixed interest rate with payments of principal are increased according to an index or schedule; pays loan off more quickly but payments increase

82
Q

Balloon Payment

A

final payment that is at least twice the amount of the any other payment

83
Q

Partially amortized loan

A

some of the principal has been paid with some still owned at the end of the term

84
Q

Balloon Payment Loan

A

when the periodic payments on a loan are not enough to fully pay off the principal of the loan by the time the final payment is due, the final payment is larger than the others

85
Q

Balloon Payment Loan

A

when the periodic payments on a loan are not enough to fully pay off the principal of the loan by the time the final payment is due, the final payment is larger than the others

86
Q

Reverse Mortgage

A

allows a homeowner 62 or older to borrow money against the equity built up in the home

87
Q

What can borrowed money on a reverse mortgage be used for?

A

any purpose

88
Q

Ways reverse mortgage funds can be paid out

A
  1. lump sum
  2. fixed monthly payments
  3. open line of credit
  4. other
89
Q

When does the lender need to be paid back?

A
  1. when property is sold
  2. borrower defaults
  3. borrower moves
  4. borrower dies
90
Q

Foreclosure

A

a legal procedure in which property pledged as security for a debt is sold to satisfy the debt when a borrower defaults on any required payments or fails to fulfill any other obligations set forth in teh mortgage or deed of trust

91
Q

Who can initiate foreclosure proceedings

A

any unpaid leinholder

92
Q

How are foreclusure properties sold?

A

free of the foreclosing mortgage and all junior liens

93
Q

REO

A

real estate owned

94
Q

Methods of Foreclosure

A
  1. Judicial
  2. Nonjudicial foreclosure
  3. Strict foreclosure
95
Q

Judicial Foreclosure

A

allows the proeprty to be sold by court order after the mrotgagee has given sufficient public notice

96
Q

Nonjudicial foreclosure

A

when teh security instrument contains a power-of-sale clause; no court action is required

97
Q

Who is given power of sale in deed of trust loans

A

beneficiary

98
Q

Deed in lieu of foreclosure

A

eliminates any equity that the homeowner may have had in the property

99
Q

Nickname for Deed in lieu of foreclosure

A

friendly foreclosure

100
Q

Why is Deed in lieu of foreclosure called a friednly foreclosure?

A

carried out by mutual agreement rather than lawsuit

101
Q

Short sale

A

sales price is less than the reamining indebtedness

102
Q

Mortgage Forgiveness Debt Relief Act of 2007

A

allows a taxpayer to exclude from income the forgiveness of part of the mortgage debt on teh taxpayer’s principal residence on a sale of the property, restructuring of an existing mortgage loan, or foreclosure of a mortgage loan

103
Q

What does the leder have to do to protect the consumer?

A
  1. provide billing info in writing
  2. give the borrower 2 months warning if rate will change
  3. promptly credit the payments
  4. respond quickly
  5. not charge for insurance you don’t need or overcharge insurance
  6. quickly resolve complaints
  7. good customer service policies and procedures
  8. work with the borrowers if they’re having trouble making payments
  9. Contact borrower when they’re having trouble making payments
  10. allow the borrower to seek review of a decision about a loan workout request
104
Q

Basic Form

A

most common homeowner’s policy

105
Q

What does basic form over against

A
  • fire and lightening

-

106
Q

Broad Form insurance coverage

A
  • falling objects
  • damage due to ice/snow/sleet
  • collapse of building
  • damage to electrical applicances from short circuits and other accidentally generated currents
  • bursting, cracking, burning or bulging of a steam or water heading system or applicances used to heat water
  • accidental discharge, leakage, overflow of water or steam from plumbing heating or AC system
  • freezing of plumbing, heating and AC systems and domestic appliances
107
Q

Comprehensive Loss Underwriting Exchange (CLUE)

A

database of consumer claims history that enables insurance companies to access prior claims information in the underwriting and rating process; up to 5 years of history

108
Q

National Flood INsurance Act of 1968

A

help owners of property in flood-prone areas by subsidizing flood insurances and by takign land-use and land-control measures to improve future management for floodplain areas

109
Q

In SFHA’s, who types of buildings must have flood insurance?

A

residential, commercial, industrial agricultural (all buildings)

110
Q

SFHA

A

special flood hazard areas

111
Q

Who can get CLUE reports?

A

insurance agents

112
Q

What does flood insurance cover?

A

the value of the property or amount of the mortgage loan?

113
Q

Who can be exempt from flood insurance

A

a borrower who has a survey showing the lowest part of the building is located about the 100 year flood mark

114
Q

Flood

A

a general and temporary condition of partial or coplete inundation of two or more acres of normally dry land or two or more properties from an overflow of inland or tidal waves; an unusual and rapid accumulation fo runoff or surface water; mudflowers or mudslides; or the collapse of land along teh shower of a body of water

115
Q

What does flood insurance cost?

A

increases property owner’s expenses, but they take this into consideration, but will qualify for a lower loan amount

116
Q

What do flood policies excluse coverage for

A

swimming pools, cars, money, animals, groundcover, underground systems

117
Q

2 types of flood insurance policies

A
  1. replacement cost value

2. actual cost value

118
Q

If a buyer signs a note and a mortgage, they buyer is a

A

mortgagor

119
Q

Who is the borrower under a deed of trustt

A

trustor

120
Q

mortgage fraud

A

exaggerating income or assets, minimizing or concealing debt obligations, or providing a false employment

121
Q

Predatory Lending

A

practices that result in too-high loan fees and abusive interest rates

122
Q

Credit score

A

prepared by a credit reporting company and is based on a consumer’s past history of credit use, including income, outstanding loans, number of credit accounts open, outstanding credit lines, number of accounts opened and closed, payment history, and credit inquiries

123
Q

What would be the highest monthly debt payments

A

36% of gross monthly income

124
Q

If you can provide at least 10% of the purchase price as a downpayment, what would be your monthly PITI payment

A

no more than 28% of borrower’s gross monthly income

125
Q

What happens when terms of the note are satisfied?

A

debt is discharged

126
Q

What happens when terms of the note are not met?

A

lender may foreclose on property

127
Q

What happens when a note is not secured?

A

lender can sue to collect on the note

128
Q

How can the payee who holds the note transfer the right to receive payment to a third party

A
  1. by signing the instrument over to a third party

2. by delivering the instrument to the third party

129
Q

Loan origination

A

the processing of a mortgage application

130
Q

Loan Origination Fee

A

charged by most lenders to cover the expenses involved in generating the loan

131
Q

Hypothecation

A

debtor retains the right of possession and control of the secured property while the creditor receives an equitable right in the property

132
Q

Mortgage

A

a lien on the real property of a debtor

133
Q

mortgagor

A

receives a loan and in return gives a promissory note and mortgage to the lender, called the mortgagee

134
Q

Satisfaction of mortgage

A

document for when loan is paid in full whihc is filed in the public record as evidence of the removal o the securiyt interest

135
Q

lien theory

A

mortgageor retains both legal and equitable title to property that serves as security for a debt

136
Q

title thoery

A

borrower is the trustor who conveys legal title to the trustee but retain equitable title and right of possession

137
Q

What must a mortgage or deed of trust clearly establish

A

that the property is security for a debt, identify the leder and borrower, accurate legal description of the property

138
Q

“subject to”

A

buyer is not personally obligated to pay the debt in full

139
Q

first morgage

A

mortgage or deed of trust on land that has no prior mortgage lien

140
Q

secod mortgage

A

owner executes another loan for additional funds

141
Q

subordination agreement

A

first lender subordinates or lowers its lien position to that of the second lender

142
Q

direct reduction loans

A

full amount of the principal and all interest due is reduced to zero

143
Q

fully amortized loan/level-payment loan

A

lender credits each payment first to the interest due, then to the principal amount of the loan

144
Q

adjustable rate mortgage

A

begins at one rate of interest then fluctuates up or down during the loan term, based on specific economic indicator

145
Q

Index

A

economic indicator that is used to adjust the interest rate in the loan

146
Q

Periodic rate caps

A

limit the amount the reate may increase over a stated term, usually a years

147
Q

Life-of-the-loan rate cap

A

limits the amount the rate may increase over the entire life of the loan

148
Q

Payment cap

A

sets a maximum amount for payments

149
Q

negative amortization

A

amount of hte loan increases

150
Q

under water

A

borrower owing more than the property is worth

151
Q

option ARM

A

allowed negative amortization

152
Q

who can initate foreclosure proceedings?

A

any lienholder unpaid

153
Q

strict foreclosure

A

notice is given to delinquent borrower; if balance of defauled debt is not paid within the designated period of time, a court awards full legal title to the lender; no sale takes place

154
Q

Problem with deed in leiu foreclosure

A

does not eliminate junior liens

155
Q

equitable right of redemption

A

gives defaulting borrowers a change to redeem their property before foreclosure sale

156
Q

Statutory right of redemption

A

allow defaulted borrowers a period in which to redeem their real estate after the sale

157
Q

deficiency judgement

A

personal judgement against the borrower for the unpaid balance after the foreclosure sale

158
Q

homeowners insurance

A

covers various risks associated with real and personal property

159
Q

Basic Form Homeowner’s Insurance Coverage

A

fire and lightening, glass breakage, windstorm and hail, explosion, riot and civil commotion, damage by aircraft, damage from vehicles, damage from smoke, vandalism and malicious mischief, theft, loss of proeprty removed from premises when it is endangered by fire or other perils

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