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Real Estate > Unit 12: Real Estate Financing > Flashcards

Unit 12: Real Estate Financing Flashcards

1
Q

What are the basic costs of owning a home

A

PITI- Principal, Interest, Taxes, and Insurance

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2
Q

What determines the mortgage payment and ability to get a loan

A
  1. Ability to pay it
  2. Credit scores- determine interest rates
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3
Q

Lenders generally look at a loan applicant’s percentage of

A

Debt to income ratio (DTI)- PITI should not exceed 28% of gross income.

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4
Q

A borrower’s long term debts should not exceed this percentage of their gross income

A

36% (does not include monthly utility bills) includes long term debts like student loans, car payments, other mortgages.

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5
Q

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

A

Promissory note- it can be transferred to other banks

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6
Q

This is a charge for the use of money, expressed as a percentage of the remaining balance of the loan

A

Interest

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7
Q

Charging interest in excess of the maximum rate allowed by law

A

Usury

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8
Q

Charged by the lender to cover the expenses involved in generating a loan

A

Loan origination fee

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9
Q

Penalty the borrower could be charged for paying their loan in advance

A

Prepayment penalty- In MA for residential property you cannot be charged

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10
Q

What are the two contracts signed on the day of the closing

A

Promissory note and mortgage contract

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11
Q

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

A

Hypothecation

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12
Q

A lien on the real property of a debtor

A

Mortgage

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13
Q

The borrower, who gets a loan

A

Mortgagor

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14
Q

The lender (bank)

A

Mortgagee

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15
Q

Lenders prefer to use a three party security instrument known as a:

A

Deed of trust- conveys bare legal title without the actual deed until repaid

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16
Q

What are the duties of the borrower

A
  1. Payment of the debt in accordance with the terms in the promissory note
  2. Payment of all real estate taxes on the property
  3. Maintenance of adequate insurance to protect the lender in the event the property is destroyed by fire, windstorm or other hazard
  4. Maintenance of the property in good repair at all times
  5. Receipt of lender authorization before making any major alterations on the property
17
Q

If a borrower defaults on loan (mortgage), the lender has the right to accelerate the maturity of the debt through this process

A

Acceleration clause- without one, a lender would have to sue the borrower every time a payment was overdue. With this, they can declare the entire principal balance due and payable immediately.

18
Q

What are the type of defaults

A

Acceleration clause, power of sale clause, foreclosure, public sale

19
Q

Many lenders require this type of account to reserve funds to meet future real estate taxes and property insurance premiums

A

Escrow account

20
Q

A clause to prevent a future purchaser of the property from being able to assume the loan particularly if the original interest rate is low

A

Alienation clause (Mortgage takeover)

21
Q

This is an interest only loan- no money goes toward the principal in first five years

A

Straight loan- not used today

22
Q

This loan goes from 10-30 years and partially pays interest and a portion of the principal owed over years

A

Amortized loan

23
Q

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

A

Adjustable rate mortgage (ARM)

24
Q

This type of mortgage allows someone 62 or older to borrow money against the equity built up in their home

A

Reverse mortgage- must live in the home

25
Q

Legal procedure when person defaults on payments, can sell your property at a public sale (auction)

A

Foreclosure

26
Q

Lender must get court approval to do the foreclosure

A

Judicial foreclosure

27
Q

The bank does not require a court order

A

Nonjudicial foreclosure- In MA this is used usually because we have the power of sale clause

28
Q

This is used as an alternative to foreclosure- bank may accept this

A

Deed in lieu of foreclosure

29
Q

The borrower as this right to get the property back

A

Redemption

30
Q

If the sale at auction does not produce enough money to repay the loan, this is the act by the bank to recoup the loss

A

Deficiency judgment

31
Q

When the property is sold for less than the amount of the mortgage. It can only be done if approved by the bank.

A

Short sale

32
Q

This Act of 2010 made it a requirement to provide information to buyers about their rights

A

Consumer Protection Act of 2010 by the (CFPB) Consumer Financial Protection Bureau (Dodd-Frank)

Real Estate (22 decks)

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