Unit 12 - Real Estate Financing Flashcards
What are the 4 basic costs of owning a home (PITI)
Principal, Interest, Taxes, Insurance
What is a credit score also called
FICO score
What does Trimerge mean when talking about credit scores
Lender chooses the middle score of the three reporting agencies
What is Debt to Income (DTI)
28/36 Rule…28% of monthly income is housing budget…36% of monthly income is total housing and other debt expenses
What is a Promissory Note
Called a Note or Financing Instrument, is a borrower’s personal promise to repay a debt according the agreed terms.
Is a Promissory Note a negotiable instrument
yes, it can be assigned to a third party or delivered to a third party by the lender
What is interest and what is it called when it is paid in the beginning and the end of an agreement
Interest is the charge for the use of money, a percentage of the remaining balance of the loan. Payments made at the beginning of each period is “in advance”. Paid at the end is called “in arrerars”.
What is Usury
Charging interest in excess of the maximum rate allowed by law. Indiana is 31%
Define loan origination
process of a mortgage application
What is a loan origination fee
transfer fee, charged by most lenders to cover the expenses involved in generating a loan. (usually 1% of loan)
What are discount points used for
to increase the lender’s yield (rate of return) on its investment. Factors are the difference between the loan’s stated interest rate and the yield required by the lender and how long the lender expects it will take the borrower to pay off the loan
What is a point
1% of the amount being borrowed, not the purchase price.
What is method to determine loan amount plus points
add amount of borrowed money/loan; mulitply by the charge for points; equals totoal. 365,000 x 2.65 (points) = 9,275
What is Hypothecation
Process by which borrower is requred to make specific real property security (collateral) for the loan. Debtor retains right of possession and control of secured property, creditor recives an equitable right in property
What is a mortgage
a ien on the real property of a debtor. The borrower (mortgagor), receives a loan and in return gives a promissory note and mortgage to the lender (mortgagee)
What is satisfaction of mortgage
when loan is paid in full, mortgagee issues satisfaction of mortgage, to be filed in public record
In Lien Theory, who retains both legal and equitable title to property that serves as security for a debt
Borrower/Mortgagor
What is a statutory right of redemption
a defaulting mortgagor may redeem (buy back) the property during a certain period after the forclosure sale
What is a deed of trust
Some states the lender prefers to use a three-party security instrument. Title without possession is conveyed by the borrower to a third party (trustee)
What happens to title in a title theory state
borrower is the trustor who conveys legal title to the trustee but retains equitable title and the right of possession. Legal title returned to borrower/trustor when debt paid in full. Lender chooses trustee
What are 5 duties of mortgagor or a trustor
- payment of debt in accordance of loan terms
- payment of real estate taxes on property
- maintain adequate real estate insurance on property
- keep property in good repair at all times
- receive authorization from lender before major alterations done
What is an acceleration clause
assist lender in foreclosure. Lender declares the entire principal balance due and payable immediately. Lender would have to sue without this clause in contract
In an assignment of the mortgage do the provisions of the contract change
No changes are made to note, when sold to another company
What is a defeasance clause in a lien theory state
lender is required to execute a satisfaction of mortgage (aka release or discharge) when the not has been fully pad
