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Real Estate > Unit 12 - Real Estate Financing > Flashcards

Unit 12 - Real Estate Financing Flashcards

1
Q

What are the 4 basic costs of owning a home (PITI)

A

Principal, Interest, Taxes, Insurance

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2
Q

What is a credit score also called

A

FICO score

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3
Q

What does Trimerge mean when talking about credit scores

A

Lender chooses the middle score of the three reporting agencies

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4
Q

What is Debt to Income (DTI)

A

28/36 Rule…28% of monthly income is housing budget…36% of monthly income is total housing and other debt expenses

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5
Q

What is a Promissory Note

A

Called a Note or Financing Instrument, is a borrower’s personal promise to repay a debt according the agreed terms.

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6
Q

Is a Promissory Note a negotiable instrument

A

yes, it can be assigned to a third party or delivered to a third party by the lender

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7
Q

What is interest and what is it called when it is paid in the beginning and the end of an agreement

A

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”.

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8
Q

What is Usury

A

Charging interest in excess of the maximum rate allowed by law. Indiana is 31%

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9
Q

Define loan origination

A

process of a mortgage application

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10
Q

What is a loan origination fee

A

transfer fee, charged by most lenders to cover the expenses involved in generating a loan. (usually 1% of loan)

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11
Q

What are discount points used for

A

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

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12
Q

What is a point

A

1% of the amount being borrowed, not the purchase price.

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13
Q

What is method to determine loan amount plus points

A

add amount of borrowed money/loan; mulitply by the charge for points; equals totoal. 365,000 x 2.65 (points) = 9,275

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14
Q

What is Hypothecation

A

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

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15
Q

What is a mortgage

A

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)

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16
Q

What is satisfaction of mortgage

A

when loan is paid in full, mortgagee issues satisfaction of mortgage, to be filed in public record

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17
Q

In Lien Theory, who retains both legal and equitable title to property that serves as security for a debt

A

Borrower/Mortgagor

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18
Q

What is a statutory right of redemption

A

a defaulting mortgagor may redeem (buy back) the property during a certain period after the forclosure sale

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19
Q

What is a deed of trust

A

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)

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20
Q

What happens to title in a title theory state

A

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

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21
Q

What are 5 duties of mortgagor or a trustor

A
  • 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
22
Q

What is an acceleration clause

A

assist lender in foreclosure. Lender declares the entire principal balance due and payable immediately. Lender would have to sue without this clause in contract

23
Q

In an assignment of the mortgage do the provisions of the contract change

A

No changes are made to note, when sold to another company

24
Q

What is a defeasance clause in a lien theory state

A

lender is required to execute a satisfaction of mortgage (aka release or discharge) when the not has been fully pad

25
Q

What happens to the deed in a trust theory state when paid in full

A

trustee executes and delivers a deed of reconveyance to the trustor

26
Q

What is an impound or escrow account

A

lenders may require borrowers provide a reserve fund to meet future real estate taxes and property insurance premiums

27
Q

How long does a borrower have to get flood insurance

A

45

28
Q

How does someone buy a property with an outstanding mortgage in “subject to”

A

Buyer not personally obligated to pay debt in full. Buyer takes title knowing must make payments on existing loan. If goes in default, purchaser is not liable for difference in forclosure sell.

29
Q

How does someone buy a property by assuming a seller’s debt

A

Buyer becomes personally obligated for the payment of the entire debt. If seller wants to be free of loan, they must have lender execute a novation agreement in writing.

30
Q

at is an alienation clause

A

when 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 acdeptable to the lender. Used to prevent assumption of mortgage

31
Q

What is a straight loan

A

Term loan or interest-only-loan, borrower makes periodic payments of interest only, followed by the payment of the principal in full at the end of the term

32
Q

What is an Amortized loan

A

Each payment partially pays interst as well as a portion of the principal owed. Also known as a direct reduction loan

33
Q

What is math concept to see how much interest is being paid in amortized loan

A

Loan amount x the interest rate = sum. Take sum and divide by 12 (months). 100,000 x .06 = 6,000. 6,000 divided by 12 = 500

34
Q

What is an adjustable-rate-mortage (ARM)

A

begins at one rate of interst, then fluctuates up or doen during the loan term, based on economic indicator

35
Q

What are the common components of an ARM

A
  • the Index (economic indicator-U.S. Treasur) given as an interest rate
  • interest rate plus a premium (margin or additional profit)
  • rate caps: limits the amount of interest rate may change
  • conversion option: ability to convert ARM to fixed-rate loan
36
Q

What is a Growing-Equity Mortgage (GEM)

A

Rapid-payoff mortage uses fixed rate but principal payments are increased to pay loan off quickly. Used when borrower’s income is expected to keep pace with the increasing loan payments. (doctor/lawyer)

37
Q

What is a Balloon payment

A

When periodic payments are not enought to fully pay off principal when final payment is due. That final payment is atleast twice the amount of other payments.

38
Q

What is method for finding out principal and interest payment using mortgage factor chart

A

Find interest rate for either 15/30 year term and use the interest rate factor required each month to amortize a $1,000 loan. Multiply the interest rate factor by the number of 1,000’s in the total loan. If rate is 6% of 30yr loan, the factor is 6.00. If total of loan is $200,000, loan contains 200 1,000’s. Therefore 200 x 6.00 = $1,000 principal and interest per month

39
Q

What is a reverse mortgage

A

Allows for homeowner 62 or older to borrow money against the equity built up in the house.

40
Q

What is a foreclosure

A

legal procedure when property pledged as security for a debt is sold to satisfy the debt when defaulted by borrower. Property is sold free of the foreclosing mortgage and all junior liens

41
Q

What is a judicial foreclosure

A

Used in Indiana, allows the property to be sold by court order after the mortgagee has given sufficient public notice

42
Q

What is nonjudicial foreclosure

A

No court action is required because of a Power-of-Sale Clause

43
Q

What is a Strict Foreclosure

A

Court establishes a deadline for the balance of the defaulted debt to be paid in full. If borrower does not pay off the loan by that date, court awards full legal title to the lender

44
Q

What is a deed in lieu of foreclosure

A

Called a friendly foreclosure because it is carred out by mutual agreement by borrower and lender rather than by a lawsuit

45
Q

What is Equitable Right of Redemption

A

After default but before the foreclosure sale, the borrower pays the lender the amount in default, plus costs, the debt will be reinstated. (BEFORE DATE OF SALE)

46
Q

What is Statutory Right of Redemption

A

Defaulted borrower can redeem their real estate after the sale. (AFTER THE DATE OF SALE)

47
Q

What is a Deficiency Judgment

A

Lender can sue borrower for the gap of money between the forecluse sale price and the remainder of the amont owed on loan

48
Q

What is a Short Sale

A

Allows borrower to sell the property for a sales price that is less than the remaining balance

49
Q

What does the basic form of homeowners insurance cover

A

Fire and lightning, glass breakage, windstorm and hail, smoke damage, vandalism, and theft

50
Q

What is a coinsurance clause in homeowners insurance

A

requires the owner maintain insurance equal to specified percentage (usually 80%) of the replacement cost of the dwelling. (not including the price of the land)

51
Q

What is the Comprehensive Loss Underwriting Exchange (CLUE) used for

A

Database used by insurance companies to access prior claims information in the underwriting and rating process

52
Q

How does FEMA define a flood

A

general or temporary condition of partial or complete inundation of two or more acres of normally dry land or two or more properties from:
-overflow of inland or tital waves
- unusual and rapid accumulation or runoff of surface waters
- mudflows or mudslides of normally dry land
- collaps of land along the shore of a body of water

Real Estate (13 decks)

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