Unit 8: Financing Real Estate

Question 1

A $450,000 house can be purchased with a $90,000 down payment using the principle of:

Answer 1

Leveraging

Question 2

The Fed CAN increase or decrease the amount of money in circulation by:

Answer 2

• Establishing the discount rate
• Raising or lowering reserve requirements
• Buying or selling government securities

Question 3

Federal savings and loan activities are overseen by:

Answer 3

The Office of the Comptroller of the Currency

Question 4

California usury laws apply primarily to:

Answer 4

Private Lenders

Question 5

Real estate is hypothecated by use of:

Answer 5

A security instrument

Question 6

To be a negotiable instrument, a promissory note must be:

Answer 6

A promise to pay money to the bearer

Question 7

A holder in due course must take a negotiable instrument:

Answer 7

without notice of any defense against its enforcement.

Question 8

In a mortgage, the lender is

Answer 8

the mortgagee

Question 9

The highest bidder at a judicial foreclosure receives

Answer 9

A certificate of sale

Question 10

In a deed of trust, the borrower is:

Answer 10

The trustor

Question 11

In a deed of trust, the lender is:

Answer 11

The beneficiary

Question 12

The first step in bringing about a trustee’s sale is to prepare:

Answer 12

A declaration of default

Question 13

There is no right of redemption following:

Answer 13

A trustee’s sale

Question 14

An ARM is:

Answer 14

A mortgage in which the interest rate changes periodically based on an index.

Question 15

MOST adjustable-rate loans are:

Answer 15

Assumable

Question 16

Interest rate and payment can change every three to five years in:

Answer 16

A renegotiable-rate mortgage

Question 17

TRID applies to

Answer 17

Construction-only loans

Question 18

RESPA covers

Answer 18

The Closing Disclosure form.

Question 19

David Yoo bought Whiteacre and is making the former owner’s original loan payments. If David defaults, the seller will be obligated on the loan.

Answer 19

David bought the property subject to the loan

Question 20

A lender that discriminates against a loan applicant because of race has violated:

Answer 20

The Equal Credit Opportunity Act

Question 21

3 Ways the Federal Reserve Influences Monetary policy

Answer 21

• Raising (slowing) or lowering (stimulating) reserve requirements (cash-on-hand).
• Raising (slowing) or lowering (stimulating) the discount rate (interest rates)
• Buying (stimulating) and Selling (slowing) Government Securities

Question 22

Federal Funds Rate

Answer 22

A rate that banks charge each other for borrowing funds they maintain with the Fed.

Question 23

Prime Rate

Answer 23

The rate that banks charge their most favorably rated commercial borrowers.

Question 24

Promissory Note

Answer 24

The borrower’s promise to pay the amount borrowed.

Question 25

Security Instrument

Answer 25

is used to identify the real estate that serves as an assurance that the loan will be repaid (Identifies collateral).

Question 26

Amortized Loan

Answer 26

Installments include both interest and principal

Question 27

Straight Note

Answer 27

Interest-only loan with the principal due in a lump sum at the end of the loan.

Question 28

Negative Amortization

Answer 28

Payment is so low that it doesn’t cover the interest owed, causing the balance to rise over time.

Question 29

Acceleration clause

Answer 29

A clause in a loan that allows the lender to call your loan due if you do something wrong like not making payments on time, or property is used illegally.

Question 30

Alienation clause

Answer 30

Due on sale

Question 31

Subordination Clause

Answer 31

Allows a future loan to have priority over an existing loan.

Question 32

Lean Priority

Answer 32

The order in which creditors are paid upon default

Question 33

Prepayment Penalty Clause

Answer 33

If you pay off the loan early, you pay a penalty.

Question 34

Lock-in Clause

Answer 34

Prohibits an early payment

Question 35

Blanket Loan

Answer 35

A loan that covers multiple parcels of real estate

Question 36

Release Clause

Answer 36

A clause that allows a partial reconveyance in a blanket loan.

Question 37

Construction Loan

Answer 37

Short-term basis loan, only during the period of the construction. (interim loan)

Question 38

Take out loan

Answer 38

Long-term financing of the construction loan after the project is complete.

Question 39

Standby fee

Answer 39

Paid to have the privilege of the take-out loan parked for you while waiting for the construction to be complete.

Question 40

Deed of Trust (or trust deed)

Answer 40

an instrument by which real property is hypothecated to secure payment of a debt or an obligation.

Question 41

3 Parties of the deed of Trust

Answer 41

• Trustor
• Trustee
• Beneficiary

Question 42

Trustor

Answer 42

Owner and Borrower

Question 43

Trustee

Answer 43

Holds title to the property while you’re making payments (third party)

Question 44

Beneficiary

Answer 44

The lender

Question 45

Notice of default

Answer 45

The first step in the foreclosure process. Then the borrower is given a 90 day reinstatement period. The borrower has a chance to catch up.

Question 46

Notice of sale

Answer 46

The second step in the foreclosure process. After the 90 day reinstatement period. 20 days later is the foreclosure sale.

Question 47

RESPA

Answer 47

Regulates residential 1-4 unit properties. Prohibits kickbacks. It requires a good faith loan estimate within 3 business days.