26. Residential and Commercial Financing

Which of the following is a triggering term when used in advertising financing

"10% down"

You're working with a buyer who's purchasing a home that appraised at $80,000. The buyer is obtaining a 90% loan, and the lender will charge a one-point origination fee at closing. How much will the loan origination fee be

$720 That's right! A one-point fee equals 1% of the loan, so: $80,000 × 0.9 = $72,000 (loan amount), and 1% of $72,000 = $720.

Generally, what's the common range for loan origination fees

1% to 3%

Which of the following is the credit score range

300 and 850

April's mother is getting older, lives alone, and needs care. April's house is too small for both of them. She has a solid amount of equity in the home but isn't in a position to move. Instead, she decides to take out a loan to build an 800-square-foot addition onto the existing home for her mom. What type of loan might April likely consider to finance the addition

A home equity loan

What is a convertible mortgage

A mortgage that allows the borrower to change a mortgage from an adjustable rate to a fixed rate

Which type of loan's interest rate fluctuates with the economic index to which it's tied

Adjustable rate

Janice is extremely excited to have purchased her first home. She was able to lock in her monthly payment at a very low rate for the first five years. In year six, Janice's payments will become significantly larger based on the going market rates. What type of loan does Janice have

Adjustable rate mortgage

The ______ clause is also known as a due-on-sale clause.

Alienation

Alberto wants to sell his house to his cousin, who's willing to assume his FHA loan. What clause in Alberto's mortgage requires him to obtain the lender's permission to do this

Alienation clause

_______ is a standardized measure for interest rates and other costs of the loan.

Annual percentage rate

The Equal Credit Opportunity Act is regulated by the ______.

Consumer Financial Protection Bureau

A home equity line of credit (HELOC) is based on the homeowner's available ______.

Equity

The ______ clause protects the borrower's assets that aren't part of the voluntary lien from a deficiency judgment in case of foreclosure.

Exculpatory

Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay a mortgage insurance premium (MIP). What type of loan does Lydia have

FHA Correct! Based on the minimum down payment amount of 3.5% and the fact that she's paying MIP, Lydia has an FHA loan.

From a lender's perspective, what does a credit score on the low end indicate

Higher risk

What's one benefit of a rural development loan

Its optional longer term means a lower monthly payment.

Regina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result

Late charge provision

Gina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result

Late charge provision The promissory note includes a late charge provision to encourage borrowers to pay on time.

Information about which of the following is included in the Uniform Residential Loan Application

Mortgage type

What's the name of the clause included in a finance instrument that requires the lender to release a portion of the property from the lien when a part of the debt has been paid

Partial release

What information about the property is included in the Uniform Residential Loan Application

Property value

What's the purpose of the ECOA

To prevent discrimination in lending

Which of the following best describes a home equity line of credit

Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again

Sgt. Johnson is an active member of the Marines. He's been serving for 10 years. He wants to buy a home with no money down. What loan option seems like the best fit

VA

Which of the following is a true statement about FHA financing

An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.

Which of the following is true about the Federal Housing Administration's qualifying standards for a mortgage loan

Are somewhat less stringent than standards for conventional loans

Ava is borrowing money to buy some commercial property for her business. The loan agreement she signs includes a lock-in clause. What does that mean

Ava will not be allowed to pre-pay the loan prior to the date specific in the loan agreement.

What kind of mortgage involves two or more properties pledged as security for repayment of a loan

Blanket

Monica received a promotion at work that requires her to relocate. Because of the timing of her promotion, she'll need to buy a new house in her new city before her current one is sold. So, she won't have any equity from her current home to make a down payment on the new house. What loan option would allow her to make the purchase before selling the old house

Bridge loan

Which loan is a type of gap financing that is used temporarily until the consumer can obtain permanent financing

Bridge loan

Monica received a promotion at work and has to relocate. Because of the timing, she'll need to buy a house in her new city before her current one is sold, which means she won't have any equity from her current home to make a down payment on the new house. What loan option would allow her to make the purchase before selling the old house

Bridge loan Good! Sometimes there is a delay between a property sale and when the owner is able to purchase, and the bridge loan gives the homeowner the ability to pay for two homes at the same time.

After switching careers, Alice just graduated from culinary school and is looking to purchase a house. Until she gets her feet wet with her new job, she knows the cost of living with her mortgage is going to be tight. Which mortgage might help her manage her expenses each month

Budget

Sam has a mortgage payment that includes his property taxes and property insurance. What type of mortgage does Sam have

Budget

Which of the following is an action borrowers take to temporarily lower the interest rate on their mortgage loan

Buydown

Which party to the loan approval process is responsible for completing a loan application and supplying supporting documentation

Buyer

How does the Federal Housing Administration fund its mortgage insurance program

By charging borrowers a mortgage insurance premium

Farm families financing the purchase of properties in rural areas may be able to obtain financing through this government agency if they meet certain criteria, such as income requirements.

Farm Service Agency

What information does the Loan Estimate NOT provide to buyers under the TRID-required disclosures law

Final closing costs Great! Lenders must provide the Loan Estimate within three days of receiving a borrower's application. Borrowers receive final closing cost information (on the Closing Disclosure) three days before closing.

Which of the following is the best example of investment leverage

Financing most of an investment and putting very little cash in Great! Leverage uses very little of one's own capital, instead using someone else's money to control a large asset.

Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency.

Guaranteed loans

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance

Her down payment of $50,000 isn't at least 20% of the purchase price.

What personal information about the borrower is included in the Uniform Residential Loan Application

Income

With a straight mortgage, what type of payments are made up until the end of the loan term

Interest

What information does the Loan Estimate provide to buyers under required disclosures law

Loan payment schedule

What attracts borrowers to adjustable rate mortgages

Lower initial interest rate

Which type of payment is made at the end of the term for a balloon mortgage

Lump sum

What is the borrower charged for all FHA loans

Mortgage insurance premium

For 25 years, Isadora loved being her own boss, but now she's getting tired of the day in, day out tedium of running her business. She's ready to retire and move to a tropical island. She decides to sell her entire business in one fell swoop: the property together with all the equipment and furnishings. What type of loan would the buyer need to obtain

Package

Which of the following factors carries the heaviest weight when calculating a credit score

Payment history

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults

Power of sale

What does PITI stand for

Principal, interest, taxes, insurance

Sophie only has 15% to put down on her new home. What might the lender require in order for Sophie to obtain conventional financing

Private mortgage insurance

What may the lender require if the borrower is unable to put at least 20% down on a conventional loan

Private mortgage insurance

The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called

Purchase money mortgage

What factors directly affect an adjustable rate mortgage

Rate, index, and margin

Which of the following is a significant drawback to an FHA loan as compared to conventional financing

Required mortgage insurance must remain in place for the life of the loan.

The CFPB promotes consumer protection in the credit market through a number of strategies, including ______.

Responding to and investigating consumer complaints regarding financial services

For farmers and others who live in rural communities, a ______ loan may be available. One benefit of these loans is the option for a longer payback period.

Rural development

Chris is in the process of purchasing a property with 20 acres of farmland in a rural area of the state. Assuming his income meets the criteria of the program, what type of loan may Chris find the most desirable

Rural development loan

A developer, Howard, has purchased land with the expectation of constructing an apartment building. He explains to his lender that he'll need a construction loan as well, so the mortgage they sign includes what kind of clause to allow the construction loan's lien position to take priority

Subordination

When would a lender require a mortgage insurance premium

The borrower has an FHA mortgage.

Which of the following statements is true of investment properties

They can be leveraged.

Which party to the loan approval process evaluates the loan application, the supporting documentation and data, and the property appraisal in order to make an approval recommendation

Underwriter

Manuel is selling his home to Selena. He has an existing loan that he'll continue to make payments on, and he's extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction

Wrap-around loan