Ch 15 Real Estate Finance

What is the interest rate on an ARM tied to?

INDEX

subject to" a mortgage

If a grantee takes title to a property, that person is not personally liable to the lender for payment of the mortgage. The seller is still responsible for making the mortgage payments.

What kinds of limits are placed on the interest rate in an adjustable rate mortgage?

Interest rate caps limit the amount of interest the borrower can be charged. Periodic caps limit the amount the rate can change at any one time. Overall (or aggregate) caps limit the amount the interest can increase over the life of the loan.

Which mortgage clause requires a borrower to maintain the physical condition of the mortgaged property?

Preservation and maintenance of prevention

What does it mean if a person takes title to a property "subject to" the mortgage?

That person is not personally liable to the lender for payment of the mortgage. The seller is still responsible for making the mortgage payments.

Define a purchase money mortgage.

With a purchase money mortgage, the buyer borrows from the seller in addition to the lender. This is sometimes done when a buyer cannot qualify for a bank loan for the full amount; so the seller "takes back" a portion of the purchase price as a second mortgage.

There are basically two categories of loans available to buyers in the marketplace

conventional loans and government-backed loans.

FHA

does not build homes or loan money directly. They insure loans made by approved lending institutions, including qualified mortgage companies, savings and loan associations and commercial banks. FHA-insured loans protect lenders against any loss they would suffer from a borrower's default.

What type of account holds property insurance, taxes, and Mutual Mortgage Insurance in escrow?

impound account

reverse annuity mortgage

is one in which the lender is making payments to the borrower.

package mortgage

is one that includes all the personal property and appliances that are installed on the property.

mortgage assumption

is the act of acquiring title to a property that already has an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including the payments.

conventional mortgage

is the most common type of loan and is generally viewed as the most secure. Most conventional loans require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property's sale price. Conventional loans are typically uninsured. Most conventional loans have traditionally been designed as fixed-rate loans. The most common fixed-rate loans are 30-year mortgages, because the payment is stable and there is always the opportunity to pay the balance down or to refinance for a better rate at a later date.

blanket mortgage

loan covers more than one piece of property. Land developers commonly use blanket mortgages when they buy a plot of land and divide it into many separate lots.

purchase money mortgage

most commonly a technique in which the buyer borrows from the seller in addition to the lender.

In an effort to make it possible for veterans returning from World War II to purchase a home, the Veterans Administration offered the opportunity for veterans to purchase a home with -a 1 percent down payment. -a 3 percent down payment. -a 4 percent down payment. -no money down.

no money down

Veterans Administration (VA

offers the opportunity for veterans to purchase a home with no money down. In order to make this VA mortgage loan acceptable to lenders, the VA agreed to guarantee the top portion of the loan.

home equity loan

owners have the ability to borrow against the equity they have built up in their home.

Fixed-rate fully-amortized loans

provide a fixed interest rate for the life of the loan.

Typically, conventional loans -require lower down payments than government-backed loans require. -are less flexible than government-backed loans . have more forms than government-backed loans. -require higher down payments than government-backed loans require.

require higher down payments than government-backed loans require.

What do we call the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs?

right of redemption

When a mortgage is paid in full, the lender will issue a certificate called a

satisfaction of mortgage

buydown

the lump sum payment that is made to the lender at closing usually comes from a builder as an incentive to the buyer or from a family member trying to help out.

graduated payment mortgage (GPM)

the monthly payment for principal and interest gradually increases by a certain percentage each year for a certain number of years and then it levels off for the remaining term of the mortgage.

What was created in 1994 as a result of the Department of Agriculture Reorganization Act to meet housing and community development needs of rural America?

the rural housing service (RHS)

construction mortgages

to finance the construction of improvements to property, such as homes, apartments and office buildings

Rural Housing Service

various programs available to aid low-to-moderate-income rural residents to purchase, construct, repair, or relocate a dwelling and related facilities. Qualified homebuyers can get loans with minimal closing costs and no down payment.

Fred has an existing property mortgage, but seeks a second loan. What type of loan might help Fred?

wraparound loan

Mark gets a home loan and the lender will charge him 3 points at closing. If the loan is for $68,000, what will Mark be assessed in points? $680 $1,360 $2,040 $2,720

$2,040

Government-backed loans include those loans offered by

-The Federal Housing Administration (FHA) -The Department of Veterans Affairs (DVA) - sometimes simply referred to as VA -Rural Housing Service (RHS)

The loan origination fee on a VA loan cannot exceed -2 percent of the loan amount. -5 percent of the loan amount. -1 percent of the loan amount. -10 percent of the loan amount.

1 percent of the loan amount

What is a Certificate of Reasonable Value and what is it used for?

A Certificate of Reasonable Value (CRV) shows the value of a property in relation to its sales price. It is issued by an approved VA appraiser when a veteran is seeking a DVA loan.

Greg and Joyce purchased a home from the builder who offered to pay $5,000 at closing as an incentive to get them to buy. What kind of mortgage will they get?

A buydown mortgage.

What is a promissory note and what does it do?

A document that describes the amount of money borrowed, the terms under which it will be repaid, and any conditions that relate to either the borrowing of the money, or the consequences in event of default. This document establishes legal evidence of the debt incurred.

What is a mortgage?

A mortgage is a financing instrument that creates a lien against a property.

What kind of problem can result from a straight loan?

A straight loan is an interest-only loan. If the property doesn't appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.

What kind of insurance does FHA require borrowers to pay?

As of 2006, the borrower must pay two insurance premiums. The first is the "upfront" Mortgage Insurance Premium (MIP), which is a percentage of the loan amount. The borrower can pay this one-time premium at closing or the charge could be financed with the loan. The second premium, called Mutual Mortgage Insurance (MMI), is a monthly premium that is paid with the monthly principal, interest, taxes and insurance payment. MMI premiums may be dropped when the remaining loan balance is 80 percent loan-to-value ratio or less.

What is the clause that requires the borrower to pay off the entire mortgage debt when the property is sold?

Due-on-sale or alienation clause.

FHA and VA loans differ from conventional loans in what important way?

FHA and VA do not loan funds directly. FHA insures loans and VA guarantees loans, but the loans themselves are made by approved, qualified lenders.

What does federal law say about the termination of private mortgage insurance?

Federal law requires that any loans originated after July 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.

List two advantages of conventional loans over government-backed loans. (See other correct answers on page 23.)

Processing a conventional loan usually takes less time. Loan approval from a conventional lender can take 30 days or less, while approval on a government-backed loan seldom, if ever, can be done in less than 30 days. There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.

Several types of repayment plans exist. The most common are

Straight (Interest-only) - Monthly payments are allocated only to interest. Amortized - A borrower makes a periodic (usually monthly) payment of principal plus interest. Balloon payment - A loan that has one large final payment due when the loan matures. Adjustable-rate - Interest rates change periodically, usually every one, three or five years

Which of the following is NOT an FHA loan requirement?

The maximum purchase price of the property cannot exceed $250,000.

What is a release clause and in what type of mortgage would you find this clause?

This clause, found in a blanket mortgage, allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan. The lender will issue the partial release for the one lot, with the provision that the mortgage will continue to cover the remaining lots.

Which of the following does not meet the criteria for a VA loan? -To make a down payment on a motor home -To refinance an existing home loan -To buy a manufactured home -To refinance a manufactured home loan in order to acquire a lot

To make a down payment on a motor home

Describe a reverse annuity mortgage.

With this type of mortgage, the lender makes payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell.

shared equity mortgage

a form of participation mortgage in which the lender shares in the appreciation of a mortgaged property if and when the property sells.

bridge loan

a short-term loan that covers the period between the end of one loan and the beginning of another.

Pledged Account Mortgage (PAM)

a type of graduated payment mortgage under which the owner/borrower contributes a sum of money into an account that is pledged to the lender.

wraparound mortgage

allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan.

open-end loan

an expandable loan which gives a borrower a limit up to which he or she may borrow.

Typically, the interest rate on an ARM is based in part on

an index

What is another term used to describe a promissory note?

bond