Financing - Missed Questions
How many points will lower the rate of interest by one percent? CORRECT ANSWER: 8
CORRECT ANSWER: 8 RATIONALE: It takes 8 points to lower the rate of interest by one percent.
How would we see the assumption of a mortgage for $150,00 on a closing disclosure? CORRECT ANSWER: Debit to the seller, credit to the buyer
CORRECT ANSWER: Debit to the seller, credit to the buyer RATIONALE: The loan amount would come from the seller to the buyer.
In title theory states, what clause is unique to the mortgage? CORRECT ANSWER: defeasance
CORRECT ANSWER: defeasance RATIONALE: In title theory states, a defeasance clause is found in the mortgage. There must be language that cancels the mortgagee's right to the land title on the payment of the debt.
For a conventional loan, how much of a borrower's income can be used to service debt? CORRECT ANSWER: 36%
CORRECT ANSWER: 36% RATIONALE: The qualifying standard (set by the secondary market) states that 36% of the borrower's income can go to servicing debt.
The Real Estate Settlement Procedures Act (RESPA) is administered by the CORRECT ANSWER: Department of Housing and Urban Development
CORRECT ANSWER: Department of Housing and Urban Development RATIONALE: HUD administers RESPA rules and compliance. The Division of Real Estate regulates real estate professionals. ALTA regulates title companies. NAR promulgates a code of ethics.
Sally and George a married couple have elected to buy a home. Their calculated" PITI" is well within the qualifying Housing Ratio Percentage. What does "PITI" stand for ? CORRECT ANSWER: Principal, Interest, Taxes, Insurance
CORRECT ANSWER: Principal, Interest, Taxes, Insurance RATIONALE: Monthly mortgage obligation includes monthly mortgage payment, property taxes, and insurance. Monthly mortgage obligation is also known as PITI, which stands for principal, interest, taxes, and insurance.
What law requires lenders to limit the amount of funds that can be held in reserves? CORRECT ANSWER: RESPA
CORRECT ANSWER: RESPA RATIONALE: Although lenders are affected by and concerned with the Truth-in-Lending Act, Title VIII, and Regulation Z, RESPA sets limits concerning reserves.
What regulation under the Truth-in-Lending Act requires a lender to disclose credit costs? CORRECT ANSWER: Regulation Z
CORRECT ANSWER: Regulation Z RATIONALE: Regulation Z of the Truth-in-Lending Act does not set a limit on what lenders can charge for interest, but does require all charges to a buyer to be disclosed.
What financing method does NOT use an income ratio and a debt ratio for qualification? CORRECT ANSWER: VA
CORRECT ANSWER: VA RATIONALE: VA uses the residual income method in lieu of the housing expense ratio.
An owner of a property enters into a purchase money mortgage with a buyer whereby the buyer will make payments to the seller and the seller will continue making payments to the mortgagee. Which clause does the lender enforce when sending a notice to the seller that the loan is due and payable? CORRECT ANSWER: alienation
CORRECT ANSWER: alienation RATIONALE:The mortgage clause that allows the lender to declare the loan due and payable in the event of a transfer is the alienation clause. Hypothecation is the pledging of the property to be collateral for a debt. Acceleration is the result of borrower default. Defeasance is the part of the mortgage that says a lender must cancel any claim on the borrower's title.
Discount points on a mortgage are computed as a percentage of the CORRECT ANSWER: amount financed
CORRECT ANSWER: amount financed RATIONALE: Discount points represent the percentage by which the face amount of a mortgage loan is discounted or reduced when sold to an investor to make its interest rate yield competitive in the current money market. Each discount point equals 1% of the loan amount and is charged as prepaid interest at closing.
Under a deed of trust, the lender is known as the CORRECT ANSWER: beneficiary
CORRECT ANSWER: beneficiary RATIONALE: The trustor is a buyer, and the trustee is a neutral third party. The lender is the beneficiary. A vendor is the person who gives the vendee equitable title in a land contract.
A type of loan that covers a number of parcels of real estate and provides for the release of the lien on each parcel when certain payments are made on the loan is referred to as a _______ loan. CORRECT ANSWER: blanket
CORRECT ANSWER: blanket RATIONALE: A wraparound loan is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage. A purchase money mortgage is a note and deed of trust created at the time of purchase whereby the seller is the mortgagee. A reverse annuity mortgage enables homeowners who are 62 years old or older to borrow against the equity in their homes and receive periodic payments of that equity with no repayment due until the property is sold, the borrower moves for longer than 12 months, dies, defaults on the deed of trust, or commits fraud. A blanket mortgage covers more than one property.
How would a developer/builder typically finance a development? CORRECT ANSWER: blanket
CORRECT ANSWER: blanket RATIONALE: A wraparound mortgage is a second mortgage written to cover the first and second mortgages on one property. An interest-only mortgage is usually a very short-term loan with the payments going only to the interest on the loan. A blanket mortgage covers more than one property, with the development and its parcels released as they are sold. A fully amortized conventional loan covers one parcel only, with part of the payment going toward interest and part going toward principal.
The mortgagor is the CORRECT ANSWER: borrower
CORRECT ANSWER: borrower RATIONALE: The borrower is giving the mortgage contract to the lender, thus, the borrower is the mortgagor.
Mortgages are recorded in order to CORRECT ANSWER: create a valid lien
CORRECT ANSWER: create a valid lien RATIONALE: While the promissory note creates a debt, the mortgage is given to secure repayment of the debt; it becomes a lien against the property only when it is recorded.
The amount of money owed on a note or promise to pay is called CORRECT ANSWER: debt
CORRECT ANSWER: debt RATIONALE: Dedication is the transfer of real property by a private owner to a public agency. Covenants are expressed promises in a deed or contract. A deed is used to transfer legal title from grantor to grantee. The amount of money owed on a note or promise to pay is called debt.
Which instrument would be used by a trustor? CORRECT ANSWER: deed of trust
CORRECT ANSWER: deed of trust RATIONALE: A trustee deed is used by the trustee after default by the trustor. A deed of reconveyance is used by the trustee when the trustor pays back the debt. A mortgage is between a mortgagor and mortgagee. A deed of trust is between a trustor, a beneficiary, and a third party trustee. The trustor is the borrower, the beneficiary is the lender, and the third party is the trustee.
A borrower pays off his loan. However, the lender refuses to cancel the mortgage. What mortgage clause has the lender violated? CORRECT ANSWER: defeasance
CORRECT ANSWER: defeasance RATIONALE: A defeasance clause states that when the loan is paid, the mortgage is void. The bank's failure to cancel the mortgage of record is a violation of this clause. The habendum clause is the "to have and to hold" clause found in a deed. The conveyance clause states that the property is being conveyed in a deed, not a mortgage. The notarial clause is signed by the notary, stating the mortgage was signed freely and voluntarily by the borrower.
John is a successful bidder at a sheriff's foreclosure sale. At the sale, he receives a certificate of sale, but does not know what it means. John's lawyer explains that CORRECT ANSWER: he is entitled to a deed upon confirmation of sale by the court, if the land is not redeemed by the original owner during the redemption period
CORRECT ANSWER: he is entitled to a deed upon confirmation of sale by the court, if the land is not redeemed by the original owner during the redemption period RATIONALE: A certificate of sale is issued to a buyer at a judicial sale (foreclosure action), entitling the buyer to a confirmation of sale by the court if the land is not redeemed during the redemption period. The attorney's opinion of ownership is termed a certificate of title. A certificate of no defense is issued by a bank to state how much principal is still owed on a mortgage; it is not issued by an attorney, but is an "estoppel certificate" from the lender.
A mortgage that has not been recorded CORRECT ANSWER: is effective between the lender and the borrower only
CORRECT ANSWER: is effective between the lender and the borrower only RATIONALE: While the mortgage may not become a lien unless it is recorded, it is still effective between the lender and the borrower only. It would not be effective against the subsequent purchaser who had no knowledge of the unrecorded mortgage. A mortgagor would still be personally liable under the mortgage and promissory note.
The buyer and seller enter into a contract for deed. In many jurisdictions, this would most likely be a CORRECT ANSWER: land contract
CORRECT ANSWER: land contract RATIONALE: Under a land installment or land contract, a seller retains legal title while conveying equitable title to the vendee. A contract for deed is also known as a land contract.
The money to fund FHA loans is provided by CORRECT ANSWER: lending institutions
CORRECT ANSWER: lending institutions RATIONALE: Lending institutions provide the money for all loans. The FHA insures that a loan will be repaid to a lending institution, while the VA guarantees the fact that a loan will be repaid to a lending institution.
The Smiths are purchasing a completely furnished cottage on a lake. They have obtained a deed of trust loan to cover the price of the property, including all furnishings and appliances. This type of financing is called a(n) CORRECT ANSWER: package deed of trust
CORRECT ANSWER: package deed of trust RATIONALE: A package deed of trust or mortgage is a type of financing that allows the purchaser to finance personal property along with the purchase price of the home. A wraparound deed of trust or mortgage is an additional mortgage over the amount of the existing first mortgage without disturbing the first mortgage. A blanket deed of trust covers more than one parcel of real estate and provides for the release of the lien on each parcel as certain payments are made on the loan. Any loan that does not conform to Fannie Mae and Freddie Mac standards is an unconventional loan.
The Closing Statement, required by RESPA, must be used in what instance? CORRECT ANSWER: residential transactions financed by federally related mortgage loans
CORRECT ANSWER: residential transactions financed by federally related mortgage loans RATIONALE: RESPA applies to all federally-related residential mortgage loans except: 1. a loan on property of 25 acres or more; 2. a loan for business, commercial, or agricultural purposes; 3. a temporary construction loan; 4. a loan on vacant land; 5. assumptions without lender approval; 6. a conversion of a federally-related mortgage loan to different terms, if a new note is not required; and 7. transfer of a loan in the secondary market.
What type of note calls for interest payments during the term of the loan and principal due at the end of the loan? CORRECT ANSWER: straight term loan
CORRECT ANSWER: straight term loan RATIONALE: The monthly payments of an amortized loan include both principal and interest. In a straight term loan only interest is paid each month and a lump sum principal payment is due at the end. A wraparound loan combines two loans into one for an average interest rate. An installment loan allows for repayment in installments, not one lump sum.
A court order instructing an official (e.g., a sheriff) to sell property in order to pay a judgment is called CORRECT ANSWER: writ of execution
CORRECT ANSWER: writ of execution RATIONALE: Foreclosure is the proceeding that declares a mortgage void and forces the sale of property to satisfy the debt. The court order directing an official to seize and/or sell the property is called the writ of execution. An order of attachment would happen when the court needs to seize property owned by a debtor. A deficiency judgment is what the lender asks a court for when a sheriff sale does not yield enough to pay off the note.