REAL ESTATE FINANCE STUDY CARDS

Bob just closed on his investment property. He's already identified a replacement property that he'll be exchanging into by using a 1031 tax-deferred exchange. How many days does he have to close on his replacement property?

180 HINT: Investors who want to use the 1031 tax-deferred exchange must identify the property within 45 days and close within 180 days.

Which of the following is the credit score range?

300 and 850 HINT: A credit score is a number ranging between 300 and 850; the lower the number, the higher the risk.

What is a moratorium (or forbearance)?

A lender temporarily suspends a borrower's payments. HINT: A temporary suspension of payments is called a moratorium, or forbearance. It allows the borrowers an opportunity to avoid default by giving them a chance to catch up on payments.

Which of these statements about a buydown is true?

A permanent buydown will cost more than a temporary buydown. HINT: A buydown is essentially a prepayment of interest, so a permanent buydown is more costly than a temporary buydown.

You and your financial system will communicate through ______.

A recordkeeping system HINT: The recordkeeping system you use will help you keep a close eye on your finances.

Suzy has lost her job and wasn't able to make last month's mortgage payment. How is her lender most likely to help Suzy stay in her home?

Agreeing to modify her loan HINT: Lenders may agree to a loan modification for borrowers who are having trouble keeping up with their mortgage payments.

Esmerelda makes regular monthly payments on her loan. In addition to paying interest, she's slowly paying down the principal of the loan. With each payment she makes, more will go towards the principal and less to interest. What type of loan does she have?

Amortized HINT: Amortized mortgages are paid off in periodic regular payments of interest and principal. Over time, the portion of the payment made toward principal increases as the portion used to pay interest decreases.

Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?

Andrea can cure the default and reinstate the loan. HINT: The deed of trust gives Andrea the right to cure the default and reinstate the loan, but no rights of redemption after the sale.

When completing a loan application, applicants must list any items of value they own. What's another term for these items?

Assets HINT: Assets are items of value. They may include cash, amounts on deposit, investments, automobiles, and even real estate.

Philomena and Barbara are the buyer and seller in a real estate transaction. By when must the closing disclosure be provided to them?

At least three days prior to closing

Why are real estate licensees encouraged to use a personal financial plan that allocates a percentage of income to expenses and savings goals?

Because it accommodates a variable income better than a traditional financial plan doesWhen income is variable, a traditional plan is more likely to leave some expenses, and particularly savings, unpaid, while allocating a percentage of income pays everything each time income is earned.

Who is responsible for paying the loan-related closing costs in a financed real estate transaction?

Buyer HINT: Loan-related closing costs are incurred by the buyer before, during, and after closing. These include fees for things like loan origination, loan application, underwriting, appraisal, credit report, title search, and title insurance.

Which of the following is NOT part of the Other Considerations section of the Loan Estimate?

Comparisons HINT: The Comparisons section allows the borrower to make comparisons between loans with different interest rates and isn't related to the proposed loan estimate.

Victor is a buyer reviewing the Closing Disclosure he received from his lender. On the last page of the form, he sees a signature line. By signing the form, Victor has ______.

Confirmed receipt of the Closing Disclosure HINT: The signature line on the Closing Disclosure, if present, merely confirms receipt of the form.

Which of the following items directly increases the supply of real estate properties on the market?

Conversion of properties HINT: The number of total properties on the market is directly influenced by the conversion of existing commercial properties to residential properties.

As interest rates rise, what is the number of buyers in the market likely to do?

Decrease HINT: High interest rates make borrowing more expensive, diminishing the number of buyers in the market.

In an amortized loan, the interest portion of the mortgage payment generally ______ over the life of the loan.

Decreases HINT: The interest portion of the payment generally decreases over the life of the mortgage loan as the principal portion increases.

A homeowner may go into default on a home loan due to ______.

Failure to meet loan terms and conditions HINT: Failure to meet loan terms and conditions—which can include making timely payments on taxes, insurance, and the loan, as well as keeping the property from falling into disrepair—could all be considered default.

Which of the following is an example of a government-sponsored enterprise (GSE)?

Fannie Mae HINT: Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are examples of GSEs.

Which of the following entities generally acts in the secondary market?

Fannie Mae HINT: Traditional secondary market players are national institutions, such as Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Bank.

Credit flows to rural communities largely through the actions of ______.

Farmer Mac HINT: Farmer Mac focuses on providing credit to rural communities.

Which of the following entities buys loans primarily through thrifts?

Freddie Mac HINT: Freddie Mac buys conventional loans, mainly from small banks or thrifts.

Which of these HUD programs allows mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market?

Ginnie Mae HINT: A Ginnie Mae guarantee makes it easier for mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market.

The Federal Housing Administration's loan program is designed for borrowers who ______.

Have a minimal down payment and less than stellar credit HINT: The FHA insures lenders against borrower default, allowing the lender to set lower qualifying standards, accept higher-risk borrowers, and require lower down payments.

Scott has plenty of money saved and is ready to make a down payment on his $14 million dream home. One problem: Scott doesn't want to end up with a jumbo loan because he goes over the conforming loan limit. What option does Scott have?

He can take out a piggyback loan.

Veronica is an independent contractor, so in addition to setting aside money for an emergency fund in case there is a lapse in her income, she knows that she must save money to pay for ______.

Her income taxes

A loan made based on the amount of equity available in an person's home or property is called a ______.

Home equity loan HINT: This is a home equity loan. In most cases, the funds can be used for anything the borrower chooses and interest is tax deductible.

Ginnie Mae only guarantees mortgage-backed securities that contain loans ______.

Insured or guaranteed by U.S. government agencies HINT: Ginnie Mae doesn't guarantee just any MBS. It only guarantees MBSs that contain loans insured or guaranteed by a U.S. government agency.

What's a key feature of the Federal Housing Administration's loan program?

Insures lenders against loss from borrower default HINT: The FHA mortgage insurance program insures lenders against loss from borrower default.

Kevin is having an appraisal performed on a piece of property he's interested in buying. He's especially interested in hearing about the estimated rate of return the property could pull. What type of value is he interested in?

Investment value HINT: An investment value can tell a consumer about the expected rate of return for a property.

What type of value may consumers be interested in if they are looking for the potential rate of return?

Investment value HINT: An investment value relates to the expected rate of return on investment in a property.

Why might self-employed individuals who want to obtain financing for a home purchase, choose not to write off valid expenses on their tax statements?

It increases demonstrated income. HINT: One strategy to help self-employed individuals show better income is deferring tax write-offs leading up to loan application.

What are the effects on a property if it includes an encumbrance?

It restricts the owner's use or decreases the value. HINT: An encumbrance restricts use and the value may decrease.

Which of the following describes a "buy and hold" investment strategy?

It's a more conservative investment method than a fix and flip. HINT: Buy and hold is a more conservative, long-term investment method than wholesaling or fix and flip, but it is an active form of investing.

Armitage Bank is placing the Kellermans in default for failure to pay their homeowners insurance. The lender is concerned about property damage and ______.

Judgment liens

What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?

Late charge HINT: Late charges that will apply if the borrower doesn't pay on time are a standard part of the promissory note.

Which professionals are most utilized by the buyer prior to closing?

Lenders, title companies, appraisers, and home inspectors HINT: The lenders, title companies, appraisers, and home inspectors are all part of completing the transaction.

HMDA requires lenders to collect, maintain, and report data on which of the following?

Lending practices HINT: HMDA requires lenders to report data on their lending practices to assist with identifying discriminatory lending practices. HMDA data does not include specific property addresses, borrower Social Security numbers, or borrower names.

Which of the following is a passive type of real estate investment?

Limited partnership HINT: Limited partners are passive investors who invest funds, but don't get involved in the day-to-day activities related to the business.

The Federal Housing Finance Agency established percentage targets and ______ for loans made to low- to moderate-income borrowers.

Limits for conforming loans HINT: The Federal Housing Finance Agency sets limits for conforming loans.

The interest rate on an FHA Section 251 loan is adjusted based on ______.

Market indices approved by the FHA

Two examples of loan adjustments or modifications are recasting and ______.

Moratorium (or forbearance) HINT: Moratorium (temporary suspension of loan payments) and recasting (reconfigured loan balance) are potential options for borrowers who are behind on their mortgage payments.

Which act temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income?

Mortgage Forgiveness Debt Relief Act of 2007 HINT; The Mortgage Forgiveness Debt Relief Act of 2007 temporarily removed the requirement that taxpayers whose homes were sold as a result of a foreclosure had to include the loan write-off amount as taxable income. This benefit expired in 2014.

How can liens, such as those created by non-payment of federal income tax, result in mortgage default?

New liens can threaten the lender's position as primary lienholder. Default can occur for this reason. HINT: Additional liens on property can threaten the lender's position as primary lienholder on the property. Lenders want to remain the primary lienholder to be paid first in the event of a foreclosure sale.

You want to make $50,000 in a year from your real estate business. You know that about 15% of the leads you get turn into clients. You earn an average of $8,000 on every closed transaction. Is this everything you need to know to use a funnel to determine how many leads you need to generate to get your $50,000?

No, you also need to know the percentage of clients who turn into closed transactions.

Which of the following statements best describes a foreclosure by advertisement?

Notification of pending auction, public auction, notice of eviction

Borrowers must list their liabilities when completing a residential loan application. What are liabilities?

Obligations a borrower owes HINT: Liabilities are the borrower's obligations or debts owed. This may include loans, credit card balances, and alimony.

Which HUD program is responsible for protecting individuals against discrimination in housing based membership in a protected class?

Office of Fair Housing and Equal Opportunity

Which of the following may a lender request to verify an applicant's work history and earning information?

PAYSTUB

In which type of partnership is the lender a partner as well as the financier?

Partnership between mortgagees and mortgagors HINT: In a partnership between mortgagees and mortgagors the financier become a partner in the project. This often happens in exchange for a lower interest rate or other concession to the mortgagor.

Which of these are established by the Federal Housing Finance Agency?

Percentage targets for loans made to low- to moderate-income borrowers HINT: The Federal Housing Finance Agency sets targets for loans made to borrowers with low- to moderate-income.

When using a personal finance system with multiple bank accounts, which account should be electronically linked to all of your other accounts?

Personal checking HINT: The personal checking account receives transfers from the business account, and money flows to each savings account from the personal account, so it must be linked electronically to all of your bank accounts.

During which phase of the real estate cycle is local government most directly involved?

Planning HINT: Prior to beginning new construction, local government sets the plan for construction and development.

What does RESPA stand for?

Real Estate Settlement Procedures Act

In which phase of the real estate market would you expect to see unemployment increasing, prices falling, and foreclosures on the rise?

Recession HINT: During the recession phase, fewer buyers and increased unemployment can lead to an increase in foreclosures.

The ______ account is a recommended component of a personal financial plan that should be started as early as possible and contributed to throughout your working life.

Retirement HINT: A retirement account needs time to build, so starting early and contributing consistently is the best way to enjoy a financially comfortable retirement.

Which appraisal approach will likely weigh most heavily during the reconciliation step when appraising a single-family residence?

Sales comparison

The Addams family has an FHA-insured loan. The family's mortgage payment has a fixed interest rate, but after the first five years, the rate will adjust annually. Which FHA loan insurance program are they using?

Section 251 HINT: The FHA insures adjustable rate mortgages under Section 251.

Which of these items did the Federal Housing Administration (FHA) implement to stabilize and improve the mortgage market?

Set construction standards for homes purchased with FHA loans HINT: The FHA requires specific construction standards for buildings purchased with an FHA loan, which reduces lender and insurer risk.

RESPA prohibits kickbacks between which parties?

Settlement service providers HINT: Settlement providers aren't allowed to receive kickbacks according to RESPA.

Which of the following would the FDIC most likely not insure?

Stock certificates HINT: The FDIC insures deposits such as checking/savings accounts, money market accounts, and certificates of deposit. The FDIC does not insure mutual funds, securities, stocks, bonds, insurance, or annuity products.

Unit of account, medium of exchange, and what other factor define money?

Store of value HINT: Money can be defined as a store of value, unit of account, and medium of exchange.

What act was introduced to combat discriminatory lending practices against individuals and businesses in low- and moderate-income neighborhoods?

The Community Reinvestment Act HINT: The Community Reinvestment Act (CRA) was introduced to combat discriminatory lending practices against individuals and business in these neighborhoods. It requires that lenders post their lending policies, inform customers of their rights under the CRA, and prepare an annual statement showing their compliance.

What's another name for the Homeowner's Protection Act?

The PMI Act of 1998 HINT: The PMI Act of 1998 is also called the Homeowner's Protection Act.

What is one of the main differences between the U.S. Mint and the Bureau of Engraving and Printing?

The U.S. Mint produces coins, and the Bureau of Engraving and Printing produces paper notes. HINT: The U.S. Mint makes coins; the Bureau of Engraving and Printing prints paper notes.

A multibillion dollar online retail distributor has decided to set up operations in Ashland. The population of Ashland is 22,000. What is the potential impact to the area?

The community is potentially put at risk. HINT: When there is one business that drives the economy, if the company operation moves or closes the community can be put at risk.

Appraiser Victor is determining the insured value of a property. What is he evaluating?

The cost to replace or rebuild a property

Which was NOT part of the Fed's program quantitative easing?

The funds available to consumers froze. HINT: More money became available to consumers for lending and spending.

The FHA has helped to significantly improve the mortgage market through ______.

The introduction of the long-term amortized loan HINT: The FHA introduced the long-term amortized loan, which significantly improved the ability of prospective homeowners to purchase a home.

In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______.

The property in an exchange must be like-kind. HINT: Like-kind is a requirement. The replacement property has to come with the same or greater debt load for the investor, and the basis of the original property carries over to the new property. It must also be a non-owner-occupied (investment) property.

Margot reviewed page three of her Closing Disclosure to see the amounts she'll pay and receive, and the total cash amount. She located this information under the "Summaries of Transaction" in the "Seller's Transaction" table, which is completed by ______.

The settlement agent HINT: The settlement agent completes the "Seller's Transaction" table.

Janie's a lender at Super National Bank. She's working with the Downings to perform a title search. Why did she also request a property survey?

To identify any changes to the legal description of the property HINT: A survey will uncover any changes to the property—such as encroachments, improvements, zoning, or setbacks—to validate a property's legal description.

What program allowed the U.S. Treasury to spend hundreds of billions of dollars to stabilize our financial system, boost credit markets, help families avoid foreclosure, and promote economic growth?

Troubled Asset Relief Program

The Federal Housing Administration is part of the ______.

U.S. Department of Housing and Urban Development HINT: The FHA has been part of HUD since 1965.

How long does a homeowner have to pay off outstanding liens against his property?

Until the foreclosure sale is held HINT: The homeowner has until the foreclosure sale is held to pay off outstanding liens against the property.

When shopping for health insurance, which of the following criteria can you likely discount as less important than the others?

Using the same carrier you had before HINT: When shopping for insurance, you should compare cost, coverage limits, deductibles, and more. Your former carrier will have plans that may be more or less appropriate.

With this alternative to foreclosure, a borrower hands over the property to the lender rather than face foreclosure proceedings.

Voluntary conveyance of deed HINT: In lieu of foreclosure, some lenders will allow borrowers to voluntarily convey the property to the lender. This is also called a deed in lieu of foreclosure.

When do capital gains tax, recaptured depreciation, and transfer taxes apply?

When investment properties are sold HINT: Three taxes take effect when an investment property is sold. The transfer tax is assessed at the time of the sale. Capital gains tax and recaptured depreciation will apply on the investor's income tax return.

Does the VA make direct loans?

Yes, for Native Americans on trust lands HINT: The VA makes direct loans to Native Americans on trust land and to supplement a grant to get a specially adapted home for eligible veterans who have permanent and total service-connected disabilities.

Nadia uses a VA loan to buy a house for $125,000. She wants to buy the neighboring property, an empty lot, so she can improve the house using the extra land. The lot is for sale for $135,000. Can she use a VA loan for this purchase?

Yes, she should have partial entitlement left. HINT: Nadia's first loan was not large enough to use even the entire basic entitlement, so she has sufficient entitlement left to qualify for another VA loan, as long as she can afford the payments.

Which of the following actions might be considered a red flag signaling mortgage fraud?

Your buyer requests a specific appraiser.

In a deed of trust, who is the trustee?

neutral third party HINT; The trustee is the one who holds the trust on behalf of the beneficiary (the lender).

Ken and Sue are purchasing a home but are short on the down payment required by their lender. Sue's mother offered to give them cash to help with the down payment. How much can Sue's mother give under current tax laws?

$30,000 HINT: Sue's mother can give $15,000 to Ken and another $15,000 to Sue. This is a tax-free gift from Sue's mother. Sue's mother and father could each gift $15,000 to both Ken and Sue, for a total of $60,000.

Which of the following types of properties may be eligible for purchase by Freddie Mac?

A triplex purchased as a primary residence HINT: Eligible property types include a primary residence that is a single-family home, condo, or manufactured home or properties with up to four units, single-unit second homes, and residential investment properties.

In 2008, as a response to the 2007 financial crisis, the Federal Housing Finance Agency began acting as conservator over which institutions?

Fannie Mae and Freddie Mac HINT: Fannie Mae and Freddie Mac were placed under the conservatorship of the Federal Housing Finance Agency following the 2007 financial crisis.

Martha and Ben are selling their home to Linda and her three kids. They've purchased title insurance for obtaining insurance of good title. Whom does the title insurance protect?

Linda and her kids HINT: Title insurance is required when financing is being obtained. The owner's policy protects the buyer from defects in the title.

Conforming loan limits vary based on two factors: the number of units being purchased with the property and what else?

Location

Hugh works as a loan officer at a bank. Because of the ______, he must be registered with the Nationwide Mortgage Licensing System.

SAFE Act HINT: The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 sets a minimum standard for licensing and registering mortgage loan originators through the Nationwide Mortgage Licensing System Registry.

Fran has a decent income, but she feels that it's mostly spent on unimportant things, leaving her with nothing at the end of the month. Why is identifying her personal values a good first step to help her manage her money?

So she can plan her spending to support the things that are most important to her HINT: Financial planning needs to be personalized in a way that allows your money to support your values.

Which of the following would be the most common form of business structure for a new licensee?

Sole proprietor HINT: Legal business structures an independent contractor may choose are sole proprietorship, partnership (general or limited), corporation (C corp or S corp), and LLC. Licensees typically start as sole proprietors; many form LLCs to protect personal assets.

A major component of the Housing and Economic Recovery Act was the HOPE for Homeowners program, which aimed to ______ by helping subprime borrowers refinance into more affordable fixed-rate mortgages.

Stabilize the housing market HINT: The HOPE for Homeowners program aimed to stabilize the housing market with strategies to prevent foreclosure and encourage lenders to refinance subprime borrowers.

What is one way that the FHA has helped to stabilize and improve the mortgage market?

By requiring appraisers to be state licensed or certified to evaluate property for FHA-insured loans HINT: The FHA established a requirement for appraisers to be state licensed or certified in order to appraise property for an FHA loan, creating a higher standard for appraisals that reduces the risk for borrowers and lenders.

Iris is planning to purchase her first home. Based on what you know about the nature of real estate finance in our country, which approach is she most likely to use?

Obtaining a loan to purchase the home HINT: Credit makes our world go round. Many consumers make large purchases, such as homes or automobiles, by leveraging credit (in the form of loans). They take ownership of the item immediately and pay it off over time.

What's the term for a group of loans packaged together and then sold to investors on the secondary market?

Mortgage-backed security HINT: An MBS is a type of investment or security that groups mortgages bought from primary lenders into pools. Investors buy shares of the security.

Why is it a good idea for real estate licensees to carry auto insurance?

Most states require it and it's recommended for all real estate licensees. HINT: It's always a good idea to have auto insurance if you drive, and most states require it. Also, you should make sure your coverage allows for you to drive clients around in your own car.

A lender wants to ensure that the legal description of a property is accurate, and determine whether any improvements, encroachments, or lot size changes have been made. What may the lender request to determine this?

Survey HINT: Some transactions require a property survey to uncover any changes in the legal description.

Krista is obtaining a loan to buy a home. Her loan agreement consists of one document called a note and one called a deed of trust. What's the role of the note?

States who owes money to whom, how much, and how it will be repaid HINT: The role of the note is to describe the promise to repay, the parties to the loan, the amount, and the schedule for repayment. It must refer to the deed of trust as well.

Which type of loan is meant specifically for improvements, such as additions or renovations?

Home improvement loan HINT: Home improvement loans are meant specifically for improvements to the property, such as additions or renovations. Loans, such as home equity loans, can be used for purposes other than home improvements.

What HMDA data is available about loans?

Mortgage applications, loan amount, type of loan, and loan purpose HINT: HMDA data includes mortgage applications, loan amount, type of loan, loan purpose, and sometimes reason for denial.

Dean was very motivated to sell his house and was excited when he got an offer. When he realized the buyer couldn't qualify for the purchase price, he decided to accept a second mortgage without mentioning it to his lender and reduce the sales price accordingly. Which type of mortgage fraud scheme is this an example of?

Silent second HINT: By accepting a second mortgage without notifying the original lender, Dean is committing mortgage fraud. This particular scheme is known as a silent second.