Section 9: Loan Types, Terms, and Issues in Texas

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity position

Lauren obtained a loan that's insured and that only required a down payment of 3.5%. Which of these is most likely the type of loan Lauren has?

FHA

200% rule

When exchanging more than one property, the combined fair market value of the properties can't be more than 200% of the value of the relinquished property.

Partnership Among Mortgagors

Involves more than one mortgagor as owner, sharing responsibility for payment of a single mortgage Designed to finance a multi-family dwelling Often called a "cooperative" -Cooperative

Which type of participation agreement involves more than one mortgagee as owner of the finance instrument in which each receives an equal share of the mortgage payment?

Partnership among mortgagees

In which type of partnership do participants have shared responsibility for a single mortgage?

Partnership between mortgagors

Which of the following statements are true about adjustable rate mortgages?

-ARM interest rates can fluctuate with the national economy. -Caps apply to adjustments. -Often, an ARM will have a below-market rate for the first year of the loan. -The mortgage documents specify the adjustment period for each ARM.

Commercial loans

-Blanket mortgage -Package mortgage

Short-Term Loans

-Bridge loan (swing loan) -Construction mortgage

VA Loans

-Can be obtained for 0% down payment

Owner financed loans

-Lease w option to buy -purchase money mortgage (PMM) -Wrap around mortgage

Which four of these are cost factors when considering refinancing a home loan?

-New closing costs -Starting over with a new loan -Application fee -New appraisal

Purchase-Money Mortgage

A PMM is a loan given to the buyer by the seller. It's often used as a form of financing for the down payment, and in that case is likely a junior loan second to the first mortgage from a primary lender.

Recently retired Admiral Bongo and his wife, Lucy, contact you. They want you to help them purchase their dream house now that he's retired, but one that has the necessary accommodations for the admiral's disability. They also confide in you that they don't have a lot of money saved up for a down payment. Which type of financing may work best for them?

A VA loan, which requires no down payment.

Which of the following is true about a home equity line of credit?

A borrower can use the funds as needed, repay them, and borrow them again.

Most adjustable rate mortgages have a feature that allows borrowers to _________ to a fixed-rate during a specific period of the mortgage.

Convert

Interest-only loans are a form of ______ buyer financing.

Creative

Barb is considering a refinance. She wants to stick with a conventional loan. Why might she be wary of an introductory rate?

After an initial low rate, her payments may increase beyond the level of affordability.

Alex has a loan where the payments start out mostly paying the interest and, over time, an ever-increasing percentage goes to principal. What type of loan does he have?

Amortized loan

Inflated appraisals

An appraiser secretly works with a borrower and provides a misleading appraisal report to the lender.

Home Equity Loan

Based on the amount of equity the homeowners have in their home. Loan funds, which are received in one lump sum, are frequently used for home renovations, to fund a college education, to pay off credit card debt, or for other major purchases and expenses. -a type of junior financing, which means they're subordinate to the first mortgage, and higher risk means higher interest rates. The amount received is limited to the combined loan-to-value (CLTV) ratio of the first mortgage plus the equity loan (most often this is 90% to 95%). -A lump-sum loan that must be repaid by the homeowner

Amortized

Debt is paid off by making periodic payments consisting of interest and principal

Home Ownership and Equity Protection Act (HOEPA)

Effective date: 1994 (updated January 10, 2014) Amendment to TILA Applies to certain types of loans that use the borrower's primary residence as collateral, such as refinances and home equity loans, and revolving creditDoes not apply to loans for investment properties, commercial properties, first mortgages, or reverse mortgages Requires full disclosure of key information to the consumer Restricts certain loan terms Restricts fees Requires pre-loan counseling for consumers

Real Estate Settlement Procedures Act (RESPA)

Effective date: December 22, 1974, with additional rollouts of this sweeping legislation occurring over time. Applies to mortgage loans and settlement services (e.g., real estate licensees, appraisers, title companies) Requires certain disclosures: -Loan Estimate -Closing Disclosure -Initial escrow statement -Annual escrow statement Buyer may choose their own title insurance company Provisions for borrowers who are victims of over-charging

Truth in Lending Act (TILA)

Effective date: June 29, 1968 Applies to most types of loans and revolving credit Regulates advertising of credit services Requires full disclosure of key information to the consumer, including annual percentage rate (APR)

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

Equity

What did Kacie learn about predatory lending?

From her visit with Mike, Kacie learned that not all lenders are equal. She learned that predatory lenders will often use incentives to entice borrowers, such as a super-low introductory interest rate, but that after the introductory period is over, that rate could go quite high. Anything greater than 5% above the current market rate can be expected with these kind of lenders. Kacie understood that she may be able to get a loan, but because of her lower credit rating, her interest rate may be between 1 and 5% higher than the current market rate.

Adjustable rate

Interest rate fluctuates based on the economic index to which it's tied

Growing equity

Interest rate remains the same, but monthly payments increase over time according to a set schedule

Which of the following characteristics applies to a partnership between mortgagors?

It Involves more than one mortgagor as owner, sharing responsibility for payment of a single mortgage.

Terminating Private Mortgage Insurance

Most lenders require that borrowers who put less than 20% down on a conventional mortgage loan purchase private mortgage insurance. This insurance doesn't run for the life of the loan. Borrowers may request termination when the LTV reaches 80%. PMI should automatically terminate when the principal balance is scheduled to reach 78% of the original property value or when borrowers reach the midpoint of the loan's amortization. For example, if the borrowers have a 30-year mortgage, PMI should terminate at the beginning of year 16.

A refinance is a new loan, so the following items come into play:

New application fee New title insurance New appraisal New loan origination fee New closing costs New term! Refinancing is starting over from day one on mortgage payments

A refinance is a ______.

New loan

What are the main benefits to veterans of the VA-guaranteed loan program?

No down payment, no mortgage insurance, and no prepayment penalty

Title scam

Seller misrepresents himself as the "free and clear" owner of a property

Steve the Borrower

Steve just landed his first career job after graduating from college. He's had his eye on a two-bedroom bungalow listed at $325,000, and because Steve's real estate professional shared with him that there are several interested parties, he's decided to offer the full asking price, even though he only has $26,000 saved as a down payment. Steve's banker informed him he has been approved for a conventional loan, but since he will have a 92% loan, he'll also have to carry PMI. The banker explained to Steve that, although he has terrific credit, the lender will want some additional protection in case something should happen and Steve defaults on his loan.

Samuel and Yoshi have worked at the same firm for a few months and get along well. Samuel mentions he has a credit score in the low 800s. Yoshi, who's just starting out, persuades Samuel to sign for a loan to help Yoshi buy a property, since his credit isn't good enough. Yoshi promises to make the mortgage payments, but two months after the deal closes, Yoshi moves across the country. Samuel's now stuck with a $400,000 mortgage. What type of scheme is this?

Straw buyer

What's the purpose of Private Mortgage Insurance?

To protect the lender in case of borrower default when the borrower has put down less than 20%

Specific criteria that vary by lender apply to equity loans and HELOCs. In general, here are a few:

The draw period is generally 10 to 20 years. The maximum loan-to-value ratio can be as high as 90 to 95%, and in many cases may be as low as 80%. Closing costs may apply. An appraisal is often required. No interest is paid until funds are drawn on the loan.

What's true about the draw period on a home equity line of credit?

The draw period varies

Which of these best describes a home equity loan?

The funds are often used for home renovations or to fund a college education.

Which of the following is a reason a seller might consider selling his property through an installment contract rather than a traditional sale?

The seller may pay less in capital gains taxes if he receives the proceeds from the sale over time rather than in a lump sum.

Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have?

They should have a loan-to-value ratio of 80% or less. Primary mortgage insurance may kick in when the loan-to-value ratio exceeds 80%; that is, the borrower is borrowing more than 80% of the property's value. To be sure they can avoid paying PMI, Sophia and Antonio need to put at least 20% down.

Borrowers who refinance and use equity to pay off credit card debt should be aware that ______.

They're exchanging short-term debt for long-term debt

What's one reason a borrower may choose a piggyback (or split) loan?

To avoid paying private mortgage insurance

Refinancing an existing home mortgage seems like a good idea in some cases:

To get a better interest rate To cash out some equity To shorten the mortgage term (from 30 years to 15, for example) To switch to a different type of loan (ARM to fixed rate, for example)

Home Equity Line of Credit (HELOC)

Uses the equity homeowners have in their property. However, because of how it's set up (as a line of credit), homeowners use this as an open-end account. In this way, a HELOC is similar to the revolving credit of a credit card from which the homeowner can take advances, repay money, and even borrow money again. -Used similarly to a credit card

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

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

home equity

For tax years 2018 to 2025, a borrower can write off the interest on a home equity loan only if _______.

The funds are used to buy, build, or improve the home that secures the loan

When would an investor who is involved in a 1031 exchange consider entering into a 1031 reverse exchange?

The investor closes on the replacement property before selling the original property.

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.

Predatory lenders can make refinancing look good, when it's really not.

"Teaser" interest rates can entice borrowers with super-low rates for a set period, then they skyrocket. Cash-out options may seem appealing to borrowers, but will strip the equity they've built.

Sandra retired from a career in the Navy and is ready to buy her first home, a small bungalow in a quiet neighborhood, for $169,900. Her military service gives her the benefit of Veterans Affairs (VA) loan. What's her required down payment?

$0

Calvin purchased a house for $220,000, financing $200,000 using a 30-year conventional mortgage at 4% interest. His monthly payment is $955, including both principal and interest. The annual property taxes are $1,400 and the combined annual insurance premium is $900. What's Calvin's PITI payment each month?

$1,146.67

Sophia's annual property taxes are $1,295, and her annual insurance premium is $942. How much of her monthly mortgage payment goes toward taxes and insurance?

$186.42

A homeowner's monthly mortgage payment is $580.23. If the taxes are $83.33 and the insurance is $41.66, how much of the monthly payment is principal plus interest?

$455.24

Buster's total monthly mortgage payment is $939.86. His taxes are $1,800 annually, and his insurance is $900 annually. How much of Buster's total payment is applied to the principal plus interest?

$714.86 1800+900/12=225 939.86-225=

Steph and Bob are buying their first house. Their principal plus interest will be $643.66 every month. Taxes on the property are $1,400 annually, and combined insurance is $800 annually. How much will their total monthly mortgage payment be?

$826.99

Property Taxes

-Homeowners can itemize this deduction on Schedule A for a primary residence and on Schedule E for a rental property. -The deduction applies to any type of real property you own, including your personal residence, a vacation home, investment property, vacant land, time share, etc.

Which of the following are characteristics of RESPA?

-Includes provisions for buyers who are victims of over-charging -Applies to mortgage loans and settlement services

Here are some ways that unscrupulous lenders take advantage of consumers:

-Inflating appraisal values in order to lend more than a property is worth -Charging excessive fees—sometimes for services that don't even exist -Instructing borrowers to give false information about their income and expenses -Charging higher interest rates for consumers of different races and nationalities -Charging in excess of 5% over the current market rate for interest on subprime mortgages

Home Acquisition Financing

-Interest can be deducted from a mortgage used to buy, build, or improve a main home or even a second home, with the loan amount secured by the property itself. -The loan associated with this type of deduction must only be for the purchase and improvement of the property. -Under TCJA, married homeowners who purchase property in years 2018 through 2025 and file jointly may deduct interest on up to $750,000 in housing debt, whereas those who file separately may deduct interest on up to $375,000 in debt.

What factors affect the Adjustable Rate Mortgage?

-Lender -Initial rate -Margin -Index

Protection tips

-Take a homeownership education course before purchasing a home -Interview several real estate professionals before choosing which to hire -Read everything carefully

With a fully amortized loan, which of the statements are true about PITI?

-The amount applied toward principal increases over time. -The insurance portion of a monthly mortgage payment may include insurance for the mortgage and the property.

Wrap around mortgage

-The buyer's mortgage is wrapped around the seller's existing mortgage -The seller makes their existing payment, the buyer makes payments to the seller

Which three of the following statements apply to a home equity line of credit?

-The draw period varies. -An appraisal is often required. -No interest is paid by the borrower until funds are drawn on the loan.

In the residential mortgage market, charging borrowers more than ______ over market rate for interest is considered a predatory lending practice.

5%

Private mortgage insurance may be required on conventional loans where the loan-to-value ratio is in excess of ______%.

80

Which of the following ratios are among those acceptable in a piggyback financing arrangement?

80/10/10

Jose is an investor who found and closed on an investment property, then decided to sell a property other than the one originally marked for the exchange. What is this an example of?

A reverse tax-deferred exchange

Why Choose an ARM?

An ARM sometimes offers an interest rate that is lower than a fixed-rate mortgage for a period of time. It's possible for an adjustment period to have many possible ranges, such as three or 10 years apart. When the ARM adjusts, it could go up or down

95% rule

An investor can exchange multiple properties as long as the properties total at least 95% of the value of the relinquished property.

What is the three-property rule as it relates to tax-deferred exchanges?

An investor can identify up to three replacement properties and not encounter a restriction regarding fair market value as long as debt load requirement is met.

Three-property rule

An investor can identify up to three replacement properties with no fair market value restriction, provided they meet the debt load requirement.

Principal

Balance on the loan- the actual amount owned As the interest portion of the mortgage payment decreases, more of the payment is applied to principal

Bob's ARM

Bob opted for an adjustable rate mortgage, or an ARM when he first purchased his home a few years ago. When it came to the first adjustment period, Bob's rate changed from the fixed, introductory rate to an adjustable rate. Bob made a call to his lender to make sure he understood what was happening. Bob's lender reminded him of the fixed / adjustable rate note he completed as part of the original loan paperwork, which allowed his lender to change Bob's loan from a fixed rate to an adjustable rate for the remainder of his loan payments.

Reverse Annuity Mortgage (RAM)

Borrowers use the equity in their homes to stay in their homes. A major criterion of a RAM is that the lender makes payments to the homeowner for a specified period of time and gains corresponding ownership. -As funds are drawn by the homeowner over time, the bank gains ownership of the property

Britney is selling her bungalow on an installment contract. The buyer made payments dutifully for five years, but has not made any payments for more than a year. Which of the following is true?

Britney can keep all of the proceeds received and repossess the property.

In a 1031 tax-deferred exchange, what role does the qualified intermediary serve?

Coordinates the exchange

John sells his single-family home and purchases a new home for his family to reside in. Marcus owns a single-family home, but rents it out to a co-worker while he is on an extended two-year military tour overseas. Donald sells an apartment complex and purchases a new complex in a different part of the city. Which of these consumers is most likely to take advantage of a 1031 tax-deferred exchange?

Donald

Which of the following could an investor who sells an apartment house buy using a 1031 exchange?

Duplex, office building, or warehouse

Goldie and Kurt are looking at purchasing their first home. Their credit history is a little shaky and they don't have enough money saved to put down 20%. What type of loan seems most appropriate?

FHA

Commander Halfback retires after 25 years of service in the Coast Guard. He is looking to buy a home. What type of loan should he use?

FHA, VA, or conventional

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

Fannie Mae

With what type of loan do the principal and interest payments remain the same for the life of the loan?

Fixed-rate

Which of the following statements related to 1031 tax-deferred exchanges is true?

Foreign investors may participate

A loan where the payments gradually adjust (usually upward) based on a pre-determined schedule and amount is known as a _________________ loan.

Graduated payment

Sam has a mortgage that has a static interest rate, but monthly payments that increase over time according to a set schedule. What type of mortgage does Sam have?

Growing equity His interest remains the same, but his monthly payments increase over time according to a set schedule.

Interest

Interest is the "fee" paid back to the lender for the use of their money. The interest portion of the payment generally decreases over the life of the mortgages

Which of the following is a true statement about deducting interest on mortgages taken out in tax years between 2018 and 2025?

Interest on the first $750,000 of mortgage debt is deductible for married couples filing jointly or $375,000 for married couples filing separately.

Partnership Among Mortgagees

Involves more than one mortgagee as owner of the finance instrument Designed to finance large real estate projects Each mortgagee puts up a share of the money and receives a commensurate portion of the mortgage payments -REIT -REMIC -REMT

An ARM usually offers an initial interest rate that's ______ a fixed rate mortgage for a period of time.

Lower than

When an adjustable rate mortgage (ARM) makes its initial adjustment, it does so to its fully indexed rate. What makes up the fully indexed rate?

Margin plus index

Norman owns a home. He received an unsolicited call from a company offering to greatly reduce Norman's loan payments, for a hefty upfront fee. All they need to get started is the bank account information for the account Norman currently uses to make his payments. What might be going on here?

Mortgage compassion scam

What are the two primary types of deductions that a homeowner is permitted to take on their primary residence?

Mortgage interest Property taxes

The ______ is where the borrower finds details about how, when, and by how much the interest rate will change in an adjustable rate mortgage (ARM).

Mortgage note

Foreclosure rescue scam

Offers from an unrelated party to "save" a property

What type of partnership is a cooperative?

Partnership between mortgagors

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?

Piggy back loan

What does the lump sum payment at the end of an interest-only mortgage loan consist of?

Principal only On an interest-only loan, when the loan term is over, the borrower has to pay the remainder of the money owed, which is the entire principal.

Which of the following lending regulations apply to mortgage loans and settlement services?

Real Estate Settlement Procedures Act

RAM is a type of equity financing. What does RAM stand for?

Reverse annuity mortgage

Reverse Mortgage

Reverse mortgage loans allow older homeowners, typically 62 and older, to convert home equity into available funds. The home itself is pledged as collateral for the loan and the borrower typically receives the loan funds in one of three ways: Regular monthly advance payments to the borrower, until the approved balance has been achieved A lump-sum payment at the beginning of the loan A line of credit for the approved balance that may be drawn upon as the borrower desires

What type of investment strategy is most similar to a 1031 tax-deferred exchange?

Rolling over funds from one IRA into another

What is the 95% rule as it relates to tax-deferred exchanges?

The total value of the property (or properties) being exchanged is at least 95% of the value of the property being sold.

Insurance

This may include mortgage, homeowner's and/or flood insurance

Taxes

This portion includes property taxes, which is the cost of public services divided by the value of property for the area

What's one reason a homeowner would want to refinance their mortgage?

To get a lower interest rate

The purpose of PMI is _______________.

To protect the lender in case of borrower default when the borrower has put down less than 20%

Which of the following are characteristics of the Home Ownership and Equity Protection Act (HOEPA)?

-Restricts fees -Requires pre-loan counseling for consumers

What is another name for an installment sale contract?

A land contract

Construction Mortgage Characteristics

-Loan amount based on value of appraisal and construction plans -Converted to permanent long-term financing at the close of the project -Temporary financing for construction projects

Illegal property flipping

The property is purchased, falsely appraised at a higher value, and then quickly sold.

Tax-Deferred Exchanges

-A tax-deferred exchange for properties used for investment or business purposes is also referred to as a "like-kind" or 1031 exchange. -The 1031 tax exchange is used to defer paying taxes when there is an almost immediate repurchase of what's called a "like-kind" property. -Income-producing residential, commercial, and industrial property can qualify for an exchange. Hotels and motels also can qualify. -The property has to be bought and sold for investment or business purposes. -Investors can defer capital gains using the 1031 exchange for real estate exchanges only. Personal property, such as equipment, cannot be tax-deferred. -Leased property can also qualify for an exchange as long as the lease is for 30 years or more.

Partnership Between Mortgagees and Mortgagors

Involves a mortgagee as both lender and part owner of the project Designed to provide additional security on major commercial real estate projects Ownership is not equal and can range from 5% to more than 50% Makes the lender a partner in the project as well as the financier -In exchange for partial ownership in the project, a financier may offer a lower interest rate. -This kind of agreement is used for large commercial real estate projects.

Conventional Loans

-May require PMI for down payments less than 20 to 25% -No federal agency participation in insuring or guaranteeing the loan -don't have to conform to Fannie Mae or Freddie Mac guidelines unless they're destined for sale on the secondary market. -Originators of conventional loans usually package and sell groups of loans on the secondary mortgage market. -Conventional loans can vary in length and terms. -Originators of conventional loans usually don't service the loans once they've been sold.

Who Needs PITI?

-PITI is made up of principal, interest, taxes, and insurance. -As the interest portion of the mortgage payment decreases, more of the payment goes toward principal. -The insurance portion of the payment may include property and mortgage insurance.

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to identify a new property?

45

What is an installment sale?

A contractual agreement in which the buyer pays the seller the purchase price over time in a series of installments until the buyer has paid the contract in full, and the seller turns over the deed to the buyer. -With an installment sale, the seller retains legal title to the property, while the buyer has equitable title. An installment sale allows the seller to avoid paying federal capital gains tax all at once, but the buyer doesn't have ownership of the property until it's completely paid off.

Gina's Borrower Status

Gina has decided she wants to buy a house. According to her mortgage broker, Gina has a FICO score of 630, but he says despite Gina's credit score, he can still help her obtain a loan. He explains it will be a subprime loan and it will cost her 1 to 5% over the current market rate for interest. Gina will have to decide if the cost is worth it for her, or if she'd rather wait until her score is just a bit higher.

Mortgage compassion scam

Offers to "refinance" a loan to reduce payment amounts or the term of the loan

Straight

Only interest is paid until the end of the loan term, when the principal is repaid in full

What attracts someone to the potential ups and downs of an adjustable rate mortgage (ARM)?

Sometimes, an ARM offers an interest rate that is—for a few years—lower than that of a fixed-rate loan. However, as soon as that initial time period has passed, the ARM will adjust to its fully indexed rate (the margin plus the index). The mortgage note will contain the applicable details regarding how, when, and by how much the interest rate will change.

Straw buyers

The borrower's identity is concealed behind someone else's name and credit history.

Let's start with the information from the attorney general's site. The site lists several parties to the transaction and presumptions related to each party. Based on what you've learned there, identify whether the following statements are true

-Consumers should assume a real estate agent represents the seller, unless they retained the agent themselves. -Consumers should be leery of anyone requiring the use of a specific appraiser or inspector. If a consumer asks for recommendations, provide 3-4 names you know provide good service, but make no claims, and leave the decision up to the consumer. -Consumers should not trust a seller or agent who advises them not to use a title company. -Consumers should avoid mortgage brokers that charge huge up-front fees.

PMI Termination Scenarios

-Meredith closed on her home with a 20-year conventional mortgage in December 2015. She can terminate the PMI in 2025 because that's the midpoint of her amortization schedule, but she must request the termination in writing from her lender. -Yvonne's a licensed real estate agent and has been making large payments on her conventional mortgage loan principal every time she earns a commission. She'll be able to request PMI termination when her LTV reaches 80%. -Eileen borrowed $250,000 on a 30-year conventional mortgage loan. Based on her amortization schedule, her LTV will reach 78% next year. Market values have dropped considerably, though, and Eileen's actual LTV is still at about 83%. Eileen's PMI should still terminate automatically next year.

Which four of these activities are the responsibility of a qualified intermediary (QI)?

-Place proceeds of the first sale with escrow, with instructions. -Handle transactional paperwork with escrow. -Provide transfer documents for the exchange. -Submit a 1099 to the taxpayer and to the IRS for any gross proceeds paid out.

Four components of a monthly mortgage payment: PITI

-Principal -Interest -Taxes -Insurance

Recognizing Mortgage Schemes

-Property flipping -Inflated appraisals -Silent second -Nominee loans/straw buyers -Equity skimming -False identity -Undisclosed buyer rebate

Which of the following are regulations that have been enacted to prevent predatory lending?

-Real Estate Settlement Procedures Act (RESPA) -Truth in Lending Act (TILA) -Home Ownership and Equity Protection Act (HOEPA)

FHA Loans

-Requires mortgage insurance premium (MIP) -Allows down payments as low as 3.5% and will insure the gap in the down payment for the lender

Which of these statements are red flags or warning signs that a real estate professional should investigate further to avoid becoming unwittingly involved in mortgage fraud?

-Significant sales price adjustments that are not supported by comparable market data -Missing or inconsistent information in the purchase and sales agreement -Buyer has a very limited credit history

Piggyback financing is a legal way to avoid having to purchase private mortgage insurance. Which of the following statements are true about this type of financing and the concepts that make it work?

-The first mortgage in a piggyback loan must be 80% or less of the property's value. -Conventional loans require PMI if the loan-to-value ratio is over 80%. -The second mortgage amount in a piggyback loan is the difference between the remaining balance owed and the amount of the down payment.

This type of loan is temporary in nature, usually 90 days, and provides funds in addition to an existing loan until permanent financing can be obtained.

It is a bridge loan. This type of loan is often used for buyers who have not sold their current property yet but want to purchase a new property (best when the prior property is already under contract).

The Fixed/Adjustable Rate Note

-The note converts the interest rate in an ARM from fixed to adjustable. -The lender will specify on the form how much the fixed interest rate will be.

Fannie and Freddie

-They're publicly traded. -They buy mortgages, package them, and resell them as mortgage-backed securities. -They act as a link between banks, the government, and Wall Street.

Which of the following statements are true about the PMI Act of 1998?

-This act is also called the Homeowner's Protection Act. -It requires cancellation of PMI when the borrower's equity reaches 22% of the property's original loan value.

It's possible for the adjustment period on an adjustable rate mortgage (ARM) to have ranges, such as three or ____ years apart.

10

In calculating PITI for a mortgage payment, the annual taxes and insurance are divided by ____ , and are added to the monthly principal and interest payment to make up the total monthly payment.

12

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

Identify and Exchange Time Periods for 1031 Exchanges

-Any cash an investor receives from the proceeds of a sale is called boot, and it is taxable. -The 45-day identification period does include weekends. -An investor can revoke and submit a new property for exchange as long as a formal identification is made to the qualified intermediary within the 45-day identification period. -If an investor fails to identify a property within 45 days, or if the deal falls through and the investor isn't able to identify a new property within the 45-day window, the investor's chance to complete a 1031 exchange for that property is over. -An investor must complete the 1031 exchange by the earlier of either midnight of the 180th calendar day following the close of the relinquished property, or the due date of the investor's federal income tax return for the tax year in which the relinquished property was sold, including any extensions. -If investors decide they do not want to complete their 1031 exchange, they have to wait until the end of the exchange period to get their cash.

John wants to do a 1031 tax exchange. He just sold his property. How many days does he have to close on a new property?

180

Which of the following statements are true about the lease with option to buy form of creative buyer financing?

-Buyers and sellers negotiate a sale price that's written into the lease agreement. -Sellers will often apply a portion of the rent toward the agreed-upon purchase price.