Unit 2: Loan Types, Lender Criteria, and the Loan Application

Client Bette asked licensee Frank about a home equity line of credit versus home equity loan. Which of the following offers an brief overview of what a home equity line of credit is?

A borrower borrows against the equity in the house and pays back the amount withdrawn plus interest.

What does ARM stand for?

Adjustable rate mortgage

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

Brian is completing a residential loan application. On the application, he lists his assets. What are assets?

Amount on deposit at his bank

When a borrower is completing a loan application, items of value the borrower owns are listed in the ______ section.

Assets

Which of the following net worth examples may a lender view most favorably?

Assets exceed liabilities

Which of the following describes amortized debt?

Debt that's paid off by making periodic payments

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

Equity

Why are new condominiums an issue with FHA loans?

FHA requires 50% of the units to be under contract

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

Besides the appraisal, what's a common hurdle as transactions approach closing?

Home equity

Bindy received a loan based on the amount of equity she had in her house. She used this lump sum to fund her daughter's college education. What type of loan did she get?

Home equity

Part of the underwriting and loan approval process is verifying that borrowers have adequate ______.

Homeowners and flood insurance

Which type of insurance must a buyer obtain if a mortgage is involved?

Homeowners fire and hazard insurance

In the eyes of a lender, when financing a residence, what advantage does an investor have over owner-occupied borrowers?

Investors can use rental income to qualify.

When the property is financed, who is named as an additional insured entity on the homeowner's insurance policy?

Lender

When a borrower is completing a loan application, obligations owed by the borrower are listed in the ______ section.

Liabilities

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

Obligations a borrower owes

Bobby is completing a residential loan application. On the application, he lists his liabilities. What are liabilities?

Obligations the borrower owes

Your buyer client, Percy, wants to start searching for his dream house and knows he needs to obtain financing to accomplish that. What's his first step?

Obtain a pre-qualification letter.

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

Purchase money mortgage

What type of arrangement allows the buyer to retain title to the property but places a security interest in the property on behalf of the seller?

Purchase money mortgage

A loan that's offered based on a homeowner's equity in which funds are drawn over time and the bank gains corresponding property ownership is called a ______.

Reverse annuity mortgage

Monty retired 10 years ago and would like to see the world, but his retirement account won't support his desire to travel. Monty heard of a loan that would allow him to take advantage of the equity in his home by getting monthly payments from the bank by using his house as collateral. What is this type of loan called?

Reverse annuity mortgage (RAM) This is a reverse annuity mortgage, where the lender makes payments to the homeowner for a specified period of time and gains collateral ownership. The home is used as collateral and the borrower receives the loan funds.

With a land contract, who retains the title to the property?

Seller

Who is responsible for paying for homeowners insurance?

The buyer

Which of the following is a true statement about U.S. Department of Veterans Affairs loans?

The loan that's guaranteed will be based on either 100% of the sales price or 100% of the CRV, whichever is less.

Jacqueline found a ready, willing, and able buyer for her client's condo, with a sales price of $20,000 more than the asking price. However, the appraisal came in just under the asking price. Which number will the lender use to calculate the loan-to-value ratio?

The smaller number

Who guarantees VA loans?

U.S. Department of Veterans Affairs

Victor buys a property from Yolanda for $200,000. Using a land contract, Victor agrees to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title?

Yolanda