Residential & Commercial Financing
The purchase price of the home Leroy is buying is $300,000. He's putting $100,000 down and is paying three discount points. How much will this cost?
$6,000 Each point is 1% of the loan value. The amount of Leroy's loan is $200,000, so each point is $2,000 ($200,000 × 1%, or .01). He's paying three points, for a total of $6,000 ($2,000 × 3).
Which of the following is the credit score range?
300 and 850
Borrowers obtaining a VA loan aren't required to have a down payment. However, they are required to pay _______.
A funding fee First-time homebuyers pay a funding fee of 2.15% (2.4% for those in the reserves or National Guard) if they don't have a down payment. This funding fee increases to 3.3% for second-time buyers.
What is a convertible mortgage?
A mortgage that allows the borrower to change a mortgage from an adjustable rate to a fixed rate
Janice is extremely excited to have purchased her first home. She was able to lock in her monthly payment at a very low rate for the first five years. In year six, Janice's payments will become significantly larger based on the going market rates. What type of loan does Janice have?
Adjustable rate mortgage Janice has a 5/1 adjustable rate mortgage (ARM) where the payment and interest rate is locked for the first five years, then the interest rate is adjusted based on the behavior of the economic index it's associated with and changes each year.
The ______ clause is also known as a due-on-sale clause.
Alienation The alienation clause allows the lender to make the loan due if the borrower sells or otherwise transfers the property.
Alberto wants to sell his house to his cousin, who's willing to assume his FHA loan. What clause in Alberto's mortgage requires him to obtain the lender's permission to do this?
Alienation clause The alienation clause requires the property owner to obtain lender permission for a buyer to assume the loan, or risk having the loan accelerated.
_______ is a standardized measure for interest rates and other costs of the loan.
Annual percentage rate Regulation Z requires lenders to use a standardized measure for interest rates, which includes costs for obtaining the loan or the APR.
Which of the following is true about the Federal Housing Administration's qualifying standards for a mortgage loan?
Are somewhat less stringent than standards for conventional loans
Which loan is a type of gap financing that is used temporarily until the consumer can obtain permanent financing?
Bridge loan A bridge loan (also known as a swing loan) is a temporary (usually 90-day) loan that provides funds in addition to an existing loan until permanent financing can be obtained. It is often used for buyers who have not yet sold their prior property.
Sam has a mortgage payment that includes his property taxes and property insurance. What type of mortgage does Sam have?
Budget
After switching careers, Alice just graduated from culinary school and is looking to purchase a house. Until she gets her feet wet with her new job, she knows the cost of living with her mortgage is going to be tight. Which mortgage might help her manage her expenses each month?
Budget Budget mortgages help borrowers "budget" their expenses since the interest, principal, taxes, and insurance are all included in the monthly payment.
Which of the following is an action borrowers take to temporarily lower the interest rate on their mortgage loan?
Buydown A buydown is when buyers voluntarily pay points to temporarily bring interest rates down. For example, a 3-2-1 buydown would reduce the interest rate by 3% the first year, 2% the second year, and 1% the third year.
Which party to the loan approval process is responsible for completing a loan application and supplying supporting documentation?
Buyer Prospective buyers complete a loan application and submit it to the lender, along with additional documentation if they need to obtain financing to purchase a property.
The Equal Credit Opportunity Act is regulated by the ______.
Consumer Financial Protection Bureau
The Equal Credit Opportunity Act is regulated by the ______.
Consumer Financial Protection Bureau The ECOA is regulated by the Consumer Financial Protection Bureau and is designed to prevent lending discrimination.
In an amortized mortgage, the monthly payment is the same each month. The part used to pay the principal increases each month, while the amount going toward interest ______.
Decreases Over time, the portion of the monthly payment used to repay principal increases as the portion used to pay interest decreases. Total principal and interest payments remain the same, and the loan payment remains relatively stable.
Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay an MIP. What type of loan does Lydia have?
FHA Based on the minimum down payment amount of 3.5% and the fact that she's paying MIP, Lydia has an FHA loan.
Which entity services rural development loans?
FSA
Which of the following is the best example of investment leverage?
Financing most of an investment and putting very little cash in Leverage uses very little of one's own capital, instead using someone else's money to control a large asset.
Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency.
Guaranteed loans The USDA Farm Service Agency offers guaranteed loans to agricultural lenders.
What's a key feature of the Federal Housing Administration's loan program?
Insures lenders against loss from borrower default
With a straight mortgage, what type of payments are made up until the end of the loan term?
Interest A straight mortgage is one where interest-only payments are made until the end of the loan term, when the full principal becomes due.
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 Late charges that will apply if the borrower doesn't pay on time are a standard part of the promissory note.
What information does the Loan Estimate provide to buyers under required disclosures law?
Loan payment schedule Lenders provide the Loan Estimate within three days of receiving a borrower's application. Borrowers receive final closing cost information (on the Closing Disclosure) three days before closing.
What attracts borrowers to adjustable rate mortgages?
Lower initial interest rate Some consumers are attracted to ARMs because of their lower interest rate for an initial period of one to several years.
What is the borrower charged for all FHA loans?
Mortgage insurance premium Similar to private mortgage insurance, MIP covers the insurance provided by the FHA for FHA loans.
Which of the following factors carries the heaviest weight when calculating a credit score?
Payment history
Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?
Power of sale The power of sale clause is standard in a deed of trust and allows the non-judicial foreclosure process to be used in case of default.
The ______ clause allows the borrower to pre-pay principal on the loan at any time without penalty.
Pre-payment Pre-payment clauses are standard in government loans.
What does PITI stand for?
Principal, interest, taxes, insurance PITI is an acronym for the components of the monthly mortgage payment: principal, interest, taxes, and insurance. These are generally bundled together in a mortgage payment.
Sophie only has 15% to put down on her new home. What might the lender require in order for Sophie to obtain conventional financing?
Private mortgage insurance Because Sophie's LTV ratio will be greater than 80%, most lenders will require private mortgage insurance to cover the lender's interests, though there are exceptions. PMI covers the gap between required down payment (e.g., 20%) and actual down payment.
What information about the property is included in the Uniform Residential Loan Application?
Property value The loan and property information section includes information such as property address, number of units, loan purpose, and property value.
The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called?
Purchase money mortgage A purchase money mortgage is the term for seller financing that's typically used to bridge the gap between the home's list price and the institutional loan, though it can also be used to finance the entire purchase price.
What factors directly affect an adjustable rate mortgage?
Rate, index, and margin Rate adjustments are based on index rates, such as London Interbank Offered Rate (LIBOR), from which lenders determine their margins and the rate that they charge customers at each adjustment.
Which clause in the deed of trust is the equivalent of the defeasance clause in the mortgage?
Reconveyance The reconveyance clause and the defeasance clause stipulate that the borrower receives full title to the property when the debt has been repaid.
The CFPB promotes consumer protection in the credit market through a number of strategies, including ______.
Responding to and investigating consumer complaints regarding financial services
Which of the following is a true statement about U.S. Department of Veterans Affairs loans?
The VA will guarantee a loan based on the sales price or the certificate of reasonable value (CRV). When granted, the loan guarantee amount is limited by either the CRV or the sales price, whichever is lower.
When would a lender require a mortgage insurance premium?
The borrower has an FHA mortgage. FHA loans require this insurance in order to cover the losses the FHA incurs if it has to pay the lender due to buyer default.
What is the purpose of the Truth in Lending Act?
To better educate consumers about the cost of credit or obtaining a loan TILA seeks to ensure that consumers are well-informed about the costs and requirements of obtaining a loan or credit.
The ______ can offer direct loans to farmers and ranchers. The loans are funded by congressional appropriation.
USDA Farm Service Agency Direct loans are available to farmers and ranchers through the USDA Farm Service Agency, funded by congressional appropriation.
Which party to the loan approval process evaluates the loan application, the supporting documentation and data, and the property appraisal in order to make an approval recommendation?
Underwriter Underwriters evaluate the application packet and property appraisal. If the appraisal aligns with the loan amount and the documentation indicates the borrower can repay the loan, they'll probably recommend approval.
Which of the following best describes a home equity line of credit?
Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again. A HELOC is similar to a home equity loan because the borrower uses the home's equity to secure a credit line. A HELOC isn't a lump-sum loan; it's a line of credit that continues as the borrower makes regular payments.
