Section 16, Unit 2: Loan Types and Payoffs Study

What 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.

Which of the following is a true statement about FHA financing?

An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.

Which of the following options describes a subordination agreement?

An agreement between two lien holders to modify the order of lien priority

home equity line of credit (HELOC):

An open line of credit based on the available equity in the borrower's home

Requires a formal arrangement with the lender to divide payments into smaller chunks:

Biweekly payments

Trustee executes deed of reconveyance:

Deed of trust

Is an informal method to make additional payments to the principal:

Extra principal payments

Conventional loans may be conforming or nonconforming, depending on whether they meet ______ guidelines.

Fannie Mae and Freddie Mac

Phyllis and Maury obtained a mortgage from Taylor Bank & Trust in 1998. In 2014, they obtained a second mortgage from Quail Loans. What's the loan with Taylor Bank & Trust considered?

First mortgage

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?

Her down payment of $50,000 isn't at least 20% of the purchase price.

A lump-sum loan that must be repaid by the homeowner:

Home Equity Loan

Used similarly to a credit card:

Home equity line of credit

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

Home equity loan

What's the purpose of a typical subordination agreement?

It allows a junior mortgage to move into first lien position.

Which type of support does the USDA Rural Development Program offer to its target audience of rural residents?

It offers direct loans, grants, and loan guarantees for housing and other rural needs, as well as advisor services to agricultural producers.

Mortgagee executes satisfaction of mortgage:

Mortgage

What is the borrower charged for all FHA loans?

Mortgage insurance premium

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

What may the lender require if the borrower is unable to put at least 20% down on a conventional loan?

Private mortgage insurance

Includes shorter time frames, higher monthly payments, and less total interest:

Reduced loan term

Whether borrowers use a formal (shorter-term or bi-weekly mortgage) or an informal (making periodic additional principal payments) payment plan, they can significantly reduce the total amount paid back to the lender by taking which of the following actions?

Reducing the principal balance on the loan as quickly as possible

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

Reverse annuity 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

As funds are drawn by the homeowner over time, the bank gains ownership of the property:

Reverse annuity mortgage

Jason bought a home in 2005 and obtained a mortgage from Townland Bank & Trust. In 2010, he obtained a home equity loan from Vanshield Bank. In 2014, he refinanced his mortgage through State Mortgage. Vanshield Bank has signed a subordination agreement. Match the lien to its description.

State Mortgage lien- First Vanshield Bank lien- Junior Townland Bank & Trust lien- Satisfied Vanshield Bank's lien would have been in the first spot had it not signed a subordination agreement. Since it did, this puts State Mortgage as the priority, even though the lien was recorded at a later date.

Janet bought a home in 1995 and obtained a mortgage from Taylor Bank & Trust. In 2010, she obtained another mortgage for the same property from Woodland Trust. Both mortgages are outstanding, and there is no subordination agreement in place. Which mortgage is the first and which is the junior?

Taylor Bank & Trust mortgage- First Mortgage Woodland Trust mortgage- Junior Mortgage

home equity conversion mortgage (HECM):

The lender makes payments to the homeowner for a specified period of time, and gains corresponding ownership

One significant difference between an equity loan and some HELOCs is whether the interest rate is:

fixed. While the rates on an equity loan are usually fixed, HELOC rates are often variable (ARMs).

Reverse Annuity Mortgage (RAM):

in which borrowers use the equity in their homes to stay in their homes. A major criterion of a ______ is that the lender makes payments to the homeowner for a specified period of time and gains corresponding ownership.

One way to reduce the amount of interest paid over the life of a loan is to reduce the:

loan amortization term.

Another way to reduce the total interest paid is to make payments:

payments biweekly instead of monthly, a payment arrangement that must be made through the lender.

A home equity loan is made based on:

the amount of equity the homeowners have in their home.

Seller Loan Payoff:

the seller's lender will issue a payoff statement that notes the unpaid principal, interest still due through the closing date, any fee for issuing a release deed to the seller, any seller credits for tax and insurance reserves held in escrow, and any prepayment penalty (which is becoming rare).