unit 21 piggyback loans

For conventional loans in which the loan-to-value ratio is in excess of a certain percentage, lenders generally require private mortgage insurance. What's this percentage?

80%

What is another name for an installment sale contract?

A land contract

home equity loan

A loan in which the borrower's home equity is used as collateral Ex. Brenda took out a home equity loan to pay off her credit card debt. Now she had a home equity loan debt—but at least the interest rate was much lower.

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.

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

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

To avoid paying private mortgage insurance

reverse mortgage

Also known as a home equity conversion mortgage or a reverse annuity mortgage (RAM); allows homeowners to use their home equity to stay in their homes; the lender makes payments to the homeowner for a specified period of time and gains a security interest in the value of the home Ex. Thelma wanted to remain in her home but she was on a fixed income and needed more funds. She agreed to a reverse mortgage, in which a bank made monthly payments to her in return for gaining ownership of her home. Ok

home equity line of credit (HELOC)

An open line of credit based on the available equity in the borrower's home Ex. Dusty and Susan used funds from their HELOC in order to install a gourmet kitchen, complete with granite counters and two wall ovens.

Cheyenne is selling the family farm via an installment contract. What is one advantage of selling the farm this way?

Cheyenne will pay less in capital gains taxes by receiving the proceeds from the sale over time, rather than in a lump sum.

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

Equity

In which type of partnership does each mortgagee receive a share of the mortgage payment?

Partnership among mortgagees

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 participation agreement would a financier lower the interest on the mortgage in exchange for partial ownership of the project?

Partnership between mortgagees and mortgagors

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

Partnership between mortgagees and mortgagors

What type of partnership is a cooperative?

Partnership between mortgagors

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

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

The draw period varies.

home equity conversion mortgage (HECM)

The lender makes payments to the homeowner for a specified period of time, and gains corresponding ownership Ex. Thelma wanted to remain in her home, but she was on a fixed income and needed more funds. She agreed to a home equity conversion mortgage in which a bank made monthly payments to her in return for ownership of her home.

What's one reason a borrower would choose a split—or piggyback—loan option?

To avoid going over the conforming loan limit

reverse annuity mortgage

With a reverse mortgage, the lender makes payments to the homeowner for a specified period of time, and gains corresponding ownership. Ex. Thelma wanted to remain in her home, but she was on a fixed income and needed more funds. She agreed to a reverse mortgage in which a bank made monthly payments to her in return for ownership of her home.