Unit 9 Terms

Quiz: Mutual Mortgage Insurance is paid for by

The buyer under an FHA loan.

Land contract

The land contract, also referred to as a contract for deed or installment sales contract, should not be confused with what we have referred to as the contract of sale between the parties. A land contract is a form of seller financing in which the buyer takes possession of property and makes payments on its purchase but does not receive legal title to the property for at least one year from the date of possession. The sales contract specifies the amount of the purchase price that must be paid before legal title is conveyed. A land contract is one alternative for a buyer who does not qualify for a regular mortgage loan.

Quiz: Which of the following requires a Notice of Value (NOV)?

The lender on a VA loan will request a determination of reasonable value from a panel of VA-recommended appraisers, who will provide a Notice of Value (NOV), formerly called a certificate of reasonable value., for the subject property. The NOV sets the maximum loan amount the VA will guarantee.

All of the following are similarities between VA-guaranteed and FHA-insured loans EXCEPT

VA generally does not require a down payment. FHA requires a down payment of at least 1.25 to 2.85 percent of the sales price or appraised value, whichever is less.

Don't confuse the secondary mortgage market with secondary financing, which is

a second (junior) lien on already-mortgaged property.

A land contract appeals to people who

don't want to deal with a bank or other institutional lender, or who may have difficulty qualifying for a loan.

A wraparound mortgage makes sense only when

interest rates are rising.

Quiz: The VA guarantees payment of specified loans up to a maximum amount. If the borrower defaults, the VA will

pay the lender's net loss up to the amount of the guarantee.

Lizumi built a small medical clinic on her own land. After 15 years, Lizumi sold the clinic. She still maintains her practice in the clinic building and plans to do so for many more years. Ray Washington is making monthly payments on the house in which he lives with his son. Ray is buying the house but has never had legal title. Debra Harold has held legal title to Blackacre for six months, since she took possession. She is making monthly payments of principal and interest to the former owner. Juan Aldana, a veteran, pays a lower-than-market rate of interest on his home loan, which he pays directly to the government agency that funded the loan.

sale-leaseback sales contract purchase money mortgage CalVet loan

Funds for CalVet loans come from

state bonds.

On a refinancing loan, the funding fee is

.5% in all cases.

Could the same individual be eligible for an FHA, a VA, and a CalVet loan? Mary Smith is eligible for a CalVet loan and would like to make the minimum down payment. What will be the maximum loan amount that she will be allowed? Is a borrower's down payment likely to be lower with an FHA-insured or a VA-guaranteed loan?

1 Yes, if the individual was a qualified California veteran. 2 Maximum loan amount would be $781,875. 3 The borrower's initial expenditure can be lowest with a VA-guaranteed loan, which need not involve a down payment, generally does not include discount points, and has a limit on closing costs.

A borrower with a credit score of less than XXX is ineligible for FHA-insured financing.

500

Purchase-money mortgage

A mortgage given as part of the buyer's consideration for the purchase of real property, and delivered at the same time that the real property is transferred as a part of the transaction. It is commonly a mortgage taken back by a seller from a purchaser in lieu of purchase money.

A method of property transfer in which the property owner sells the property to an investor or lender and, at the same time, retains possession of the property by leasing it back from the buyer is called a(n)

A sale-leaseback is a real estate financing technique in which a property owner sells the property and, at the same time leases it back from the buyer. Using this approach, a seller/lessee enjoys many benefits; retaining possession of the property while obtaining the full sales price and, in some cases, keeping the right to repurchase the property at the end of the lease. This frees capital that was frozen in equity.

A method of financing where the existing loan is left unchanged, but the buyer receives additional funds to make the purchase, and the lender of those new funds receives payment sufficient to cover both old and new loans is called a

A wraparound mortgage is a method of financing in which the new mortgage is placed in a secondary or subordinate position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount, without cashing out or disturbing the existence of the first mortgage. The entire loan combines two or more debts and is treated as a single obligation, and the wrap, or secondary, mortgagee pays the obligations of the first mortgage from the total payments received.

Quiz: The type of loan where the interest charged is adjusted by increases in monthly payment, outstanding principal balance, loan term, or a combination of the three, is called a(n)

An adjustable-rate mortgage (ARM) is a broad term for a loan (mortgage or deed of trust) with rates and terms that can change. FHA allows use of an ARM for owner-occupied residences of not more that four units.

Quiz: Which of the following generally DOES NOT require a down payment?

As long as the Notice of Value (NOV) does not exceed the amount of the VA loan guarantee, the VA does not require a down payment, although the lender may.

Quiz: The original mandate of Fannie Mae in the secondary market involved

Fannie Mae was originally organized to create a secondary market in mortgage loans. The original mandate of the agency involved FHA-insured and VA-guaranteed loans. Fannie Mae's authority has now been expanded to take in conventional mortgage loans as well.

Freddie Mac

Federal Home Loan Mortgage Corporation, commonly known as "Freddie Mac," is a federally chartered corporation established in 1970 for the purpose of purchasing mortgages in the secondary market. Freddie Mac functions with an independent board of directors but is subject to oversight by HUD.

Which of the following statements is TRUE about CalVet loans?

Loan application must be made before purchase under a CalVet loan. The veteran must meet ordinary standards of creditworthiness. CalVet loan terms are typically 30 years. CalVet loans may be prepaid at any time.

Why would a lender be interested in making a government-insured or government-guaranteed loan over a traditional conventional loan?

Lower risk

Quiz: All of the following are characteristics of FHA loans EXCEPT

The FHA does not guarantee loans, rather it insures loans on real property.

Quiz: The functions of Ginnie Mae include all of the following EXCEPT

The Government National Mortgage Association (Ginnie Mae) does not buy securities. Instead, Ginnie Mae guarantees securities issued by FHA-approved home mortgage lenders. Ginnie Mae securities are backed by FHA-insured and VA-guaranteed mortgages, as well as those guaranteed by Farmer Mac (the Farmers Home Administration).

The Real Property Sales Contract

The Real Property Sales Contract, also known as the Land Contract, is an agreement between two parties in which the seller (vendor) passes possession and equitable title of the property to the buyer (vendee) but retains title until the total or a substantial portion of the purchase price is paid. This type of contract usually does not require conveyance of title within one year. It is similar to the beneficiary/trustor relationship in that the buyer only has a possessory interest with equitable title and is making monthly installment payments over a period of time.