Chapter 3 - Real Estate Financing Principles

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Private Mortgage Insurance (PMI)

Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan.

Discount Points

The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate. The amount is equal to the difference between the principal balance on the note and the lesser amount which a purchaser of the note would pay the original lender for it under market conditions. A point equals one percent of the loan.

Secondary Mortgage Market

The buying and selling of existing deeds of trust and promissory notes.

Fannie Mae

The shortened name or the Federal National Mortgage Association (FNMA), a privately owned corporation that purchases FHA, VA, and conventional mortgages.

If an owner obtained a $100,000 loan on a $200,000 property, what LTV was provided by the lender?

50%

Mortgage Broker

A broker who arranges a mortgage loan between a lender and a borrower for a fee.

Real Estate Settlement Procedures Act (RESPA)

A federal law requiring the disclosure to borrowers of settlement (closing) procedures and costs by means of a pamphlet and forms prescribed by the United States Department of Housing and Urban Development.

Sale and Leaseback

A financial arrangement where at the time of sale the seller retains occupancy by concurrently agreeing to lease the property from the purchaser. The seller receives cash while the buyer is assured a tenant and a fixed return on buyer's investment.

VA Loan

A loan made to qualified veterans for the purchase of real property wherein the Department of Veteran's Affairs guarantees the lender payment of the mortgage.

Balloon Mortgage

A mortgage in which the scheduled payment will not amortize the loan over the mortgage term; therefore, for the debt to be fully satisfied, a final payment called a balloon payment, larger than the uniform payments, is required.

Term Mortgage

A mortgage that requires the mortgagor to pay interest only during the mortgage term, with the principal due at the end of the term.

Creditor

A person to whom a debt is owed.

Mortgage Banker

A person whose principal business in the originating, financing, closing, selling and servicing of loans secured by the real property for institutional lenders on a contractual basis.

PITI

Acronym denoting that a mortgage payment includes principal, interest, taxes, and insurance.

A mortgage securing a loan made by investors without governmental underwriting is referred to as a/an?

Conventional Loan

Subsidy Buydown

Funds provided usually by the builder or seller to temporarily reduce the borrower's monthly principal and interest payment.

A mortgage payment includes principal, interest, taxes, and:

Insurance

Negative Amortization

Occurs when monthly installment payments are insufficient to pay the interest accruing on the principal balance, so that the unpaid interest must be added to the principal due.

Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan is referred to as:

Private Mortgage Insurance (PMI)

Federal Reserve System

The federal banking system of the U.S. under the control of central board of governors involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.

Yield

The interest earned by a bank on the money it has loaned.

Discount Rate

The minimum interest rate set by the Federal Reserve for lending to other banks.

Truth-in-lending Act

The name given to the federal statues and regulations (Regulation Z) which are designed primarily to insure that prospective borrowers and purchasers on credit receive credit cost information before entering into a transaction.

Loan to Value Ratio

The relationship between the amount of a mortgage loan and the lender's opinion of the value of property pledges to secure payment of the loan.

Annual Percentage Rate

The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth-in-Lending Act.

Bond

Written notice of an obligation given by a corporation or government entity. A surety instrument.

Wrap around mortgage

A financing device whereby a lender assumes payments on existing trust deeds of a borrower and takes from the borrower a junior trust deed with a face value in an amount equal to the amount outstanding on the old trust deeds and the additional amount of money borrowed.

Home equity loan

A loan against the equity in a home.

Construction Loan

A loan made to finance the actual construction or improvement on land. Funds are usually dispersed in increments as the construction progresses.

Adjustable Rate Mortgage (ARM)

A mortgage loan which bears interest at a rate subject to change during the term of the loan, predetermined or otherwise.

Conventional Loan

A mortgage securing a loan made by investors without governmental underwriting, I.e., which is not FHA insured or VA guaranteed.

Freddie Mac

A nickname for the Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.

Ginnie Mae

A nickname for the Government National Mortgage Association (GNMA), a U.S. government agency that purchases FHA and VA mortgages.

Primary Mortgage Market

The activity of lenders making mortgage loans to individual borrowers.

Loan Origination Fee

The financing charge that a lender requires.

Amortization

The liquidation of a financial obligation on an installment basis; also, recovery over a period of cost or value.


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