Chp 20 Financing the Real Estate Transaction

the penalty per each day that the violation of an administrative order enforcing Regulation Z continues is

$10,000/day

if a property has an appraised value of $200k, secured by an $180k loan, the LTV equals

$180/$200 = 90%

ideally, lenders prefer a down payment of at least

20%

By law, private mortgage insurance must be terminated when the equity in the home reaches

22% of the purchase price

A loan characterized by a fluctuating interest rate, based on an objective economic indicator

Adjustable Rate Mortgage (ARM)

the ratio of the debt to the sale price or appraised value. the greater the borrower's stake in the collateral, the lower the lender's risk

Loan to Value (LTV) ratio

What law allows borrowers to rescind certain loan transactions by notifying the lender within three days?

truth in lending act

the process of analyzing the extent of risk a lender will assume in connection with a mortgage loan

underwriting

this act refers to the responsibility of financial institutions to help meet their communities' needs for low- and moderate-income housing

Community Reinvestment Act

refers to a loan that insured by an agency. FHA approved lending institutions make these. the FHA Insurance provide security to the lender, in addt'n to the real estate

FHA insured loans (Federal Housing Administration)

This federal law requires that each of the three major credit bureaus to provide a free credit report every 12 months upon request.

Fair and Accurate Credit Transactions Act (FACTA)

also known as a rapid-payoff mortgage, uses a fixed interest rate, but payments of principal increase according to an index or a schedule

Growing Equity Mortgage (GEM)

home owners can borrow against the appraised value of their already purchased homes

Home Equity Loans

the buyer purchases an insurance policy that provides the lender with funds in the event that the borrower defaults on the loan

Private Mortgage Insurance (PMI)

created when the seller agrees to finance all or part of the purchase price and consists of a first of junior lien depending on whether prior mortgage liens exist.

Purchase money mortgages (PMM)

Under this act, a consumer must be fully informed of all finance charges and the true interest rate before a transaction is completed

Regulation Z

allows people 62 years or older to borrow money against the equity that have built in their home.

Reverse annuity mortgage (RAM)

used to finance large commercial or industrial properties. the land and building, usually used by the seller for business purposes, are sold to an investor. the RE is then leased back by the investor to the seller.

Sale and Leaseback

What assists the lender in determining that the collateral is sufficient for the amount of the loan? a. appraisal b. price agreed upon by buyer or seller c. tax assessed value d. depends on the amount of the loan

a. appraisal

The act that requires credit institutions inform borrowers of the true cost of obtaining credit is called the

Truth in Lending Act and Regulation Z

the U.S Dept of Veterans Affairs is authorized to guarantee loans to purchase or construct homes for eligible veterans and their spouses

VA-guaranteed loan

Which of the following is an example of a conventional loan? a. a 60% loan-to-value ratio first mortgage loan secured through a credit union b. an installment sale c. a mortgage loan insured by the federal housing administration d. a loan obtained through a private lender with a VA guarantee

a. a 60% loan-to-value ratio first mortgage loan secured through a credit union

A borrower obtains a mortgage loan to make repairs on her home. The mortgage document secures the amount of the loan as well as any future funds advanced to the borrower by the lender. this borrower has obtained a. an open end loan b. a blanket loan c. a growing equity mortgage d. a wraparound mortgage

a. an open end loan

Once the commitment letter has been provided, licensees often encourage their buyers to a. avoid any major purchases until after closing b. make major purchases between the commitment letter and settlement c. start shopping for new appliances d. avoid driving through the neighborhood

a. avoid any major purchases until after closing

A developer received a loan that covers five parcels of real estate and provides for the release of the mortgage lien on each parcel when certain payments are made on the loan. This type of loan arrangement is called a a. blanket loan b. purchase money mortgage c. package loan d. wraparound loan

a. blanket loan

Which of the following may a lender use when evaluating an application for a loan? a. credit history b. religion c. marital status d. neighborhood where the property to be mortgaged is located

a. credit history

A mortgage lender looks at the risk involved in making a loan. What is a good description of risk? a. possibility that the investment will lose money b. income that can be generated by the loan c. cost of borrowing the money from the fed reserve d. preventative measures to ensure loan payback

a. possibility that the investment will lose money

The process of obtaining a loan begins with the prospective buyer making

an application

A couple purchased a summer home in a new resort development. The house was completely equipped, and the couple qualified for a loan that covered the purchase price of the residence, including furnishings and appliances. This kind of financing is a. a wraparound loan b. a package loan c. a blanket loan d. an unconventional loan

b. a package loan

Under the provisions of the Truth in lending Act (Reg Z), the annual percentage rate of finance charges includes all of the following components except a. the loan interest rate b. the broker's commission c. the loan origination fee d. discount points

b. the broker's commission

A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

balloon payment loan

loan that covers more than one parcel or lot

blanket loan

Regulation Z and Truth in Lending does not apply to

business, commercial or agricultural loans

A way to temporarily (or permanently) lower the initial interest rate on a mortgage or deed of trust loan.

buydowns

The federal equal credit opportunity act allows lenders to deny loans to potential borrowers on the basis of a. dependence on public assistance b. sex c. amount of income d. race

c. amount of income

In an adjustable rate mortgage loan, the interest rate is tied to an objective economic indicator called a. discount rate b. a mortgage factor c. an index d. a reserve requirement

c. an index

In a loan that requires periodic payments that do not fully amortize the loan balance by the final payment, what term BEST describes the final payment? a. adjustment payment b. acceleration payment c. balloon payment d. variable payment

c. balloon payment

Under the truth in lending act, although the borrower may rescind a number of transactions within three days, the borrower is NOT permitted to rescind a a. commercial loan b. home mortgage refinancing loan c. loan to purchase of a single-family dwelling d. home equity loan

c. loan to purchase of a single-family dwelling

Made to finance the construction of improvements on real estate such as homes, apartments, and office buildings.

construction loan

loans that are not government insured or guaranteed; often viewed as the most secure loans because the LTV is the lowest.

conventional loans

lenders consider the cost to them of acquiring the money and the borrower's creditworthiness

cost of credit

A builder has only two homes left to sell in the development. while maintaining current values, the builder can assist the last two buyers by offering them a a. reduced sale price b. reverse mortgage c. construction loan d. buydown

d. buydown

In determining LTV, value is a. 80 percent of the sale price or less. b. 95 percent of the appraised value. c. appraisal value or price, whichever is higher. d. price or appraised value, whichever is less.

d. price or appraised value, whichever is less.

Funds for Federal Housing Administration (FHA) loans are usually provided by a. the federal reserve b. the seller c. the FHA d. qualified lenders

d. qualified lenders

The Farm Service Agency (FSA) is a federal agency of the U.S Dept of Agriculture, and offers programs to help families purchase or operate

family farms

Adjustable Rate Mortgage (ARM) typically have low interest rates for the

first few years

Higher LTV ratio,

higher risk

credit scores affect not only a potential borrower's ability to obtain a loan, but also the

interest rate a lender will charge

a loan is an investment by the

lender

The lender's pledge to lend a certain amount of money to an explicitly named borrower under specific terms, for a specified length of time, and using a particular property as collateral is known as

loan commitment

lower LTV ration,

lower risk

for all FHA loans, the borrower is charged a

mortgage insurance premium (MIP)

Secures note executed by the borrower to he lender and also secured any future advanced of funds made by the lender to the borrower

open-end loans

loans that include real and personal property

package loan

when applying for a loan, there are five major factors analyzed to determine credit risk of the applicant

past pmt performance, credit use, history, types of credit used, and credit report inquiries

the likelihood that the investment will lose money is

risk

the interest rate that the lender charges the borrower depends of 4 factors:

term of the loan, type of mortgage loan, loan amount, lender's cost of money

under an ARM, rate caps limit

the amount the interest may change

an undeterminable economic indicator that is used to adjust the interest rate in the loan; most are tied to the U.S Treasury Securities

the index

in transactions covered by Regulation Z, the borrower can rescind the transaction within

three days

enables a borrower with an existing loan to obtain addition financing from a second lender without paying off the first loan

wraparound loans

the return or income that can be generated

yield

the mortgage lender evaluates two aspects of the invetsment

yield and risk