Practice Exam-Finance

one point equals

1% of the borrowers loan amount

FHA borrowers with credit scores between ___ and ___ may have to put down as much as 10%

500-579

FHA borrowers must have a minimum credit score of ____ to quality for a 3.5% down payment

580

Conventional loans typically require credit scores of..

620 and above

Security Interest

A creditor's right to use collateral to recover a debt.

Regulation Z (Truth in Lending)

A federal law requiring certain disclosures when extending or advertising credit.

Funding Fee

A fee charged on VA-guaranteed loans in place of mortgage insurance.

Closing Disclosure

A final closing disclosure to the consumer that must be received by the consumer 3 days before closing

Purchase Money Mortgage

A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing. The buyer retains title to the property, but the seller takes a security interest for some or all of the purchase price. The buyer makes payments to the seller.

Fixed Rate Mortgage

A mortgage where the principal and interest payments remain constant throughout the entire duration of the loan.

Farm Credit System (FCS)

A national network of lending institutions that provides agricultural financing and credit.

Land Contract

A real estate installment agreement where a buyer makes payment to a seller in exchange for the right to occupy and use property, but no deed or title transfers until all, or a specified portion of, payments have been made.

Home Equity Line of Credit (HELOC)

An open-ended loan which can be drawn from when needed, up to the credit limit, and uses available equity in a residence as collateral.

300; Multiply the number of thousands in the loan by the amortization factor.

Ben is purchasing a home and reviewing a loan amortization chart. If the home price is $330,000 and he's financing $300,000, once he finds the factor (number that intersects his interest rate and term on the amortization chart), what number does he multiply by that factor?

lender

Beneficiary (deed of trust)

Term or straight loan

Borrowers only pay interest for a set term and then pay off the loan in a lump sum or through another loan.

member-based cooperatives that provide credit for auto and home loans.

Credit Unions are:

debt obligations/income

Debt Ratio

With a VA loan, the certificate of reasonable value is used to ______.

Determine the value of the loan that the VA will guarantee

a 2010 congressional act that sought to bring about financial stability by bringing about sweeping changes to the financial regulatory system in response to the 2008 financial crisis

Dodd-Frank Act

1974: The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age, or marital status.

Equal Credit Opportunity Act (ECOA)

How might a borrower avoid paying the mortgage insurance premium required by an FHA loan?

Get conventional Financing. When you put 10%+ down, you pay MIP for 11 years rather than lifetime.

GSE

Government Sponsored Enterprise

Monthly housing expense (principal, interest, taxes, insurance, & association fees)/ gross monthly income

Housing Ratio

he buyer and seller both sign an assumption agreement.

How is a loan assumption documented?

It creates a lien on the property, and the borrower, not the trustee, holds legal title.

In California, how has state law modified the way the deed of trust works?

5%

In the residential mortgage market, charging borrowers more than ______ over market rate for interest is considered a predatory lending practice.

Loan Estimate

Is a detailed breakdown of the cost of the loan

note in a loan agreement

It states who owes money to whom, how much, and how it will be repaid.

Court vs No Court + Foreclosing judicially gives the borrower a statutory right of redemption of up to one year in California.

Judiciary vs Non-Judiciary Foreclosure

Title Theory

Legal concept that vests title to mortgaged property in the mortgagee (lender) or a third party until the loan is paid in full.

lifetime cap

Limits the total amount the interest rate may increase over the life of an adjustable-rate mortgage loan.

three business days after application

Loan Estimate (LE) is required within

Mortgage Insurance Premium

MIP

MLO

Mortgage Loan Originator

Package Mortgage

Mortgage covering both real and personal property

Lender

Mortgagee

Borrower

Mortgagor

Principal, Interest, Taxes, Insurance

PITI stands for

Lien Theory

Principle in which the mortgagor retains both legal and equitable title to property that serves as security for a debt. The mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan.

1974 act: is a consumer protection statute designed to protect homebuyers from unscrupulous lending and settlement practices.

Real Estate Settlement Procedures Act (RESPA)

Pay the difference between the CRV and sales price in cash

Rhoda is a first-time homebuyer. She has applied for a VA loan to buy a house from Phyllis. When the CRV values the home at less than the sale price, Phyllis refuses to come down on the sales price, so Rhoda must either ______ or find a different home to buy.

2008: Secure and Fair Enforcement for Mortgage Licensing Act

SAFE Act

A wrap-around mortgage

Seller Jerome found financing that would include his current mortgage inside the buyer's mortgage. What type of mortgage is this?

Residential Mortgage

Seth is purchasing a vacant piece of land, on which he'll build a new single-family home for his growing family. His real estate agent, Dani, is authorized to assist him with the loan he uses to buy the property because Dani has her MLO endorsement and this is a ______ loan.

Nationwide Mortgage Licensing System and Registry

Taylor Bank and Trust is a Federal Reserve Member bank. It has several employees who act as mortgage loan originators. With which entity do these employees need to register?

Fannie Mae

The government-sponsored enterprise that buys loans from MAJOR RETAIL OR COMMERCIAL BANK mortgage lenders then sells them as mortgage-backed securities.

Freddie Mac

The government-sponsored enterprise that buys loans from SMALLER BANK mortgage lenders then sells them as mortgage-backed securities.

Adjustable-Rate Mortgage (ARMs)

The interest rate fluctuates based on the economic index.

Bridge Loan

This temporary (usually 90-day) loan provides funds until permanent financing can be obtained.

USDA loan through the Farm Service Agency

To be eligible for a ______, an applicant must have participated in farm or ranch management for at least three years.

back-end ratio

Total Debt Ratio is also known as

T/F property being located in CA is a requirement of the CalVet Program.

True. The property being purchased must be located in California. There are no residency requirements for the borrower, nor do they need to have been stationed in California.

neutral third party

Trustee (deed of trust)

borrower

Trustor (deed of trust)

1968 Act that requires creditors to provide consumers with the terms and cost of credit

Truth in Lending Act

____ will make direct loans (as well as loan guarantees) to help low- and moderate-income rural Americans buy safe, affordable housing in rural areas.

USDA Rural Development Single Family Housing Program

Mortgage Insurance Premium

Upfront insurance premium required by FHA-insured loans.

25%

VA guarantees what percentage of the loan amount?

Loan Amount and Schedule of Repayment

What information is listed on the promissory note?

Loan Assumption

When a new buyer takes over the seller's existing mortgage loan.

There is no mortgage insurance requirement for a VA loan.

When does the need for mortgage insurance end for a borrower who has a VA loan?

a certificate of reasonable value

With a VA loan, the borrower must receive a certificate of eligibility. What must the property receive?

Sissy is a veteran who used her full entitlement to purchase a home. The loan has since been paid off, and Sissy still owns the home. Now, she'd like to buy a second home using another VA loan. Is Sissy allowed to do this?

Yes, Sissy can apply to have her entitlement restored and can buy a second house using a VA loan. A one-time benefit allows a veteran to apply for restoration of entitlement and use the VA loan to buy a second home after the prior loan is paid in full, even while retaining ownership of the first home.

home equity loan

a loan secured by equity value in the borrower's home

Amortized Loan

a loan that is repaid in equal payments over its life

Non-Conforming Loan

a loan unable to be sold to Fannie Mae or Freddie Mac (ex: jumbo loan)

promissory note

a written and signed promise to pay a sum of money at a specified time

Mortgage Loan Broker Law

also known as the California Real Property Loan Law

Savings and Loans

banks that specialize in accepting savings deposits and making mortgage loans. They do not offer loans to commercial businesses.

Farmer Mac

buys agricultural loans from rural lenders and issues MBSs (Mortgage Backed Securities) for sale on the secondary market.

Ginnie Mae

guarantees MBSs (Mortgage Backed Securities) that contain only government-insured or -guaranteed loans (FHA and VA)

Wrap-around Mortgage

involves the seller's existing mortgage and a buyer's new mortgage. The new mortgage wraps around the existing mortgage, and the seller continues to make payments on the existing mortgage. The buyer makes payments to the seller that cover payments for both the existing and new mortgage loans.

Revers Annuity Mortgage (RAM)

is a loan in which property owners receive payments from the bank based on the equity in their home. Over time, the bank gains ownership of the property.

Reason that the deed of trust is the standard security instrument used in California real estate transactions?

it gives the lender the right to use a non-judicial foreclosure, meaning no right of redemption

90 days

lenders LOCK IN interest rates for a period of no more than ___

periodic cap

limits the amount that interest can adjust at each adjustment period

initial cap rate

limits the amount that interest can adjust at the first adjustment period.

earnest money deposit

money pledged by a buyer to show good faith when making an offer to buy a home

Buydown

payment of extra points in return for lower interest rate, usually for a period of 1 to 3 years

amount of down payment + earnest money deposit + loan amount assumed or obtained

sale price=

Usury

the illegal action or practice of lending money at unreasonably high rates of interest.

Hypothecation

the pledge of property as security for a loan and gives the lender the right to foreclose.

Closing Disclosure (CD) is required within

three business days before closing

Discount Points

used to permanently lower the mortgage interest rate