Chapter 3 - Real Estate Financing Principles
XYZ Bank is willing to offer a 80% LTV loan on a property. If the property was appraised at $160,000, and the contract price is $180,000, what will be the loan amount offered by XYZ Bank...? $122,000 $128,000 $140,000 $144,000
$128,000
Home Equity Loan
A loan against the equity in a home.
A term loan is typically used for which of the following...? Second mortgages Home improvement loans Investor loans All of the above
All of the above
Primary Mortgage Market
The activity of lenders' making mortgage loans to individual borrowers.
The Federal Reserve System is divided into how many geographical districts....? 12 13 25 50
12
If an owner obtained a $100,000 loan on a $200,000 property, what LTV was provided by the lender...? 50% (percent) 60% (percent) 80% (percent) 200% (percent)
50%
What is required to fully satisfy a balloon mortgage...? A balloon payment A typical monthly payment A loan origination fee Discount points
A balloon payment
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.
Construction Loan
A loan made to finance the actual construction or improvement on land. Funds are usually dispersed in increments as the construction progresses.
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.
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.
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.
The Texas Department of Housing and Community Affairs offers which of the following mortgage and housing assistance programs...? The Texas First-Time Homebuyers Program The Texas Bootstrap Loan Program Veterans Housing Assistance Program All of the above
All of the above
Which of the followed is asked on a residential loan application...? Employment history Current monthly housing expenses List of assets and liabilities All of the above
All of the above
Which of the following is a source of real estate financing...? Local banks Mortgage banking companies Credit unions All of the above
All of the above
PITI
An acronym denoting that a mortgage payment includes principal, interest, taxes, and insurance.
Which of the following is the riskiest loan for a residential borrower...? Conventional mortgage Balloon mortgage FHA mortgage VA mortgage
Balloon mortgage
A written notice of an obligation given by a corporation or government entity is known as a...? Deed Promissory Note Bond Bill of Sale
Bond
A loan made to finance the actual construction or improvement on land is referred to as a...? Sale and leaseback Home equity loan Wrap around loan Construction loan
Construction loan
A mortgage securing a loan made by investors without governmental underwriting is referred to as a/an...? Conventional loan Unconventional loan FHA loan VA loan
Conventional Loan
The minimum interest rate set by the Federal Reserve for lending to other banks is known as the...? Bond rate Discount rate Minimum interest rate Term rate
Discount rate
Which of the following is a privately owned corporation that purchases FHA, VA, and conventional mortgages...? Fannie Mae Freddie Mac Ginnie Mae All of the above
Fannie Mae
In this type of loan, a borrower initially pays a reduced interest rate, which gradually increases to the market rate after a period of time...? Flexible payment loan Conventional loan Term loan FHA loan
Flexible payment loan
Negative amortization may occur in which of the following types of loans...? Conventional loan Term loan Flexible payment loan FHA loan
Flexible payment loan
Most deed of trust loans are...? Fully amortized Interest only Partially amortized Balloon loans
Fully amortized
Subsidy Buydown
Funds provided usually by the builder or seller to temporarily reduce the borrower's monthly principal and interest payment.
A loan against the equity in a home is known as a...? Reverse mortgage Home equity loan Construction loan Sale and leaseback
Home equity loan
Which of the following will most likely benefit from a balloon mortgage...? Recently married couples Retirees First time homebuyers Homebuyers who only intend to live in the property for a few years
Homebuyers who only intend to live the property for a few years
A mortgage payment includes principal, interest, taxes, and...? Insurance payments Discount points Fees Deductibles
Insurance payments
A monthly mortgage payment primarily consists of which of the following in the early stages of the loan...? Principal Insurance Taxes Interest
Interest
The financing charge that a lender requires is referred to as the...? Loan origination fee Prepayment fee Discount fee Closing fee
Loan origination fee
A person whose principal business is the originating, financing, closing, selling and servicing of loans secured by the real property for institutional lenders on a contractual basis is referred to as a...? Mortgage banker Mortgage broker Real estate broker Loan originator
Mortgage banker
A broker who arranges a mortgage loan between a lender and a borrower for a fee is referred to as a...? Mortgage banker Mortgage broker Real estate broker Loan originator
Mortgage broker
Private Mortgage Insurance (PMI)
Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan (PMI).
This 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...? Positive amortization Balloon amortization Negative amortization Flexible amortization
Negative amortization
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.
A lender will most likely provide a higher LTV for which of the following property types...? Primary residence Investment property Secondary residence Vacation home
Primary Residence
Mortgage guaranty insurance available to conventional lenders on the first, high risk portion of a loan is referred to as...? Title insurance Property insurance Private mortgage insurance Priority mortgage insurance
Private mortgage insurance
The Federal Reserve regulates the flow of money and interest rates indirectly by controlling which of the following requirements for its member banks...? Credit requirements Reserve requirements Minimum loan requirements All of the above
Reserve requirements
A mortgage that requires the mortgagor to pay interest only during the mortgage term, with the principal due at the end of the term is referred to as what type of mortgage...? ARM mortgage Term mortgage Conventional mortgage FHA mortgage
Term mortgage
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.
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
The name given to the federal statutes 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 pledged 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.
Fannie Mae
The shortened name for the Federal National Mortgage Association (FNMA), a privately owned corporation that purchases FHA, VA, and conventional mortgages.
The Fannie Mae form 1003 is also known as the...? Primary Loan Application HUD-1 Form Uniform Residential Loan Application Credit Loan Application
Uniform Residential Loan Application
Bond
Written notice of an obligation given by a corporation or government entity. A surety instrument.
The interest earned by a bank on the money it has loaned is referred to as...? Return IRR Yield Profit
Yield
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.
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 deed and the additional amount of money borrowed.
Adjustable Rate Mortgage
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. The type customarily made by a bank or savings and loan association.
Ginnie Mae
A nickname for the Government National Mortgage Association (GNMA), a U.S. government agency that purchases FHA and VA mortgages.
Creditor
A person to whom a debt is owed.
A person to whom a debt is owed is known as a...? Debtor Grantor Creditor Provider
Creditor
Which of the following is a U.S. government agency that purchases FHA and VA mortgages...? HUD Department of Housing and Community Affairs Ginnie Mae Department of Finance
Ginnie Mae
The primary function of a .......... is to promote thrift and home ownership? Credit Union Savings bank Commercial bank S&L
S&L
A financial arrangement where at the time of sale the seller retains occupancy by concurrently agreeing to lease the property from the purchaser is known as...? Home equity loan Wrap around mortgage Construction loan Sale and leaseback
Sale and leaseback
Federal Reserve System
The federal banking system of the United States under the control of central board of governors (Federal Reserve System) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.
Loan Origination Fee
The financing charge that a lender requires.
