REAL ESTATE FINANCE
If 12 properties have been sold in the last 3 months in an area, and there are 20 houses for sale now, there is a supply of housing for __________.
5 months
Inflation:
A general rise in prices as the result of a decrease in the dollar's purchasing power
Correspondent Lender:
A lender who offers loans using their own money at their own risk, generally on a smaller scale than mortgage brokers and bankers
Non-Conforming Loan:
A loan that does not meet the guidelines to be sold on the secondary market
Conforming Loan:
A loan that has been made according to the guidelines that will allow the loan to be sold on the secondary market
Recession:
A period in which economic activity drastically declines and stays declined for more than six months
Monetary Policy:
A term used to refer to the actions of central banks to achieve big, macroeconomic policy objectives
Market:
A theoretical construct that isolates the selling and purchasing of any one particular commodity from the economy as a whole
Why is buyer pre-qualification important?
ALL CHOICES ARE CORRECT
Which of the following affects the price of real estate?
ALL CHOICES ARE CORRECT (unemployment, supply of money, & demand for property)
Which of the following topics is covered in the monthly report published by the Real Estate Center at Texas A&M?
ALL OF THE CHOICES LISTED ARE CORRECT (statistics on employment, housing activity, and growth of communities)
To qualify a buyer for a loan, lenders consider all of the following except:
ALL OF THESE ARE CONSIDERED (income, credit, and source of down payment)
Open Market Operations:
Adjustments to the supply of money implemented by the Federal Reserve to influence the interest rate
What does the SAFE Act require?
All mortgage loan originators must be licensed in accordance with national standards.
Supply:
An amount of a commodity that is available based on the willingness and ability of sellers in a given market to sell that commodity
Mortgage Banker:
An entity or person who provides mortgage financing by using their own funds
Securities:
Any financial asset that can be traded, including futures, stocks, mortgage loans, and options
The Federal Reserve:
Centralized United States bank created to conduct monetary policy and stabilize the U.S. economy
Housing Affordability Index:
Compares median household income to the income needed to purchase a median-priced home
Demand:
Consumers' ability and willingness to buy a good or service at a certain price
The Federal Reserve System acts according to the monetary policy, making all member banks agents of the federal government.
FALSE (Explanation: While Congress establishes overarching objectives for the Fed, they relinquish control over the operational conduct of monetary policy. This makes the Federal Reserve (and all member banks) an independent agent of the federal government.)
In the United States, it is a federal law that all public and private business adhere to the same monetary acceptance guidelines.
FALSE (Explanation: In the US, private business are able to make their own decisions on they type of legal tender they accept.)
A real estate agent is NOT allowed to advise their clients to get pre-qualified.
FALSE (Explanation: an agent should always encourage their client to get pre-qualified if they aren't already.)
The committee that is a part of the Federal Reserve System and is responsible for buying and selling securities is the:
Federal Open Market Committee.
Economic Bubble:
Forms when the value of something (typically real estate or stocks) grows so much that its market value is higher than its actual value
Tax credits:
Immediate, dollar-for-dollar reductions in a taxpayer's tax liabilities. For example, if a taxpayer owes $100 in taxes and claims a $25 tax credit for the same tax year, then they only owe $75 in taxes.
What is NOT a sign of recession?
Increasing real estate sales
Private Mortgage Insurance (PMI):
Insurance that protects the lender in the event of borrower default on a conventional loan
What is TRUE of USDA loans?
It doesn't require down payments
What is TRUE about the secondary market?
Loans and servicing rights are sold to investors.
Which of the following is NOT a major phases of the real estate market cycle?
Lower Supply
Conforming conventional loan:
Made according to the guidelines that will allow the loan to be sold on the secondary market. (FHA, VA, and conforming conventional loans are all eligible to be sold on the secondary market.)
Secondary Market:
Market in which loans and servicing rights are sold to investors
Primary Market:
Market in which mortgages are first created by connecting lenders to borrowers
Income Approach:
Method of estimating the value of a property based on the amount of income it could produce for its owner
Cost Approach:
Method of estimating the value of a property by determining how much it would cost to completely replace it and then subtracting from that value to account for depreciation
Pre-Approval:
Official process of being approved by a lender to borrow a specific amount at an interest rate within a small range; a mortgage application, credit report, and supporting financial documentation are required
Sales Comparison Approach:
Property valuation method that determines value by comparing the subject property to the sales prices of similar properties that have sold recently
Tax deductions:
Reductions in a taxpayer's taxable income, which in turn lower the amount of that taxpayer's income tax liabilities (that is, their taxes owed)
Mortgage Insurance Premium (MIP):
Required insurance to protect the lender in the event of borrower default on an FHA loan
The Reserve Requirement:
Requirement that all depository institutions (not just member banks) keep a certain percentage of their funds in the regional Reserve bank
What is TRUE of a buyer's market?
Sales prices are more negotiable for buyers.
Equipment Loans:
Secured by business equipment and against which you can usually borrow 60-80% of the value of the equipment for the projected life of the equipment
Real Estate Loans;
Secured by other real estate you own. Usually you can borrow up to 75% against the value of the property for a term of between 10 and 20 years
Asset Based Loans:
Secured by your professional or perhaps your personal assets
Short Term Loans:
Secured loans for a term of one year or less
Mortgage Broker:
Someone who brings together a borrower and a lender in order to create a mortgage
Collateral:
Something of value that is pledged to a lender as a promise to repay a loan
Interest rates are manipulated by either giving or restricting money flow to commercial banks.
TRUE
The Federal Reserve was ultimately successful as it aimed to provide services to the government, financial institutions, and to the public
TRUE
What is NOT a business incentive in Texas?
Tax deductions for businesses in affluent areas
Federal Reserve Act:
The 1913 act that created the Federal Reserve
Federal Open Market Committee (FOMC):
The Federal Reserve's policy-making body, which is charged with overseeing the federal government's open market operations
Closing:
The consummation of a real estate transaction when all the necessary contracts are signed and the lender disburses the funds of the mortgage loan
Origination:
The creation of a new mortgage
Recovery:
The economic phase in which conditions stabilize after a recession and the outlook for the market starts to look brighter
Expansion:
The economic phase in which market activity really picks up (businesses start hiring again, people are investing in real estate)
Hyper Supply:
The economic phase in which supply catches up with (and then surpasses) demand; the first warning sign is an increase in vacant or unsold property
Pre-Qualififcation:
The first step in determining "how much house" the buyer can afford and which type of loan might be best; the buyer supplies information about their financial situation to the lender, who then provides a general estimate
Discount Rate:
The interest rate at which the Fed lends money to its member banks
If a buyer borrows money from his family to finance a property, ________.
The loan agreement should be in writing.
Servicing:
The ongoing collection of monthly payments and maintenance of records by a loan servicer
Underwriting:
The process of deciding the level of risk a lender would take on by offering a loan to a certain borrower for a specific property
Funding:
The transferring of funds by the lender to a title company or escrow company so that they may be disbursed
What is TRUE of recession?
The unemployment rate rises.
Leverage:
The use of a relatively small amount of money in order to get a much bigger loan for purchasing real estate
Which of the following is true about property tax exemptions?
They decrease the value the owner will be taxed on.
Why is it important for the lender to qualify the property being financed?
They want to be sure they can recover their investment if they foreclose on the property.
Lender Tender:
United States coins and currency good for all debts, public charges, taxes, and dues
Balloon Loans:
Usually last for 3 to 15 years and are indexed against a Treasury index
Terms Loans:
Usually made by traditional lenders and secured for a fixed term that is at least partially determined by the investor's income statements and projections
If a buyer purchased a property for $350,000 with a loan for 100% of the purchase price, which type of loan did they most likely use?
VA
Loan Processing:
When the lender collects information and an application from the buyer that will help determine the loan type and amount they will qualify for
Non-conforming conventional loan:
Will probably become a loan held in the lender's portfolio because it does not meet the guidelines to be sold. (For example, a "jumbo loan" will be a nonconforming loan because it exceeds the maximum loan amount allowed to be sold on the secondary market.)
Can loan ownership be transferred?
Yes, and the new owner must provide notice to the borrower.
How can local governments influence real estate market economies?
Zoning policies can be adopted to either encourage or slow down the growth the community.
By becoming a member of the Federal Reserve System:
banks are able to borrow money from the Fed, and must abide by federal reserve rules and regulations
When the supply of real estate exceeds the demand for real estate, prices ______.
decrease
Sales Comparison Approach:
determines value by comparing the subject property to the sales prices of "comps" (short for comparables, a.k.a. similar properties) that have been sold recently.
Falling unemployment causes _____.
economic growth
The amount of a foreign currency a dollar can buy is called the _____.
exchange right
What should an agent ask a new buyer client to do?
get pre-approved for a loan
Increases in the cost of financing, cost of construction, and land values can cause the price of real estate to:
increase
A decrease in the dollar's purchasing power is called ______.
inflation
With interest-only loans, borrowers pay _________.
interest only for a set time
The Federal Reserve can influence the supply of money by changing the discount rate. When they raise the discount rate, lenders tend to:
lend less money
With a thorough evaluation of the buyer's credit, the lender's risk would be:
limited
Portfolio banks are ______.
local banks that lend their own money and do not sell their loans on the secondary market
Which of the following would motivate builders to build new houses right away?
low prices of raw land
To qualify a buyer for a loan, lenders consider all of the following EXCEPT:
number of children
The process of obtaining __________ requires that the borrower submit a mortgage application, credit report, and supporting financial documentation.
pre-approval
In addition to qualifying the buyer, lenders also qualify the _____.
property
Texas offers property tax exemptions for all of the following EXCEPT:
property owned by low income families
What are three ways the government influences the price of real estate?
supply of money, interest rates and taxes
Who is responsible for the foreclosure fees?
the borrower
The Fed has at its disposal three instruments for implementing its monetary policy by influencing the money supply. The three tools are known as:
the discount rate, the reserve requirement, and open-market operations
Mortgage Insurance Premium protects _____.
the lender
Loan Processing:
the lender collects information from the buyer that will help determine the loan type and amount they will qualify for. The person who is seeking the loan will need to complete and submit an application to kick off the loan processing.
The sales comparison approach determines value by comparing the subject property to ______________.
the sales prices of similar properties that have been sold recently
The Federal Reserve System is composed of:
twelve member banks spread throughout the United States
