residential commercial financing

Which of the following is a triggering term when used in advertising financing?

"10% down"

VA first time home buyer funding fee

2.15%

Which of the following is the credit score range?

300-850

graduated payment mortgage

A payment that gradually adjusts (usually upward) based on a pre-determined schedule and amount. The initial payments are less than the amount of a fully amortizing payment, which created negative amortization. This type of payment plan can make payments easier in the beginning when income is often lowe

Alberto wants to sell his house to his cousin, who's willing to assume his FHA loan. What clause in Alberto's mortgage requires him to obtain the lender's permission to do this?

Alienation clause

Prepayment clause:

Allows the borrower to prepay the loan at any time without penalty.

Which of the following is true about the Federal Housing Administration's qualifying standards for a mortgage loan?

Are somewhat less stringent than standards for conventional loans

Cross-default clause:

Automatically puts a borrower in default on all loans if the borrower defaults on any loan where the clause is included.

Which party to the loan approval process is responsible for completing a loan application and supplying supporting documentation?

Buyer

How does the Federal Housing Administration fund its mortgage insurance program?

By charging borrowers a mortgage insurance premium

Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay a mortgage insurance premium (MIP). What type of loan does Lydia have?

C. FHA Correct! Based on the minimum down payment amount of 3.5% and the fact that she's paying MIP, Lydia has an FHA loan.

What's a key feature of the Federal Housing Administration's loan program?

Insures lenders against loss from borrower default

for those in the reserves or National Guard. fee

It's 2.4%

What's one benefit of a rural development loan?

Its optional longer term means a lower monthly payment.

Gina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result?

Late charge provision The promissory note includes a late charge provision to encourage borrowers to pay on time.

Defeasance or reconveyance clause:

Lender agrees to discharge the mortgage once the borrower's paid off the loan.

hard money loan

Private investors and investment firms typically charge 10% to 15% interest for these short-term loans—a perfect scenario for an investor who plans to flip the property and can make those numbers work. Hard money lenders typically charge 1 to 10 points, either up front or wrapped into the loan.

wrap around mortgage

Seller financing that wraps the new buyer's mortgage around the seller's existing mortgage. The seller continues to make payments on the first mortgage, and the buyer makes the payments to the seller on the wrap-around mortgage.

assumption loan

Some buyers, rather than take out a new loan (or in addition to doing so), take over the payments on the seller's existing loan. This isn't always possible—many lenders include a due-on-sale clause that requires the seller to repay the entire loan in full when selling the property. When it is permissible, buyers must qualify for the assumption, and a down payment on the assumable amount may be required. When interest rates are high, and the seller has an existing loan that was originated when interest rates were low, a buyer may be eager to assume such a loan.

doesn't provide financing but instead guarantees 25% of the loan amount.

The U.S. Department of Veterans Affairs (VA)

When would a lender require a mortgage insurance premium?

The borrower has an FHA mortgage.

lease with option to buy

The buyer and seller negotiate a sale price, which is written into the lease. Sellers often apply a portion of the rent toward the purchase to entice the buyers to close more quickly.

purchase money mortgage

The buyer gives a mortgage to the seller as down payment financing on the seller's property. The purchase money mortgage may be a first mortgage, a junior mortgage, or a junior wrap-around mortgage.

What is the purpose of the Truth in Lending Act?

To better educate consumers about the cost of credit or obtaining a loan

blended rate

Usually applies during refinancing. The lender charges less than the prevailing interest rate, but more than the original rate. This benefits the lender by raising the return on older loans, and it benefits the borrower by maintaining a lower interest rate than the current market provides. Some lenders use a blended rate option for buyers assuming a previous loan. These are available on FHA, VA, and some conventional loans.

don't require a down payment or mortgage insurance, but VA buyers pay a funding fee if they don't have a down payment:

VA Loans

jumbo loans

With these, the loan amount is higher than the conforming limits for a given area. Conforming loan limits are limits set by the Federal Housing Finance Agency (FHFA). Because jumbo loans don't meet the standards of a conforming loan, they're harder to sell on the secondary market, and not every lender offers them. Lenders who do make jumbo loans offset their financial risk (the risk of not being able to resell the loan) by charging the borrower a higher interest rate—so a jumbo loan is more difficult to qualify for than a conforming one. Depending on the loan amount, transaction type, property type, and location, jumbo loans may require a minimum down payment of 20% for primary residences and more than 30% for vacation and investment properties. Borrowers are expected to maintain excellent credit scores and have sizable assets.

low documentation loan

also called "low doc"): This loan type is designed for the self-employed or those paid on commission. A high credit score and slightly higher interest rates characterize these loans. Since 2008, the standards for mortgage qualifying have become stringent to the point that low-doc loans are now rarely available.

interest only

also called "term" or "straight-term"): The borrower only pays the interest on the loan for a set number of years—usually between five and seven. After the term is over, the borrower must either pay off the entire loan principal in a lump-sum payment, or must finance the principal through another loan.

amortized loan

any loan in which periodic payments go toward both principal and interest. In a typical amortized loan, most of the initial payments go toward interest, with ever-increasing amounts going toward the principal (the loan balance), until the loan is paid off.

construction mortgage

temporary financing for construction. The developer submits plans for a proposed project and receives a loan based on property appraisal and construction plans. Loan disbursement follows phases of construction. Upon completion, loan is converted to long-term financing. Construction loans involve risk for the lender so the rate is generally higher.

Which of the following statements is true of investment properties?

they can be leveraged

blanket mortgage

two or more properties are pledged as security for loan payment. A release clause allows parcels to be removed from the lien, usually when the loan balance lowers to a specified amount

VA loans are available for

veterans, active duty personnel, and their spouses. Applicants have to qualify, and the property has to qualify for the loan amount.

You're working with a buyer who's purchasing a home that appraised at $80,000. The buyer is obtaining a 90% loan, and the lender will charge a one-point origination fee at closing. How much will the loan origination fee be?

$720 That's right! A one-point fee equals 1% of the loan, so: $80,000 × 0.9 = $72,000 (loan amount), and 1% of $72,000 = $720.

land contract

(also called "contract for deed," "land installment contract," "installment sale agreement"): The buyer makes installment payments to the seller, who retains the title to the property while the buyer gets the right of possession. Often, there's both a down payment, and, at the end of the contract, a balloon payment. When the loan balance is paid in full, the seller gives the buyer title.

reverse mortgage

(also called a "reverse annuity mortgage"): Homeowners use existing equity to finance their continued occupation of the residence. With a reverse mortgage, the lender makes payments to the homeowner for a specified period of time and gains corresponding ownership.

bridge loan

(also called a "swing loan"): A temporary (usually 90-day) loan that provides funds in addition to an existing loan until permanent financing can be obtained. Often used for buyers who haven't yet sold one property but want to purchase a new one. Best used when the buyer's current home is already under contract.

Reconveyance

A conveyance to the land owner of the title held by a trustee under a deed of trust.

VA funding fee

A fee paid to the VA at closing to guarantee the loan

growing equity mortgage

A fixed-rate mortgage where monthly payments increase according to a set schedule, but the interest rate remains the same. The first payment is a fully amortizing payment. As the payments increase, the amount greater than a fully amortizing payment is applied directly to the principal balance, reducing the life of the term and increasing the borrower's interest savings

amortized mortgage

A loan characterized by payment of a debt by regular installment payments.

Home equity loan

A loan from the equity of a home. If the property is owned free and clear, the home equity loan is a first mortgage. If not, it's a second or junior mortgage. Rates on home equity loans tend to be higher than conventional loans, and their term rates shorter.

Straight mortgage

A loan where interest-only payments are made until the end of the loan term, when the full principal becomes due.

fixed rate loan

A loan where principal and interest payments remain the same over the life of the loan.

balloon loan

A loan with a lump sum payment, usually at the end of a loan period. Until final balloon payment, it can be paid as an interest-only or partially amortized loan. A lender may agree to amortize the loan over a 30-year period with a balloon payment at the end of 10 years. This equates to lower monthly payments, but borrowers must be able to pay off the entire loan at the end of 10 years

package mortgage

A mortgage in which personal property is included with the real property in the sale. Most commonly used in commercial real estate where business assets are included as collateral.

Renegotiable rate:

A mortgage loan alternative that allows the interest rate to be renegotiated periodically. The loan can be either long-term with periodic adjustments or short-term with more frequent rate adjustments.

What is a convertible mortgage?

A mortgage that allows the borrower to change a mortgage from an adjustable rate to a fixed rate

Straight Mortgage

A non-amortizing mortgage under which the principal is paid in its entirety upon the maturity date.

alienation clause

A provision in a mortgage requiring full payment of the debt upon the transfer of title to the property, due on sale. Prevents loan assumptions.

Interim Financing

A short term loan obtained to cover financing of the construction of a building.

budget mortgage

A typical amortized mortgage loan that includes principal, interest, taxes, and insurance in each (usually monthly) amortized payment. A common acronym for this kind of loan is PITI (principal, interest, taxes, and insurance).

What is a triggering term?

A word or phrase that, when used in advertising, requires the disclosure of all of the terms of a loan

Subordination clause:

Allows the security instrument's lien position to be placed in a lower priority to a new loan using the same property as collateral). Conversely, a subordination clause allows a junior lien to take priority over a senior lien.

power of sale clause

Allows the trustee (or the mortgagee, in the case of a mortgage) to sell the property to recover losses from borrower default, using a non-judicial foreclosure process.

Which of the following is a true statement about FHA financing?

An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments.

Monica received a promotion at work and has to relocate. Because of the timing, she'll need to buy a house in her new city before her current one is sold which means, she won't have any equity from her current home to make a down payment on the new house. What loan option would allow her to make the purchase before selling the old house?

B.Bridge loan Good! Sometimes there is a delay between a property sale and when the owner is able to purchase, and the bridge loan gives the homeowner the ability to pay for two homes at the same time.

HELOC. home equity line of credit

Based on the existing equity in a home, borrowers typically use HELOC to fund major purchases like home repairs. The entire credit line may or may not be disbursed up front. Most HELOCs require a monthly interest-only payment. The balance may be paid back over time or as a lump sum by the end of the term.

A ______ is often used in commercial applications when two or more properties are pledged as security for repayment of the loan.

Blanket mortgage

Which entity services rural development loans?

FSA

Farm families financing the purchase of properties in rural areas may be able to obtain financing through this government agency if they meet certain criteria, such as income requirements.

Farm Service Agency

What information does the Loan Estimate NOT provide to buyers under the TRID-required disclosures law?

Final closing costs Great! Lenders must provide the Loan Estimate within three days of receiving a borrower's application. Borrowers receive final closing cost information (on the Closing Disclosure) three days before closing.

Which of the following is the best example of investment leverage?

Financing most of an investment and putting very little cash in

Which of the following is the best example of investment leverage?

Financing most of an investment and putting very little cash in Great! Leverage uses very little of one's own capital, instead using someone else's money to control a large asset.

Acceleration clause:

Gives the lender the right to make all monies owed immediately due and payable in the event of borrower default.

open end loan

Home equity loans and home equity lines of credit are common types of second mortgages. Some second mortgages are open-ended—meaning the borrower can continue to take cash out up to the maximum credit amount and, as the balance is paid back, can draw again up to the same limit. Other second mortgages are close-ended: The entire loan amount is disbursed up front, and the b

Lock-in clause

Likely to be included on very high-yield mortgages where the lender wants to ensure earnings for a specific time period; it's a form of prepayment penalty.

power of sale

Mortgage provision that grants the authority to conduct foreclosure to either the lender or a trustee. Enables nonjudicial foreclosure.

Late charge provisions clause:

Promissory notes attached to the security instruments usually stipulate the charges for loan payments that are received after their due date.

Exculpatory clause:

Protects the borrower's other assets in case of foreclosure. In a judicial foreclosure, a lender can choose to ask for a deficiency judgment, which would allow the lender to include a request for money over and above the proceeds from the foreclosure sale. The exculpatory clause protects the borrower from that possibility.

Due-on-sale or alienation clause:

Requires the borrower to repay the loan on the property when selling or transferring ownership of the property.

Partial release clause:

Requires the lender to release a portion of the property from the lien when a part of the debt has been paid.

"Subject to" loan

Sometimes, a buyer may not want to assume a loan, but instead buys the property "subject to" the existing financing. The buyer gets the deed to the property, but rather than assume the loan with the lender's consent, the new buyer makes the payments on the seller's loan as if nothing has changed. These loans are perfectly legal (assuming that there isn't an alienation clause in the security instrument). Typically, a lender won't care who makes the payments, as long as the loan's being paid.

Loan types

Straight mortgage fixed rate loan amortized loan budget mortgage growing equity mortgage renegotiable rate interest only graduated payment low documentation

shared equity mortgage

The lender receives a percentage of net income from the commercial property or enterprise. The lender may receive interest and a share of the profits.

Which of the following best describes a home equity line of credit?

Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again

Loan Points

are a percentage of the loan amount that lenders charge to borrowers. They are also called "discount points." One loan point is equal to one percent of the loan amount. Paying loan points directly to the lender at closing gets buyers a reduced interest rate. Example: a buyer puts $100,000 down on a $400,000 house. One percent of $300,000 (the loan amount) is $3,000. So one loan point equals $3,000.

After switching careers, Alice just graduated from culinary school and is looking to purchase a house. Until she gets her feet wet with her new job, she knows the cost of living with her mortgage is going to be tight. Which mortgage might help her manage her expenses each month?

budget loan

Sam has a mortgage payment that includes his property taxes and property insurance. What type of mortgage does Sam have?

budget mortgage

Jimmy owns a vacant piece of land. He plans to build a home on the land and then sell it. What type of loan is he most likely to acquire to finance this project?

construction

Bethany has agreed to purchase Derrick's property using a land contract. Who holds legal title to the property during the term of the loan?

derrick

leveraged

financed by debt, as opposed to equity

Which of the following is a significant drawback to an FHA loan as compared to conventional financing?

interest rates are higher

buy down

is a lump sum pre-payment of interest to the lender at closing. It buys down the interest rate below market rate, either temporarily (e.g., for the first one to thre

take out loan

is a type of long-term financing that replaces short-term interim financing A construction loan that provides short-term financing for the purpose of constructing improvements on vacant land (or on land that has improvements but will soon have more).Proceeds are disbursed in portions, according to completion of various phases in the construction.When the improvement is complete, the lender makes a final inspection and funds the remainder of the loan, converting it into permanent long-term (often 30-year) financing.

What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?

late charge

Regina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result?

late charge provision

What information does the Loan Estimate provide to buyers under required disclosures law?

loan payment schedule

What attracts borrowers to adjustable rate mortgages?

lower initial interest rates

What is the borrower charged for all FHA loans?

mortgage insurance premium

subprime loan

n the mortgage business, loans are "graded" on a letter scale of A to D according to the borrower's credit standing. A borrower with terrific credit is likely an A-rated borrower. A minor credit ding—like a single late payment—can drop that borrower to an A-minus rating. A-rated borrowers are easy to finance because they've proven they'll make their payments on time. Lenders that specialize in B-, C-, and D-rated borrowers are known as subprime lenders. They're willing to take risks that other lenders won't, making the dream of homeownership possible for many who otherwise wouldn't be able to get a loan. However, subprime financing can lead to issues. Relaxed standards in subprime lending are partly what led to the mortgage market downfall of 2007-2008. Although they serve a purpose, subprime loans have less-favorable terms than prime loans do, such as higher interest rates, which may range between 1% and 5% higher than current market rate. Rates higher than that could be an indication of predatory lending practices.

Which occupancy type is eligible for a VA loan?

owner occupied

For 25 years, Isadora loved being her own boss, but now she's getting tired of the day in, day out tedium of running her business. She's ready to retire and move to a tropical island. She decides to sell her entire business in one fell swoop: the property together with all the equipment and furnishings. What type of loan would the buyer need to obtain?

package

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

power of sale

What may the lender require if the borrower is unable to put at least 20% down on a conventional loan?

private mortgage insurance

Which clause in the deed of trust is the equivalent of the defeasance clause in the mortgage?

reconveyance

For farmers and others who live in rural communities, a ______ loan may be available. One benefit of these loans is the option for a longer payback period.

rural development

Chris is in the process of purchasing a property with 20 acres of farmland in a rural area of the state. Assuming his income meets the criteria of the program, what type of loan may Chris find the most desirable?

rural development loan

The fee increases to 3.3% for

second-time buyers.