Ch. 11 - Real Estate Financing quiz

Roy is a veteran who is buying a home with a VA loan. The mortgage loan amount is $132,000. What is the maximum amount the lender can charge for the costs and services for originating the loan?

$1,320 - The lender can charge a flat fee of not more than 1% of the loan amount ($132,000 x 1% = $1,320).

Jill takes out a $230,000 loan at 4.5%. What is the annual interest?

$10,350

Kristen closed on a mortgage loan in the amount of $50,000 at a rate of 12% for a 30 year term. Her monthly payment is $514.31. What is the principal portion of her first monthly payment?

$14.31 - First, find the annual interest: $50,000 x 0.12 = $6,000. Next, find the amount of interest due in the first month: $6,000 x 1/12 (which is the same as $6,000 / 12) = $500. Then subtract the interest amount from the payment determine how much of the $514.31 will apply to principal: $514.31 - $500 = $14.31.

Total Closing Costs ($3000) / Monthly Decrease in Payments ($477.80) = Time to Recoup (Recapture Time) or 6.28 Months Given the information above, if the borrower remains in the home during the full 30-year term of the new loan, what is the dollar amount of his lifetime savings?

$169,008.00 -The borrower will save $477.80 per month for 360 months (30-year term x 12 months/year). This equates to a gross savings of $172,008. The borrower paid $3000 in closing costs (escrow, doc prep, etc.) so the net savings is $169,008.

Borrower Tim wants to buy a $150,000 home and is going to make a $15,000 down payment. Tim is seeking a conventional loan but doesn't want to pay more than 6.5% interest. The lender agrees to 6.5% interest based on two discount points and a loan origination fee of 2%. What is the total amount of points (in dollars and percentage) that the lender will receive for making this loan?

$5,400

Laura falls in love with a house and is desperate to buy it. The asking price is $235,000. She makes an offer of $230,000 and the house appraises for $225,000. If her lender is willing to give her an 80% LTV loan, what is her required down payment if her offer is accepted?

$50,000

Lonnie takes out a $144,000 mortgage at an interest rate of 6%. When he makes his very first monthly mortgage payment, how much will be applied to interest?

$720

To qualify for an FHA loan, borrower Ricky should have a maximum ______ for the housing expense ratio and _____ for the total debt-to-income ratio.

31%; 43%

If a balloon loan is expressed as "360/120", the ____ states the term of the loan.

360 - If a balloon loan is expressed as "360/120", the "360" states the term of the loan, such as 360 months and the "120" provides the month of the loan that the full payment, or balloon payment, is due.

The Homeowner's Protection Act requires a mortgage lender to cancel PMI when the loan-to-value reaches ____ of the original value and the borrower is current.

78% - The Homeowner's Protection Act requires a mortgage lender to cancel PMI when the loan-to-value reaches 78% of the original value of the mortgaged property.

Which statements are TRUE? Select all correct responses.

A borrower can likely get a lower initial interest rate on an ARM than on a fixed-rate mortgage / With a fully amortizing loan, the borrower owes nothing at the end of the loan term. wrong answers: As the principal balance decreases, one's equity also decreases. / With an adjustable-rate mortgage, the index represents the lender's profit.

Which statement is TRUE?

A point is 1% of the loan amount, which is generally the sales price minus any down payment.

Which of these statements is FALSE in an explanation of mortgages and lien position?

A second mortgage and a junior mortgage are the same. wrong answers: A junior mortgage is any mortgage with a lower lien position than another. / Construction lenders frequently refuse to lend money unless assured of first lien position. / A subordination agreement can be written to change the priority of mortgages.

In an explanation of mortgages and lien position, which statement is FALSE?

A second mortgage is always in the second lien position.

Which best describes the process of judicial foreclosure?

Advertising runs for consecutive weeks, then a public auction of the property is held, and then the sale is confirmed.

A final lump-sum payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term.

Balloon Payment

_____ is the right of a debtor to redeem the property from foreclosure proceedings prior to a confirmation of sale.

Equitable right of redemption

Which statement about FHA-insured loans is FALSE?

FHA may impose a penalty on borrowers who pay the loan off early. - HUD, which has oversight of the FHA loan program, prohibits prepayment penalties on these loans. The other statements are true. wrong answers: FHA offers an adjustable-rate mortgage. / FHA loans require low down payments. / FHA loans have less stringent qualifying standards.

A security instrument with a first lien position.

First Mortgage

Payment structure that allows the borrower to make smaller payments in early years of the mortgage, with payments increasing on a scheduled basis at a predetermined point until they are sufficient to fully amortize the loan over the remainder of its term.

Graduated Payment Mortgage - fixed interest rate

A fixed-rate mortgage set up like a 30-year conventional loan, but payments increase regularly. Also called: Rapidly Amortizing Mortgage.

Growth Equity Mortgage - fixed interest rate

Which of the following are TRUE statements when comparing a loan with a level payment to one with a fluctuating payment?

Level payment loans may help borrowers budget and manage payments. and Level payment loans are popular alternative financing tools when rates are low.

The order in which liens are paid off out of the proceeds of a foreclosure sale.

Lien Position

_____________ establishes the order in which liens are paid off out of the proceeds of a foreclosure sale. By law, real estate tax liens always have the highest priority and get paid first, followed by the first recorded lien.

Lien position

A mortgage allowing the borrower to request more funds from the lender, up to a certain pre-defined limit, without having to renegotiate the loan.

Open-Ended Mortgage

A mortgage given by the buyer to the seller as a portion of, or for the entire amount of, the purchase price of a property.

Purchase Money Mortgage

Any lien that has a higher position than another lien.

Senior Lien

A note that calls for payments of interest-only during the term of the note with a balloon payment at the end of the loan term to pay off the principal amount.

Straight Note

A written agreement between lienholders on a property that changes the priority of mortgages, judgments, and other liens.

Subordination Agreement

A partially-amortizing loan, also known as a balloon mortgage loan, calls for periodic payments of principal and interest during the loan term with a balloon payment at the end of the term to pay off the balance due. For example, a balloon loan could be expressed as "360/120".

The "360" states the term of the loan, such as 360 months. The "120" provides the month of the loan that the full payment, or balloon payment, is due.

Which statement is FALSE when a bond is used in lieu of a mortgage note as a promise to pay?

The bond holder is not entitled to a repayment of a mortgage loan. wrong answers: Bonds are apt to be more complex than notes. / Bonds tend to only be issued by sizable borrowers. / A bond used as a promise to pay tends to have a longer term until maturity than a mortgage note.

A buydown paid to reduce the borrower's payments early in the loan is called a temporary buydown.

True

A first mortgage is a security instrument with a first lien position. As such, a first mortgage almost always has priority over all other mortgages, meaning the first mortgage holder is paid first in the event of a foreclosure sale.

True

A permanent buydown is when points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan.

True

A second mortgage is a security instrument in a second lien position. A second mortgage may be used to help buy the property (e.g., small loan from the seller) or might be taken out later to generate additional funds from the owner's accumulated equity in the property (e.g., a home equity loan) for repairs, college tuition, or some other purpose.

True

An open-ended mortgage is a mortgage that allows the borrower to request more funds from the lender, up to a certain pre-defined limit, without having to renegotiate the loan. A home equity line of credit (HELOC) is a popular type of open-ended loan.

True

Blanket Mortgage - A blanket mortgage covers two or more parcels or lots, usually to finance new subdivision developments. For example, a blanket loan is taken out on 200 lots rather than a separate loan for each lot being developed. Blanket loans usually have a partial release clause, allowing the borrower to pay a certain amount of money to release one or more lots with the mortgage (lien) continuing to cover the other lots.

True

Bridge Mortgage - This occurs between the termination of one mortgage and the beginning of the next. When the next mortgage is taken out, the bridge mortgage is repaid. Bridge mortgages are designed to be temporary and are used most commonly for construction financing or, less commonly, for someone buying a new home before selling the old one.

True

Construction Loan : A fixed disbursement plan pays a percentage of funds at a set time. A series of predetermined disbursements, called obligatory advances, are paid out at various stages of construction. For example, the loan agreement may state that the lender will release only 10% of the funds when a project is 20% complete, with future draws of 20% each time construction progresses 20% more toward completion.

True

Fixed-rate loans with a level payment plan benefit borrowers when interest rates are low. Borrowers don't have to run the risk of the interest rate increasing during the term of the loan. Additionally, borrowers should find it easier to budget and manage payments as they remain unchanged.

True

For the construction mortgage to take priority over the land mortgage, the first lender would need to file a subordination agreement in the public record that permits the second lien holder to be in the first lien position.

True

Home equity loans are often expressed as 30/15, which denotes a 30-year loan term with a balloon payment requirement in 15 years.

True

Package Mortgage - A package mortgage includes both real estate property and personal property. Personal property can include lawnmowers, boats, furniture, etc. These items are financed together with one contract. This type of mortgage is commonly used to finance furnished condominium units or resort properties.

True

Recall that a point is simply 1% of the loan amount. Discount points are additional funds paid to a lender at the beginning of a loan to lower the note interest rate and, therefore, the monthly payments.

True

Voucher System. The contractor or borrower must pay his or her own bills, and then submit the receipts to the lender for reimbursement. Warrant System. The lender directly pays bills presented by the various suppliers and laborers on a project.

True

With a loan that has a level payment plan, both the interest rate and monthly payment amount stay the same for the life of the loan

True

With a purchase money mortgage, the seller takes the role of the lender in offering the money to buy the home.

True

a home equity line of credit - HELOC is a revolving line of credit secured by a mortgage on one's principal residence. A borrower can use the credit line when needed and then make a payment or payments to repay the amount used. The interest rate on a HELOC is often lower than other credit lines, such as credit cards, and the interest may be tax-deductible. Borrowers often use a HELOC for major purchases, home improvements, and debt consolidation.

True

ARMs are popular alternative financing tools when rates are high as they may help borrowers qualify more easily for a home loan or for a more expensive home.

True - Adjustable-rate mortgages (ARMs) permit the lender to periodically adjust the interest rate to reflect fluctuations in the cost of money.

Advantages to a buydown plan include: The borrower's monthly payment is lower. The lender may evaluate the borrower for loan qualification based on the reduced payment after the buydown.

Typically, a borrower pays for a buydown by simply prepaying some interest at closing. Such a buydown could make it easier for a borrower to qualify for the loan.

When the seller finances the purchase, the instruments that the buyer gives to the seller as consideration at settlement are collectively called a purchase money mortgage (PMM). As you will recall, the term purchase money mortgage is also sometimes used to describe seller financing in general. Rather than obtaining a mortgage through a bank, the buyer provides the seller with a down payment and gives a financing instrument as evidence of the loan.

When the buyer of a home is unable to secure a conventional mortgage, the buyer and seller may choose a purchase money mortgage as the financing method.

To apply for a VA-guaranteed mortgage, a veteran of the Armed Forces needs a current Certificate of Eligibility and

a DD-214.

A ______________ is a temporary loan used to finance the construction of improvements and buildings on land.

construction loan

Which type of mortgage is NOT insured or guaranteed by the government?

conventional mortgage

A lender needs to use PITI to structure mortgage payments in order to

ensure that enough funds are collected to cover taxes and insurance premiums. - The lender provides this service to a mortgagor by adding one-twelfth of the insurance premiums and taxes to the monthly mortgage payment amount.

A __________ payment mortgage includes a plan in which payment subsidies in the early years keep payments low, but payments increase each year until they're sufficient to fully amortize the loan.

graduated

Dave and Sara are a young couple with a new baby who are buying a home. Sara will be working full time at her law firm for the next five years while Dave stays home with the baby and finishes school. In six years, both plan to be full time at the law firm. Which type of mortgage would offer them the best monthly payment plan and tax advantages?

graduated payment mortgage wrong answers: equity participation mortgage / reverse equity mortgage / shared appreciation mortgage

Which of the following loans have payment plans that tend to have a lower initial monthly payment that creates negative amortization?

graduated payment mortgage - A graduated payment mortgage includes a plan in which payment subsidies in the early years keep payments low, but payments increase each year until they're sufficient to fully amortize the loan. An interest-only loan is a non-amortized loan in which the regular payments cover only the interest over the term of the loan. With a growth equity mortgage, payments increase but do not start at a lower payment amount; payments are applied to principal which creates positive amortization.

The _____________ (GEM), or rapid equity mortgage, is considered a rapidly amortizing mortgage. This type of mortgage has a fixed interest rate but principal payments are increased according to an index or schedule. The increase is applied directly to reduce the principal, resulting in the loan being paid off more quickly.

growth equity mortgage

The _______ provides the evidence of debt and the mortgage provides the creditor security for the note.

mortgage note

A ___________ is when points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan.

permanent buydown

Marcy is behind on her mortgage loan payments and wants to sell her home as a short sale. In order for Marcy's lender to consider a short sale, she must

prove financial hardship.

Ally lost her job due to her company being merged with another company. She is facing many financial difficulties, including the possibility of her home going into foreclosure. Ally owes a total of $55,000 on her current mortgage that she obtained at a historically low interest rate. Ally has been approached by a person that is interested in buying her home but is not able to qualify for the needed mortgage loan at a competitive interest rate. If allowable, which type of sale would best meet Ally's situation?

purchase subject to seller's existing mortgage

In North Carolina, which of the following lien on real estate takes priority over all other liens?

real property tax lien wrong answers: construction lien / first mortgage lien / growth equity mortgage

In North Carolina, the lien on real estate that takes priority over all other liens is a

real property tax lien. - In North Carolina, a real property tax lien is superior to all other property liens. wrong answers: growth equity mortgage. / first mortgage lien. / construction lien.

Steven's home was auctioned at a sheriff sale and the investor paid less than the amount owed on the loan. To recover the remaining debt owed on the property, what recourse does the lender have?

seek a deficiency judgment - If the proceeds from an auction on the sale of a property are less than what is owed to the lender, the remaining difference may be recovered through a deficiency judgment against the borrower.

A _______________, sometimes called a bullet loan, is actually a non-amortized loan in which the regular payments cover only the interest over the term of the loan. The option to only make interest payments lasts for a fixed term, usually between 5 to 10 years. At the end of the term, a lump sum payment of the principal is required. This is known as a balloon payment.

straight loan

A _____agreement is a written agreement between lienholders on a property that changes the priority of mortgages, judgments, and other liens.

subordination

A security instrument that places into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note is a(n)

trust deed. - Trust deed is a security instrument placing into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note.

The defeasance clause ensures that

upon final payment, the mortgage is satisfied, canceled, or void, and the title is re-vested from mortgagee to mortgagor.

Charging interest rates in excess of the state maximum allowed is known as

usury.

When is a borrower more likely to consider an adjustable-rate mortgage (ARM)?

when interest rates are high