Financing

Jeffrey has accepted an offer of $299,000 for his house. The buyer is making a $50,000 down payment and the buyer's appraisal came in at $300,000. On what number will the buyer's lender base the loan-to-value ratio?

$299,000

Sandra retired from a career in the Navy and is ready to buy her first home—a small bungalow in a quiet neighborhood—for $169,900. Her military service qualifies her for a VA-guaranteed loan. What's her required down payment?

0%

All lenders have different underwriting standards, but traditionally, the housing debt-to-income ratio has been ______%, with a total debt-to-income ratio of ______ %.

25 to 28; 33 to 36

Rhonda and her husband filed for bankruptcy five years ago. They want to purchase a new house but don't have the best credit score. They've decided to buy the home using an FHA loan. Which of these is a true statement?

A minimum down payment of 3.5% is required.

Janice is extremely excited to have purchased her first home. She was able to lock in her monthly payment at a very low rate for the first five years. In year six, Janice's payments will become significantly higher based on the going market rates. What type of loan does Janice have?

Adjustable rate mortgage

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.

_______ is a standardized measure for interest rates and other costs of the loan.

Annual percentage rate

How does the lender determine whether the property is worth the sales price?

Appraisal

In eight years, Margot will inherit a sizable chunk of money from her grandmother. Margot wishes to purchase a home now and qualifies for a 10-year loan with regular, affordable monthly payments. At the end of the loan's term, she'll owe the entire principal balance at once, which she's prepared to pay with some of Grandma's money. What kind of loan will Margot be using?

Balloon loan

Monica received a promotion at work that requires her to relocate. Because of the timing of her promotion, she'll need to buy a new house in her new city before her current one is sold. So, 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?

Bridge loan

Leonard is offered a loan at 5.75%. Because he plans to be in his home for several years, he chooses to pay points up front to have the rate reduced to 5.25%. What's this an example of?

Buydown

What factors does the underwriter consider in reviewing a mortgage loan application?

Credit, capacity, and collateral

In an amortized loan, the interest portion of the mortgage payment generally ______ over the life of the loan.

Decreases

Prudence just finished paying off the debt on her loan, so the lender released the property's title to her. What clause in her mortgage stipulates this?

Defeasance

Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full?

Defeasance The defeasance clause means that the lender is prevented from trying to pursue additional payment because the loan has been paid in full.

Which entity services rural development loans?

FSA

If Acme Bank, a primary lender, wants to sell its loans on the secondary market, it would be easier for it to do so if its loans met ______.

Fannie Mae and Freddie Mac guidelines

Which of the following is an acceptable ad based on Regulation Z?

Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment and a 30-year fixed rate with no points.

Charles is selling his property to Seth. Charles paid off his own mortgage on the property years ago, so he's in a position to provide 100% financing of Seth's purchase. Seth will make payments to Charles while Charles retains the property title. What's this an example of?

Land contract The seller retains the title in a land contract. When the loan balance is paid in full, the seller gives the buyer title. While the loan is being repaid, Seth has equitable title. When the loan balance is paid in full, Charles will give Seth the full title to the property.

What could be a consequence if there was no secondary mortgage market?

Lenders might not have funds available to make new loans to the public.

Lawrence is a buyer closing on a home for which he's obtaining financing. Which document will give Lawrence an estimate of the costs he'll likely pay at closing?

Loan Estimate

A calculation that describes the amount being borrowed compared to the value of a property is called ______ ratio.

Loan-to-value

When the lender gathers all kinds of information about the borrower's assets, debts, income, employment history, and pulls their credit report, the buyer is ___________________.

Making an application for a loan

The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been on fire lately, and their house is now appraised at twice their loan balance! Will their PMI be automatically cancelled?

Maybe, but they'll have to petition their lender. When the loan the loan-to-value ratio is 80% or less, PMI is automatically cancelled. Borrowers may have to petition for PMI to be cancelled and must be current on payments.

Mick focuses on originating mortgage loans. He works at a company that has in-house loan processors and underwriters. The options he offers consumers are limited to the products offered by his company. What's Mick's position?

Mortgage banker

Which of the following statements is true about conventional loans?

Originators usually package and sell the loans on the secondary market.

The Hendersons don't have enough money to make the full 20% down payment their lender requires. To close the sale, the seller is willing to finance a loan for the gap between the home's list price and the amount the institutional lender is willing to loan. What's this type of financing called?

Purchase money mortgage A purchase money mortgage is the term for seller financing typically used to bridge the gap between the home's list price and the institutional loan, though it can also be used to finance the entire purchase price.

The purpose of the Truth in Lending Act (TILA) is to ______.

Require lenders to make disclosures that allow consumers to compare the costs of making a purchase using credit from different lenders, and to compare those with the cost of using cash

When Stacy's clients ask her if she can recommend a mortgage broker, she promptly gives them the name of the best mortgage broker she knows, Gary Jones. Later, she always receives a check from Gary as payment for the referral. Would this be legal or illegal under the Real Estate Settlement Procedures Act (RESPA)?

This is illegal under RESPA because it's considered a kickback between settlement service providers.

What's the purpose of the fixed/adjustable rate note?

To convert the interest rate from fixed to adjustable

Because Shelby has a high prepayment penalty on her high-interest loan, she is ________.

Unable to refinance her high-interest subprime loan without paying a stiff penalty

Manuel is selling his home to Selena. He has an existing loan that he'll continue to make payments on, and he's extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction?

Wrap-around loan

Sondra, a buyer, signs all the required mortgage documentation, and promises to make all payments to her lender. Unfortunately, Sondra falls on hard times and misses multiple payments, and the bank indicates that it is going to foreclose on her. The foreclosure proceedings are more difficult for the lender because Sondra holds the title to the land. What kind of state does Sondra live in?

lien theory state In a lien theory state, the mortgage becomes a lien on the property, but title remains with the buyer. Foreclosure proceedings in a lien theory state may be more difficult for the lender due to the fact that the buyer is holding title to the land and not the lender.

Your seller clients have received an offer, and the buyer has included a pre-approval letter. Your clients are a little confused and think a pre-qualification letter is necessary. What's true regarding pre-approval and pre-qualification?

A pre-approval letter comes with lender verification of buyer-provided data and provides more assurance to the seller.

While Martha's paying off her loan, her lender is holding on to something that includes her name, property address, the interest rate on her loan, what the late charge amount would be, and the amount and term of the loan. When her loan is paid off, the lender returns it to Mary, marked paid in full. What is this item?

A promissory note A promissory note is the borrower's promise to repay the loan. When the loan is paid in full, the note is marked as paid in full and returned to the borrower.

Which of the following best describes annual percentage rate (APR)?

A standardized measure for interest rates and other loan costs Regulation Z requires lenders to use a standardized measure for loan costs, including interest rates, which is the APR.

Sam's not very good with planning for his expenses. He has a mortgage payment that includes his property taxes and property insurance (PITI), so he can knock those all out with his mortgage payment every month. Sam's also happy to know that his monthly payment will remain the same for the life of his loan. What type of mortgage does Sam have?

Budget Budget mortgages are a type of amortized loan that include principal, interest, taxes, and insurance (PITI) in each amortized monthly payment.

Gregory and Dianne are American citizens of Cuban origin, and when they're denied a home loan, they suspect discrimination. Which of the following acts prohibits lender discrimination on the basis of the protected class of national origin?

Equal Credit Opportunity Act

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

Chris owns Country Time Ranch and wants to expand his sheep and lamb farm by branching into milk production and cheese making. He wants to purchase the property adjacent to his farm, which would give him an extra 10 acres of farmland. Chris's ranch will provide a significant boost to the local economy. Assuming his income meets the program's criteria, what type of loan may Chris find the most desirable?

Rural development loan