Oregon 30-Hour Real Estate Finance Course Week 6

Piggyback Loan Ratio

80/10/10

subprime lender

A lender who will take loans that are considered too risky by other lenders. Subprime loans bear a higher rate of interest.

Periodic Cap

A limit on how much a payment or interest can increase in a stated period of time

Swing loan

A loan from the equity in a property that is used to obtain another property.

shared appreciation mortgage (SAM)

A loan where the borrower receives a below-market interest rate in exchange for the lender receiving equity.

home equity loan

A lump-sum loan that must be repaid by the homeowner

Purchase Money Mortgage

A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing.

Blanket Mortgage

A mortgage which covers more than one piece of real estate. Often used by a developer in the financing of undeveloped lots. Contains a partial release clause.

Silent second

A property buyer accepts a second mortgage without disclosing it to the original lender. Often used when a buyer can't afford the down payment on a home

conforming loan

A standardized conventional loan that meets Fannie Mae's or Freddie Mac's purchase requirements.

Home Ownership and Equity Protection Act (HOEPA)

An act of Congress that addresses abusive, predatory practices in subprime lending and sets a trigger APR and fee levels at which loans become subject to the law's restrictions.

Inflated appraisals

An appraiser intentionally submits a misleading report to a lender that indicates an inflated property value.

Equity skimming

An investor receives title to a property— often by using a straw buyer—doesn't make the mortgage payments, and usually rents out the home until foreclosure occurs.

reverse annuity mortgage

As funds are drawn by the homeowner over time, the bank gains ownership of the property

Requested Termination

Borrowers may request PMI termination from their lender any time the principal balance goes below 80% of the original home value.

False identity

Borrowers may use a stolen or fictitious identity to obtain a home loan.

A VA loan program that allows a veteran to refinance at a lower rate and receive cash proceeds to fund other investments or purchases is ______.

Cash Out Refinance

Which of the following VA programs requires a credit check, new appraisal, and income verification?

Cash Out Refinance

Nominee loans/straw buyers

Concealing a buyer's identity by using another person's name and credit information to obtain a loan.

What percentage of closing costs can be included in a VA loan?

None

Chanel is buying a brand new home with a VA loan. She's obtained a certificate of reasonable value. For how long is that CRV valid?

One Year

legal title

Ownership interest that is enforceable by law

Installment Sales Contract

Purchase of real estate wherein the purchase price is paid in installments over a long period of time, title is retained by seller, and upon default by buyer (vendee) the payments may be forfeited

Real Estate Settlement Procedures Act (RESPA)

The federal law that requires certain disclosures to consumers about mortgage loan settlements.

home equity conversion mortgage (HECM)

The lender makes payments to the homeowner for a specified period of time, and gains corresponding ownership

lifetime cap

The maximum interest rate adjustment permitted over the life of the loan.

loan-to-value ratio (LTV)

The ratio of a loan amount to the value of the property being purchased

Land Contract

The seller accepts a down payment on a parcel of land but title to the property does not pass until the last principal payment has been received.

Undisclosed buyer rebate

The seller or another party provides funds that aren't included in the settlement statement.

What's the purpose of PMI?

To protect the lender in case of borrower default when the borrower has put down less than 20%

With piggyback financing, the borrower takes out...

a first mortgage for 80% of the amount needed for purchase and a second, subordinate loan for the additional 10%. The remaining 10% come from the borrowers down payment

partnership between mortgagors (borrowers)

a group of mortgagors who share responsibility for a single mortgage loan, specifically on a multi-family dwelling. This is known more commonly as a cooperative.

Piggybank Loan

a legal way for borrowers to avoid having to purchase private mortgage insurance when they put less than 20% down

Adjustable Rate Mortgage (ARM)

a loan where the interest rate is based on an economic index (e.g., the Consumer Price Index) and is adjusted on a periodic basis, such as annually.

initial cap

Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage can change during the first adjustment period.

Truth in Lending Act (TILA)

Federal government regulates the lending practices of mortgage lenders through this act.

Property flipping

Illegal when a home is bought, appraised for more than it's worth, and sold within a short time frame. Kickbacks to the parties are commonplace.

How do VA loan programs compute "residual income"?

Income minus shelter expenses and debts

Automatic Termination

Lenders are required to automatically terminate PMI when the principal balance is scheduled to reach 78% of the original property value or at the midpoint of the loan's amortization schedule

Package Mortgage

Mortgage covering both real and personal property

Graduated Mortgage

This is a fixed-rate mortgage with payments that gradually adjust (usually upward) based on a predetermined schedule and amount.

home equity line of credit (HELOC)

Used similarly to a credit card

Does the VA make direct loans?

Yes, for Native Americans on trust lands

Conventional Loan

a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker

renegotiable-rate mortgage (RRM)

a mortgage loan in which the interest rate may increase or decrease within certain limits at specified intervals.

Pledged Account Mortgage

a mortgage loan program in which the lendee sets up a savings account; the lender withdraws money from the account each month to be applied towards the monthly payment; the interest earned is used to subsidize the mortgage's interest

Bridge loan

a temporary loan that provides funds for a homebuyer to use as a down payment for a new home, prior to selling the current home.

Subprime Loan

a type of loan offered at a higher rate to individuals who do not qualify for prime rate loans

Growing Equity Mortgage

fixed-rate mortgage with payments that increase over a specific period. Extra funds are applied to the principal so that the loan is paid off more quickly

Private Mortgage Insurance ie required on conventional loans if the loan-to-value (LTV) ratio is.....

greater than 75 to 80%, based on the lender, loan product, and borrower's financial information

Once the LTV ratio reaches 80%, the insurance carrier is.....

no longer liable for defaults and coverage usually ceases, but the borrower has to request the termination of PMI

Straight Mortgage/Term Mortgage (Interest Only)

periodic payments go to interest only and the entire principal amount is due at the end of the term

Straight-Line Mortgage (Constant Amortization)

the amount applied to principal remains constant over the life of the loan

Equitable Title

the equitable right to obtain absolute ownership to property when legal title is held in another's name.

margin

the number of percentage points added to the index by the mortgage lender to set your interest rate on an adjustable-rate mortgage (ARM) after the initial rate period ends

Wrap-Around Mortgage

the seller's mortgage remains in place, but the seller is receiving payments from the new buyer and therefore financing the purchase.

rollover mortgage (ROM)

type of renegotiable loan in which the interest rate is renegotiated at specified intervals (usually every five years).

Partnerships between mortgagees (lenders)

when more than one mortgagee is an owner of the finance instrument for the purpose of financing a large real estate project. Each mortgagee in the partnership puts up an equal share of the required capital and also shares the mortgage payments received.