Section 16: Real Estate Financing Basics

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

A homeowner has $80,000 of principal left to pay on her mortgage. Her home was recently appraised at $156,000, which is $13,000 more than what she purchased it for. How much equity does she have in her home?

$76,000

Related to real estate financing, how much is a point?

1% of loan value

In calculating PITI for a mortgage payment, the annual taxes and insurance are divided by ______ and are added to the monthly principal and interest payment to make up the total monthly payment.

12

For conventional loans in which the loan-to-value ratio is in excess of a certain percentage, lenders generally require private mortgage insurance. What's this percentage?

80%

After getting into a fender bender, Parker had to buy a new car. To make the down payment on the car, he had to skip a couple of his mortgage payments. He received a notice from his lender indicating the remaining amount of his loan is due immediately and in full. What clause in his mortgage stipulates this?

Acceleration

The Adams family is financing their loan through Acme Bank and their agent negotiated a great sales price on their new home. Smith Title Company processed the loan documents. The Adamses must purchase mortgage insurance. Who does the insurance protect?

Acme Bank

What's a discount point?

An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires

Buyer Ed is reviewing the Loan Estimate he received from the lender he's working with. He notices the loan terms include a prepayment penalty. Because he's a savvy consumer, which of the following does Ed do?

Ask the lender if there are other options available that would not involve a prepayment penalty.

The neighbors in South Mountain Village got tired of all the drug dealing and criminal activity surrounding a shop, the Mystery Market. The community boycotted the store, which eventually closed, and with the help of local financial institutions, a social services center was added to the area. What act is this an example of?

Community Reinvestment Act

What type of loan is neither guaranteed nor insured by government agencies?

Conventional

State usury laws are typically not applicable to what type of lending?

Credit cards

Callum is working with Darby, who received an honorable discharge from the Air Force. Callum is preparing to discuss options for down payment assistance with Darby. Which of the following would be Callum's best resource for information for this specific client?

Department of Veterans Affairs

What's an up front charge to make up for the difference between the interest rate the borrower is paying and the rate the lender normally requires?

Discount point

The Real Estate Settlement Procedures Act protects consumers by _______.

Eliminating illegal kickbacks and referral fees among settlement service providers and requiring lender disclosures as part of a residential real estate transaction involving credit

Natalie is a single mother of twins and receives government assistance to help make ends meet. She's been living with her mother for the last few years but really wants to buy her own home to gain some independence. She's got a little in savings and has good credit, but when a lender turns her away because she receives public assistance she worries that she'll never be able to get a loan. What act prevents automatic discriminatory practices by lenders and protects individuals like Natalie?

Equal Credit Opportunity Act

Lauren obtained a loan that's insured and that only required a down payment of 3.5%. Which of these is most likely the type of loan Lauren has?

FHA

Mike's been friends with Tim since college. They often work together: Mike flips houses and Tim's an appraiser that he uses frequently. It works out great for both friends and Mike definitely gets a better appraised value on the flips Tim handles. For every appraisal Tim handles for him, Mike gives him a $100 gift card. In what illegal practice does it sound like they're engaging?

Falsely inflating appraisals

Celia was obtaining a conventional loan, and she put $50,000 down as a down payment. Why might her lender also require her to obtain private mortgage insurance?

Her down payment of $50,000 isn't at least 20% of the purchase price.

The Morgans are about to close on their home. They're meeting with the lender to complete all the necessary paperwork. They've requested that none of their demographic information be shared with anyone. Which act would they need to be made aware of?

Home Mortgage Disclosure Act

In a title theory state, which of the following is a true statement?

It's generally much easier for a lender to foreclose on a property.

What type of foreclosure is commonly used when a mortgage is the security instrument?

Judicial

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee?

Lender

Which one of the following is a true statement regarding prepayment penalties?

Lenders must disclose up front if they reserve the right to charge a prepayment penalty, and under what conditions a penalty will apply.

What attracts borrowers to adjustable rate mortgages?

Lower initial interest rate

Maxine is purchasing a small craft shop, including the underlying real estate. She applies for a commercial loan from her federally insured bank to complete the purchase. Is Maxine's transaction covered by the Real Estate Settlement Procedures Act?

No; commercial and business loans are exempt from RESPA requirements.

Your buyer client, Percy, wants to start searching for his dream house and knows he needs to obtain financing to accomplish that. What's his first step?

Obtain a pre-qualification letter.

The intent of the Consumer Credit Protection Act, which includes the Truth in Lending Act, is to safeguard the consumer by ______.

Requiring full disclosure of the terms and conditions in any offers of credit

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

Alyssa's mortgage loan is secured by the note and the mortgage. Which of the following is true if she lives in a lien theory state?

She holds title to the property, and the mortgage becomes a lien on the property.

What does the "T" in PITI stand for?

Taxes

Janice is selling her property, and Tim wants to assume her loan. If a due-on-sale clause exists in Janice's mortgage, ______.

The entire loan balance may be due at once, and Tim won't be able to assume it

Olivia took out a 15-year loan secured with a deed of trust. She worked two jobs in order to pay the loan back and finally made her last payment this month. What happens now?

The lender tells the trustee to release the title to Olivia.

Jacqueline found a ready, willing, and able buyer for her client's condo, with a sales price of $20,000 more than the asking price. However, the appraisal came in just under the asking price. Which number will the lender use to calculate the loan-to-value ratio?

The smaller number

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

To convert the interest rate from fixed to adjustable

The ______ can offer direct loans to farmers and ranchers. The loans are funded by congressional appropriation.

USDA Farm Service Agency

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity position

Stacey's lengthy military service makes her uniquely eligible for a(n) ________.

VA loan

Jason purchased his dream home six months ago. After Jason received an inheritance from his uncle, he decided to pay off his mortgage. What should he consider before doing this?

Whether he will incur a prepayment penalty

Which type of loan's interest rate fluctuates with the economic index to which it's tied?

Adjustable rate

Which of the following is an example of a government-sponsored enterprise (GSE)?

Fannie Mae

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

A lien theory state

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.

Ted's property is in foreclosure, but he has some equity in his property. An investor suggests that she and Ted enter into a sales contract for a substantially higher price than the investor would actually pay. The investor pockets the cash and allows the house to be foreclosed on. What sort of scheme is this?

Equity skimming

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

Sheila's financing calls for the use of a promissory note. What's a promissory note?

The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms

Shalonda is looking to purchase a home for $325,000 using a conventional loan. She has $49,000 to place as a down payment on the house. Which of the following statements is true?

The loan-to-value ratio exceeds 80%.