Indiana Real Estate Course (Sections 21-25)
Participation certificate
A ______ is a mortgage-backed security issued by Freddie Mac.
The borrower also has sufficient credit and income.
A borrower who has received a certificate of eligibility will qualify for a VA loan under which of the following circumstances? -The borrower also has sufficient credit and income. -The borrower currently serves in the military. -The borrower has never had a VA loan before. -There's money left in the funding program that year.
23%
A buyer anticipates a house payment of $1,000 per month, with monthly homeowner association fees of $150. The buyer also has a car payment of $400 per month. If the buyer earns a monthly gross income of $5,000, what's the housing ratio?
Loan-to-value
A calculation that describes the amount being borrowed compared to the value of a property is called ______ ratio.
Participation certificate
A form of financing used by government entities; allows investors to buy shares of the lease revenues of a program, rather than the bond being secured by those revenues
Home equity loan
A loan in which the borrower's home equity is used as collateral
Balloon mortgage
A mortgage that has lower initial payments that do not amortize and provides for a "catch up" lump sum to be paid at a specific time
Adjustable rate mortgage (ARM)
A mortgage which has a rate that adjusts based on changes in a market index
Prepayment penalty
A penalty charged by a lender to a borrower for paying off a loan early
Promissory note
A promise by the borrower to repay the loan; includes the terms for repayment
Escrow account
ABC Lending requires mortgage borrowers to prepay 12 months of property taxes and insurance at closing. Where must these funds be held?
Due-on-sale clause
Aka alienation clause; requires the borrower to repay the loan on the property when selling or transferring ownership of the property
Defeasance clause
Aka release clause; instructs the lender to cancel a security instrument upon full payment of a loan
Acceleration clause
Allows a lender to demand immediate and full payment of all debt owed if a buyer defaults
Bankruptcy
Alternatives to foreclosure include deed in lieu of foreclosure, short sale, or ______.
Private mortgage insurance (PMI)
An insurance requirement that protects the lender when it approves a loan with more than 75% to 80% of the purchase being financed
Mortgage-backed securities
An investment instrument that has mortgages as collateral
Home equity line of credit (HELOC)
An open line of credit based on the available equity in the borrower's home
Alternatives to foreclosure
Bankruptcy, repayment plan, short sale, voluntary conveyance
To be asked for additional documentation to verify his income
Benny is self-employed. He's experienced a bit of success over the last few years and is now ready to purchase a home. He's meeting with a lender later today. What can Benny expect? -To be asked for additional documentation to verify his income -To be asked to obtain a co-signer for the loan to be approved -To be denied a loan because he's self-employed -To be told to obtain conventional employment
Derrick
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? Bethany Both Bethany and Derrick Derrick The state
Rural development loan
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? -Growing equity mortgage -Rural development loan -VA-guaranteed loan -Wrap-around mortgage
Her loan is 80% of the value of the real estate used as collateral and she's putting 20% down.
Evelyn has a loan-to-value ratio of 80/20. This means ______. -Her loan is 20% of the value of the real estate used as collateral and she's obtaining a second mortgage for 80%. -Her loan is 80% of the value of the real estate used as collateral and she's putting 20% down. -She's putting 20% down and pulling 80% from her IRA. -The property is only worth 80% of the amount loaned.
Straight-line amortization
Evelyn's mortgage payments fluctuate. The amount applied toward principal each payment remains the same, but the interest amount varies. What type of amortization is this? Constant payment Negative amortization Standard amortization Straight-line amortization
The borrower will live in one unit of the multi-unit property.
FHA financing is available for investment properties under which of the following circumstances? -The borrower will live in one unit of the multi-unit property. -The LTV ratio for the proposed property is under 25%. -The property is made up of more than four units. -The property passes an FHA inspection.
Freddie Mac
Federal Home Loan Mortgage Corporation; established to purchase primarily conventional mortgage loans in the secondary mortgage market
Fannie Mae
Federal National Mortgage Association; a federally backed company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.
Package
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?
80%
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? 75% 80% 85% 90%
Liquidity
Freddie Mac's mission is to provide ______, stability, and affordability in the U.S. housing market.
Ginnie Mae
Government National Mortgage Association (GNMA); a federal agency located within the U.S. Department of Housing and Urban Development (HUD) that establishes requirements for loans that can be accepted into its mortgage pool
Indiana homeownership programs
Helping to Own; Next Home; Affordable Home; My Home
-It doesn't buy loans or issue mortgage-backed securities.
How does Ginnie Mae function differently than Fannie Mae and Freddie Mac? -It doesn't buy loans or issue mortgage-backed securities. -It guarantees all MBS products. -It limits the qualifying types of properties. -It only services commercial loans.
By charging borrowers a mortgage insurance premium
How does the Federal Housing Administration fund its mortgage insurance program? -By charging borrowers a mortgage insurance premium -From federal taxes -From the sale of foreclosed homes -Through fees paid by lenders that participate in the direct endorsement program
Until the borrower reaches a 22% equity position
How long does the borrower have to pay private mortgage insurance?
Mortgage banker vs. mortgage broker
In-house lending vs. brings buyers and lenders together
Amortized loan
Installment payment remains the same throughout the loan repayment, with the majority of the payments being devoted to interest at the beginning of the loan, then gradually switching to principal-majority payments by the end.
Creative
Interest-only loans are a form of ______ buyer financing.
Deed of trust
Involves three parties: borrower, lender, and trustee; borrower conveys title for the property to a trust, which holds it as security for the lender
Mortgage
Involves two parties: borrower and lender; a voluntary lien placed on a property as collateral against a loan
81%
Jane is purchasing a property for $310,000 and plans to finance $250,000. What is the loan-to-value ratio? (Round to the nearest percentage.)
Construction
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?
IRS Form 4506-T
Joseph is self-employed and wants to buy his first home. What additional document may he need to provide to the lender when trying to obtain a loan? -Bank statements -IRS Form 4506-T -Receipts -Tax donations
Joseph should avoid taking the commercial bank's advice, since a subprime loan is most likely made by a predatory lender.
Joseph's got B-rated credit, and his commercial bank suggested he check with the specialty mortgage company down the street because they deal in subprime loans. What's NOT true about Joseph's situation? -A subprime loan may be a legitimate chance for Joseph to get a mortgage to buy the home he wants. -Joseph is likely to pay more in interest for a subprime loan, if the specialty mortgage company approves him for it. -Joseph's B credit rating is what makes him a candidate for a subprime loan. -Joseph should avoid taking the commercial bank's advice, since a subprime loan is most likely made by a predatory lender.
Repayment plan
Kristoff got a bit behind on his mortgage and missed several payments. He and his lender devised a schedule that gives Kristoff an opportunity to make up those delinquent payments. What is this an example of? -Bankruptcy -Repayment plan -Short sale -Voluntary conveyance of deed
Piggyback (split) loan
Legal way to avoid paying PMI; borrower takes out first mortgage for 80% of loan value, second mortgage of 10% of loan value, and pays remaining 10% as down payment
Reverse annuity mortgage (RAM)
Lender makes payments to the homeowner for a specified period of time and gains corresponding ownership
Participate in the direct endorsement program
Lenders who ______ can underwrite and approve FHA loans without requiring the FHA to review each borrower's qualifications.
Predatory lending
Lending that involves unfair or abusive loan terms for the borrower
579 or lower
Margo, a mother of three, is in the group most likely to become delinquent on their payments, with a credit score of _______. Margot's tried unsuccessfully to get approved for loans, but she was issued a credit card that included many extra fees and required deposits
Reverse annuity mortgage (RAM)
Monty retired 10 years ago and would like to see the world, but his retirement account won't support his desire to travel. Monty heard of a loan that would allow him to take advantage of the equity in his home by getting monthly payments from the bank by using his house as collateral. What is this type of loan called? -Adjustable rate mortgage (ARM) -Home equity line of credit (HELOC) -Home equity loan -Reverse annuity mortgage (RAM)
PITI
Mortgage payment components: principal, interest, taxes, and insurance
Fannie Mae
Of the institutions listed, which of these is viewed only as a secondary mortgage market player? Bank of America Fannie Mae LendingTree Quicken Loans
Straight loan
Payment amount changes each month; the portion of the mortgage payment that applies to the principal remains the same with each payment, and the interest amount varies according to the outstanding loan balance.
Length of credit history
Payment history, age of accounts, credit usage rate, and inquiries are factors considered in calculating a credit score. Which of the following is also considered? Income Length of credit history Marital status Race
Deed in lieu
Rather than be foreclosed on, Jarod turned his deed over to his bank. This is called a ______.
Short sale
Ray is in a bit of a predicament. He owes more on his mortgage than his property is worth, but can no longer afford the payments. He receives permission from his lender to sell the property for less than what he owes. What is this an example of? -Bankruptcy -Repayment plan -Short sale -Voluntary conveyance of deed
Mortgage insurance premium (MIP)
Required with FHA-insured loans;
A minimum down payment of 3.5% is required.
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. -Mortgage insurance is not required. -The loan-to-value ratio must be less than 80%. -They must have PMI.
-Rusty is two or three months in default.
Rusty received an acceleration letter from his mortgage lender. What is the most likely reason for receiving this letter? -Rusty failed to pay his property taxes. -Rusty has paid off his mortgage. -Rusty is two or three months in default. -Rusty's mortgage is being sold on the secondary market.
A commercial bank
Shelly's flower business is blooming and it's time for her business to grow. She plans to take out a business loan to open two more shops on the north side of town. Which lending institution would she most likely go to for the loan? A commercial bank A credit union An investment group A savings and loan
Maybe, but they'll have to petition their lender
The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled? -Maybe, but they'll have to petition their lender -No, because PMI lasts for the life of the loan -Yes, because their equity is over 20% -Yes, because their equity position is at least 50%
Have a minimal down payment and less-than stellar credit
The FHA loan program is designed for borrowers who ______. -Have a minimal down payment and less-than stellar credit -Have nothing saved for a down payment -Have stellar credit -Need their loan guaranteed
Stabilizing the mortgage market
The Federal Housing Administration's mission includes ______ through the establishment of lending standards and by insuring mortgages. -Controlling the use of credit -Encouraging all-cash transactions -Reducing homeownership -Stabilizing the mortgage market
Ginnie Mae
The Government National Mortgage Corporation was created in 1968 under the Department of Housing and Urban Development (HUD) and is more commonly known as ______.
$36,000
The VA loan program offers a basic entitlement amount of ______.
-Loans are assumable with VA approval (if the loan were made after 1988).
Under what conditions is a VA loan assumable? -Loans are assumable with VA approval (if the loan were made after 1988). -No restrictions apply to assumption of a VA loan.V -A loans are assumable only by other veterans. -VA loans are not assumable.
Items of value a borrower owns
What are assets (as they related to the residential mortgage process)? -Items of value a borrower owns -Obligations a borrower owes -The difference between a borrower's items of value and obligations -Wages earned from employment
Primary market players
What are the types of institutions that issue loans directly to consumers commonly called?
In the event of default, a portion of the loan will be repaid to the lender.
What does the U.S. Department of Veterans Affairs assure when it guarantees a loan? -A home approved for a VA loan will be habitable and in good condition. -In the event of default, a portion of the loan will be repaid to the lender. -In the event of default, the entire loan amount will be repaid to the lender. -The borrower will not default on the loan.
(Loan amount ÷ property value) x 100
What is the calculation used to determine the LTVR? -(100 ÷ property value) x loan amount -(Loan amount ÷ property value) x 100 -(Loan amount ÷ sales price) x 100 -(Property value ÷ loan amount) x 100
Non-judicial
What type of foreclosure is commonly used when a deed of trust is the security instrument?
Conforming loan
What type of loan meets certain criteria that are accepted by Fannie Mae and Freddie Mac? Conforming loan Government loan Jumbo loan Non-conforming loan
An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires
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 -The amount a borrower charges a lender for using its money, charged either monthly or annually -The amount a lender charges to initiate a loan -The interest rate at which a bank is allowed to borrow money from the Fed; this rate changes with the stock market
Discount point
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?
Constant payment method
What's it called when a borrower's installment payment remains relatively the same over the life of the loan?
To avoid paying private mortgage insurance
What's one reason a borrower may choose a piggyback (or split) loan? -To avoid paying private mortgage insurance -To give the lender a little extra commission -To stay under the radar of the IRS -To trick the system into a lower combined interest rate
Assets
When a borrower is completing a loan application, items of value the borrower owns are listed in the ______ section.
That the work meet FHA's basic energy efficiency and structural standards
When a homeowner has repairs made to a home using an FHA 203(k) loan, HUD requires ______. -That the contractor agree to a 10% discount for all labor -That the work be completed within one year of closing on the loan -That the work be done by a HUD-approved contractor -That the work meet FHA's basic energy efficiency and structural standards
Usury
When an interest rate above the legally allowed maximum is charged
Primary mortgage market
Where loans are originated
Secondary mortgage market
Where loans originated in the primary market are sold
FNMA
Which of the following acronyms is used to represent Fannie Mae? FAMA FMAE FNIMA FNMA
The lender must file a lawsuit to initiate foreclosure proceedings.
Which of the following best describes the foreclosure process in Indiana? -Foreclosure is illegal in Indiana. -It's used in cases where something other than property serves as collateral. -No court involvement is required. -The lender must file a lawsuit to initiate foreclosure proceedings.
A calculation that describes the amount being borrowed compared to the value of a property
Which of the following describes loan-to-value ratio? -A calculation that describes the amount being borrowed compared to the value of a property -A calculation that illustrates a borrower's principal payment compared to interest -A calculation that looks at a borrower's monthly housing obligation—which includes principal, interest, taxes, and insurance—as well as any homeowners or condo association fees, as a percentage of monthly gross income -A calculation that looks at all recurring (or installment) debt—such as monthly mortgage, car, credit, and loan payments—as a percentage of the borrower's monthly gross income
Allowances for special circumstances can't be made.
Which of the following is a downside of automated underwriting? -Allowances for special circumstances can't be made. -Closing costs are reduced. -It makes the process of underwriting much faster. -There is no chance of personal prejudice entering into the decision.
Down payment
Which of the following is a guideline used by Freddie Mac when determining if a loan is conforming? Discount points Down payment Interest rate PMI
Keep the property in good repair.
Which of the following is a mortgagor's responsibility? -Assign the mortgage. -Charge late payment penalties. -Foreclose on the property if in default. -Keep the property in good repair.
The applicant must have a certificate of eligibility.
Which of the following is a true statement about borrower qualification standards for a VA-guaranteed loan? -Every veteran qualifies. -The applicant must have a certificate of eligibility. -The applicant must have a certificate of reasonable value. -Those who aren't service members or former service members don't qualify.
Underwriting
Which of the following is the process the lender uses to evaluate whether to make the loan? Application Appraisal Commitment Underwriting
Account statement
Which of the following may a lender request to verify an applicant's bank deposit information? Account statement Debit card Loan application Pay stub
Pay stub
Which of the following may a lender request to verify an applicant's work history and earning information? Account statement Debit card Loan application Pay stub
They're insured or guaranteed by a government agency.
Which of the following statements is true about government loans? -They originate in the secondary market. -They're insured or guaranteed by a government agency. -They're serviced by the U.S. Department of the Treasury. -They're underwritten by the Federal Reserve.
Certificate of eligibility
Which of the following tells the lender how much entitlement the veteran has available under the VA loan program? -Certificate of eligibility -Certificate of entitlement -Funding entitlement certificate -Loan guarantee eligibility calculation
Loan application
Which of the following, once completed, initiates the loan process? Closing Disclosure Loan application Loan Estimate Pre-qualification request
Buyer
Which party to the loan approval process is responsible for completing a loan application and supplying supporting documentation? Buyer Lender Seller Settlement agent
Ginnie Mae insures MBSs made up of government-insured or -guaranteed loans.
Which statement most accurately describes the role and function of Ginnie Mae in the secondary mortgage market? -Ginnie Mae insures MBSs made up of conventional loans. -Ginnie Mae insures MBSs made up of government-insured or -guaranteed loans. -Ginnie Mae purchases conventional loans and packages them to sell. -Ginnie Mae purchases government-insured or -guaranteed loans and packages them to sell.
Interest
With a straight mortgage, what type of payments are made up until the end of the loan term?
Voluntary conveyance of deed
With this alternative to foreclosure, a borrower hands over the property to the lender rather than face foreclosure proceedings. -Bankruptcy -Repayment plan -Short sale -Voluntary conveyance of deed
Buyers
_______ are part of the loan-approval process and are responsible for completing a loan application and supplying supporting documentation.
