RE FINANCE QUIZ #4

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

80-10-10 financing

the institutional lender provides the traditional 80-percent first mortgage. Then the borrower gets a 10-percent second mortgage and makes a 10-percent cash down payment.

Mark gets a home loan and the lender will charge him 3 points at closing. If the loan is for $68,000, what will Mark be assessed in points?

$2,040

Which statement is true?

A borrower can request the cancellation of PMI payments when the equity reaches 20% of the purchase price.

Although there are many different programs available under FHA-insured financing, which popular one covers loans on one-to-four-unit owner-occupied dwellings?

FHA 203(b) loan

What does federal law say about the termination of private mortgage insurance?

Federal law requires that any loans originated after July 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.

Which of the following would not be considered a junior loan?

First deed of trust

What are four ways that fixed-rate loans can be structured?

Fully amortized loan Term loan Growing equity mortgage Graduated payment mortgage

Which of these statements is true about a CalVet loan?

If the loan is VA guaranteed, no down payment is required.

government-backed loans

Loans obtained with the help of government agencies such as FHA, Department of Veterans Affairs, Cal-Vet, or other programs.

In an effort to make it possible for veterans returning from World War II to purchase a home, the Veterans Administration offered the opportunity for veterans to purchase a home with what amount of down payment?

No money down

Explain the difference between "points" and "discount points" on a loan

Points are a one-time service charge to the borrower for making the loan. Points represent prepaid interest, and the lender charges them to get additional income on the loan. Points are paid at closing and are usually equal to 1 percent of the loan amount. Discount points are designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market. Discount points are a means of raising the effective interest rate of the loan. The rule of thumb is 1/8 percent for each discount point.

List two advantages of conventional loans over government-backed loans.

Processing a conventional loan usually takes less time. Loan approval from a conventional lender can take 30 days or less, while approval on a government-backed loan seldom, if ever, can be done in less than 30 days. There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.

conventional loans

Requires no special insurance or guarantee from private insurance companies or government

Which of the following is a low loan-to-value ratio?

Sandy and Bill are putting 30% down on their home purchase.

Which of the following does not meet the property eligibility criteria for a CalHFA loan?

Six acre parcel

Lenders can charge all of the following except which fee when a borrower gets a loan?

Survey fee

Mortgage Insurance Premium (MIP)

The FHA insurance that the borrower is charged with a percentage of the loan as a premium. The borrower can pay this one-time premium at closing or the charge could be financed with the loan.

A growing equity mortgage

allows quick repayment of the loan through accelerated payments.

Discount Points

These charges are designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market. Discount points are a means of raising the effective interest rate of the loan.

Loan origination fees

This fee is typically 1 percent of the loan amount, although it could be higher. It covers the lender's cost for generating the loan.

Points

This is a one-time service charge to the borrower for making the loan. They represent prepaid interest and the lender charges them to get additional income on the loan. They are paid at closing and are usually equal to 1 percent of the loan amount.

zero premium settlement plan

the borrower can choose to finance the entire PMI premium and not pay a lump sum initial premium at closing

mortgage interest

a fee charged by a lender on money borrowed on the loan to purchase a home

Mutual Mortgage Insurance (MMI)

is a monthly premium that is paid with the monthly principal, interest, taxes and insurance payment.