Real Estate Financing
Gunther's gross monthly income is $3,800, and he has no monthly debt payments. The lender's qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What's the maximum housing payment Gunther can afford? Topic: Financing Subtopic: Financing and lending $1,064 $1,297 $1,368 $1,492
$1,064 Calculate the debt and housing ratios that buyers need to meet both lending ratios. While Gunther qualifies for a payment of $1,368 under the total DTI, he only qualifies for $1,064 under the housing ratio ($3,800 x 28%).
A buyer is purchasing a property for $400,000. His loan-to-value ratio is 80%. The lender also charges a 1% loan origination fee. How much is the loan origination fee? Topic: Financing Subtopic: Basic concepts and terminology $3,200 $3,600 $4,000 $800
$3,200 An 80% LTVR means the buyer is financing 80% of the purchase price. This equates to $320,000, and 1% of this amount is $3,200.
Related to real estate financing, how much is a point? Topic: Financing Subtopic: Basic concepts and terminology $1 $10 1% of loan value 1% of sale price
1% of loan value Points are a percentage of the amount being financed. One point is one percentage, so two-and-a-half points is 2.5% of the loan amount.
Glenn is purchasing a home for $400,000. The property appraised at $415,000 and Glenn is financing $300,000. What's the loan-to-value ratio? Topic: Financing Subtopic: Basic concepts and terminology 72% 75% 82% 96%
75% Lenders use the lesser of the sales price or appraised value. This results in an LTV ratio of 75% ($300,000 ÷ $400,000).
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? Topic: Financing Subtopic: Basic concepts and terminology 75% 80% 85% 90%
80% Loans above 80% don't conform to Fannie Mae/Freddie Mac guidelines, so a lender may require PMI to offset the risk.
How's interest defined as it's related to a mortgage loan payment? Topic: Financing Subtopic: Basic concepts and terminology A fee paid to lenders for the use of their money A fee to keep other borrowers from taking interest in your property and buying it out from under you Extra money paid to cover any unexpected bank fees Random charges
A fee paid to lenders for the use of their money Interest is the fee paid back to the lender for the use of the lender's money.
Which of these is an example of usury? Topic: Financing Subtopic: Financing and lending A borrower does not pay back a loan on time. A borrower uses the funds received from a lender. A lender charges a borrower an interest rate that is excessively high. A private lender provides a borrower with money for a real estate purchase.
A lender charges a borrower an interest rate that is excessively high. Usury describes the practice of charging an excessively high interest rate on a loan.
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? Topic: Financing Subtopic: Basic concepts and terminology A deed of trust A mortgage An assignment A promissory note
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.
Elaina and Allen just purchased a home using a deed of trust. Which of the following is most likely true about their home loan? Topic: Financing Subtopic: Basic concepts and terminology A trustee will hold title until the loan is paid. Their transaction is secured with a mortgage as well. The lender will hold the mortgage, while a trustee will hold the deed of trust until their loan is paid off. The lender will hold the title until the loan is paid off.
A trustee will hold title until the loan is paid. When a deed of trust secures a loan, a trustee holds the title until the loan is paid. Because the right to sell in the event of a default is part of the deed of trust's language, a non-judicial foreclosure may be used.
Stacy has gone into default on her mortgage. Her lender is demanding that the entire loan balance be paid in full. Which mortgage clause permits her lender to do this? Topic: Financing Subtopic: Basic concepts and terminology Acceleration Alienation Defeasance Due-on-sale
Acceleration The acceleration clause gives the lender the right to accelerate payment of the loan if the borrower defaults.
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? Topic: Financing Subtopic: Basic concepts and terminology Acme Bank Smith Title The Adamses The realtor
Acme Bank Private mortgage insurance is protection for the lender in the event of buyer default; it is used when the borrower does not have a large enough (usually 20%) down payment.
Which of the following is a true statement about FHA financing? Topic: Financing Subtopic: Government Programs An FHA loan is best for borrowers who have large down payments. An FHA loan is usually more attractive to borrowers who have lower credit scores and down payments. FHA loans are available to all borrowers, regardless of credit history. FHA loans have more stringent requirements than conventional loans do.
An FHA loan is usually more attractive to borrowers who have lower credit scores and An FHA loan is typically more attractive to borrowers with less-than-stellar credit or who have saved a minimal amount for a down payment.
Your buyer client, Percival, was pre-approved for the exact amount he needed to buy the home of his dreams, and he made an offer that was accepted by the seller. What's his next step? Topic: Financing Subtopic: Financing and lending Complete a loan application. Obtain pre-approval from another lender. Review the underwriter's decision. Sign a purchase agreement.
Complete a loan application. After his offer is accepted, he's ready to begin the loan application.
In an amortized mortgage, the monthly payment is the same each month. The part used to pay the principal increases each month, while the amount going toward interest ______. Topic: Financing Subtopic: Types of loans Decreases Increases Increases and then decreases Stays the same
Decreases Over time, the portion of the monthly payment used to repay principal increases as the portion used to pay interest decreases. Total principal and interest payments remain the same, and the loan payment remains relatively stable.
A trustee is holding the title to Cassandra's house until the loan is paid in full. Which type of security instrument was used? Topic: Financing Subtopic: Basic concepts and terminology Deed of trust Mortgage Mortgage and deed of trust Promissory note
Deed of trust Three parties are involved when a deed of trust is used: the lender (beneficiary), the borrower (trustor), and a neutral third party (trustee). The trustee holds the title on loans when a deed of trust is used.
Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full? Topic: Financing Subtopic: Basic concepts and terminology Acceleration Alienation Defeasance Due-on-sale
Defeasance The defeasance clause means that the lender is prevented from trying to pursue additional payment because the loan has been paid in full.
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? Topic: Financing Subtopic: Basic concepts and terminology Acceleration Alienation Defeasance Due on sale
Defeasance The defeasance clause orders the lender (or the trustee, if a deed of trust secures the loan) to immediately release full title to the property to the borrower once the loan is paid in full.
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? Topic: Financing Subtopic: Basic concepts and terminology Discount point Interest Note Usury
Discount point A lender may charge discount points to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires.
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? Topic: Financing Subtopic: Financing and lending Community Reinvestment Act Consumer Credit Protection Act Equal Credit Opportunity Act Home Mortgage Disclosure Act
Equal Credit Opportunity Act The Equal Credit Opportunity Act prohibits lender discrimination on the basis of an applicant's protected class status, such as dependence on public assistance. Its intent is to make credit equally available to all credit-worthy applicants.
Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay an MIP. What type of loan does Lydia have? Topic: Financing Subtopic: Government Programs Conventional FHA Standard VA
FHA Based on the minimum down payment amount of 3.5% and the fact that she's paying MIP, Lydia has an FHA loan.
Which of the following is an acceptable ad based on Regulation Z? Topic: Financing Subtopic: Financing and lending 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. Get a low interest rate of 4.75% on a monthly payment of $900. Get a low interest rate of 4.75%, with 85% loan to value. Get a low interest rate of 4.75% with as little as 3% down.
Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment The interest rate is a trigger term, and therefore the APR, down payment, and terms of the mortgage must also be disclosed.
Fred is an agricultural lender who helps the ranchers and farmers in his community by providing credit for purchasing land, making repairs to their buildings, and improving their agricultural property. He's able to do this in part because of the ______ offered by the USDA Farm Service Agency. Topic: Financing Subtopic: Types of loans Capital Grants Guaranteed loans Secondary market for agricultural loans
Guaranteed loans The USDA Farm Service Agency offers guaranteed loans to agricultural lenders.
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? Topic: Financing Subtopic: Basic concepts and terminology Her down payment of $50,000 isn't at least 20% of the purchase price. Her lender is a subprime lender. PMI is triggered at the $50,000 down payment amount. She has poor credit.
Her down payment of $50,000 isn't at least 20% of the purchase price. When loan-to-value ratios exceed 80% on a conventional loan, lenders may require private mortgage insurance.
When a borrower first obtains a mortgage, which portion of PITI receives most of the mortgage payment? Topic: Financing Subtopic: Basic concepts and terminology Insurance Interest Principal Taxes
Interest Interest receives proportionally more of the mortgage payment in the beginning; over time, more and more of the payment goes toward principal.
Which practice involves talking the consumer into refinancing over and over so a lender can charge fees? Topic: Financing Subtopic: Financing and lending Loan flipping Poison lending Premeditated lending Turnover lending
Loan flipping Loan flipping is a tactic that predatory lenders use.
What attracts borrowers to adjustable rate mortgages? Topic: Financing Subtopic: Types of loans Balloon payment Convertible feature Initial cap Lower initial interest rate
Lower initial interest rate Some consumers are attracted to ARMs because of their lower interest rate for an initial period of one to several years.
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 ___________________. Topic: Financing Subtopic: Financing and lending Approved Making an application for a loan Preparing for the closing Prequalified
Making an application for a loan This is all part of the application process.
What are the main benefits to veterans of the VA-guaranteed loan program? Topic: Financing Subtopic: Types of loans A VA guarantee of the property condition Lower interest rates than are available on the open market No down payment, no mortgage insurance, and no prepayment penalty Reduced homeowner's insurance requirements
No down payment, no mortgage insurance, and no prepayment penalty Veterans benefit because the VA requires no down payment, no mortgage insurance, and doesn't have a prepayment penalty.
Upon examination of his mortgage document, Jared finds a clause stating he will owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe? Topic: Financing Subtopic: Basic concepts and terminology Acceleration Alienation Defeasance Prepayment
Prepayment The prepayment penalty clause puts the borrower on notice that if the loan is paid off before a specified period of time, the lender may be owed additional interest.
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? Topic: Financing Subtopic: Types of loans Growing equity mortgage Rural development loan VA-guaranteed loan Wrap-around mortgage
Rural development loan Rural development loans are government loans specifically for family farms and to help finance housing in rural areas through the Farm Service Agency, an agency of the USDA.
Samuel and Yoshi have worked at the same firm for a few months and get along well. Samuel mentions he has a credit score in the low 800s. Yoshi, who's just starting out, persuades Samuel to sign for a loan to help Yoshi buy a property, since his credit isn't good enough. Yoshi promises to make the mortgage payments, but two months after the deal closes, Yoshi moves across the country. Samuel's now stuck with a $400,000 mortgage. What type of scheme is this? Topic: Financing Subtopic: Financing and lending Equity skimming Inflated appraisal Silent second Straw buyer
Straw buyer Unfortunately, Samuel was a straw buyer. His credit was used to purchase a property and secure financing, so when Yoshi skipped town, Samuel was left with the responsibility of paying the mortgage.
A "homes for sale" magazine contains the following ad: "Cozy two-bedroom starter home, neat and clean, ready for move-in. $140,000. Low down payment and easy financing!" Which of these statements is true? Topic: Financing Subtopic: Financing/Credit Laws The ad complies with TILA because it doesn't contain any of the trigger terms that require full disclosure of all financing terms. The ad complies with TILA because the sales price is below the minimum that triggers full disclosure. The ad does not comply with TILA because financing terms must be provided on any residential real estate ad. The ad does not comply with TILA because it mentions financing without including all of the terms of the financing.
The ad complies with TILA because it doesn't contain any of the trigger terms that Regulation Z requires all financing terms to be included in an ad only if certain trigger terms are present, but "low down payment and easy financing" are not triggers.
In a residential real estate sale involving a federally related loan, what entity is required to provide Real Estate Settlement Procedures Act disclosures to the consumer? Topic: Financing Subtopic: Financing and lending The consumer's lender The consumer's mortgage broker The consumer's real estate broker The settlement officer for the transaction
The consumer's lender The lender must provide the borrower with a written disclosure of the estimated and final settlement costs.
Sophia and Antonio are expecting twins. They want to sell their old house and buy a larger home using a conventional loan. In order to be sure they'll get the PMI waived, what will they need to have? Topic: Financing Subtopic: Basic concepts and terminology They'll need a 90% loan-to-value ratio. They'll need to put down at least 25%. They should have a loan-to-value ratio of 80% or less. They will need to qualify for an FHA loan.
They should have a loan-to-value ratio of 80% or less. Primary mortgage insurance may kick in when the loan-to-value ratio exceeds 80%; that is, the borrower is borrowing more than 80% of the property's value. To be sure they can avoid paying PMI, Sophia and Antonio need to put at least 20% down.
What's the purpose of the fixed/adjustable rate note? Topic: Financing Subtopic: Types of loans To convert the interest rate from adjustable to fixed To convert the interest rate from fixed to adjustable To convert the loan from a fixed rate to an adjustable rate To convert the loan from an adjustable rate to a fixed rate
To convert the interest rate from fixed to adjustable The note converts the interest rate in an ARM from fixed to adjustable. It's part of the mortgage package.
The ______ can offer direct loans to farmers and ranchers. The loans are funded by congressional appropriation. Topic: Financing Subtopic: Types of loans American Agricultural Lending Service Farm Credit System USDA Farm Service Agency USDA Rural Development Program
USDA Farm Service Agency Direct loans are available to farmers and ranchers through the USDA Farm Service Agency, funded by congressional appropriation.
Stacey's lengthy military service makes her uniquely eligible for a(n) ________. Topic: Financing Subtopic: Types of loans FHA loan Piggyback loan Subprime loan VA loan
VA loan Individuals eligible for VA loans include military members who have served 181 days on active duty or three months during war time.
Victor bought a property from Yolanda for $200,000. Under the terms of a land contract, Victor agreed to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title? Topic: Financing Subtopic: Types of loans A trustee Victor Victor's beneficiary Yolanda
Yolanda The seller retains the title in a land contract. When the loan balance is paid in full, the seller gives the buyer title.
