Unit 12 Financing Real Estate
Terms in this set (90)
A mortgage clause that allows the lender to call the entire balance due and payable immediately in the event of a default by the borrower.
Restricts the amount of annual rate change.
annual percentage rate (APR)
A calculation required under the Truth-in-Lending Act that discloses the annual cost of credit, including financing charges.
A method to process a loan application using computer software that often includes automatic credit reporting, property valuation data, ratio analysis, and other underwriting information.
The final payment due under a partially amortized mortgage that is larger than the periodic payments made during the term of the loan.
Collateral for a promissory note that encumbers more than one parcel of property.
An advance interest payment (usually by a seller) to a lender so that a purchaser of the property has a lower initial interest rate.
certificate of reasonable value (CRV)
A value used by the Department of Veteran's Affairs for guaranteeing a mortgage loan based on an appraisal by a VA-approved appraiser.
certificate of title
A statement of opinion by an attorney or abstractor on the status of the title to a parcel of real property based on an examination of the public records.
A lender's agreement with a borrower allowing the closing process to continue without delay, subject to the lender's receipt of documents such as a borrower's employment or credit verifications, or the requirement that the appraisal be at least the amount of the purchase price.
contract for deed
An agreement between an owner and a buyer in which the owner agrees to deliver title to real property when all agreements, including payments, have been fulfilled.
A person who agrees, along with another party, to take responsibility for payment of a debt.
A method of reporting a person's credit standing with a numeric or letter grade used by lenders in setting interest rates, down payments, and credit limits.
A covenant in a mortgage that requires the lender's approval before the property title is transferred. If a transfer is made without approval, the lender may accelerate the mortgage, calling it due and payable immediately.
The amount of guarantee for a veteran's home purchase given to a lender by the Department of Veteran's Affairs. Lenders normally lend up to four times the amount of the entitlement.
A lender's participation in an investment property's equity return.
A mortgage provision that requires the lender to look only to the property in case the borrower defaults.
An agreement by a lender, usually after a complete evaluation of the loan application, to lend a specific sum of money to a borrower.
A legal process initiated by a lender in case of a mortgage default. It extinguishes the rights of others, including the owner and lien holders with a lower priority.
The borrower has a right of possession that may not be taken away except by foreclosure.
fully amortized mortgage
A type of loan paid off in equal monthly payments of principal and interest.
A charge levied by the Department of Veteran's Affairs that contributes to the cost of operating the VA loan guarantee.
graduated payment mortgage
A loan with payments that start low, and increase over the loan term. Any unpaid interest is added to the principal balance (negative amortization).
home equity loan
Mortgages secured by a personal residence. It provides a line of credit available for draws when needed by the homeowner. It is sometimes used as a home improvement loan.
Homeowners Protection Act of 1998
Established rules for automatic termination and borrower cancellation of PMI on home mortgages.
There are three exceptions under which the PMI may continue:
If the loan is high risk
If the borrower has not been current on the payments within the year prior to the time for termination or cancellation
If the borrower has other liens on the property
housing expense ratio
A guideline used by lenders to evaluate a borrower's ability to make mortgage payments. It is calculated by dividing the mortgage payment (PITI) by the borrower's gross monthly income.
A percentage amount that fluctuates periodically and is the basis for determining interest rate changes on adjustable rate mortgages.
Down payment, or original equity invested by a buyer of real property.
A payment or receipt of money or other thing of value, for referring customers rather than for performing a service.
A legal practice that gives a mortgagor title to the property and gives the mortgagee (lender) a lien on the property until the mortgage is satisfied. See title theory.
Restricts the amount of interest rate change over the life of the loan.
The percentage of the original loan amount that is paid for principal and interest.
The additional percentage added to the index on an adjustable-rate mortgage. While the index changes periodically, the margin remains the same for the entire loan period.
mortgage insurance premium
The amount paid by a borrower for insurance that protects the lender against loss in case of the borrower's subsequent default. Normally the FHA mortgage insurance is called MIP, and private mortgage insurance is called PMI.
The lender who holds a mortgage lien on real property for collateral.
A large loan in which more than one lender participates. Sometimes occurs when one lender does not want to invest a large percentage of its loan portfolio.
The borrower who owes money on a mortgage loan. In Florida, the mortgagor owns the property.
Mortgage loans that do not meet the requirements for purchase by Fannie Mae or Freddie Mac.
An assumption of a mortgage in which the buyer of the property qualifies financially with the mortgagee, who then releases the seller from liability on the note; a full substitution of borrowers.
A security agreement that includes both real property and personal property as collateral for a promissory note.
partially amortized mortgage
A loan agreement in which the payments during the term of the mortgage have not paid all the principal before the maturity date of the mortgage, requiring a balloon payment.
A mortgage provision that describes the conditions under which a borrower may pay off a mortgage.
prepayment penalty clause
Requires that the borrower pay a predetermined fee to pay off the loan early.
The chronological order of recorded documents that establishes the rights of persons in a property, such as how proceeds of a foreclosure sale will be distributed.
private mortgage insurance (PMI)
Protects the lender against financial loss if a borrower stops making mortgage payments.
PMI may be canceled when the borrower requests it and when the borrower has achieved 20% equity, but the lender must terminate the insurance automatically at 22%.
purchase money mortgage
A mortgage used to acquire real property. Most commonly used to describe seller financing.
used in income property mortgages. The lender requires the borrower to execute an "assignment of leases and rents," which would be used if the borrower is in default.
reduction option mortgage
The right given to a borrower to reduce the interest rate on a mortgage during a specified period by paying a fee.
The mortgagor's right to pay off a mortgage loan balance to stop a foreclosure sale.
reverse annuity mortgage
A mortgage that secures periodic payments to elderly persons who have borrowed on the equity in their homes. The mortgage must be repaid when the property is sold, or when the owner dies.
sale and leaseback
A financing technique whereby the owner sells a property and then rents it back from the buyer for continued occupancy.
A promissory note that is backed by a mortgage on property.
used when a builder buys a site from a developer who finances the purchase. While the mortgage is in senior position, the clause allows the builder to get a first mortgage for a construction loan, and the developer's mortgage drops to second place.
A mortgage that requires interest payments only, with the principal balance coming due in its entirety at maturity.
The right to occupy a property for a specific part of a year.
A legal practice that gives a mortgagee (lender) title to the property and gives the mortgagor the right to occupy the property while not in default. When the mortgage is satisfied, a reconveyance deed is given to the borrower. See lien theory.
total obligations ratio
A guideline used by lenders evaluating the ability of a borrower to make mortgage payments. It is calculated by dividing the borrower's total obligations, including mortgage payment (PITI), by the borrower's gross monthly income.
A promissory note without a mortgage, based strictly on the credit of the borrower.
Calculate Mortgage Payment
VA Eligibility and Loan Guarantee entitlement
A veteran can have a previously used entitlement restored to purchase another home with a VA loan if the veteran:
has sold the property purchased with the prior VA loan and has repaid the loan in full;
buys the other home, qualifies to assume the VA loan, and substitutes entitlement for the same amount of entitlement the veteran seller used originally; or
has repaid the prior VA loan in full, but has not disposed of the property purchased with that loan.
Three mortgage classifications
term mortgages, partially amortized mortgages, or fully amortized mortgages.
A loan in which the lender is allowed to share in part of the income or sale proceeds of a property.
Equal Credit Opportunity Act (ECOA)
Real Estate Settlement Procedures Act (RESPA)
All notes are secured by a mortgage, but NOT all mortgages have a note.
False. All mortgages must have a note, but not all notes are secured by a mortgage.
Florida is a lien theory state. In a lien theory state, the borrower has legal title to the property, and the mortgage lender has a lien.
Not a title theory state
In Florida, property taxes and special assessments come before all other liens.
true. Most institutional lenders require that their liens be in first position, with only property taxes and special assessments having higher priority liens.
The successful bidder at a foreclosure sale gets a certificate of title to the property, which the clerk records.
true. The certificate of title is much like a deed to the property.
A borrower may stop a foreclosure by paying the amount due to the lender at any time before the sale takes place.
true. The equity of redemption allows a borrower to redeem the property by paying the lender all that is due. The property foreclosure ends when payment is made.
Federal Housing Administration (FHA) Section 245 loans insure condominium mortgages.
False. The FHA's condominium loan program is Section 234.
When a new borrower qualifies to assume a loan and the seller is released from liability, it is called a novation.
true. This is a full substitution of borrowers and is almost, in effect, a new loan.
Interest rates on Federal Housing Administration (FHA) loans are normally lower than conventional loans.
false. Conventional loan interest rates are typically ¼% lower than FHA loans.
To calculate the interest rate on an adjustable-rate mortgage, add the margin to the index.
true. The margin remains constant for the life of the loan, and the index changes periodically.
A reverse annuity mortgage is NOT
partially amortized mortgage
Reverse annuity mortgages are sometimes called home equity conversion loans. They are nonrecourse loans, meaning the loan amount can never exceed the home's value. They are made by conventional lenders and can be insured by the Federal Housing Administration (FHA).
A mortgage subordination clause
allows a later mortgage lender to have higher priority.
This clause used by developers to sell more lots lets the developer finance a lot sale and then subordinate to a construction loan so the builder has less cash invested.
MOST conventional mortgage lenders require that a borrower pay for private mortgage insurance if the loan-to-value ratio is greater than
80%. The mortgage insurance protects the lender from loss because of loan default.
partially amortized mortgage
balloon payment at the end of the term. The loan comes due before the loan is fully paid.
BEST description of the loan constant
Percentage of the mortgage paid periodically for principal and interest. This is the factor in a financial table that helps calculate the mortgage payment.
A home is foreclosed and sold at public auction. After the governmental expenses of sale are paid, $231,568 remains. There is a first mortgage of $212,640, a second mortgage of $14,904, and a third mortgage of $18,542. The borrower also owes $14,789 on his credit card. How much can the holder of the third mortgage expect to receive?
A bank makes a commercial loan to a local business. No mortgage is involved. The business owner signs the promissory note as a personal guarantee. Based on the information, this is
an unsecured loan.
For home mortgages signed after July 29, 1999, private mortgage insurance (PMI) must, with three exceptions, be terminated automatically when the borrower has paid down at least 22% of the loan. Which is NOT one of the exceptions?
borrower's gross income has decreased because the loan was originated. This is not one of the exceptions to the Homeowners Protection Act.
A mortgage lender does NOT have the right of
redemption. The right of redemption is a right of a borrower who brings a loan up to date before a foreclosure sale.
A buyer is purchasing a $250,000 home with an 80% mortgage. The monthly loan constant from a mortgage payment table at 6% for 30 years is .0059955. His monthly payment of principal and interest will be
$1,199.10. Multiply the mortgage loan by the loan constant. The mortgage loan is $200,000 ($250,000 × .80). The payment is $1,199.10 ($200,000 × .0059955).
A Federal Housing Administration (FHA) Section 234 mortgage loan is a
condominium mortgage. A one-to-four family mortgage is Section 203(b). A graduated payment mortgage is Section 245.
What is required to make a promissory note a valid instrument?
borrower's signature. If anyone else (such as a witness) signs the note, that person becomes a cosigner.
If a borrower gets seriously behind in her mortgage payments and the lender wants to foreclose, which clause in the mortgage must be invoked?
acceleration. This allows the lender to call the entire balance of the loan so the lender is not suing for just one payment.
Which mortgage type gives the borrower the right to refinance at a lower interest rate during a specified period, typically four years, beginning in the loan's second year?
reduction option. Under this loan type, the lender agrees that the borrower, by paying a fee, can refinance at the current interest rate at that time. The borrower pays a higher initial interest rate as consideration for this option.
Which is NOT a way for a veteran to have a previously used entitlement restored to purchase another home with a Department of Veterans Affairs (VA) loan?
veteran has served in a war zone for at least two years out of the previous ten years. This is not part of the VA program.