Real Estate Financing
Terms
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- Evidence of a debt. It states loan amount, interest rate, term and method of payment.
- Promissory Note
- What items are on a Promissory Note?
-
1 Loan amount
2 Interest rate
3 Term and method of payment - Name the 6 types of Promissory Notes.
-
1 Fully amortized Loan
2 Partially amortized loan
3 Graduated payment Plan (GPM)
4 Straight (Term) Loan
5 Growing Equity Loan
6 Adjustable Rate Mortgage (ARM) - What are the 2 names for an adjustable rate mortgage?
- ARM and Variable Rate Loan
-
These are the 3 principals of what type of loan?
1 Fixed monthly paymnet
2 Payment is applied 1st to the interest due and the remainder to the principal balance.
3 Final monthly payment fully extinguishes the loan - Fully Amortized Loan
-
These are the 3 principals of what type of loan?
1 Fixed monthly payments.
2 Final monthly payment does not fully extinguish the loan.
3 Finaly payment is a balloon payment. - Partially Amortized Loan
- What is this, where the final payment that is substantially larger than the previous installment payments and repays the debt in full.
- Balloon payment
- What type of loan is where the lower payments in the early years and catch-up payments in later years.
- Graduated Paymnet Plan (GPM)
- What type of loan is the? Where the payments are interest only; no payment o fprincipal until the end of the term.
- Straight (Term) Loan
- What type of loan is a construction loan?
- Straight (Term) Loan
- What type of loan is one with increased payments each year at the predetermined rate and the increase is applied to the reductino of the principal balance.
- Growing Equity Loan
- What type is loan is on where the interest rate can be raised or lowered?
- ARM
- What does ARM stand for?
- Adjustable Rate Morgtgage
- What determines the interest rate of an ARM loan?
- The interest rate index indicator.
- Most of these loans have ceilings or caps on how much the interest can increase during any one adjustment period or over th elife of the loan.
- ARM
- Instruments used to pledge property as security for a debt.
- Hypothecation Instruments
- In hypothecation instruments, the type of instruments used are ______ and __________.
- Mortgages, deeds of trust.
- With a mortgage another name for the borrower is?
- Mortgagor
- In a mortgage, what is another name for the lender?
- Mortgagee
- Mortgage conveys a lien on the property to the lender.
- Lien Theory
- Mortgage conveys bare title to the lender.
- Title Theory
- With a deed of trust another name for the borrower is?
- Trustor
- In a deed of trust what is another name for the trustee?
- Lender's agent
- With a deed of trust, what is another name for the Lender?
- Beneficiary
- In a deed of trust, the trustee receives ______ title on behalf of the _____.
-
bare
lender - In a deed of trust, the borrower retains _____ title.
- legal
- What 5 things are the duty of the borrower?
-
1 payment of the debt
2 payment of the real estate taxes
3 insure the property
4 maintain the property
5 make no major changes w/o lender approval - Requires the lender to release the property and borrower from the loan encumbrance when the loan is fully paid and a release deed is issued to the seller.
- defeasance clause
- allows subsequent loans to step ahead in priority.
- subordination clause
- States wheter a borrower may pay the balance of the loan early and if a penalty will be charged for doing so.
- prepayment clause
- the loan balance must be paid if the property is sold. The loan is not assumable without the lender's permission.
- Alienation Clause (Due on Sale)
- The lender may declare the balance of the loan due and owing immediately if the borrower defaults.
- Acceleration Clause
- What are the parties to a mortgage?
-
Borrower
Lender - What are the parties to a deed of trust?
-
Borrower
Trustee
Lender - What is it when the lender's attorney files suit and the sheriff sells the property on the courthouse steps to the highest bidder?
- Foreclosure procedure on a mortgage
- What is it when the trustee advertises and then sells the property on the courthouse steps to the highest bidder?
- Foreclosure procedure on a deed of trust
- The right of the defaulted borrower to redeem the property after the foreclosure sale.
- Redemption
- When the sale proceeds in foreclosure are less than the balance due; the lender can get a _________ judgement lien
- Deficiency
- When the lender accepts legal title to the property instead of foreclosing
- Deed in Lieu of Foreclosure
- Provides for the continuation of leases in the event of foreclosure on leased property.
- Non-disturbance Clause
- 3 types of loan assignment
-
1 Buying subject to the seller's loan
2 Buying assuming the seller's loan
3 Novation - The buyer only takes over the loan payments; she/he does not assume liability for the loan balance.
- Buying "Subject To" the Serller's Loan
- The buyer takes over the loan payments and becomes liable for the loan balance along with the seller.
- Buying "Assuming" the seller's loan
- Lender releases the original borrower (seller) from the loan liability.
- Novation
- A loan which is neither insured nor guaranteed by the federal govt or any of its agencies
- Conventional Loan
- Insures lenders on conventional loans in case of borrower default. Required for high ratio loans, usually above 80% LTV
- PMI private mortgage insurance
- is the largest insurer of conventional loans
- Mortgage Guarantee Insurance Corp (MGIC)
- What type of loan is from a private lender and insured by the Federal Housing Authority?
- FHA insured loan
- what loan is regulated by the Dept of Housing and Urban Development (HUD)?
- FHA insured loan
- A FHA 203b loan is for?
- a dewelling with 1-4 family units
- A FHA 245 loan is what?
- a loan that is a graduated payment mortgage.
- What else does FHA also insure?
-
home improvement loans
loans on co-ops
condo's
low income homes - On a FHA loan, what determines the interest rate?
- The lender
- What is MIP?
- Mortgage Insurance Premium
- FHA insures _____% of the 1st ______ and ____% of the balance.
-
97
$25,000
95 - On a FHA loan can the borrower borrow the downpayment if it is not secured by the property being purchased?
- yes
- What minimum standards does the FHA set, with regard to what?
- design, construction and neighborhood
- Can a lender be non FHA approved?
- no
- FHA loans are assumable, but under what condition?
- the buyer must qualify
- Are there prepayment penalities on a FHA loan?
- no
- T or F an FHA approved appraisal is required.
- true
- A loan from a private lender. For 1st mortgage and home improvement. Gauranteed by the Dept of Verteran's Affairs.
- VA Gauranteed Loan
- The VA may make direct loans, if what?
- there are no approved lenders in the area
- VA gaurantees ___% of the loan amount with a max guarantee of $______.
-
40
$36,000 - Does a VA loan required a downpayment?
- no
- The veteran may obtain a loan of ___% of the _____ of the sales price or appraised value.
-
100
lesser - A veteran must obtain what to be eligible?
- a certificate of eligibilty from the VA
- T or F an unremarried spouse of a deceased veteran has eligiblity
- true
- T or F eligibility may be restored by paying off the loan or a veteran with eligibility assuming the loan.
- true
- With a VA loan who sets the interest rate?
- the lender
- Does a VA loan have a prepayment penalty?
- no
- Under what condition can a VA loan be assumable by either the veteran or a non-veteran?
- The buyer must qualify
- can VA loans be a owner occupied 1-4 family dwelling?
- yes
- Has priority over other mortgages on the same property
- First mortgage
- Has priority after the 1st mortgage
- Second mortgage
- another name for a 2nd mortgage
- junior mortgage
- One loan collateralized by 2 or more properties.
- Blanket mortgage
- usually contains a release clause requiring the lender to release each property from the mortgage when it is sold
- Blanket mortgage
- after paying the loan down, the loan remains open for a set amount for future borrowing
- open-end mortgage
- a loan collateralized by both real and personal property
- package mortgage
- the lender makes a loan at reduced interest rate for a part of the appreciation in value over a stipulated period of time
- Shared Appreciation Mortgage
- a development loan where the lender receives interest plus a share of the profits or income from the property
- Participation Loan
- the lender makes a monthly loan to the borrower
- Reverse Annuity Mortgage
- When the 2nd mortgage includes the 1st mortgage
- Wrap-Around Mortgage
- Generally a seller financed second mortgage
- Purchase Money Mortgage
- Seller finances the buyer but retains legal title; buyer receives equitable title
- Land Sales Contract
- A short term loan to a builder or home owner to finance construction
- Construction loan
- Long term loan that provides money to the builder to pay off the construction loan
- Take-Out Loan
- The owner sells the property and then leases it back from the buyer
- Sale-Leaseback
- Getting a new loan to pay off the existing laon(s).
- Refinancing
- 1% of the loan amount
- 1 point
- interest in advance, paid in lump sum at the closing of the loan; increases the yield to the investor
- discount points
- who pays the discount points?
- the borrower unless negotiated otherwise
- What is used to compensate the lender for short-term fluctuations in interest rates?
- points
- what are used to discount loans in the secondary market?
- points
- fee paid to the lender for underwriting the loan; is usually a percnetage of the loan amount.
- origination fee
- What are some expenses the lender incurs in making the loan that will be charged back to the borrower?
-
credit report
appraisal fee - T or F a loan must be secured with adequate collateral
- true
- Make few long term real estate loans, usually make short term loans
- commercial banks
- banks owned by the depositors which usually loan only to the depositors
- mutual savings banks
- make loans on large cmomercial projects
- life insurance companies
- make home loans to its members
- credit unions
- makes loans in rural area (______ max population) to qualified persons
-
Rural Housing Develompent
20,000 - bring the borrower and lender together; do not loan money directly
- mortgage broker
- Where lenders sell loans to investors
- Secondary Mortgage Market
- Fannie Mae
- Federal National Mortgage Assoc
- Ginnie Mae
- Govt National Mortgage Assoc
- Freddie Mac
- Federal Home Loan Mortgage Company
- Lenders storing loans and then selling them as a package to investors in the secondary market
- Warehousing
- a legal instrument executed by a mortgagor setting forth the exact unpaid balance of a mortgage loan, interest rate and date to which interest has been paid
- Estoppel Certificate
- Another name for Estoppel Certificate
- Certificate of no defense
- a federally subsidized flood insurance program requiring real estate owners with a federally related loan to have flood insurance if the property is located in a flood plain
- Federal Flood Insurance Program
- Buys FHA, VA, Conventional and 2nd mortgages from lenders
- Fannie Mae
- Fannie Mae is a stockholder owned company
- true
- a govt agency (a division of HUD) that provides money to lenders for a wide range of speical projects
- Ginnie Mae
- _____ & _____ act in tandem for high risk loans
- Fannie Mae & Ginnie Mae
- Freddie Mac is a govt owned corp
- true
- buys FHA, VA and convention loans
- Freddie Mac
- What does pension funds, insurance companies, real estate investment trust all have in common?
- All buy real estate loans from lenders