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Real Estate Financing


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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?
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.
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?
In a mortgage, what is another name for the lender?
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?
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?
In a deed of trust, the trustee receives ______ title on behalf of the _____.
In a deed of trust, the borrower retains _____ title.
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?
What are the parties to a deed of trust?
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.
When the sale proceeds in foreclosure are less than the balance due; the lender can get a _________ judgement lien
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.
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
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.
On a FHA loan can the borrower borrow the downpayment if it is not secured by the property being purchased?
What minimum standards does the FHA set, with regard to what?
design, construction and neighborhood
Can a lender be non FHA approved?
FHA loans are assumable, but under what condition?
the buyer must qualify
Are there prepayment penalities on a FHA loan?
T or F an FHA approved appraisal is required.
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 $______.
Does a VA loan required a downpayment?
The veteran may obtain a loan of ___% of the _____ of the sales price or appraised value.
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
T or F eligibility may be restored by paying off the loan or a veteran with eligibility assuming the loan.
With a VA loan who sets the interest rate?
the lender
Does a VA loan have a prepayment penalty?
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?
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
Getting a new loan to pay off the existing laon(s).
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?
what are used to discount loans in the secondary market?
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
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
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
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
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
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

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