Chapter 12: Financing: Loan Types Flashcards Preview

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Flashcards in Chapter 12: Financing: Loan Types Deck (23)
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1
Q

How much is the loan origination fee and what does it cover?

A

The loan origination fee is typically 1% of the loan amount. It covers the lender’s cost for generating the loan.

2
Q

What kind of problem can result from a straight loan?

A

A straight loan is an interest-only loan. If the property doesn’t appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.

3
Q

What kinds of limits are placed on the interest rate in an adjustable rate mortgage?

A

Interest rate caps limit the amount of interest the borrower can be charged. Periodic caps limit the amount the rate can change at any one time. Overall (or aggregate) caps limit the amount the interest can increase over the life of the loan.

4
Q

Describe a reverse annuity mortgage.

A

With this type of mortgage, the lender makes payments to the borrower. Popular among senior citizens who are on fixed incomes and would like to benefit from their home’s equity without having to sell.

5
Q

Define the term loan-to-value ratio.

A

The term loan-to-value ratio means the ratio of debt to the value of the property. If the loan-to-value ratio is low, the borrower is paying a higher down payment on the property. If the loan-to-value ratio is high, the borrower is making a low down payment.

6
Q

When is a lender required to terminate a borrower’s private mortgage insurance?

A

After the borrower has accumulated 22% of equity in the property and is current with the loan payments.

7
Q

What is the difference between an FHA loan and a VA loan?

A

FHA insures loans and VA guarantees them.

8
Q

What is the major difference between a CalVet loan and other loans?

A

Unlike other loans, the CalVet loan is actually a land contract. When a veteran is approved for a CalVet loan, the state purchases the property and resells it to the veteran using a contract of sale. The state retains the title to the property until the loan is paid off, after which California will issue a grant deed to transfer legal title to the veteran.

9
Q

Define a purchase money mortgage.

A

With a purchase money mortgage, the buyer borrows from the seller in addition to the lender. This is sometimes done when a buyer cannot qualify for a bank loan for the full amount; so the seller “takes back” a portion of the purchase price as a second mortgage. A purchase money mortgage can also be a first mortgage.

10
Q

What’s the difference between a lease purchase and a lease option?

A

In a lease purchase arrangement, a tenant enters into two agreements simultaneously - an agreement to purchase and a lease.
A lease option is a clause in a lease that gives the tenant the right to purchase the property under specific conditions - usually at a predetermined price and within a set period of time.

11
Q

Greg and Joyce purchased a home from the builder who offered to pay $5,000 at closing as an incentive to get them to buy. What kind of mortgage might they get?

A

A buydown mortgage.

12
Q

What are grant programs typically used for?

A

Down payment assistance.

13
Q

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

Jake is getting a VA loan with no down payment.

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

Alice is getting a conventional loan and making a 15% down payment.

Tim and Gail have qualified for an FHA loan.

A

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

14
Q

A blanket mortgage:

Covers more than one piece of property.

Entails entering into two agreements simultaneously.

Is subordinate to a first mortgage.

Reduces the monthly payment for a borrower during the initial years.

A

Covers more than one piece of property.

15
Q

Which of these statements is true about a CalVet loan?

Loan terms are from 15 to 25 years.

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

There is a 6-month pre-payment penalty for paying off the loan early.

Interest rates are typically fixed rate.

A

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

16
Q

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?

$680

$1,360

$2,040

$2,720

A

$2,040

17
Q

Which of the following is not true about reverse annuity mortgages?

The lender makes payments to the borrower.

This mortgage type is popular among the elderly.

The borrower pays a fixed rate of interest.

The loan must be repaid before the borrower’s death.

A

The loan must be repaid before the borrower’s death.

With RAMs, the lender makes payments to older property owners based on the equity in the home. In return, the owner pays a fixed interest rate and repays the loan either when the home sells or from the borrower’s estate upon his or her death. The loan is repaid before the borrower’s death only if the borrower sells the home.

18
Q

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

Loan origination fee

Points

Survey fee

Discount points

A

Survey fee

19
Q

Which statement is true?

A borrower cannot qualify for a conventional loan unless he or she can make a 20% down payment.

Private mortgage insurance is available for FHA loans.

A borrower can request the cancellation of PMI payments when the equity reaches 20% of the appraised value.

A lender can continue to collect PMI payments until the homeowner’s equity reaches 25%.

A

A borrower can request the cancellation of PMI payments when the equity reaches 20% of the appraised value.

PMI is required on conventional loans when the borrower can’t afford a 20% down payment. The borrower will be required to pay for the insurance until the equity equals 20% of the purchase price or appraised value and may then request the PMI be canceled.

20
Q

In which of the following types of loans is the payment allocated only to interest?

Straight

Balloon

Amortized

Adjustable rate

A

Straight

21
Q

Which loan covers the period of time between the end of one mortgage and the beginning of another?

Construction

Wraparound

Open-end

Bridge

A

Bridge

22
Q

Which of these is also called a contract for deed?

Purchase money mortgage

Lease purchase

Second mortgage

Installment land sales contract

A

Installment land sales contract

23
Q

A growing equity mortgage:

Is an adjustable rate loan.

Allows quick repayment of the loan through accelerated payments.

Includes a margin.

Has a payment cap.

A

Allows quick repayment of the loan through accelerated payments.