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Illinois Real Estate Broker License > Chapter 6 - Real Estate Financing > Flashcards

Chapter 6 - Real Estate Financing Flashcards

1
Q

What do you call the clause which stiplulates that a title must be fully released back (“re-conveyed”) to the mortgagor at the time the debt is repaid in full?

A

The defeasance clause.

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2
Q

What is another term for a voluntary lien on real estate?

A

A mortgage.

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3
Q

WRT mortages, does Illinois subscribe to Title-theory, Lien-theory, or Intermediate theory?

A

Intermediate theory.

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4
Q

What are the three types of mortgage loans?

A

Conventional, FHA and VA.

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5
Q

When an owner defaults on their loan they have the right to “cure” the default BEFORE foreclosure sale. What is the name for this term?

A

Equitable right of redemption. This is used in Illinois (vs. ‘statutory right of redemption’)

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6
Q

What is the difference between ‘equitable right of redemption’ and ‘statutory right or redemption’?

A

Statutory gives owner the right to “cure” the default after the foreclosure sale; Equitable occurs before foreclosure sale. (Illinois uses equitable).

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7
Q

What are the two parts of a mortgage?

A

The debt and security for the debt.

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8
Q

What does a ‘promissory note’ state?

A

The amount owed.

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9
Q

Which two documents are executed when a property is mortgaged?

A

A promissory note and a security document (mortgage) pledging the property as collateral for the amount owed.

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10
Q

Usury

A

Charging interest in excess of the maximum rate allows by law.

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11
Q

What is the maximum interest rate in Illinois?

A

These isn’t one.

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12
Q

Loan origination fee means…

A

Charge for processing a mortgage application

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13
Q

Deed of Trust [3 things]

A
  1. Estalishes that the property is security for a debt.
  2. Identifies the lender and the borrower.
  3. Includes legal description of the property.
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14
Q

PITI

A

What a borrows monthly loan payment is made up of:

Principal
Interest
Tax
Insurance

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15
Q

Two options for assuming seller’s mortgage (when there isn’t a “due on sale” clause).

A
  1. May purchase property subject to the mortgage

2. May assume the mortgage and agree to pay the debt

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16
Q

When a property is sold “subject to” the mortgage, who is ultimately responsible for payment of the mortgage?

A

The seller.

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17
Q

What is another name for a due-on-sale clause?

A

Alienation clause

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18
Q

The three methods of foreclosure are…

A
  1. Non-judicial
  2. Judicial (most common)
  3. Strict
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19
Q

What is the benefit of deed in lieu of foreclosure (aka “friendly foreclosure”)?

A

This is called a friendly foreclosure, and it protects a borrower’s credit rating.

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20
Q

What is it called when a lender accepts less than the amount owed on a property?

A

short sale

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21
Q

How long does a mortgagor in default have to exercise their equitable right of redemption?

A

Seven months

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22
Q

Deficiency judgement

A

When, after a foreclosure sale, a mortgagee takes a personal judgement against the borrower for the unpaid balance.

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23
Q

What happens if a foreclosure sale yields more than the borrower owes?

A

The bank will cut the borrower a check.

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24
Q

Name the nine different types of lenders that make up the primary mortgage market.

A
  1. Thrifts (popular out east)
  2. Savings associations
  3. Commercial banks (investment, small business loans)
  4. Insurance compaies (biggest)
  5. Credit unions (just recently getting into the business)
  6. Pension funds (This is how retirees make money)
  7. Endowment funds (colleges, etc.)
  8. Investment group financing
  9. Mortgage banking companies
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25
Q

MLO

A

Mortgage loan originator. Someone who takes a residential mortgage loan.

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26
Q

What is the ‘secondary loan market’?

A

This is who banks sell off their loans to.

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27
Q

How is LTV ratio calculated?

A

Percent of the loan /divided by/ amount of purchase price.

  1. Subtract down payment from purchase price.
  2. Divide result over purchase price to get LTV %.
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28
Q

What document is required to get a VA loan?

A

Certificate of eligibility.

29
Q

Once a VA loan has been secured, who may it be assumed by?

A

Anyone

30
Q

How many properties can someone finance with a VA loan?

A

Only one at a time, and a veteran may own only two properties that were acquired using VA loan benefits.

31
Q

What is a CRV, and when is it used?

A

Certificate of reasonable value, generated by a VA-approved appraisal.

32
Q

How does an amortized loan compare to a straight loan?

A

An amortized (“killed slowly over time”) loan pays off both the principal and interest over the life of the loan. It’s the most common.

33
Q

Which types of loans are supported by Fannie Mae?

A

Conventional, FHA, VA

34
Q

Which types of loans are supported by Ginnie Mae?

A

Special assistance only (FHA, VA)

35
Q

Which types of loans are supported by Freddie Mac?

A

Mostly conventional

36
Q

What is unique about FHA loans?

A
  • Require 5% and less down payment

* LTV +95%

37
Q

What is required if less than 20% down payment is made on a loan?

A

PMI - Private mortgage insurance

38
Q

What’s unique about a 203k loan?

A

It allows money for rehab in addition to purchasing a home.

39
Q

How much can an ARM (adjustable rate mortgage) fluctuate over the year? Over the loan term?

A

Up to 2% over a year, and up to 6% over the life of the loan.

40
Q

Balloon payment loan

A

When the final payment is larger than the others in order to pay off the full loan.

41
Q

Which of the three loan types has the highest LTV?

A

VA loans (100%)

42
Q

What is a GEM (Growing equity mortgage)?

A

Also know as rapid-payoff mortgage, payments of principal are increased according to an index or schedule. Used when a borrowers income is expected to keep pace with increasing loan payments. Think doctors, lawyers.

43
Q

What’s a RAM (reverse annuity mortgage)?

A

Allows people 62+ to borrow money against the equity they’ve built in their home. VERY BAD.

44
Q

Which type of loans typically offer the lowest LTV ratios?

A

Conventional

45
Q

What down payment is required for a conventional loan?

A

At least 20%

46
Q

Which type of loan has the highest LTV?

A

VA

47
Q

What is another name for “partially amortized loan”?

A

Balloon

48
Q

What does a “packaged loan” include?

A

Inclues both real and personal property (appliances, etc.). Builder must install these items.

49
Q

What are the qualifying ratios for a conventional loan?

A

28%/36%

50
Q

What does a blanket loan cover?

A

Multiple parcels of property. Partial release as paid off.

51
Q

What is a construction loan?

A

Money is released incrementally. Requires more supervision.

52
Q

What is a buy down?

A

When someone pays points to lower the interest rate.

53
Q

What is the Relation Z and truth in lending act?

A

Informs consumer of true cost to obtain credit. Must be communicated as “APR”.

54
Q

What is ECOA?

A

Equal Credit Opportunity Act. Prohibits discrimination in the granting of credit.

55
Q

What is the term used for interest paid in advance?

A

Points.

56
Q

What is a deed of trust, and for what types of property loans is it used?

A

Allows banks to skip over courts to foreclose on properties. Used for commercial property loans only.

57
Q

What is the defeasance clause for?

A

Allows the buyer to defeat the mortgage once all payments have been made.

58
Q

What are the most important secondary mortgage markets?

A

FNMA (Fannie may), GNMA (Ginnie May), and FHLMC (Freddi Mac).

59
Q

Which type of loan is actually just the insurer of the loan?

A

FHA

60
Q

What are the qualifying ratios for an FHA loan?

A

29%/41%

61
Q

What other terms refer to personal property?

A

Chattel, Personalty, and Emblements.

62
Q

What does the term emblements mean?

A

Personal Property

63
Q

What does the term chattel mean?

A

Personal Property

64
Q

What does the bundle of legal rights include? (DEEPC)

A 
Disposition
Enjoyment
Exclusion
Possession
Control
65
Q

Which type of loan a “mortgage insurance premium” (MIP) associated with?

A

FHA

66
Q

Which type of loan is “private mortgage insurance” (PMI) associated with?

A

Conventional

67
Q

What is a “certificate of eligibility” and which loan type is it associated with?

A

VA loans. This sets the maximum loan a veteran qualifies for.

68
Q

What type of loan is a “partial release clause” associated with?

A

Blanket loans (like for financing a subdivision)

Illinois Real Estate Broker License (17 decks)

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