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Flashcards in Chapter 7 Lending Basics Deck (18)
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1
Q

The two fundamental types of real estate loans are permanent financing and:

a. temporary financing
b. intangible financing
c. transient loans
d. construction loans

A

d. construction loans

2
Q

What is the debt service coverage ratio and how is it determined?

A

The debt service coverage ratio is a measure of the ability of a project to meet its debt service requirement. It is determined by dividing the net operating income during any given period by the debt service for the same period of time.

3
Q

When referencing the five Cs of credit, capacity refers to the:

a. ability of the borrower to repay the loan
b. fundamental financial strength of the borrower
c. value of assets pledged to the lender as protection from loss
d. borrowers moral commitment and willingness to repay the loan

A

a. ability of the borrower to repay the loan

4
Q

Your loan service constant is 14.36% for a $545,000 loan. What is the monthly debt service?

a. $5,434.86
b. $6,521.83
c. $23, 691.28
d. $65,218.33

A

b. $6,521.83

5
Q

What institution regulates the amount of credit available through its open market committee?

A

The federal reserve system

6
Q

What is the loan constant on a principal loan of $1,000,000 with an annual debt service of $40,000

A

4%

7
Q

What is the debt service coverage ratio on a gross income of $84,000 with a monthly debt service of $4000 and annual expenses of $30,000

A

1.13

8
Q

A debt service ration of 0.96 indicates that there is:

a. more than sufficient income to make debt service payments.
b. insufficient income to make debt service payments
c. exactly enough income to make debt service payments
d. enough income to make debt service payments if expenses are reduced.

A

b. insufficient income to make debt service payments

9
Q

What does a debt service coverage ratio of 1.13 indicate?

A

There is sufficient income after expenses to cover the debt.

10
Q

What is a construction loan?

A

A loan for the purpose of financing the construction or substantial renovation of building an other improvements.

11
Q

When are construction loans typically approved?

A

Only after a standby loan is obtained. A standby loan is a loan guarantees funds in the event that the permanent lender fails to provide the long term funds.

12
Q

What is the equation for the loan constant?

A

loan constant=annual debt service/loan origination amount

13
Q

What is GNMA?

A

The governmental National Mortgage Association. It sells packages of mortgages in the secondary investment market with the full faith and credit of the U.S. government.

14
Q

To reduce lender risk, a construction loan is often made with a:

a. lower interest rate
b. long-term payment schedule
c. leasing percentage requirement
d. standby loan commitment

A

d. standby loan commitment

15
Q

In which type of mortgage does the lender participate. in any value increase of the property?

A

shared appreciation mortgage

16
Q

What are the five Cs of credit?

A

character-borrowers moral commitment and willingness to repay the loan

capacity-ability of the borrower to repay the loan

capital-fundamental financial strength of the borrower

conditions-condition of the economy as a whole and the present condition of the borrowers industry

collateral-the value of assets pledged to the lender as protection from loss in the event of default or conditions not anticipated when the loan was made.

17
Q

If an escalation clause is contained in a mortgage agreement, the lender is entitled to increase the interest rate:

a. or change the due date on the basis of some established index
b. or decrease the interest rate on the basis of some established index
c. and/or hasten the due date upon the occurrence of some event
d. and/or postpone the due date upon the occurrence of some event

A

c. and/or hasten the due date upon the occurrence of some event

18
Q

What is an amortized loan?

A

In an amortized loan, debt service payments include both interest on the debt and principal reduction.