Finance 7 - Real Estate Financing Programs

Question 1

A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Answer 1

adjustable-rate mortgage (ARM)

Question 2

A Latin term meaning “to value” or “in proportion to the value.” Used to describe taxes where the amount of tax is based on the value of the thing taxed.

Answer 2

ad valorem

Question 3

The liquidation of a financial obligation on an installment basis The recovery of cost or value over a period of time. An amortized loan is one in which the principal, as well as interest, is payable in monthly or other periodic installments over the term of the loan.

Answer 3

amortization

Question 4

A final payment of a mortgage loan that is considerable larger than the required periodic payments because the loan amount was not fully amortized.

Answer 4

balloon payment

Question 5

A mortgage secured by pledging more than one property as collateral.

Answer 5

blanket mortgage

Question 6

Money or property given to make up any difference in value commissioned by a bank or an attorney and provided by a broker.

Answer 6

boot

Question 7

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or the seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Answer 7

buydown

Question 8

A surety bond posed by a landowner or developer to guarantee that a proposed development will be completed according to specifications, free and clear of all mechanics’ liens.

Answer 8

completion bond

Question 9

Under a construction loan, payments that the lender disburses during construction.

Answer 9

draws

Question 10

Funds collected by the lender to pay property taxes and homeowners insurance; also called impound funds in some states.

Answer 10

escrow funds

Question 11

A loan where the interest rate stays constant for the life of the loan.

Answer 11

fixed-rate loans

Question 12

Now required on any home in the FEMA-designated flood hazard zone.

Answer 12

flood insurance

Question 13

Insurance that only covers physical hazards to the property.

Answer 13

hazard insurance

Question 14

Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

Answer 14

homeowners insurance

Question 15

Permits the note holder to make advances from time to time, secured by the real estate described in the deed.

Answer 15

home equity line of credit (HELOC)

Question 16

Funds collected by the lender along with mortgage payment to pay for property taxes and homeowners insurance. See escrow funds.

Answer 16

impound funds

Question 17

A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term.

Answer 17

interest-only loans

Question 18

The number of dollars it takes to pay down $1,000 of a loan based on the interest rate and the term of the loan.

Answer 18

interest rate factor

Question 19

Allows recognition of gain for tax purposes to be postponed by exchanging like kind income-producing properties.

Answer 19

Internal Revenue Code Section 1031

Question 20

A leas under which the tenant has the right to purchase the property at an agreed-upon price either during the lease term or at its end.

Answer 20

lease option

Question 21

The purchase of real property, the consummation of which is preceded by a leas, usually long term, that is typically done for tax or refinancing purposes.

Answer 21

lease purchase

Question 22

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Answer 22

loan-to-value (LTV) ratio

Question 23

Dwellings that are built off site and trucked to a building lot where they are installed or assembled.

Answer 23

manufactured housing

Question 24

Process by which the amount of the loan increases. The mortgagor sets a payment cap, or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance.

Answer 24

negative amortization

Question 25

A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances.

Answer 25

package mortgage

Question 26

When the borrower takes out a first and second mortgage simultaneously in order to avoid private mortgage insurance 9there is no PMI as long as the first mortgage is 80% or less).

Answer 26

piggy-back loan

Question 27

The mortgage market which loans are originated, consisting of lenders such as commercial banks, savings associates, and mutual savings banks.

Answer 27

private mortgage insurance (PMI)

Question 28

The practice of charging excessive interest rates and fees to unsuspecting borrowers.

Answer 28

predatory lending

Question 29

A form of mortgage that enables elderly homeowners to borrow against the equity in their homes to they can receive monthly payments needed to help meet living costs. Under this plan, the inflow and outflow of funds is in reverse to the standard conventional loan. The homeowner receives periodic (not necessarily equals) payments based on accumulated equity; the payments are made directly by the lender or through the purchase of tan annuity from an insurance company.

Answer 29

reverse annuity mortgage (RAM)

Question 30

A clause allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.

Answer 30

right of first refusal

Question 31

When a second mortgage is taken out in order to avoid private mortgage insurance (see piggy-back loan.

Answer 31

split loan

Question 32

The date on which the entire principal balance on a term loan must be paid.

Answer 32

stop date

Question 33

A loan modification program initiated in 2008 for at-risk borrowers with Fannie Mae and Freddie Mac loans.

Answer 33

Streamlined Modification Program (SMP)

Question 34

Lenders specializing in loans for less than credit-worthy borrowers; blamed for much of the financial crisis starting in 2007 due to adjustable-rate loans that borrowers were not able to make payments on when the ARM reset after two or three years.

Answer 34

subprime lender

Question 35

Any type of interest-only loan is referred to as a term loan.

Answer 35

term loan

Question 36

A term used for a percentage of the principal loan amount charged by the lender. Each point is equal to 1% of the loan amount.

Answer 36

point