Financing Flashcards by Eric Epps

An interest-only loan used primarily for
short-term purchases

Straight term loan

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Fully amortized loan: paid off in periodic
payments of principal and interest over
the life of the loan (fifteen, twenty, or thirty
years),• Partially amortized loan (balloon mortgage):
paid off with a series of periodic payments for a
set period of time followed by a single balloon
payment to satisfy the loan

Fully
amortized loan
Vs. partially
amortized loan

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When the mortgage payment is smaller than the
interest due, which causes the loan balance to
increase instead of decrease

Negative
amortization

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The interest rate for the ioan is tax loan
economic index, so the payments Will be adjusted
trom time to time as interest rates rise and fall

Adjustable-Rate
Mortgage (ARM)

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A loan that is not government insured,Private mortgage insurance (PMI) is required for
Dorrowers who borrow more than 80% of the
Purciase price, Once the borrower has paid off
at least 20% of the property, they can request
for the PMI to be rermoved. These loans typically
have the highest down payment requirements.

Conventional
loan

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A loan for home owners 62 and older that
allows them to borrow against the value of
their property so that they can receive either
monthly payments, a lump sum, or credit,This type of loan is good until the borrower dies,
moves, or sells their property.

Reverse
Annuity
Mortgage
(RAM)

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A type of second mortgage that borrows
against the homeowner’s equity in their
property,The loan amount is calculated based on the
home’s current market value and the remaining
debt the borrower has on their first mortgage.
Lenders typically require the homeowner to have
a certain percentage of equity in their home in
order to qualify.

Open-end mortgage
(home equity loan)

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The riskiest types of loan for lenders The interest rate on subprine loans often use
high to account for the to Lenders with four interest rates
to determine the interest rate) the on there
credit score, 2) the numbet of late payment of
delinquencies showing on the borower’s credit score
report, 3) the types of delinguenies (euch as 30 day,
60-day, or 90-day lates, for example), and d) he size
of the borrower’s down payment

Subprime loans

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A loan that a buyer takes out that is paid
directly to the seller,The buyer’s loan is incorporated into the seller’s
loan. The seller takes on the full responsibility
and riskS associated with this type of loan and
Drofits based on the difference in mortgage
amounts and interest rate variation.

Wrap-around
mortgage

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A variable-rate loan in which the loan amaunt
is disbursed at agreed-upon stages of the
construction process,Interest is charged only on money disbursed, not
the full amount of the loan.

Construction loan

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An arrangement where someone sells a property
to someone else, then immediately purchases a
lease on that same property

Sale and lease back

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Helps cover the initial expense of purchasing a
property,Some lenders offer second mortgages and
deferred payment loans. The state may offer
grants to help cover the down payment which do
not require repayment to those who qualify.

Down Payment
Assistance (DPA)

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• Conventional loans: These are not,government insured, but they offer flexibility
in terms and interest options compared to
government-backed FHA or VA loans.
. Insured conventional loans: These are
conventional loans with private mortgage
insurance (PMI).

Conventional
loans vs. insured
conventional loans

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A military benefit that is only given to
eligible service members, veterans, and
qualifying spouses,The loans are private but guaranteed by the VA,
which offers certain protections to the lenders.
Because of this, loans can be made with zero money
down and with easier qualifying requirements.
VA loans do not have a minimum credit score
requirement, often have lower interest rates, and
do not require mortgage insurance.

U.S.,14,Department
of
Veterans Affairs
(VA) loans

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A government-backed loan that requires no
down payment but has strict requirements
to qualify for,They are designed to assist rural low- to
moderate -income borrowers with purchasing
homes. Borrawers must purchase the home as a
primary residence in designated areas, must be US
residents or permanent resident aliens, and cannot
have an income higher than 115% of the median
income in the area where the property is located.

USDA loan

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A financial institution that is funded atid
controlled by the custormers who own
stock in
the company,Customers can borrow money agairist theif
stocks to purchase a horne. These iristitutiotis
also offer a wide variety of bank-like services,
such as CDs and checking accounts.

Savings and loans
association (S&L)

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Local and national financial institutions
that primarily make money by offering different
types of loans to customers and then collecting
the interest,These offer a full range of services in addition to
loans, including savings and checking accounts
and investment vehicles like CDs.

Commercial
banks

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Originate and close loans with multile
institutions

Mortgage
brokers

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Originate and close loans in their own name using ,their own funds

Mortgage
bankers

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Non-bank lenders that are used primarily in
real estate investments for properties that
would not be approved fora traditional loan,They establish a set interest rate that is typically
higher than any bank and a repayment term that
will be much shorter. A private money lender has
the right to foreclose in the event of non-payment.
Loan decision is based on property value and
return-on-investment (ROI).

Private money
lenders

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Cooperative organizations that are similar to
banks but are owned and controlled by their
members,They offer lower rates and fees because savings
are passed to the members. They tend to service
the loans themselves and provide more stable and
personalized service, and they may have ways to help
non-traditional borrowers get a loan. Borrowers nust
be a member of the credit union to be approved fora
loan.

Credit unions

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The seller allows the buyer to move onto the
property while making installment pazmenss
directly to the seller.,The seller retains full legal title until the buyer has
fulfilled a predetermined percentage of the financed
amount, at which point the seller records the deed
and passes the title to the buyer, The installment land
contract gives equitable title to the buyer until the full
title is transferred.

Contract for deed
(installment land
contract)

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The seller essentially becomes the
mortgage company, receiving any down
payment and mortgage payments directly from
the buyer.,This type of financing usually is a short-term
arrangement, up to five years or so. The buyer
retains the title to the property, as with all other
mortgage arrangements.

Purchase money
mortgage

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The seller agrees to carry a mortgage for
the balance of the sales price when the primary
lender will not cover it..,The seller’s mortgage is subordinated to the
primary mortgage will need to be satisfied before
primary mortgage; if the buyer defaults, the
the seller can collect any payments.

Junior
(subordinate)
mortgage,

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Allows the buyer to take the seller's place on an existing mortgage,Once the assumption process is completed, the The buyer will pay off the mortgage according to its terms.

Assumable mortgage

Requires repayment upon the property's sale or conveyance,A portion of the property's sale proceeds may be used to satisfy the original mortgage.

Due-on-sale clause

• Primary mortgage markets: These,directly service a buyer as the lender, setting up mortgage loans as part of cheir investment portfolio.,• Secondary mortgage markets: These do not initiate loans, but instead buy and manage existing mortgage loans to generate profit. Primary markets Such as banks commonly sell mortgages to the secondary market to increase their available capital.

Primary mortgage markets vs. secondary mortgage markets

• Mortgagor: Borrower Mortgagee: Lender

28,Mortgagor vs. mortgagee

An additional fee charged by the lender when some or all of the principal is paid early,Any prepayment penalties are clearly established by the lender in the contract.

Prepayment penalty

Alows the lender to demand paymert-in Full the borower defauits on payments or allows Another party to assume the mortgeze without having infomed the lender

Acceleration clause

the lien was the loan,The lien on claim property for the duration secured a claim to the property for the duration of the loan repayment period)

Mortgage

A legal agreement between a borrower, a lender, and a trustee,It functions similarly to a mortgage, but with some distinct differences. After closing on a property, the buyer deeds the title to the trustee to hold until the debt is repaid. Once the loan is paid in full, the trustee recognizes the title to the borrower.

Deed of trust

When the borrower attempts to sell the property without paying off the loan

Alienation

A promise to pay a sum of money that has been borrowed

Promissory note

An act established by Corgress in 1968 that protects consumers by requiring disclosure all key terrns and costs related to the lending arrangernent

National Consumer Protection Act

Allows the buyer to compare the numbers and ask any final questions before getting to the closing table,must be given to the buyer three days before Closing date

Closing Disclosure (CD)

Requires the full disclosure of loan terms, This regulation applies to any individual or business that offer credit, if your conditions are met: •The credit is offered to consumers. •The credit is not for a business, commercial, or car loan •The credit is subject to interest or must be paid in more than four installments •The credit is offered on a regular basis

Regulation

Real Estate Settlement Procedures Act (RESPA),

Explains the lender's possible intentions of selling the loan to another lender,This document also outlines the lender's history of selling loans versus servicing the loans themselves.

Mortgage servicing disclosure

Prohibits credit discrimination based on race, color, religion, national origin, ser, marital status, age, receipt of public assistance, or the good faith exercise of any rights under the Consumer Credit Protection Act,Under this act, borrowers have the right to know the specific reason why a creditor rejected their loan application.

Equal Credit Opportunity Act (ECOA)

What is the correct term for thepractice of placing other debts claiming the subject property as collateral as secondary to the primary mortgage? A, Defeasance clause, B. Subordination clause C. Acceleration clause D. Hypothecation

B: The subordination clause .

If a borrower (mortgagor) arranges for another party to assume the mortgage without informing the lender (mortgagee), the mortgagee is allowed to demand payment-in-full according to which legal agreement? A. Lien theory, B. Hypothecation, C. Acceleration clause D. Prepayment penalty

C The acceleration clause

43,Which of the following,will NOT trigger foreclosure proceedings?, A. Non-payment of HOA fees, B. Non-payment of taxes, C. Non-payment of principal and interest ,D. Non-payment of insurance premium

A. Non-payment of HOA fees,

In a contract for deed. where is the buyer getting the money for the purchase? A. Private money lender B. Credit union C. Seller D. Mortgage broker

A. Private money lender

Which loan option requires no down payment at closing? A. VA B. FHA C. Conventional D. Insured conventional

A. VA

The seller allows the buyer to move onto the property while making installment payments directly to the seller.,The seller retains full legal title until the buyer has fulfilled a predetermined percentage of the financed amount, at which point the seller records the deed and passes the title to the buyer. The installment land Contract gives equitable title to the buyer until the full title is transferred.

Contract for deed

Cooperative organizations that are similar to banks but are owned and controlled by their members,They offer lower rates and fees because savings are passed to the members. They tend to service To our themselves and provides more stable and personalized service, and they may have ways to help additional borrowers get a loan. Borrowers must be amember of he credit union to be approved fora

Credit unions

Prohibits credit discrimination based on race, color, religion, national origin, sex,,marital status, age, receipt of public assistance, or the good faith exercise of any rights under the Consumer Credit Protection Act,Under this act, borrowers have the right to know the specific reason why a creditor rejected their loan application.

Equal Credit Opportunity Act

Explains the lender's possible intentions of selling the loan to another lender,This document also outlines the lender's history of selling loans versus servicing the loans themselves.

Mortgage servicing disclosure

Created to combat the temptation of lenders, real estate agents, and title companies to provide undisclosed kickbacks to each other,These kick back effectively inflated real estate transaction costs to the buyers and preventes true competition among service providers Created to combat the temptation of lenders, real estate agents, and title companies to provide undisclosed kicktbacks to each other,These kick back effectively inflated real estate transaction costs to the buyers and preventes true competition among service providers

Real Estate Settlement Procedures Act (RESPA)

Requires the full disclosure of loan terms, including the interest rate, APR, and all costs,This regulation applies to any individual or business that offers credit, if four conditions are met:,. The credit is offered to consumers.,• The credit is subject to interest or must be paid in more than four installments.,. The credit is not for a business, commercial, or car loan.,d,. The credit is offered on a regular basis.

Regulation Z

act established by Congress in 1968 that protects consumers by requiring disclosure of all key terms and costs related to the lending arrangement,

National Consumer Protection Act

Which loan option requires no down payment at closing? A, VA B, FHA C. Conventional, D. Insured conventional

A, VA

A legal agreement between a borrower, a lender, and a trustee,It functions similarly to a mnortgage, but with some distinct differences. After closing on a property, the buyer deeds the title to the trustee to hold until the debt is repaid. Once the loan is paid in full, the trustee reconveys the title to the borrower.

Deed of trust

The lien on the property for which the loan was secured (a claim to the property for the duration of the loan repayment period)

Mortgage

Allows the lender to demand payment-in-full if the borrower defaults on payments or allows another party to assume the mortgage without having informed the lender

Acceleration clause

When the borrower atternpts to sell the property without paying off the loan

Alienation

•An additional fee charged by the lender when some or all of the principal is paid early •Any prepayment penalties are clearly established by the lender in the contract.

Prepayment penalty

- Mortgagor: Borrower -Mortgagee Lender

Mortgagor vs. mortgagee

Primary mortgage markets: These directly service a buyer as the lender, setting up mortgage loans as part of their investment portfolio Secondary mortgage markets: These do not existing mortgage loans to generate profit. initiate loans, but instead buy and manage Primary markets such as banks commonly sell mortgages to the secondary market to increase their available capital.

Primary mortgage markets vs. secondary mortgage markets

Requires repayment upon the property's sale or conveyance,A portion of the property's sale proceeds may be used to satisfy the original mortgage.

Due-on-sale clause

Allows the buyer to take the seller's place on an listing mortgage,Once the assumption process is completed, the The buyer will pay off the mortgage according to its terms.

Assumable mortgage

Allows the buyer to compare the numbers and ask any final questions before getting to the closing table,It must be given to the buyer three days before the closing date.

Closing Disclosure (CD)

If a borrower (mortgagor) arranges for another party to assume the mortgage without informing the lender (mortgagee), the mortgagee is allowed to demand payment-in-full according to which legal agreement? A. Lien theory B. Hypothecation C. Acceleration clause D. Prepayment penalty

C. Acceleration clause

Which of the following will NOT trigger foreclosure proceedings? A. Non-payment of HOA fees, B. Non-payment of taxes C. Non-payment of principal and interest D. Non-payment of insurance premium,

A: HOA payments are not a requirement forsatisfying a mortgage. Non-payment of HOA dues will cause a lien to be placed on the property so that they will be collected before the The borrower can complete a sale of the property.

What is the correct term for the practice of placing other debts claiming the subject property as collateral as secondary to the primary mortgage? A. Defeasance clause, B. Subordination clause C. Acceleration clause, D. Hypothecation

B: The subordination clause stipulates that the primary mortgage will always be satisfied first. The defeasance clause says the lender will terminate interest in the property upon full payment of the loan. The acceleration clause allows the lender to demand payment-in-full. Hypothecation is the act of pledging property as collateral while retaining the right of ownership and possession.