GENERAL MORTGAGE KNOWLEDGE

Question 1

Value

Answer 1

Amount of goods or

services offered in the marketplace in exchange for something.

Question 2

Table funding

Answer 2

Occurs when a mortgage loan is funded by an advance of loan funds and

an assignment of the loan to the same entity advancing the funds.

Generally undertaken by correspondent lenders.

Question 3

Eminent Domain

Answer 3

The government’s constitutional power to take (appropriate or condemn) private property for public use,
as long as the owner is paid just compensation.

(Government taking of private land is called condemnation.)

Question 4

Earnest Money

Answer 4

Money offered as an indication of good faith regarding the future performance of a purchase agreement.

Question 5

Profit

Answer 5

The difference between the money made from an investment and the money actually invested.

Question 6

Arm’s Length Transaction

Answer 6

A transaction that occurred under typical conditions in the marketplace where each of the parties were acting in their own best interests.

Question 7

Seller’s Market

Answer 7

A situation in the housing market when a large number of buyers are looking for housing in an area of limited availability.

Question 8

Contingency Clause

Answer 8

A provision in a contract, deed, law, regulation, guideline, etc. that makes the parties’ rights and obligations depend on the occurrence

(or nonoccurrence) of a specified event.

Also called Condition, Escape Clause, Subject to Clause, or Kick-Out Clause.

Question 9

Reverse Mortgage

Answer 9

A vehicle for a borrower who has substantial equity in a property to convert that accumulated equity-at a cost-to cash and additional debt without selling the property and without making payments to the lender.

With a typical reverse mortgage, the balance of the loan rises as the borrower receives money from the lender and incurs interest to the outstanding loan balance.

Also called a reverse equity mortgage or reverse annuity mortgage.

Question 10

Buyer’s Market

Answer 10

A situation in the housing market when there are many homes available for sale, but few buyers.

Question 11

Encroachment

Answer 11

A physical object intruding onto neighboring property, often due to a mistake regarding the boundary.

Question 12

Vendee

Answer 12

The buyer in a land contract.

Question 13

Vendor

Answer 13

The seller in a land contract.

Question 14

Acceleration Clause

Answer 14

A contract clause that gives the lender the right to

declare all outstanding payments immediately due

upon a default by the borrower.

Question 15

Buydown

Answer 15

Additional funds in the form of points paid to a lender at the beginning of a loan to lower the interest rate and monthly payments

Question 16

Federal Funds Rate

Answer 16

The Federal Reserve’s target for short term interest rates.

Question 17

Prime Rate

Answer 17

The short-term interest rate a bank charges its most creditworthy customers.

Question 18

Residual Income

Answer 18

The income a borrower has left after subtracting taxes, housing expense, and

all recurring debts and obligations (used for VA loan qualifying).

Also called the cash flow analysis method.