Mortgages And Finance

Question 1

VA Mortgage (GI Mortgage)

Answer 1

Made by private lenders to eligible veterans. The VA guaranty on the loan protects the lender against loss if the payments are not made.

Question 2

Benefits of a VA loan

Answer 2

• equal opportunity for all qualified veterans to obtain a VA loan
• reusable
• no down payment
• no mortgage insurance
• one-time VA funding fee that can be included in the loan
• Veterans receiving VA disability compensation are exempt from the VA funding fee
• VA limits certain closing costs a veteran can pay
• can be assumed by qualified persons
• minimum property requirements to ensure the property is safe, sanitary and sound
• VA staff dedicated to assisting veterans who become delinquent on their loan

Question 3

Who is eligible for a VA loan?

Answer 3

1. Veterans who meet length of service requirements
2. Service members on active duty who have served a minimum period
3. Certain reservists and National Guard members
4. Certain surviving spouses of deceased veterans

Question 4

203b

Answer 4

FHA program whose purpose is to provide mortgage insurance for a person to purchase or refinance a principal residence

• eligible properties are 1 to 4 unit structures
• borrower may borrow up to 97% of purchase price

Question 5

Conventional Mortgage

Answer 5

A loan not guaranteed by the VA nor insured by the FHA

*generally they are fixed-rate, fixed-principal-and-interest-payment type

Question 6

Conforming Loan

Answer 6

A loan that is eligible for purchase by FNMA or FHLMC

*limit is revised every year according to the change in average sales price of conventionally financed single family homes

Question 7

Jumbo Loan

Answer 7

A loan whose principal is too large to be purchased by FNMA or FHLMC

*may be insured privately with private mortgage insurance (PMI)

Question 8

Subprime Mortgage

Answer 8

Loans that don’t conform to FHLMC or FNMA guidelines.

*carry higher risks, will have a higher interest rate

Question 9

Purchase Money Mortgage

Answer 9

A mortgage given by a buyer to a seller in part payment of the purchase price
*the seller is providing financing to the purchaser

Question 10

Construction Loan

Answer 10

Used by builders or developers to improve land

• funds construction by advancing money in steps as the project is developed
• once completed, a permanent loan is used to pay off the construction loan

Question 11

Term Loan

Answer 11

Requires only interest payments until maturity. At the end of the maturity term, the entire principal balance is due

Question 12

Amortizing loans

Answer 12

Regular, periodic payments. Each payment is greater than the interest charged for that period so that the principal amount is reduced at least slightly with each payment

Question 13

Balloon Payment Loan

Answer 13

The final payment on a loan. Requires interest and some principal to be repaid during its terms but the debt is not fully liquidated (because the term is too short to allow for the loan to be repaid). Upon its maturity, there is still a balance to be repaid.

Question 14

First Mortgage

Answer 14

The mortgage loan that is recorded first in the courthouse against a property remains a first mortgage until it is fully paid off. In the event of default or foreclosure, the lender who holds the first mortgage receives payment in full before other mortgage lenders receive anything.

Question 15

Junior Mortgages

Answer 15

Any mortgage recorded after the first mortgage. The earlier a mortgage is recorded, the earlier the mortgagee’s claim in a foreclosure action.

Question 16

Home Equity Lines of Credit

Answer 16

like a second mortgage but the borrower does not have to take possession of all the money at one time.

• offers a flexible way to access home equity
• good for borrowers who anticipate they will need more money in the future but don’t need it immediately

Question 17

Budget Mortgage

Answer 17

Requires a homeowner to pay, in addition to monthly interest and principal payments, one-twelfth of the estimated taxes and insurance into an escrow account.
*reduce a lender’s risk - assured that adequate cash will be available when an annual tax or insurance bill comes due

Question 18

Package Mortgage

Answer 18

Include appliances, drapes, and other items of personal property in the amount loaned
*both realty and personalty serve as collateral

Question 19

Chattel Mortgage

Answer 19

A mortgage on personal property (car, boat, furniture)

*a pledge of personal property as security for a debt

Question 20

MORTGAGE

Answer 20

A written instrument that creates a lien upon real estate as security for the payment of a specified debt

Question 21

Blanket Mortgage

Answer 21

Covers more than one parcel of real estate
*release provisions/clauses- allow individual parcels to be released from the mortgage upon payment of part of the mortgage principal

Question 22

Open End Mortgage

Answer 22

A mortgage under which the borrower may secure additional funds from the lender, usually stipulating a ceiling amount

Question 23

Wraparound Loan

Answer 23

A mortgage that includes in its balance an underlying mortgage.
*really a second mortgage that includes an existing first mortgage in its balance

Question 24

Swing Loan

Answer 24

Provided by a bank for a short term to use as equity in a new house
(Ex: a homeowner is buying a new house but hasn’t sold the old one yet)

Question 25

Bridge Loan

Answer 25

Short term loan to cover the period between construction loan and permanent loan

Question 26

Home Equity Loan

Answer 26

Likely to be a second mortgage but carries a lower rate than other types of consumer finance *for a household that is house rich and cash poor

Question 27

Sale-Leaseback

Answer 27

Simultaneous purchase of property and lease back to the seller * at the end of the lease term there may be a purchase option at a small amount for the property user * sometimes used to arrange 100% financing and control of property without a legal purchase

Question 28

Fixed Rage Mortgage (FRM)

Answer 28

Features an interest rate that does not change over the life of the loan *most popular modern mortgage instrument

Question 29

Graduated Payment Mortgage (GPM)

Answer 29

Payment is increased by some amount or percentage every year until it becomes high enough to fully amortize the loan over the remaining term * designed to allow a relatively low monthly payment in the first years of the loan * the loan amount actually goes up instead of down at first because the payments during the first 3-5 years aren't enough to pay the accumulating interest on the loan

Question 30

Essential elements of a note

Answer 30

(a) a promise to pay at (b) a fixed or determinable time (c) a certain sum of money (d) to a payee or to bearer, (e) signed by the borrower

Question 31

Adjustable Rage Mortgages (ARM)

Answer 31

Mortgages that feature interest rate changes every so often (leading to a change in the amount of the monthly payment) *all ARMs have periodic adjustment, an interest rate based on some index of interest rates, and both periodic and lifetime caps on interest rates

Question 32

Caps

Answer 32

Limits in changes in interest rates (in an adjustable rate mortgage) * periodic cap- limits the amount of change for any one period * lifetime cap- provides upper and lower interest rate limits that apply for the entire life of the loan

Question 33

Convertibility Feature

Answer 33

Allows the borrower in an ARM to convert to a FRM loan at some time in the future *typically a fee is charged for conversion

Question 34

Teaser Rates

Answer 34

Unusually low initial interest rates in an ARM | *used as an enticement to potential borrowers

Question 35

Reverse Mortgage

Answer 35

The lender makes the payments to the borrower, gradually advancing money to a homeowner *typically for the elderly

Question 36

Primary Mortgage Market

Answer 36

Consists of institutions that originate mortgages. The mortgages can then be sold on the secondary mortgage market * Savings and Loans Associations * Commercial banks * Mutual Savings Banks * Life Insurance Companies * Mortgage Companies

Question 37

Secondary Mortgage Market

Answer 37

FNMA- Freddie Mae FHLMC- Freddie Mac GNMA- Ginnie Mae FmHA

Question 38

Underwriting

Answer 38

A process performed by institutional lenders to asses the risks of making the loan *look at the property (appraisal) and the borrower (credit reports, financial statements, letters from employers, bank accounts, assets and liabilities)

Question 39

Usury

Answer 39

A rate of interest that is higher than that permitted by law * each state has its own usury laws, with different ceiling interest rates applying to each type of loan * penalties are severe

Question 40

Assumption of Mortgage

Answer 40

The purchase of mortgaged priest whereby the buyer accepts liability for the debt that continues to exist. The seller remains liable unless the lender agrees to release him.

Question 41

Estoppel Certificate

Answer 41

A document by which, for example, the borrower certifies that the mortgage debit is a lien for the amount stated

Question 42

Equity of Redemption

Answer 42

The borrower on a foreclosed property has the right to redeem the property by repaying in full the principal owed *must be exercised within the time period prescribed by state law