Section 13: Real Estate Financing Basics Flashcards
(52 cards)
also called thrifts this association specializes in taking in savings deposits and then lending out through mortgages and other loans. They’re required to keep their commercial lending at or under 20%, so they’re very much tied to consumers and mortgage loans.
Savings and loan associations
Bank of America, Chase, Citigroup, and the like make consumer and business loans, offer investment products, and take deposits and are called what
Commercial banks
are member-based cooperatives that provide credit for auto loans and home loans. They take deposits and offer savings vehicles, money markets, and the like. Their rates tend to be pretty competitive.
credit unions
_________ actually do the lending. They have in-house loan processors and underwriters. Wells Fargo Mortgage is an example.
Mortgage bankers
_________ work with multiple lenders to search for and negotiate the best deal for a particular borrower’s circumstances. They don’t loan the money out themselves, so they’re not tied to a specific suite of loan products.
mortgage brokers
An insurance requirement that protects the lender when it approves a loan with more than 75% to 80% of the purchase being financed
private mortgage insurance (PMI)
FNMA, the Federal National Mortgage Association; a private, for profit corporation that operates under a congressional charter that buys loans in the secondary mortgage market from lenders in the primary mortgage market
(Conventional loans from commercial banks)
Fannie Mae
The Federal Home Loan Mortgage Corporation (FHLMC) which increases the availability of financing for conventional mortgages insured by the federal government by purchasing them from lenders in the primary market.
(Conventional loans from smaller institutions)
Freddie Mac
Private companies such as Fannie Mae, Freddie Mac, and the Federal Home Loan Bank, created by the U.S. Congress to make borrowing easier and more cost effective
government-sponsored enterprises (GSEs)
Loans that don’t meet Fannie Mae or Freddie Mac guidelines are called what
non-conforming loans.
The two most common types of government loans are what
Federal Housing Administration (FHA)-insured and U.S. Department of Veterans Affairs (VA)-guaranteed loans
this type of loan Requires mortgage insurance premium (MIP)
FHA
purchases agricultural loans and loans from rural lenders.
farmer Mac
guarantees mortgage-backed securities (MBSs) that contain loans insured or guaranteed by a U.S. government agency. Does not purchase loans.
(Mortgage-backed securities (MBSs); loans insured by a U.S. government agency)
Ginnie Mae
Any loan in which periodic payments go toward both principal and interest. In a typical amortized loan, most of the initial payments go toward interest, with ever-increasing amounts going toward the principal (the loan balance), until the loan is paid off
Amortized loan
A typical amortized mortgage loan that includes principal, interest, taxes, and insurance in each (usually monthly) amortized payment. A common acronym for this kind of loan is PITI (principal, interest, taxes, and insurance).
Budget mortgage
A loan where the principal and interest payment remains the same over the life of the loan
fixed-rate loan
A fixed-rate mortgage in which the monthly payments increase over time according to a set schedule
growing equity mortgage
A loan where the rate is adjusted, usually annually, based on the behavior of the economic index with which it’s associated (e.g., the consumer price index). The margin is the number of percentage points added to the index to determine the rate and is constant throughout the life of the mortgage; the index value is the variable. If the index is 5% and the margin is 2%, the fully indexed rate is 7%. If the index is 8%, the margin is still 2%, so the indexed rate is 10%
adjustable-rate mortgage (ARM)
A mortgage loan alternative that allows the interest rate to be renegotiated periodically. The loan can be either long-term with periodic adjustments or short-term with more frequent rate adjustments.
Renegotiable rate:
The borrower only pays the interest on the loan for a set number of years—usually between five and seven. After the term is over, the borrower must either pay off the entire loan principal in a lump-sum payment, or will need to finance the principal through another loan. Also known as term or straight-term loan.
Interest-only
A payment that gradually adjusts (usually upward) based on a pre-determined schedule and amount. The initial payments are less than what would be a fully amortizing payment, which creates negative amortization. This type of payment plan can make payments easier in the beginning when income is often lower.
Graduated payment:
This type of loan is designed for the self-employed or those paid on commission. A high credit score and slightly higher interest rates are characteristic of these types of loans. Since 2008, the standards for mortgage qualifying have become stringent to the point that low-doc loans are now rarely available.
Low documentation (low-doc)
A government-backed combination loan to combine a home purchase with home repair by allowing the borrower to buy and renovate a fixer-upper property with one loan.
rehab loan
