Unit 12 Flashcards
1
Q
Considering Factors of Buying or Renting
A
- how long a person wants to live in a particular area
- a person’s financial situation
- housing affordability
- current mortgage interest rates
- tax consequences
- what might happen to home prices and law laws in the future
2
Q
Basic Costs of Owning a Home
A
- Principal
- Interest
- Taxes
- Insurance
3
Q
FHA
A
Federal Housing Administration
4
Q
3 major credit reporting companies
A
- Equifax
- Experian
- TransUnion
5
Q
VA
A
US Department of Veterans Affairs
6
Q
What are the 2 biggest factors when deciding whether to rent or own?
A
- mortgage terms
2. payment plans
7
Q
What must purchasing decisions be weighed carefully again?
A
individual’s financial circumstances
8
Q
FICO Score range
A
300-850
9
Q
Loan-to-Value Ratio (LTV)
A
amount of the loan as a percentage of the purchase price of the property
10
Q
How to calculate total housing expense allowed
A
monthly income * .28
11
Q
How to calculat etotal housing and other debt expense allowed
A
montly income * .36
12
Q
What is the minimum credit score for a loan determined by>
A
- whether the lended will sell the mortgage after initiating it
- borrowing is making use of government-sponsored program
13
Q
promisory note
A
borrower’s personal promise to repay a debt according to the agreed terms
14
Q
Who is a promisory note in a contract with?
A
lender/payee
15
Q
Who is a promisory note executed by?
A
borrower/maker or payor
16
Q
Other terms for promisory note
A
note, financing instrument
17
Q
What does a promisory note state?
A
amount of debt, time and method of payment, rate of interest
18
Q
Interest
A
charge for the use of money, expressed as a percentage of the remaining blanace of the loan
19
Q
in arrears
A
payments made at the end of each period
20
Q
in advance
A
payments made at the beginning of each period
21
Q
What type of payment method is more common?
A
in arrears
22
Q
Who charges interest on the principal
A
lender
23
Q
Usury
A
charging interest in excess of the maximum rate allowed by law
24
Q
Federally related transaction
A
one that involves a federally chartered or insured lending institution or an agency of the federal government
25
loan origination fee typical percentage
1% of the loan amount
26
Discount Point
used to increase the lender's yield on its investment
27
Point
1% of the amount being borrowed; not 1% of purchase price
28
What do the number of points charged depend on?
1. Differences between loan's stated interest and lender yield
2. how long the lender expects it will take the borrower to pay off the loan
29
How to determine the number of points on a loan
total point dollar amount / amount of loan
30
When are points paid
in cash at closing by buyer
31
How ar emost mortgage loans paid
in installments over a long period of time
32
Prepayment Penalty
penalty against uneared portion of the interest of mortgage interests paid ahead of schedule
33
Prepayment Clause
clause that requires the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule, typically during the first year
34
When might lenders not charge prepayment penalties
1. on mortgage loans insured or guaranteed by the federal government
2. loans that have been sold on the secondary mortgage market to one of the government-sponsored enterprises
35
What type of loans are mortgages?
secured loans
36
What are the 2 parts of mortgage loans?
1. debt itself
| 2. security for the debt
37
Execute
sign
38
What must the owner execute when they have a mortgage?
1. financing instrument
| 2. security instrument
39
What is the Mortgage financing instrument
promisory note
40
What is the mortgage Security Instrument
either a mortgage or deed of trust
41
Financing Instrument
creates the debt
42
Security Instrument
specifies the property that the debtor will use as collateral for the debt
43
bare legal title (naked title)
title without the right of possession
44
deed of trust
three party security instrument
45
Who holds legal title on behalf of the lender on a deed of trust?
trustee
46
who is the holder of the promisory note
beneficiary
47
What are the borrower's duties?
1. pay the money back
2. payment of all real estate taxes
3. maintenance of insurance
4. Maintenance of the property and repair at all times
5. receipt of lender authorization before any major alterations
48
What happens if the borrower does not uphold their duties to lender?
can result in default
49
Acceleration Clause
assists the lender in foreclosure; lender has right to accelerate the maturity of the debt; can may entire principal due and payable immediately
50
Assignor
original mortgagee
51
assignee
third party who receives a note
52
Assignment of mortgage
asignee becomes new owner of the debt and security instrument
53
Can you change terms of the loan when there is an assignment of mortgage?
no
54
How does an assignment of mortgage work?
the assignor endorses the note to the assignee
55
Defeasance Clause
lender is required to execute a satisfaction of mortgage when teh note has been fully paid
56
Satisfaction of mortgage
returns to the borrower all interest in teh real estate originaly conveyed to the lender
57
Deed of reconveyance
release deed
58
Release Deed
trustee conveys the title of the property back to the trustor, conveying the same rights and powers that the trustee was given under the deed of trust
59
What is the insurance premium reserve for a new insurance policy?
1/12 of insurance premium liability
60
Flood insurance
must set aside escrow funds for flood insurance on new loans for property in flood-prone areas
61
How much time do you have to purchase flood insurance
45 days
62
What happens if a borrowers doesn't purchase flood insurance?
lender purchases it for them
63
Assumption of mortgage
buyer assumes the mortgage or deed of trust adn agrees to pay the debt
64
How to take property when real esatte has outstanding mortgage or deed of trust
1. "subject to"
2. Assumption of mortgage
3. Novation
65
Alienation Clause
provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender
66
Other names for alienation clause
resale clause; due-on-sale clause, call clause
67
Novation
makes the buyer solely responsible for any default on a loan adn original borrower is freed of any liability for the loan
68
Other names for alienation clause
resale clause; due-on-sale clause, call clause
69
Recording
gives constructive notice to the world of the borrower's obligations
70
What does recording establish?
lien's priority
71
Types of Loans
1. straight loan
2. amortized loan
3. adjustable rate mortgage (ARM)
4. Growing-equity mortgage
5. balloon payment loan
6. reverse mortgage
72
Amortization
each payment including part of the loan principal so the entire principal is paid off by the end of the loan term
73
Straight loan
term loan, interest only loan; borrower makes periodic payments of interested only, followed by teh payment of the principal in full at the end of the term
74
What are straight loans used for?
home improvements and seond mortgages
75
Amortized Loan
pays interest as well as a portion of the principal owned
76
What type of loan are most mortgage and deed of trust loans?
amortized loan
77
Margin
index + premium
78
Rate Caps
limit the amount of the interest rate may change
79
What does the margin represent?
lender's cost of doing business
80
Payment cap
sets a maximum amount for payment, but the difference between the payment made and the full payment amount will be added to the reamining mortgage balance
81
Growign Equity Mortage
rapid-payoff mortgage; uses a fixed interest rate with payments of principal are increased according to an index or schedule; pays loan off more quickly but payments increase
82
Balloon Payment
final payment that is at least twice the amount of the any other payment
83
Partially amortized loan
some of the principal has been paid with some still owned at the end of the term
84
Balloon Payment Loan
when the periodic payments on a loan are not enough to fully pay off the principal of the loan by the time the final payment is due, the final payment is larger than the others
85
Balloon Payment Loan
when the periodic payments on a loan are not enough to fully pay off the principal of the loan by the time the final payment is due, the final payment is larger than the others
86
Reverse Mortgage
allows a homeowner 62 or older to borrow money against the equity built up in the home
87
What can borrowed money on a reverse mortgage be used for?
any purpose
88
Ways reverse mortgage funds can be paid out
1. lump sum
2. fixed monthly payments
3. open line of credit
4. other
89
When does the lender need to be paid back?
1. when property is sold
2. borrower defaults
3. borrower moves
4. borrower dies
90
Foreclosure
a legal procedure in which property pledged as security for a debt is sold to satisfy the debt when a borrower defaults on any required payments or fails to fulfill any other obligations set forth in teh mortgage or deed of trust
91
Who can initiate foreclosure proceedings
any unpaid leinholder
92
How are foreclusure properties sold?
free of the foreclosing mortgage and all junior liens
93
REO
real estate owned
94
Methods of Foreclosure
1. Judicial
2. Nonjudicial foreclosure
3. Strict foreclosure
95
Judicial Foreclosure
allows the proeprty to be sold by court order after the mrotgagee has given sufficient public notice
96
Nonjudicial foreclosure
when teh security instrument contains a power-of-sale clause; no court action is required
97
Who is given power of sale in deed of trust loans
beneficiary
98
Deed in lieu of foreclosure
eliminates any equity that the homeowner may have had in the property
99
Nickname for Deed in lieu of foreclosure
friendly foreclosure
100
Why is Deed in lieu of foreclosure called a friednly foreclosure?
carried out by mutual agreement rather than lawsuit
101
Short sale
sales price is less than the reamining indebtedness
102
Mortgage Forgiveness Debt Relief Act of 2007
allows a taxpayer to exclude from income the forgiveness of part of the mortgage debt on teh taxpayer's principal residence on a sale of the property, restructuring of an existing mortgage loan, or foreclosure of a mortgage loan
103
What does the leder have to do to protect the consumer?
1. provide billing info in writing
2. give the borrower 2 months warning if rate will change
3. promptly credit the payments
4. respond quickly
5. not charge for insurance you don't need or overcharge insurance
6. quickly resolve complaints
7. good customer service policies and procedures
8. work with the borrowers if they're having trouble making payments
9. Contact borrower when they're having trouble making payments
10. allow the borrower to seek review of a decision about a loan workout request
104
Basic Form
most common homeowner's policy
105
What does basic form over against
- fire and lightening
| -
106
Broad Form insurance coverage
- falling objects
- damage due to ice/snow/sleet
- collapse of building
- damage to electrical applicances from short circuits and other accidentally generated currents
- bursting, cracking, burning or bulging of a steam or water heading system or applicances used to heat water
- accidental discharge, leakage, overflow of water or steam from plumbing heating or AC system
- freezing of plumbing, heating and AC systems and domestic appliances
107
Comprehensive Loss Underwriting Exchange (CLUE)
database of consumer claims history that enables insurance companies to access prior claims information in the underwriting and rating process; up to 5 years of history
108
National Flood INsurance Act of 1968
help owners of property in flood-prone areas by subsidizing flood insurances and by takign land-use and land-control measures to improve future management for floodplain areas
109
In SFHA's, who types of buildings must have flood insurance?
residential, commercial, industrial agricultural (all buildings)
110
SFHA
special flood hazard areas
111
Who can get CLUE reports?
insurance agents
112
What does flood insurance cover?
the value of the property or amount of the mortgage loan?
113
Who can be exempt from flood insurance
a borrower who has a survey showing the lowest part of the building is located about the 100 year flood mark
114
Flood
a general and temporary condition of partial or coplete inundation of two or more acres of normally dry land or two or more properties from an overflow of inland or tidal waves; an unusual and rapid accumulation fo runoff or surface water; mudflowers or mudslides; or the collapse of land along teh shower of a body of water
115
What does flood insurance cost?
increases property owner's expenses, but they take this into consideration, but will qualify for a lower loan amount
116
What do flood policies excluse coverage for
swimming pools, cars, money, animals, groundcover, underground systems
117
2 types of flood insurance policies
1. replacement cost value
| 2. actual cost value
118
If a buyer signs a note and a mortgage, they buyer is a
mortgagor
119
Who is the borrower under a deed of trustt
trustor
120
mortgage fraud
exaggerating income or assets, minimizing or concealing debt obligations, or providing a false employment
121
Predatory Lending
practices that result in too-high loan fees and abusive interest rates
122
Credit score
prepared by a credit reporting company and is based on a consumer's past history of credit use, including income, outstanding loans, number of credit accounts open, outstanding credit lines, number of accounts opened and closed, payment history, and credit inquiries
123
What would be the highest monthly debt payments
36% of gross monthly income
124
If you can provide at least 10% of the purchase price as a downpayment, what would be your monthly PITI payment
no more than 28% of borrower's gross monthly income
125
What happens when terms of the note are satisfied?
debt is discharged
126
What happens when terms of the note are not met?
lender may foreclose on property
127
What happens when a note is not secured?
lender can sue to collect on the note
128
How can the payee who holds the note transfer the right to receive payment to a third party
1. by signing the instrument over to a third party
| 2. by delivering the instrument to the third party
129
Loan origination
the processing of a mortgage application
130
Loan Origination Fee
charged by most lenders to cover the expenses involved in generating the loan
131
Hypothecation
debtor retains the right of possession and control of the secured property while the creditor receives an equitable right in the property
132
Mortgage
a lien on the real property of a debtor
133
mortgagor
receives a loan and in return gives a promissory note and mortgage to the lender, called the mortgagee
134
Satisfaction of mortgage
document for when loan is paid in full whihc is filed in the public record as evidence of the removal o the securiyt interest
135
lien theory
mortgageor retains both legal and equitable title to property that serves as security for a debt
136
title thoery
borrower is the trustor who conveys legal title to the trustee but retain equitable title and right of possession
137
What must a mortgage or deed of trust clearly establish
that the property is security for a debt, identify the leder and borrower, accurate legal description of the property
138
"subject to"
buyer is not personally obligated to pay the debt in full
139
first morgage
mortgage or deed of trust on land that has no prior mortgage lien
140
secod mortgage
owner executes another loan for additional funds
141
subordination agreement
first lender subordinates or lowers its lien position to that of the second lender
142
direct reduction loans
full amount of the principal and all interest due is reduced to zero
143
fully amortized loan/level-payment loan
lender credits each payment first to the interest due, then to the principal amount of the loan
144
adjustable rate mortgage
begins at one rate of interest then fluctuates up or down during the loan term, based on specific economic indicator
145
Index
economic indicator that is used to adjust the interest rate in the loan
146
Periodic rate caps
limit the amount the reate may increase over a stated term, usually a years
147
Life-of-the-loan rate cap
limits the amount the rate may increase over the entire life of the loan
148
Payment cap
sets a maximum amount for payments
149
negative amortization
amount of hte loan increases
150
under water
borrower owing more than the property is worth
151
option ARM
allowed negative amortization
152
who can initate foreclosure proceedings?
any lienholder unpaid
153
strict foreclosure
notice is given to delinquent borrower; if balance of defauled debt is not paid within the designated period of time, a court awards full legal title to the lender; no sale takes place
154
Problem with deed in leiu foreclosure
does not eliminate junior liens
155
equitable right of redemption
gives defaulting borrowers a change to redeem their property before foreclosure sale
156
Statutory right of redemption
allow defaulted borrowers a period in which to redeem their real estate after the sale
157
deficiency judgement
personal judgement against the borrower for the unpaid balance after the foreclosure sale
158
homeowners insurance
covers various risks associated with real and personal property
159
Basic Form Homeowner's Insurance Coverage
fire and lightening, glass breakage, windstorm and hail, explosion, riot and civil commotion, damage by aircraft, damage from vehicles, damage from smoke, vandalism and malicious mischief, theft, loss of proeprty removed from premises when it is endangered by fire or other perils
