Vocab

Question 1

Construction loans

Answer 1

Loan where the lender commits to the full amount of the loan, but disburses payments over the life of the construction project. The payments are made to the general contractor or the owner for the parts of the construction completed since the last payment.

Question 2

Package mortgage

Answer 2

Mortgage that includes all the personal property and appliances that are installed on the property. This type of loan has been used extensively in the sale of furnished condominiums.

Question 3

RAM

Answer 3

Reverse annuity mortgage (RAM). Mortgage where the lender is making payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell. The borrower pays a fixed rate of interest and then repays the loan either when the home sells or from the borrower’s estate upon his or her death.

Question 4

Shared equity mortgage

Answer 4

A participation mortgage in which the lender shares in the appreciation of a mortgaged property if and when the property sells.

Question 5

Sale and leaseback

Answer 5

This arrangement is when the owner of real estate sells the property and then leases it back from the buyer. The buyer becomes the owner and the former owner becomes the tenant.

Question 6

Primary mortgage market lenders

Answer 6

Professionals who originate loans which means they make the money available directly to borrowers.

Question 7

Savings and loan association

Answer 7

A financial institution whose primary function is to promote thrift and homeownership. They also invest at least part of the deposits made by their customers in residential mortgage loans.

Question 8

Commercial bank

Answer 8

A financial institution that is designed to act as a depository for funds and as a lender for commercial activities, usually short-term loans.

Question 9

Demand accounts

Answer 9

Personal and business checking accounts that allow money to be withdrawn at any time by a depositor. The bank rarely uses these funds for mortgage lending.

Question 10

Credit unions

Answer 10

Nonprofit financial institutions that can offer higher interest rates on deposits because they don’t pay income tax.

Question 11

REIT

Answer 11

Real Estate Investment Trusts (REIT). A method of pooling investment money using the trust form of ownership if certain tax requirements are met which allow the avoidance of corporate tax.

Question 12

Mortgage bankers

Answer 12

A mortgage banker works for a lending institution like a bank, etc.

Question 13

Mortgage broker

Answer 13

A mortgage broker is an intermediary working with many financial institutions.

Question 14

Mortgage

Answer 14

A financing instrument that creates a lien against a property.

Question 15

Promissory note

Answer 15

Signed document describing amount of money borrowed, the terms under which it will be repaid and any conditions that relate to either borrowing the money or consequences of default. Also called “note” or “bond,” it establishes legal evidence of the debt incurred

Question 16

Principal

Answer 16

The capital amount borrowed on which interest payments are calculated.

Question 17

Interest

Answer 17

The charge for the use of the lender’s money.

Question 18

Interest rate

Answer 18

The percentage applied to the principal to determine the amount of interest due

Question 19

Foreclosure

Answer 19

The process that leads up to selling the property that was pledged to secure the debt.

Question 20

Judicial foreclosure

Answer 20

The sale of the mortgaged property under the supervision of the court. Proceeds go first to satisfy the mortgage, then other lien holders, and finally the borrower.

Question 21

Non-judicial foreclosure

Answer 21

The process whereby the lender gives the borrower a notice of default (NOD) and the intent to sell the property in a form prescribed by that state’s statute. Sometimes referred to as a “power-of-sale” foreclosure.

Question 22

Deed in lieu of foreclosure

Answer 22

The voluntary transfer of the deed from a defaulting borrower to lender transferring legal title. This does not terminate any existing liens on the property

Question 23

Right of redemption

Answer 23

The right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs. Also called equity of redemption.

Question 24

Deficiency judgment

Answer 24

Court order sought by lender if property sale does not yield sufficient funds to cover the amounts owed which enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.

Question 25

Points

Answer 25

Fee charged by lender at settlement that results in the lender’s effective yield on the money borrowed. One point equals one percent of the loan amount

Question 26

Pre-approval

Answer 26

A formal process that only a lender can do to determine the maximum loan amount based on financial information the borrowers provide.

Question 27

Underwriting

Answer 27

The evaluation process used to determine the borrower’s ability to repay a loan and estimate the value of the property being used as collateral.

Question 28

Straight-line loan

Answer 28

Loan structured with the monthly payments allocated only to interest. No principal is paid off. At the end of the term, the borrower must pay off the entire principal amount or get another loan. Also called interest-only loans

Question 29

Mortgage style loans

Answer 29

Loans structured usually as fixed-interest, long-term loans of 15 or 30 years. At the end of the loan term, the full amount of the principal and all of the interest is paid off and the balance is zero.

Question 30

Balloon mortgage

Answer 30

Loan with monthly payments not large enough to fully amortize the loan by end of term so borrower has one large final payment due when the loan has been paid off.

Question 31

ARMs

Answer 31

Adjustable-rate mortgages (ARMs). Loan where the interest rate charged by the lender varies according to some index not controlled by the lender.

Question 32

Conventional mortgage

Answer 32

A non-government backed loan that usually require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property’s sale price.

Question 33

PMI

Answer 33

Private mortgage insurance program (PMI). Programs that insure the top 30% of a loan, protecting the lender in case the borrower defaults on the loan allowing borrowers to lower the down payment on a traditional loan.

Question 34

GPM

Answer 34

Graduated Payment Mortgage (GPM). Loan structured so the monthly payment for principal and interest increases by a certain percentage each year for a certain number of years then levels off for the remaining term of the mortgage.

Question 35

PAM

Answer 35

Pledged Account Mortgage (PAM). A type of graduated-payment mortgage under which the owner or borrower contributes a sum of money into an account that is pledged to the lender. The account is drawn on during the first three to five years of the loan to supplement the periodic mortgage payments, thereby reducing the borrower’s monthly payments in the initial years. Once the account is empty, the borrower makes the full mortgage payment.

Question 36

Buydown

Answer 36

A variation of the pledged account mortgage where the lump sum payment that is made to the lender at closing usually comes from a builder as an incentive to the buyer or from a family member trying to help out. That payment serves to reduce the interest rate on the loan for the first few years.

Question 37

Open-end loan

Answer 37

An expandable loan which gives borrowers a limit up to which they may borrow. Each incremental advance must be secured by the same mortgage and any advances may not exceed the original borrowing limit.

Question 38

Blanket mortgage loan

Answer 38

Loan which covers more than one piece of property often used by land developers when they buy a plot of land and divide it into many separate lots.

Question 39

Wraparound mortgage

Answer 39

Loan that allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan. The second lender issues a new, larger loan to the borrower at a higher interest rate.

Question 40

Bridge loan

Answer 40

A short-term loan that covers the period between the end of one loan and the beginning of another.

Question 41

Installment land sales contract

Answer 41

Contract where the seller keeps legal title until the debt is paid in full. Once paid, the buyer receives equitable title. Also called a contract for deed.