Chapter 14 - Real Estate Financing

Front 1

What considerations are involved when one is deciding to buy or rent property

Back 1

1. How long a person wants to live in a particular area

2. A person's financial situation

3. Housing affordability

4. Current mortgage interest rates

5. Tax consequences of owning vs. renting

6. What might happen to home prices and tax laws in the future

Front 2

What are the biggest factors when deciding whether to own or rent?

Back 2

Mortgage terms and payment plans

Front 3

What are the basic cost of ownership called?

Back 3

Principal

Interest

Taxes

Insurance

Front 4

What is DTI?

Back 4

Debt to Income

Front 5

The difference between the market value of the property and the amount still owed on its is the homeowner's ________ in the property

Back 5

Equity

Front 6

What are the tax deductions homeowners may deduct from their gross income?

Back 6

1. Mortgage interest payments on first and second home

2. Real estate taxes

3. Certain loan origination fees

4. Loan discount points

5. Loan prepayment penalties

Front 7

True or False

A couple that files a joint tax return can sell a principal residence, up to $250,000 in profit to be excluded form capital gains tax.

Back 7

False

note: a couple can do a $500,000 in profit and a person filing single can receive up to $250,000

Front 8

True or False

A first-time homebuyer may make a penalty-free withdrawal from a tax-deferred individual retirement account for the down payment on a home

Back 8

True

Front 9

A ______ is a borrower's personal promise to repay a debt according to the agreed terms

Back 9

Promissory note

Front 10

A _____ is a _______ similar to a check or bank draft

Back 10

note, negotiable instrument

Front 11

_____ is a charge for the use of money, expressed as a percentage of the remaining balance of the loan

Back 11

Interest

Front 12

Charging interest in excess of the maximum rate allowed by law is called _____

Back 12

Usury

Front 13

What is the fee called that is charged by most lenders to cover the expenses involved in generating the loan

Back 13

Loan origination fee

Front 14

What are discount points for?

Back 14

They are used to increase the lender's yield (rate of return) on its investment

Front 15

What does the number of points charged depend on?

Back 15

1. The difference between the loan's stated interest rate and the yield required by the lender

2. How long the lender expects it will take the borrower to pay off the loan

Front 16

How much does one discount point equal?

Back 16

1% of the loan amount

Front 17

If a borrower repays the loan before the end of the term they may be expected to pay a ______

Back 17

Prepayment penalty

Front 18

True of False

Lenders may not charge prepayment penalties on mortgage loans insured or guaranteed by the federal government

Back 18

True

Front 19

What are the two parts of a mortgage loans?

Back 19

1. The debt itself

2. Security of the debt

Front 20

True or False

A basic principle of property law is that no one can convey more than he actually owns

Back 20

True

Front 21

When the debtor retains the right of possession and control of the secured property, while the creditor receives an equitable right in the property is called what?

Back 21

Hypothecation

Front 22

A ______ is a lien on the real property of a debtor

Back 22

Mortgage

Front 23

The borrower, or _______, receives a loan

Back 23

Mortgagor

Front 24

The mortgagor in return gives a promissory note and mortgage to the lender, called the _________

Back 24

Mortgagee

Front 25

What type of lien is a mortgage?

Back 25

A voluntary, specific lien

Front 26

An acceleration clause is used to assist a lender with what?

Back 26

Foreclosure

Front 27

A satisfaction of mortgage is when?

Back 27

The note has been fully paid

Front 28

What is an impound or escrow account used for?

Back 28

A reserved fund to meet future real estate taxes and property insurance premiums

Front 29

What type of loan essentially divides the loan into two amounts to be paid off separately?

Back 29

Straight loan

Front 30

A(n) ________ partially pays off both principal and interest

Back 30

Amortized loan

Front 31

What is the payment period usually for an amortized loan

Back 31

10 - 30 years

Front 32

What kind of mortgage rate begins at one rate of interest, then fluctuates up or down during the loan term?

Back 32

Adjustable-rate mortgage

Front 33

When does the amount of the loan actually increase instead of decreasing?

Back 33

Negative amotization

Front 34

When the total payment increases and the loan is paid off more quickly is called what?

Back 34

Growing-equity mortgage or a rapid-payoff mortgage

Front 35

______ is a final payment that is at least twice the amount of any other payment

Back 35

Balloon payment

Front 36

When is a balloon payment necessary?

Back 36

When payments on a loan are not enough to fully pay off the principal of the loan by the time the final payment is due

Front 37

True or False

A reverse mortgage allows a homeowner aged 55 and older to borrow money against the equity built up in the home

Back 37

False

note: the homeowner must be 62 or older

Front 38

The most popular reverse mortgages are insured by?

Back 38

FHA

Front 39

_______ is a legal procedure in which property pledged as security for a debt is sold to satisfy the debt

Back 39

Foreclosure

Front 40

What are the three general types of foreclosure proceedings?

Back 40

1. Judicial Foreclosure - allows property to be sold by court order

2. Nonjudicial Foreclosure - used when the security instrument contains power-of-sale clause

3. Strict Foreclosure - once the proper papers have been prepared and recorded, the court establishes a deadline for the balance of the defaulted debt to be paid in full

Front 41

Most states give defaulting borrowers a chance to redeem their property through the ________

Back 41

Equitable right of redemption

Front 42

_______ in which the sale price is less than the remaining indebtedness

Back 42

Short Sale