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32 Cards in this Set
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- Back
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An adjustable rate mortgage refers to a loan which: has a variable interest rate generally, has periodic and life-time caps on the interest rate can have negative amortization or not all of the above |
A: all of the above All three are important characteristics of ARM's |
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An FHA loan for $80,000 at 10.5% requires discount points paid at closing in the amount of 3%. Find the cash value of the discount points. 2520 2400 3000 3150 |
A: 2400 80,000 x 3 % = 2,400 Definition of 'Discount Points' Discount Points are a form of prepaid interest. A borrower buys a point and in return gets a lower interest rate on the loan. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. As the IRS considers discount points to be prepaid interest they are tax deductible in the year in which they were paid. For example, on a $300,000 loan, each point would cost $3,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $6,000 and will result in an interest rate of 4.50%. Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation. On a practical basis; discount points are most often purchased by sellers as an incentive to prospective buyers. For most sellers, discount points are a cost of selling and thus tax-deductible. Buyers usually do not see enough benefit to purchase discount points. In the earlier example; spending $6,000 to reduce the interest rate to 4.5%, would have reduced the monthly payment by about $90. It would have taken a buyer 67 months to cover the cost of the points. |
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A mortgage that covers several parcels of land and contains a provision that allows for the sale of an individual parcel with clear title is called: An amortized mortgage A declining balance mortgage A blanket mortgage A wraparound mortgage |
A: A blanket mortgage A blanket mortgage covers several properties and individual properties can be sold off this is called the partial release clause |
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With an FHA loan and a VA loan, if the appraisal is lower than the contract price: the purchaser has the right to back out of the contract without repercussion the purchaser has the right to proceed with the purchase and obtain a loan for more than the amount of the appraisal the purchaser must still buy the property if the seller will loan the difference between the appraised value and the purchase price. the purchaser is immediately eliminated from purchasing the property |
A: the purchaser has the right to back out of the contract without repercussion While the purchaser can still proceed, the loan amount can never be more than the appraisal. This is particularly important with 100% VA financing. |
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Freddie Mac, Fannie Mae, and Ginnie Mae have in common the purpose of: replenishing funds of mortgage originators by purchasing their existing mortgage loans originating residential mortgage loans Freddie Mac and Fannie Mae replenish funds while Ginnie Mae originates loans they are all government agencies |
A: replenishing funds of mortgage originators by purchasing their existing mortgage loans Freddie Mac, Fannie Mae and Ginnie Mae all purchase loans on the secondary market from lenders and package them into mortgage-backed securities sold in the bond markets. By providing a market for the sale of mortgage loans by lenders, they provide a source of funds to lenders to enable them to continue to make loans. None of these agencies make loans directly to the consumer. Ginnie Mae is a government agency. The status of FNMA and Freddie Mac has been a moving target during the past upheaval in the mortgage industry. Originally they were government agencies. The government spun them off as private stock issuing companies in the late 80’s. The ticker for Fannie Mae is FNMA and for Freddie Mac it is FMCC. When the mortgage industry collapsed, the government bailed out both of the companies and in exchange received majority ownership of their stock. Same situation as happened with General Motors AKA Government Motors. The companies are still publically traded and the government is reducing their share of ownership |
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FHA has developed several loan programs designed to insure housing loans. provide funding for housing loans. guarantee housing loans. buy and sell housing loans. |
A: insure housing loans. The FHA insures loans the VA guarantees loans. |
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An amortized loan will be paid off: In equal monthly payments with the entire loan being paid off at the end of the term of the loan In equal monthly payments of interest only In equal monthly payments with a balloon payment at end of term of loan In equal monthly payments over thirty years |
A: In equal monthly payments with the entire loan being paid off at the end of the term of the loan The equal monthly payments of principal and interest over a specified period of time will completely payoff an amortized loan. Interest on amortized loans is paid in arrears (Example: a Feb 1 payment is for the previous month of January NOT for February) and as the loan balance is paid down (it is recalculated each month), there is less interest to be paid and more of the payment being applied to the principal. This means more interest is paid during the early period of the loan than at the end of the loan. Borrowers can shorten the loan periods by paying more principal with each payment. |
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A new loan for $165,000 is taken out at 6 1/2 % by the buyer the closing is May 16. How will the interest be shown on the settlement sheet? $440.75 debit to the buyer, credit to the broker $470.14 debit to the buyer, credit to the broker $3966.78 debit to the buyer, credit to the broker $3996.16 debit to the buyer, credit to the broker |
A: $470.14 debit to the buyer, credit to the broker $165,000 (loan amount) x .065 (Interest Rate) = $10,725 (annual interest) / 365 (days in year) =$29.38356 (interest per day) x 16 (days owned by buyer in May -May 16-31) = $470.14 Debit to the buyer (because they owe the interest) credit to the broker (because the money is being paid into the escrow account controlled by the broker/closing agent so that they can cut a check for the interest to the lender). |
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A blanket trust deed should contain a clause which would permit: the sale of personal property the developer to obtain partial reconveyance deeds as individual lots are sold and proportionate amount of the debt satisfied the release of the beneficiary from all liability the developer to turn over the sale of the tract to real estate agents |
A: the developer to obtain partial reconveyance deeds as individual lots are sold and proportionate amount of the debt satisfied This is so each property can be sold as it is completed. |
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What was the original purpose behind the formation of the Federal National Mortgage Association? To buy existing FHA-insured loans To provide a stimulus to the housing construction market, as well as to the mortgage market To make more funds available to purchasers buying homes All of the above |
A: All of the above The Federal National Mortgage Association (Fannie Mae) is an active participant in the secondary mortgage market. |
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A package mortgage is one used to finance: real and personal property with one security instrument more than one property with one security instrument lease-back agreements none of the above |
A: real and personal property with one security instrument A method of financing in which the loan that finances the purchase of a home also finances the purchase of personal items such as a washer, dryer, refrigerator, air conditioner and other specified appliances. |
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Sue and Joe paid a total of $6,600 in interest payments for the year. They borrowed $66,000. What is their interest rate? 0.1 0.11 0.12 0.125 |
A: 0.1 I divided by P = R;$ 6,600 divided by $66,000 = .10 = 10% |
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A lender is charging three discount points on an 80% loan for a $300,000 sale. The broker is instructed to charge two points to the seller. The settlement sheet entry would appear as: $4,800 debit seller, $2,400 debit buyer, $7,200 credit broker $4,800 debit seller, $4,800 credit broker $2,400 debit seller, $4,800 debit buyer, $7,200 credit broker $4,800 debit buyer, $4,800 credit broker |
A: $4,800 debit seller, $2,400 debit buyer, $7,200 credit broker $300,000 X 80% = $240,000 loan amount. The seller is paying 2% (2 discount points) of the loan amount so $240,000 x .02 = $4,800 debit seller. The buyer is paying 1% (1 discount point) of the loan amount, so $240,000 x .01 = $2,400 debit buyer. This money needs to be placed into the escrow account for the transaction, so $7,200 credit broker. More info: On the "Broker" column: The "broker" debit and credit columns in the six column worksheet for closings represents the escrow account for the closing. Although it is referred to as the "broker" columns, generally it is the closing agent who has control of the escrow account as the closing agent was hired by the broker to conduct the closing. Hiring a closing agent does not absolve the broker from legal responsibility for the escrow account, hence the name of those columns are "broker debit" and "broker credit". On 'Discount Points': Discount Points are a form of prepaid interest. A borrower buys a point and in return gets a lower interest rate on the loan. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. As the IRS considers discount points to be prepaid interest they are tax deductible in the year in which they were paid. For example, on a $300,000 loan, each point would cost $3,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $6,000 and will result in an interest rate of 4.50%. Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation. On a practical basis; discount points are most often purchased by sellers as an incentive to prospective buyers. For most sellers, discount points are a cost of selling and thus tax-deductible. Buyers usually do not see enough benefit to purchase discount points. In the earlier example; spending $6,000 to reduce the interest rate to 4.5%, would have reduced the monthly payment by about $90. It would have taken a buyer 67 months to cover the cost of the points. |
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Regulation Z also known as the Truth in Lending Act: limits the amount of interest that can be charged on a promissory note requires sellers under an installment land contract to make appropriate disclosures prohibits the sales price of a property from being advertised does not limit the interest that can be charged, only requires total disclosure |
A: does not limit the interest that can be charged, only requires total disclosure Definition of 'Regulation Z' from Investopia A specific Federal Reserve Board regulation that requires debt lenders to disclose all the specifics of a given loan. This was done to promote a level of credit protection for the underlying consumer. Most of the requirements imposed by the 1968 Truth in Lending Act are contained within Regulation Z, and the two terms are often used interchangeably. Investopedia explains 'Regulation Z' One of the end results of this regulation is how a lender has to disclose how much interest will be charged on the loan. For example, for both credit card and mortgage loans, the respective lender (credit card issuer or the mortgage issuing bank) must clearly say just how much interest will be incurred by the loan in terms of an annual percentage rate. So, a lender would not be allowed to quote a low interest rate and then state in the fine print that the interest rate is expressed in per week terms, instead of the common expression of per annum. |
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Which of the following are synonymous? Take-out loan/ secondary financing Construction loan/ take-out loan Interim loan/ construction loan Obligatory advances/ installment loan |
A: An interm loan is a temporary loan used to finance the construction. It is paid off with a permanent loan. |
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Which of the following statements are true regarding a VA funding fee? It varies according to the veteran’s eligibility The seller must pay it It is the same thing as the FHA origination fee It is a percentage of the purchase price |
A: It varies according to the veteran’s eligibility VA home loans require an upfront, one-time payment called the VA funding fee. The fee is a percentage based on the loan amount. VA-eligible borrowers can wrap this cost into the loan, reducing out-of-pocket expenses onVA home loans to buy or refinance a home. VA fees vary according to the Veterans eligibilty ( 1.5% to 3 %) and amount of the down payment. |
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A lender charged a 2% loan origination fee and 3 discount points to provide a conventional insured loan of $95,000. What was the cost of these charges to the borrower? 2850 2236 4750 1844 |
A: 4750 ($95,000 loan amount X 2% origination fee = $1900) + ($95,000 loan amount X 3% discount points = $2850) = $1900 + $2850 = $4750 The loan origination fee is a lender charge for the purpose of securing a new loan Definition of 'Discount Points' Discount Points are a form of prepaid interest. A borrower buys a point and in return gets a lower interest rate on the loan. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. As the IRS considers discount points to be prepaid interest they are tax deductible in the year in which they were paid. For example, on a $300,000 loan, each point would cost $3,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $6,000 and will result in an interest rate of 4.50%. Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation. On a practical basis; discount points are most often purchased by sellers as an incentive to prospective buyers. For most sellers, discount points are a cost of selling and thus tax-deductible. Buyers usually do not see enough benefit to purchase discount points. In the earlier example; spending $6,000 to reduce the interest rate to 4.5%, would have reduced the monthly payment by about $90. It would have taken a buyer 67 months to cover the cost of the points. |
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If a non-veteran purchases a property encumbered by a VA-guaranteed loan, the debt: must be repaid at closing can be assumed by the new purchaser will require additional mortgage insurance none of the above |
A: can be assumed by the new purchaser If a non-veteran purchases a property encumbered by guaranteed loan, the debt can be assumed by the new purchaser. |
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Jean owes $80,000 at 12% interest on her home. How much interest will she pay in one year? 8000 9600 10600 15000 |
A: 9600 $80,000 x .12 = $9,600 |
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What is the benefit of having FHA insurance? it pays off the loan if the buyer dies or becomes disabled. it pays for any needed corrective measures not revealed by FHA appraisal it protects the lender against foreclosure losses should the buyer default it is a comprehensive homeowner’s policy. |
A: it protects the lender against foreclosure losses should the buyer default FHA insurance protects the lender if the purchaser goes into foreclosure. |
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All of the following are required of a FHA borrower, except? To pledge never to obtain a second loan Certify the borrower will occupy the premises Pay an up-front premium for mortgage insurance Pay a monthly mortgage insurance premium |
A: To pledge never to obtain a second loan After closing the borrower may get a second loan. |
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Roberto and Maria Martinez have a new loan in the amount of $80,000. The interest rate is 10%. The monthly payments are $710, principal and interest. What is their loan balance after the they make two month’s worth of loan payments? 80000 79929 79913 78580 |
A: 79913 $80k x 10% = $8,000 / 12 =$666.67; $710 - $666.67 = $43.33; $80,000 - $43.33 = $79,956; $79,956 x 10% = $7,995 / 12 = $666.30; $710 - $666.30 = $43.70; $79,956 - $43.70 = $79,912.8 ^ $79,913.00 |
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A builder purchased a lot with seller financing. The seller’s loan would allow for a later construction loan to be the priority loan. The loan obtained contained a: release clause defeasance clause subordination clause due-on-sale clause |
A: subordination clause A subordination clause allows for the initial loan to take the second position if a new loan is taken out on the property. |
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The amount of a loan expressed as a percentage of the value of the real estate offered as security is the: damages amortization loan-to-value ratio none of the above |
A: loan-to-value ratio The loan to value ratio is the percent of the sales price that will be loaned to the borrower. A house with a 100,000 sales price, where the borrower obtains an 80,000 loan, would have an 80% loan to value ratio. |
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The amount a qualified lending institution may loan to a qualified veteran, on a VA-guaranteed loan, is limited by VA to: the same as FHA loans the amount of the veteran’s income the amount shown on the Certificate of Reasonable Value all of the above |
A: the amount shown on the Certificate of Reasonable Value A VA guaranteed loan is limited by VA to the amount of the qualified veterans entitlement and the amount shown on the Certificate of Reasonable Value. |
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The initials P.M.I. in financing circles apply to: high loan-to-value conventional loans. construction loans FHA loans VA loans |
A: high loan-to-value conventional loans. PMI refers to Private Mortgage Insurance; it is used in connection with, 80% or greater, conventional loans. |
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By agreement, one party to a contract was discharged and another party took her place, an act known as a(n) rescission novation sublease reformation |
A: novation Novation is the replacement of one contract for another. |
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The Equal Credit Opportunity Act makes it illegal for lenders to refuse credit or discriminate because an applicant is: a single parent who refuses to supply income verification a family that has had persistent and recent credit problems a single woman unemployed and without any known income |
A: a single woman The Equal Credit Opportunity Act makes it illegal for lenders to refuse credit a single woman. |
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Is it acceptable for a broker to accept a referral fee from a title insurance company? Yes but only with permission of the employing broker Yes this is a good way for the broker to enhance his income No it is never acceptable to accept a referral fee from a title company Yes buy only if the broker will not be receiving a commission for the same transaction |
A: No it is never acceptable to accept a referral fee from a title company It is not permissible for a licensed agent to RECEIVE a referral fee from any service provider to a transaction such as the Title Company, Lender or Appraiser. This would violate federal RESPA rules as it is considered a conflict of interest. |
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A limit on the time period to enforce a legal right is known as: novation estoppel the statute of limitations accord and satisfaction |
A: the statute of limitations The theory behind the statute of limitations is that there must be some end to the possibility of litigation. In Colo. it is 7 years. |
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Which of the following is true about an interest only term mortgage? The entire principal is due at the end of the term The entire debt is partially amortized over the term All interest is paid at the end of the term The term is limited by state regulation |
A: The entire principal is due at the end of the term In an interest only mortgage none of the principal is paid until the end of the term. |
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A government sponsored loan that insures lenders against loss is a/an: FHA mortgage VA mortgage Conventional loan Adjustable rate mortgage |
A: FHA mortgage The FHA insures loans, the VA guarantees loans. |
