Chapter 17 Flashcards

Chapter 17 Flashcards Contract for deedUnder a contract for deed arrangement, the seller retains title and the buyer receives possession and equitable title while making payments under the terms of the contract.The seller conveys title when the contract has been fully performed.Interestcharge for the use of money; rate fixed or variable Equal Credit Opportunity ActECOA prohibits discrimination in lending Special- purpose loanshome equity, package, construction, bridge, equity participation, take-out, reverse annuity, and blanket

Mortgage mechanicsmortgage mechanics: borrower gives lender note and

mortgage; lender gives borrower funds and records a lien Mortgage document and trust deedthe legal documents which pledge the property as collateral for the loan may include clauses covering payment of principal and interest, prepayment, late charges, escrow for taxes and insurance, liens, insurance requirements, occupancy and maintenance, lender's rights, private mortgage insurance, inspection, and other conditions of performance Participation loanIn a participation loan, the lender participates in the income and/or equity of the property, in return for giving the borrower more favorable loan terms than would otherwise be justified. For instance, the borrower makes smaller periodic payments than the interest rate and loan amount require, and the lender makes up the difference by receiving some of the property's income. This type of loan usually involves an income property.non occupying investor assists in down payment FHA-insured loansinsured loans granted by FHA-approved lenders to borrowers who meet FHA qualifications One of the primary purposes for the secondary mortgage market is toa. cycle funds back to primary lenders so they can make more loans.b. issue second mortgages and sell them in the home equity market.c. lend funds to banks so they can make more loans.d. pay off defaulted loans made by primary mortgage lenders.

• cycle funds back to primary lenders so they can make

more loans. (Correct Answer) If a borrower obtains an interest-only loan of $75,000 at an annual interest rate of 8%, what is the monthly interest payment?a. $720b. $625c. $42d. $500 $500$75,000 x .08= 6,000$6,000/12= $500 (divided by 12 because the $75,000 is annual and its asking for monthly interest payment) MortgageA mortgage is a legal document stating the pledge of the borrower (themortgagor) to the lender (themortgagee). The mortgage document pledges the borrower's ownership

interest in the real estate in question as collateral against performance of the debt obligation.Amortizing loanAmortization provides for gradual repayment of principal and payment of interest over the term of the loan. The

borrower's periodic payments to the lender include a portion for interest and a portion for principal. In a fully amortizing mortgage, the principal balance is zero at the end of the term. In a partially amortizing loan, the payments are not sufficient to retire the debt. At the end of the loan term, there is still a principal balance to be paid off.payments include principal

What is the function of a note in a mortgage or trust deed financing arrangement?a. It is evidence of the lender's interest in the collateral property.b. It is evidence of ownership of the mortgage or trust deed.c. It contains the borrower's promise to maintain the value of the property given as collateral for a loan.d. It is evidence of the borrower's debt to the lender.

• It is evidence of the borrower's debt to the lender.

A lender lends money to a homeowner and takes legal title to the property as collateral during the payoff period. They are in aa. title-theory state.b. lien-theory state.c. state allowing land trusts.d. state where hypothecation is illegal.

• title-theory state. (Correct Answer)

MIPMortgage insurance premium- insurance in the FHA loan- insures the whole loan The borrower in a mortgage loan transaction is known as thea. mortgagee.b. mortgagor.c. lienor.d. trustee.

• mortgagor.

Construction loanA construction loan finances construction of improvements.This type of loan is paid out by the lender in installments linked to stages of the construction process. The loan is usually interest-only, and the borrower makes periodic payments based on the amount disbursed so far. As short-term, high-risk financing, the interest rates are usually higher than those for long-term financing. The borrower is expected to find permanent ("take out") financing elsewhere to pay off the temporary loan when construction is complete.temporary loan for construction The principal role of the Veteran's Administration in the mortgage lending market is toa. guarantee loans made by approved lenders.b. insure loans made by approved lendersc. purchase loans made by approved lendersd. loan mortgage money to veterans.

• guarantee loans made by approved lenders. (Correct

Answer) Fixed and graduated payment loanLoans may have variable payment amounts over the term of the loan, or a single fixed payment amount. With a graduated payment mortgage, the payments at the beginning of the loan term are not sufficient to amortize the loan fully, and unpaid interest is added to the principal balance. Payments are later adjusted to a level that will fully amortize the loan's increased balance over the remaining loan term.Income Ratio Qualification FormulaMonthly Gross Income x Income ratio = Housing expenses

and debtsExample: $4,000/mo. x 41% = $1,640/mo.This

means that without debt considered, you can afford a monthly payment of $1,640 a month.Which of the following is true of a loan with negative amortization?a. The loan is an interest-only loan..b.Payments are not sufficient to retire the loan.c. The loan