National Real Estate Exam: Financing Flashcards

National Real Estate Exam: Financing Flashcards

ARMsThe interest rate in such a loan may be adjusted at periodic intervals during the term of the loan, based on a predetermined formula tied to an index.ARMs have a max rate (cap) interest can increase each yr.mortgage bankeroriginates, finances, and closes mortgage loan transactions and then sells the mortgages to large investors in the secondary market.fixed rateremain the same for the term of the loan money marketthe market for loans of one year or less certificate of reasonable value(CRV)establishes the maximum loan the lender may make. The veteran may purchase a property for more than the CRV amount but must pay the excess in cash.front-end ratiorelates to total housing costs to the borrower;s gross income. This ratio should not exceed 28% capital marketthe market for loans of over one year discount points1 pt = 1 % of loan amountprepaid interest charges used to increase yield to the lender.In tight money markets, lenders may add discount points to their loan fees to increase amount they will collect immediately and this increase immediate return on their funds.fiscal policyaction by Congress to increase or decrease income taxes.To slow the economy and halt inflation, Congress can increase income tax rates, limiting the amount people can spend or save. To stimulate the economy, the government can lower taxes to give people more money to spend, save or invest.Factors affecting cost of borrowing money: - supply and demand.- local factors such as level of employment, population growth, gov. restrictions, climate, and level of development in community.- lender's costs and profit margin- degree of risk involved with the loan- yields demanded by investors in secondary mortgage market- government activity back-end ratiorelates to long-term debt to total gross income. This ratio should not exceed 36% Rural Housing Servicestablished primarily to make and insure loans to farmers and ranchers unable to secure credit from other sources.Loan up to 100% of property.discountingSelling loans for less than the balance (at a discount) With VA, the borrower pays for:- interest rate negotiated by lender- funding fee secondary mortgage marketwhen existing loans are sold or used as collateral for other loans or securities.

open market operationsrefers to the purchase and sale of U.S. Treasury securities, such as Treasury bills and notes premiumA loan sold for more than the outstanding balance because its interest rate is above current market rates To stimulate expansion of economy, the Fed might: - buy government securities- lower reserve requirements- lower discount rate subprime loansloans made to people who may have difficulty maintaining the repayment schedule.FHA loaninsured against loss in event of foreclosure. FHA is not a lender or the mortgagee.Federal Reserve Systemthe Fed. Monitors economic and financial conditions simple interestpaid only on principal owed mortgage warehousinglender assembles number of loans into a portfolio and offers the package as security for a short-term loan or line of credit from another lender.jumbo loansloans for an amount in excess of maximum fannie mae and freddie mac loan amounts Monetary policyregulation of the supply and flow of money and credit available in order to promote economic growth with stability. Monetary policy is controlled by the Federal Reserve System.reserve requirementsMember banks must set aside and keep a certain percentage of their assets as reserves.When the Fed increases its reserve requirements, banks have less money to lend, interest rates rise and borrowing and spending slow down. When the Fed decreases the reserve requirement, banks have more money to lend, causing interest rates to decrease and borrowing and spending to increase.

VA loan may be used to:- buy or build a 104 family home, including townhouse or

condo- improve a home- refinance an existing home loan- buy a manufactured home and/or lot on which to place such a home compound interestpaid on accrued (unpaid) interest as well as on principal owed Discount RateThe interest rate the bank pays the Fed for money loaned to member banks to enable those banks to have adequate funds in reserve conventional loanprivate loans and nongovernmental lending institutions without any government insurance or government guarantee against loss for lender.VA loanlender guaranteed against loss by federal department of veterans affairs in event of foreclosure up to 25% of loan.Veteran must occupy property as principal place of residence. and can get loan up to 100% of property.

certificate of eligibilityto get a loan, a veteran must obtain this showing the amount of guarantee to which he is entitled.participation certificateUnder the Fannie Mae mortgage-backed securities plan, lenders may sell a pool of mortgages in exchange for a like amount of securities

• basic tools the Federal Reserve System uses: 1. reserve requirements2. discount rates3. open market

operations mortgage brokerbrings borrowers and lenders together for a real estate loan nominal interest rateThe named interest rate. The rate of interest stated in the loan documents.blind assumptionloan can be assumed by anyone without qualification from lender if loan originated before Dec 15, 1989. After 1989, person must be approved by a lender.

• types of transactions in secondary mortgage market1. mortgage warehousing2. buying and selling individual

mortgage loans3. forming a group or pol of mortgage loans and issuing securities backed by the pool FHA 203bhelps finance purchase of 1-4 family home that borrower will occupy as his residence.To limit expansion of economy, the Fed might: - sell government securities- raise reserve requirements- raise discount rate conforming loansloans that meed fannie mae and freddie mac standards federal funds rateThis is the interest rate a bank with surplus reserves will charge for an overnight loan to a bank needing additional funds to meet its reserve requirement.effective interest raterate the borrower is actually paying. Also known as APR escape clauseallows veteran to cancel the sale without penalty if CRV is less than purchase price commercial bankerprefer short-term commercial and consumer loans to long-term mortgage loans such as short-term construction loans, interim financing of mortgage bankers, home improvement loans, and home equity loans.With FHA, the borrower pays for:- appraisal- interest rate negotiated by lender- loan origination fee drawbacks of a fixed-rate loan- rate usually higher than initial variable rate being offered at same time- if interest rates were to decrease, borrower cannot participate in lowered interest rates unless he refinances.