NATIONAL FINANCE EXAM PREP fully solved & updated.

Advantages of Real Estate Investment: (3 things) - ANSWER-Above average rate of return Tax benefits Land can never be depreciated. Disadvantages of Real Estate Investment: (3 things) - ANSWER-Not highly liquid The purchaser of investment property must be prepared to "invest" for the long haul Market conditions are changing all the time. What is the total amount of money remaining after all expenditures have been paid including taxes, operating costs, and mortgage payments? - ANSWER-Cash Flow What is the use of borrowed funds? - ANSWER-Leverage Selling shares (securities) of FNMA, GNMA, and FHLMC requires a __________. - ANSWER-securities license Real property securities must be registered with __________. - ANSWER-the Securities and Exchange Commission (SEC) If an agent suspects a property may be a real property security, he should __________. - ANSWER-refer the seller to a securities professional for advice The Truth In Lending Law is also referred to as what? - ANSWER-Regulation Z Regulation Z requires lenders to disclose to buyers the true cost of __________. - ANSWER-obtaining credit Regulation Z requires that the consumer be fully informed of all __________. - ANSWER-finance charges Regulation Z applies to what 4 property types? - ANSWER-residential loans federally related 1-4 family properties non-commercial properties family farms Truth in lending is violated when the phrase "no down payment required" is advertised without any other information. This refers to what? - ANSWER-Advertising What is an expression of the relationship of the total finance charge to the total amount to be financed. Use of APR permits the consumer to compare rates? - ANSWER-Annual Percentage Rate What does RESPA stand for? - ANSWER-The Real Estate Settlement Procedures Act RESPA ensures that the buyer and seller in a residential real estate transaction involving a new first mortgage loan have knowledge of all __________. - ANSWER-settlement costs RESPA is administered by __________. - ANSWER-the CFPB According to the TRID rule, lenders must give a copy of the booklet, __________ to every person at the time of application for a loan. - ANSWER-"Your home loan toolkit" According to the TRID rule, lenders must provide a __________ at the time of loan application or within three business days of application. - ANSWER-Loan Estimate of settlement costs According to the TRID rule, a __________ must be delivered to the borrower at least three days before closing. - ANSWER-Closing Disclosure RESPA prohibits __________ to real estate licensees. - ANSWER-kickbacks What prohibits lenders from discriminating against race, color, religion, national origin, sex, marital status, age or dependency on public assistance in the granting of credit to consumers? - ANSWER-Equal Credit Opportunity Act Under ECOA, a lender can base lending decisions on what 4 things? - ANSWER-Income Net worth Job stability Credit rating What forms provide a means for borrowers to comparison shop more effectively for competing loan offers? - ANSWER-The Loan Estimate and Closing Disclosure The Loan Estimate must be delivered within __________ of loan application. Signature of the applicant is not required. - ANSWER-three business days A loan application exists once consumer has submitted to the lender what 6 things? - ANSWER-Name Borrower's Income Borrower's Social Security number Property address Estimated value of property Amount of mortgage loan sought by the consumer __________ is a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. - ANSWER-a business day Required delivery time frame for the Closing Disclosure is based on __________. - ANSWER-the method of delivery What is defined under Regulation Z as the time that a consumer becomes contractually obligated on a credit transaction? - ANSWER-Consummation The settlement agent must provide the seller with the __________, and that may be done at consummation. - ANSWER-Closing Disclosure Purchasing an investment property , like an apartment complex may be more rewarding if the investor has the required __________. - ANSWER-management skills Qualifying the Buyer: (6 things) - ANSWER-Ability to repay the loan Mortgage to income ratio Assets Liabilities Debt Coverage ratio Attitude. Qualifying the property: (9 things) - ANSWER-Type of property Location Area zoning Value range Neighborhood Actual/Effective age/Remaining economic life Condition Special clearances Overall marketability Qualifying the title: (4 things) - ANSWER-Abstract and opinion Chain of Title Title insurance Other Terms. A loan in which the borrower is not held personally liable on the note. - ANSWER-Non-recourse loan A clause contained when real estate loans are often sold in the financial market. - ANSWER-Non-recourse clause The non-performance of a duty or obligation that is part of a contract is referred to as what? - ANSWER-Default A written pledge by a lender to lend a certain amount of money to a qualified borrower on a particular piece of real estate for a specified time under specific terms. - ANSWER-Conditional approval The analysis of the extent of risk assumed in connection with a loan. - ANSWER-Underwriting These fees are typically based on time and expenses; fees are never based on a percentage of the appraised value. - ANSWER-Appraisal fees A person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct, or silence. - ANSWER-Estoppel Certificate A clause in which the lender waives the right to a deficiency judgment. - ANSWER-Exculpatory clause A fund of the buyer's money that the lender sets aside for future needs relating to the parcel of property. - ANSWER-Impounds Investing funds directly instead of placing money savings institutions. - ANSWER-Disintermediation When the lender takes back a house because the homeowner has not made mortgage payments. The property becomes a lender-owned property (REO). - ANSWER-Foreclosure Occurs in lieu of a foreclosure. In the end, the lender agrees to accept a loan payoff amount that is less than what is actually owed. - ANSWER-Short sale All parties to the transaction are present and the closing is conducted by a settlement agent. - ANSWER-Buyer and seller face to face A third party acts as the escrow agent for the buyer and seller and conducts all the closing activities. - ANSWER-Closing in escrow Does the closing, calculates the costs involved and fills out the closing statements. - ANSWER-Settlement Agent Who could be a settlement agent? (4 things) - ANSWER-an attorney a real estate broker, a closer from the title company a lender What aids in collecting reliable data on the fair market value of the property to help establish more accurate property tax assessments? - ANSWER-Transfer Tax Paid by the seller or lessor. May be paid by the purchase of tax stamps or by payment of a transfer fee - ANSWER-Transfer Tax Settlement is another name for closing and accomplishes what? - ANSWER-brings the real estate transaction to completion Transfer taxes are generally paid by whom? - ANSWER-the seller The Federal Housing Administration (FHA) does not __________ nor does it lend money itself. - ANSWER-build homes The FHA __________ loans on real property made by qualified or approved lending institutions. - ANSWER-insures The FHA is overseen by __________. - ANSWER-The Department of Housing and Urban Development (HUD) Requirements to receive an FHA loan: (2 things) - ANSWER-borrower charged one-time insurance premium, lender can charge points The Veterans Administration (VA) will guarantee that a loan made by an approved lending institution will __________. - ANSWER-be paid For a VA Loan, the veteran (with Certificate of Eligibility) must have served __________ days active service. - ANSWER-181 If a veteran does not pay the mortgage as agreed, what happens? - ANSWER-foreclosure The house must qualify with an appraisal and the amount of the loan is limited. - ANSWER-Certificate of Reasonable Value Points can be paid by whom? - ANSWER-either the seller or the buyer. If a veteran pays off a loan early, the VA does not allow what? - ANSWER-prepayment penalties When will the VA will make a direct loan? - ANSWER-when there are no lenders in the area where a veteran wants to buy property What is the RECD? It makes loans for home purchases or construction in rural areas and small communities outside metropolitan areas. - ANSWER-The Rural Economic and Community Development What kind of loan provides no government guarantees or insurance? - ANSWER-conventional A conventional loan requires a minimum down payment of __________. - ANSWER-20% There are conventional loans available with lower down payments if the buyer is willing to pay __________. - ANSWER-a Private Mortgage Insurance (PMI) Most loans are packaged by the lenders and sold in the secondary market to __________ or __________. - ANSWER-Fannie Mae or Freddie Mac What kind of loan provides no government guarantees of insurance but insurance from private insurance companies? - ANSWER-Conventional Insured The amount a lender will loan is generally based on the __________ or __________, whichever is lower. - ANSWER-appraised value for loan purposes or the sale price A lender or investor is really not interested or concerned with the loan applicant's need of __________. - ANSWER-financial assistance The borrower must be prepared to pay the entire principal at the end of the time period. - ANSWER-Straight-Term Loan Interest and principal are paid on an equal basis until the final payment, which is larger. A balloon is the remaining balance that is due at the maturity of a note or obligation. - ANSWER-Balloon Loan Regular payments of principal and interest. The entire loan is paid off by the end of the term. The liquidation of a debt by periodic installments. - ANSWER-Fully Amortized Loan Has a payment composed of principal, interest, taxes, and insurance. - ANSWER-Budget Mortgage Interest rate fluctuates and is usually tied to an index; increases are capped for each period and for the term of the loan. - ANSWER-Adjustable-rate Loan Contains an escalator clause that allows the interest to adjust over the loan term. Tied to an index, and the rate of the loan goes up or down, depending on the caps, margin and adjustment period. - ANSWER-Adjustable Rate Mortgage (ARM) Lower payments first year, then payments increase. - ANSWER-Graduated Payment Plan Homeowner receives monthly payments based on accumulated equity rather than a lump sum. Loan must be repaid upon the death of the owner or sale of the property. - ANSWER-Reverse Annuity Mortgage A mortgage given as part of the buyer's consideration (cash) for the purchase of real property, and delivered at the same time that the real property is transferred as a simultaneous part of the transaction. - ANSWER-Part Purchase Money Loan on real estate, plus fixtures, and appliances; always includes personal property as well as real property. - ANSWER-Package Mortgage Loan on several pieces of land. - ANSWER-Blanket Mortgage Mortgagee/beneficiary agrees to release certain parcels from the lien of the blanket mortgage/deed of trust upon payment by the mortgagor/trustor of a certain sum of money. - ANSWER-Partial Release Clause The mortgagor/trustor is allowed to re-borrow against principal that has already been paid so far. A lender is allowed to increase the outstanding balance of a loan up to the original amount of the loan. - ANSWER-Open-end Mortgage/deed of trust Additional financing from a second lender. One payment- two loans. The new lender pays the first loan but charges higher interest for a second. Original loan must be assumable with no alienation clause. - ANSWER-Wraparound The payment is subsidized at the beginning by a builder or other party for a 3 to 5 year period, and thereafter, the purchaser takes over and pays the regular payment amount. - ANSWER-Buydown The lender commits the full amount of the loan to the borrower but makes partial progress payments as the building is being completed after lien waivers have been obtained. High-interest rate to builders, usually one percent over prime rate to be loaned for "spec homes." - ANSWER-Construction Loan Long-term permanent financing for large construction projects, usually commercial. Replaces construction loan on large commercial projects. - ANSWER-Takeout Loan Owner sells his or her improved property and at the same time, signs a long-term lease. - ANSWER-Sale-Leaseback A mortgage in which the lender participates in the income of the mortgaged property beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate. - ANSWER-Participation Mortgage Short term interim loan for the buyer, usually six months to one year in duration. - ANSWER-Bridge Loan A program that provides buyers with a "gift" of money to use toward their down payment or closing costs which never has to be paid back. - ANSWER-Grant Program (Down Payment Assistance) The buyer does not receive legal title until the final payment is made. Seller keeps legal title until the debt is paid in full. Buyer receives equitable title until debt is paid in full. - ANSWER-Contract for Deed The seller of realty - the seller under contract for deed. - ANSWER-Vendor The purchaser of realty - the buyer under a contract for deed. - ANSWER-Vendee The act of acquiring title to property that has an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including the payments. - ANSWER-Loan Assumption A grantee [buyer] taking title to a real property "subject to" a mortgage is not personally liable to the lender [mortgagee] for the payment of the mortgage note. - ANSWER-"Subject to mortgage" A mortgage given as part of the buyer's consideration for the purchase of real property, and delivered at the same time that the real property is transferred as a simultaneous part of the transaction is called what? - ANSWER-Purchase Money Mortgage (PMM) With an Adjustable-rate Loan the interest rate fluctuates and is usually tied to an index. The interest rate for any given period is the indexed rate plus the __________. - ANSWER-margin amount The amount of money that a lender charges for the use of money is called __________. - ANSWER-interest How is interest always expressed? - ANSWER-as a percentage per year What is the loan balance called? - ANSWER-the principal Charging interest in excess of this rate is called __________ or illegal interest. - ANSWER-usury What is the total dollar amount of interest and points paid by a borrower at closing. - ANSWER-prepaid interest What are a one-time fee paid at closing to increase the yield to the investor. - ANSWER-points Points give the lender more money up-front so he will be encouraged to make a loan at a __________ interest rate. - ANSWER-lower The lender is able to make lower interest rate loans, but the buyer must come up with the point money in ___________ at the time of closing. - ANSWER-cash What is the principal of using other people's money to make investments? - ANSWER-leverage The ratio of loan amount compared to the value of the property is called the __________. - ANSWER-Loan to Value Ratio The value in a property held by the owner in excess of any liens against it is called __________. - ANSWER-equity What is the cost per thousand that is required to create the principal and interest payment necessary to pay off the loan? - ANSWER-a factor The longer the loan, the lower the __________. - ANSWER-interest rate What is the order of payment in foreclosure? (4 things) - ANSWER-Cost of Sale - advertising, attorney fees, etc. Special assessment and general taxes are paid after the costs of the sale. The first mortgage, which is determined by the order of recording. Whatever is recorded next What kind of foreclosure is required to foreclose a Mortgage? - ANSWER-judicial What kind of foreclosure is required to foreclose on a Deed of Trust? - ANSWER-non-judicial Who, in a Deed of Trust, holds "Naked Legal Title" (one without possessory rights), and can claim the property without going through the courts? - ANSWER-the trustee What gives the borrower the right to clear up the debt prior to the foreclosure sale? - ANSWER-The Equitable Right of Redemption What gives the borrower a certain amount of time after the sale to clear the debt? - ANSWER-The Statutory Right of Redemption If the proceeds from the foreclosure sale are not sufficient to cover the debt, the lender can go to court and seek what 2 things? - ANSWER-Deficiency judgment - a general lien and would apply to all of the borrower's assets. Deed in lieu of foreclosure - Lender and borrower agree that the lender will become the owner of the property instead of going through the formal foreclosure process. What is the promise to repay the debt and a negotiable instrument? - ANSWER-a promissory note (pledge) What is a long-term note that is not secured by a specific property? - ANSWER-a debenture The buyer of the property retains the right to use the property exclusively while it is subject to a __________ or __________. - ANSWER-Mortgage or Deed of Trust Both create the collateral for a loan by promising the property in case of default by the borrower. In a mortgage, the borrower is the __________, and the lender is the __________. - ANSWER-mortgagor mortgagee In a Deed of Trust, the trustor is the __________. The beneficiary is the __________. And the trustee is __________. - ANSWER-borrower lender anyone designated by the lender Under a Deed of Trust, who holds the promise to repay (Promissory Note) from the borrower? - ANSWER-the beneficiary (lender) Who holds the security (Deed of Trust) for the debt. - ANSWER-the trustee Duties of the borrower in a mortgage or deed of trust: (4 things) - ANSWER-Payment of the debt in accordance with the terms of the note. Payment of all real estate taxes on the property given as security. Maintenance of adequate insurance and the property in good repair at all times. Obtain lender authorization prior to making any major alterations to the property. What clause applies to If a borrower defaults on the loan, the lender can call the entire balance due and payable immediately. - ANSWER-Acceleration Clause Allows the interest rate to adjust over the life of the loan. - ANSWER-Escalation Clause What clause applies to when the beneficiary declares the entire balance of the loan due and payable when the property is transferred? - ANSWER-Alienation Clause What puts on public record that the loan was paid, and that the lender no longer has a lien on your property? - ANSWER-Satisfaction Piece What clause allows a lender to charge extra interest if the loan is paid off before the normal completion date? - ANSWER-Prepayment Penalty Clause What clause in a Mortgage or Deed of Trust wherein a subsequent mortgage or deed of trust takes priority? - ANSWER-Subordination Clause What is the substitution of a third person in place of a creditor to whose rights the third person succeeds in relation to the debt? - ANSWER-Subrogation What is it called when the buyer takes over the original payment, the original loan, and the original interest rate of the seller's existing loan? - ANSWER-an assumption When does a "Budget Mortgage or Deed of Trust" occurs? - ANSWER-as a result of a lender requiring tax or insurance escrows A monthly loan payment consists of what 4 things? - ANSWER-Principal Interest Taxes Insurance If recorded, where must a mortgage or deed of trust be recorded? - ANSWER-in the city, county or municipality where the property is located What are second mortgages or deeds of trust called? - ANSWER-junior mortgages The priority of junior liens is determined by what? - ANSWER-the date and time of recording In an installment land contract, what type of title did the seller retain? - ANSWER-legal Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan? - ANSWER-monthly payments Usury most nearly means __________. - ANSWER-illegal interest An impound or reserve account most benefits whom? - ANSWER-the lender A buyer assumes the mortgage. How is the owner relieved of the liability? - ANSWER-novation The maximum permissible "loan to value ratios" are based on what? - ANSWER-sale price or appraised value, whichever is lower A rescission clause in a contract provides a purchaser with rescission rights for how many days. - ANSWER-3 days A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called what? - ANSWER-warehousing __________ interest is the type of interest charged on a mortgage loan, and principal is the loan balance itself. - ANSWER-Simple In a Deed of Trust the trustor is the __________. When title insurance is required by the lender (the beneficiary) it is usually the __________ who pays for it. - ANSWER-borrower trustor