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pre-qualification - correct answer - step in loan process - is the first step in determining "how much house" the buyer can afford and which type of loan might be best. The buyer supplies information about their financial situation to the lender, who then provi...

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Real Estate Finance Final Exam

pre-qualification - correct answer - step in loan process

- is the first step in determining "how much house" the buyer can afford and which type of loan might be
best. The buyer supplies information about their financial situation to the lender, who then provides a
general estimate.

Pre-approval - correct answer - step in loan process

- is the more official process of being approved by the lender to borrow a specific amount at an interest
rate within a small range.

mortgage brokers - correct answer - is someone who brings together a borrower
and a lender in order to create a mortgage

- generally package and sell loans to larger investors

mortgage banker - correct answer - is an entity or person who provides mortgage
financing by using their own funds

- the loans come from the ________, rather than a commercial bank or savings association

correspondent lenders - correct answer - offers loans using their own money at
their own risk. The difference is that a _____________ generally works on a smaller scale than mortgage
brokers and bankers.

1. Origination

2. Loan Processing

3. Underwriting

4. Funding

5. Closing

6. Loan Servicing - correct answer Six step life of a mortgage:

,origination - correct answer - first step of the life of a mortgage

- creation of a new mortgage

- Mortgages can be originated by mortgage brokers, mortgage bankers, or correspondent lenders.

Loan Processing - correct answer - second step of the life of a mortgage

- The lender collects information from the buyer that will help determine the loan type and amount they
will qualify for. The person who is seeking the loan will need to complete and submit an application to
kick off the loan processing. Lenders have to consider a borrower's income, credit, debt, source of funds,
and net worth. They do this by creating a file for each interested borrower containing pertinent
information about them and the property. They

also verify that the information provided by the borrower is actually true

- A MAJOR component of loan processing is ordering and checking the borrower's credit reports. Not all
creditors report to all three of the big national credit reporting agencies (Equifax, Experian, and
TransUnion), so a single individual could have a different score from each agency.

underwriting - correct answer - third step of the life of a mortgage

- is the process of deciding the level of risk a lender would take on by offering a loan to a certain
borrower for a specific property. It's a complex process that has been automated to some degree, but
still requires the work of a specially trained professional.

funding - correct answer - fourth step of the life of a mortgage

- happens when the lender provides the cash in the amount of the approved loan. It is the transferring
of funds to a title company or escrow company so that they may be disbursed from there. Usually, the
homebuyer doesn't get the keys until funding (not just closing) has occurred.

closing - correct answer - fifth step of the life of a mortgage

- is the tuition of a real estate transaction when all the necessary contracts are signed and the lender
disburses the funds of the mortgage loan. The physical meeting at which the paperwork is signed for the
property transfer is also called the closing.

loan servicing - correct answer - sixth step of the life of a mortgage

- is a collection of monthly payments, usually including payments on the principal, interest, taxes, and
insurance, or PITI, along withthe maintenance of records. The loan servicer is also responsible for
sendingthe collected funds to the note holder and contacting the borrower about any delinquencies.

,Additionally, the loan servicer will provide the borrower an annualstatement that details the activity of
the escrow account, showing the account balance and payments for property taxes, homeowners
insurance, and other escrowed items.

collateral - correct answer With ______ lenders have the right to foreclose on the
property and sell it to get some of their money back in the event the borrower stops making payments

primary market - correct answer - is where mortgages are first created by
connecting lenders to borrowers

- Institutions include; credit unions, commercial banks, life insurance companies, savings banks

- People; mortgage lenders and borrowers

secondary market - correct answer - where loans and servicing rights are sold to
investors

Made up of:

• Fannie Mae

• Freddie Mac

• Ginnie Mae

• Federal Home Loan Bank • Private investors

• Life insurance companies

People;

- mortgage lenders and buyers

sales comparison approach - correct answer - property valuation

- determines value by comparing the subject property to the sales prices of "comps" (short for
comparables, aka similar properties) that have been sold recently.

cost approach - correct answer - property valuation

, - estimates the value of a property by determining how much it would cost to completely replace it and
then subtracting from that value to account for depreciation

- Better with new construction

income approach - correct answer - property valuation

- determines the value ofa property by paying particular attention to the amount of income a property
could produce for its owner

- ex apartment complexes

conventional loans - correct answer Loans are either government-guaranteed
(insured), such as FHA or VA loans,or they are ___________________. _____________are not insured
by the government

Federal Housing Administration (FHA) - correct answer ___________ loans are an
option for homebuyers who may not be qualified for a conventional loan. It allows them to put down a
smaller down payment (as low as 3.5%) and get into their own home sooner than they may have been
able to afford it without this program.

Private Mortgage Insurance (PMI) - correct answer - Insurance required for
conventional loans

- required for borrowers with less than 20% equity

- recurring monthly payment

Mortgage Insurance Premium (MIP) - correct answer - Insurance for government
backed loans

- required on all FHA loans

- upfront premium and recurring monthly payment

interest-only - correct answer - With ___________ loans, monthly payments are
applied to only the interest for a set period. During the life of the loan, the borrower is not paying down
the principal amount at all. The advantage of this is that since they are not paying down principal, their
payment will be significantly lower.

- good for short term

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