Chapter 12: Lending Practices

Term Loan

Also known as straight loan. A loan that requires only interest payments until the last day of its life.

Term loans are typically made for what time period?

Made for a period of 3 to 5 years.

The borrower signed a note or bond agreeing to?

1. Pay the lender interest on the loan every 6 months.

2. Repay the entire amount of the loan upon maturity.

Maturity

The end of the life of a loan.

HOLC

Home Owners Loan Corporation

The Home Owners Loan Corporation was created to?

Assist financially distressed homeowners by acquiring mortgages that were about to be foreclosed.

Was the HOLC terminated?

Yes

What replaced the HOLC?

Amortized Loan.

Amortized Loan

A loan requiring periodic payments that include both interest and partial repayment of principal.

The Amortized Loan requires?

Regular equal payments during the life of the loan.

Principal (chapter 12)

The balance owed on the loan.

Amortization tables are published and used?

Throughout the real estate industry.

5 tables of Amortization Table

1. Frequency of Payment

2. Interest Rate

3. Maturity

4. Amount of Loan

5. Amount of the Periodic Payment

Amortization Table are used to determine?

The amount of loan a borrower can support given the amount the borrower has to spend each month on loan payments.

Budget Mortgage

A mortgage agreement where payments include principal and interest on the loan, plus 1/12 of the year's property taxes and hazard insurance premiums.

Impound or Reserve Account

Also known as Escrow Account.

An account in which the lender places monthly tax and insurance payments.

When taxes and insurance payments are due who pays them?

The Lender

PITI Payment

A loan payment that combines principal, interest, taxes, and insurance.

A budget mortgage has what type of payment?

PITI

Conventional Loans

Real estate loans that are not insured by the FHA or guaranteed by the VA.

Loans Above 80%?

Conventional Loans

Balloon Loans

Any loan in which the final payments is larger than the preceding payments.

Partially Amortized Loan

A loan requiring payments of both principal and interest, but when the final payment is made, a balloon payment is required to retire the loan.

FHA loans are?

Insured

VA loans are?

Guaranteed

Loan Balance Table

Also called remaining balance table.

How the Balloon payment will be determined in advance

Loan-to-Value Ratio

The relationship between the amount borrowed and the appraised value of the property.

(Purchase price 100,000-Loan 80,000-LTV 80%)

The difference between the market value of a property and the debt owed against it is called?

Equity

Downpayment on FHA loan

3 and half percent

If the owner completely repays the loan so that there is no debt against home, the owner's equity is?

Equal to the market value of the property.

Point

1% of the loan amount

Loan Origination Fee

The expanses a lender incurs in processing a mortgage loan.

Discount Points

Points charged to raise the lender's monetary return on a loan

The yield actually earned by the investor

Effective Yield

Tight Money

Discount points are most often charged during periods of tight money- when mortgage money is in short supply.

Loose Money

Lenders have adequate funds to lend and are actively seeking borrowers, discounts points disappear.

FHA

Federal Housing Administration.

Insures the loan

Purpose of FHA

Is to guarantee hi loan-to-value transaction. Stabilize the market insurance program.

2 Types of Assumptions that can be done on an FHA loan

1. Simple Assumption

2. Formal Assumption

Simple Assumption

The property is sold and the buyer assumes the loan with out notification to the FHA. The seller remains fully liable to the FHA for repayment.

Formal Assumption

The property does not convey to the new buyer until they have been through the entire credit process with the FHA. Once approved, the buyer assumes the loan and the seller is released of any liability.

UFMIP

Up Front Mortgage Insurance Premium

Up-Front Mortgage Insurance Premium (UFMIP)

A one-time mortgage insurance premium on FHA mortgage loans that is paid at closing.

VA

Department of Veteran Affairs.

Guarantees loans to veterans

Certificate of Eligibility

Evidence of VA approval of a qualified veteran for a VA loan

Certificate of Reasonable Value (CRV)

A certification the VA issues when the veteran applies for a VA guarantee loan.

The veteran must agree to occupy the property for one year.

The VA guarantees?

Fixed-Rates

Loan where no prepayment penalty is charged if the borrower wishes to pay sooner.

VA

Compromise Agreement

Allows the VA to pay the difference between the sales proceeds and mortgage balance.

IRRRL

Interest Rate Reduction Refinance Loan

VA & FHA loans has to be for?

Family Occupicace

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

What is the fee for PMI?

Typically 1%

Homeowner's Protection Act

Requires services to automatically cancel PMI. Once a loan reaches 78% of the property's original value.

Rural Housing Service (RHS)

An agency in the U.S. Department of Agriculture responsible for making or guaranteeing loans for rural housing.