Unit 2: Real Estate Financing Principles

Vocabulary practice flashcards covering real estate financing principles, loan types, regulatory acts, and government housing programs.

Primary Mortgage Market

The market where home mortgage loans are originated, most commonly by savings associations, commercial banks, mortgage banks, or mortgage brokers.

Fully Amortized Loan

A mortgage loan structure in which the borrower pays a constant amount throughout the payment term.

Mortgage Broker

An intermediary who does not lend money directly, but locates potential borrowers, processes preliminary loan applications, and submits them to lenders for final approval.

Conventional Loan

A real estate loan that is not underwritten by a federal agency.

Conforming Loan

A conventional loan that meets secondary market guidelines, enabling the lender to sell it once it is originated in the primary market.

Loan-to-Value Ratio (LTV)

A financial ratio calculated as $\text{loan} \div (\text{lesser of sales price or appraisal}) = \text{LTV}$.

Mortgage Insurance

Insurance required by lenders unless the borrower puts $20\%$ or more down on the loan, which guarantees the lender against default.

Automated Underwriting

The process of electronically evaluating a loan application using computer models to determine the borrower's likelihood of default and providing a recommendation for or against approval.

FHA Loan

A loan insured by the Federal Housing Administration that requires both an up-front mortgage insurance premium and a monthly premium, typically featuring more lenient qualifying ratios than conventional loans.

VA Loan

A loan guaranteed by the U.S. Department of Veterans Affairs, where most require no down payment and eligibility limits are based on borrower qualifications and residual income.

Notice of Value

A document issued by the VA that sets the maximum VA loan amount for a property.

Texas First-Time Homebuyer Program

A state program that provides home financing at interest rates lower than current market rates.

Reverse Mortgage

A financing arrangement enabling homeowners aged $62$ or older to borrow against the equity in their homes.

Construction Loan

A short-term, or interim, loan used to finance building projects.

Takeout Loan

A permanent financing loan obtained by a builder upon project completion to repay ("take out") the construction lender if the property has not yet sold.

Contract for Deed

A transaction agreement under which the buyer receives possession and equitable title, while the seller retains legal title until all contract terms are satisfied.

Reserve Requirement

A Federal Reserve Board policy tool where increasing the required reserve reduces money available for loans, raising interest rates and slowing down an overactive economy.

Secondary Mortgage Market

The market composed of investors (such as Fannie Mae, Ginnie Mae, Freddie Mac, and Farmer Mac) who purchase and hold originated loans as investments.

Regulation Z

The regulation implementing the federal Truth in Lending Act, requiring lenders to disclose the true cost of credit and advertise interest as an annual percentage rate (APR).

Equal Credit Opportunity Act

A federal law prohibiting creditors from discriminating against credit applicants based on race, color, religion, national origin, sex, marital status, age, or dependence on public assistance.

Fair and Accurate Credit Transactions Act of 2003

Federal legislation designed to expand consumer credit, improve the accuracy of consumers' financial information, and help fight identity theft.

Real Estate Settlement Procedures Act (RESPA)

A federal act requiring lenders to provide advance notice to both buyers and sellers of all fees and charges required for the settlement or closing of a residential transaction.