Economics /Real Estate Notes: PSI 2.0 Exam Prep: Financing Part 1
What is the average origination fee %?
Between 1-3%. No more than 3%
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Key Terms
Term
Definition
What is the average origination fee %?
Between 1-3%. No more than 3%
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How to calculate LVT?
LOAN AMOUNT / SALE PRICE OR APPRAISE VALUE (WHICHEVER ONE IS LOWER)
What is PMI?
Private mortgage insurance
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When is a PMI necessary?
When the down payment is less than 20% and loan-to-value ratio is in excess of 80%
What does PITI stand for?
Principal, interests, taxes and Insurance
It is the borrower’s promise to repay the mortgage loan. These are negotiable instruments, which means they can be transferred to another holder.
A promissory note
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| Term | Definition |
|---|---|
What is the average origination fee %? | Between 1-3%. No more than 3% |
How to calculate LVT? | LOAN AMOUNT / SALE PRICE OR APPRAISE VALUE (WHICHEVER ONE IS LOWER) |
What is PMI? | Private mortgage insurance |
When is a PMI necessary? | When the down payment is less than 20% and loan-to-value ratio is in excess of 80% |
What does PITI stand for? | Principal, interests, taxes and Insurance |
It is the borrower’s promise to repay the mortgage loan. These are negotiable instruments, which means they can be transferred to another holder. | A promissory note |
Who is involved in a deed of trust? | The trustor (borrower), the beneficiary (the lender) and the trustee (an independent third party who holds the deed of trust). |
It permits the lender to use a non-judicial foreclosure process; e.g., the lender doesn’t have to go to court to enforce foreclosure proceedings. | The power of Sale in the deed of trust |
What is the purpose of a deed of conveyance? | To prove that the mortgage has been paid in full. Also, the lender marks the promissory note as “paid in full” and returns it back to the borrower. |
Who is involved in a mortgage? | Borrower and the lender |
It orders the lender or trustee to immediately release full title to the borrower once the loan is paid in full. The lender is then prevented from pursuing additional payment after the payoff. | The defeasance clause |
It makes the entire debt due immediately if there’s borrower default. Before a foreclosure occurs, lenders must send a Letter to the borrower (often not sent until two to three months in default). | An acceleration clause |
It requires the borrower to repay the loan when transferring ownership to another. | A due-on-sale clause (also known as alienation clause) |
It permits the lender to charge a specified amount for interest lost when a borrower sells or pays off a loan early. These are rare in today’s mortgage market. | A pre-payment penalty |
Lenders view these loans as some of the most secure because they may require a down payment of 20%, thus reducing the LTV to 80% | Conventional loans |
What is the difference between a conforming loan and a non-conforming one? | Conforming loans have all of the rules that Fannie Mae and Freddie Mac require while the non-conforming does not. |
It is a mortgage that exceeds the maximum conforming loan amounts. In other words, it’s a loan that exceeds $510,400 in most areas of the U.S. | Jumbo Loan |
What does MIP stand for? | Mortgage Insurance Premium |
This type of loan offers direct guaranteed loans to farmers and ranchers and for rural housing. Congressional appropriation funds these loans. | The USDA Farm Service Agency (FSA) |
It is one in which the interest rate fluctuates based on some selected economic index. | An adjustable-rate mortgage (ARM) |
Is a temporary, short-term loan that provides funds until buyers can obtain permanent financing. It is typically secured by the borrower’s existing home. | Bridge (swing) loan |
It requires the buyer to make installment payments to the seller for property purchase. The seller retains the title while the buyer gets equitable title. | A land contract/contract for deed |
It is a loan a seller issues to the buyer as part of the purchase transaction. This typically occurs in situations where the buyer cannot qualify for a mortgage through traditional means. | A purchase money mortgage |
It is a type of junior loan which wraps or includes, the current note due on the property. This loan will consist of the balance of the original loan plus an amount to cover the new purchase price for the property. These mortgages are a form of secondary financing. | Wrap-around loan |
What does TILA stand for? | Truth in Lending Act of 1968 |
What is the purpose of TILA? | It requires lenders to state complete terms when using advertisement for its lending purposes. |
It requires mortgage lenders to follow TILA disclosure requirements for real estate advertisements that include credit terms. | Regulation Z |
What does RESPA stand for? | The Real Estate Settlement Procedures Act (RESPA) of 1974 |
What is the purpose of RESPA? | It protects consumers from unscrupulous lending practices. |
Who handed RESPA responsibility to the Consumer Protection Finance Bureau (CFPB)? | The Dodd-Frank Wall Street Reform Act of 2010 |