Real Estate Notes: PSI 2.0 Exam Prep: Financing Part 2
This deck covers essential concepts and terms related to real estate financing, including regulations, loan types, and underwriting criteria. It is designed to help students prepare for the PSI 2.0 Exam, focusing on financing aspects.
What does ECOA stand for?
Key Terms
Related Flashcard Decks
Study Tips
- Press F to enter focus mode for distraction-free studying
- Review cards regularly to improve retention
- Try to recall the answer before flipping the card
- Share this deck with friends to study together
| Term | Definition |
|---|---|
What does ECOA stand for? | Equal Credit Opportunity of 1974 |
What is the purpose of ECOA? | It protects consumers from lenders who less favor protected classes. |
What is unfair or abusive lending to buyers that imposes deceptive, coercive, and exploitive practices? | Predatory Lending |
What is property falsely appraised at a higher value, then quickly sold, with the buyer taking the 'equity' in the property? | Illegal Property flipping |
What occurs when an investor receives title to a property, often by using a straw buyer, doesn’t make the mortgage payments, and usually rents out the home until foreclosure occurs? | Equity Skimming |
What term describes concealing one's real identity behind someone else's name and credit? | Straw buyer |
What happens when an appraiser secretly works with a borrower and provides a misleading appraisal report to the lender? | Inflated appraisals |
What is lending money at an excessive (illegal) rate called? | Usury |
What are typically exempt from usury? | Credit cards, retail installment contracts, and consumer leases |
What are the four primary factors in loan underwriting? | Income, Debt Ratio, Credit Score, Credit History |
What three things do loan underwriters analyze before approving a loan? | Borrower’s credit, capacity, and collateral. |
How do you calculate the housing ratio? | borrower’s projected monthly housing expense (principal, interest, taxes, insurance, second liens, and association fees) divided by income. HOUSING EXPENSES/INCOME |
What are the required housing ratio (approx) based on the loan type? | Conventional: 25 - 28% |
How do you calculate the debt-to-income ratio? | Total of all the buyer’s debt obligations divided by income. |
What are the required debt-to-income ratio (approx) based on the loan type? | Conventional: 33 - 36% |
Conventional loans typically require credit scores: | 620 and Above |
FHA borrowers must have a minimum credit score of | 580 to qualify for a 3.5% down payment; borrowers with credit scores between 500 and 579 may have to put down as much as 10%. |
A balloon payment | has some that some principal remains at the end of the loan term. |
it is a standardized measure for interest rates and other costs of the loan. | Annual percentage rate |
What wins when determine the debt to income and housing ratio? | The lender will choose whichever amount is the lowest. |
ds that mention general financing terms, such as “low down payment” or “easy financing,” | do not require additional disclosure. If Bo had gotten more specific (e.g., “10-year loan with 0% down”) he would need to include more information. |
What factors directly affect an adjustable rate mortgage? | Rate, index, and margin |
When buyers haven’t spoken to their bank or another lender, how should you handle the situation? | Offer to refer them to a lender and prepare them for the meeting. |
How many parties does a deed of trust involve? | the trustor (borrower), the beneficiary (the lender) and the trustee (an independent third party who holds the deed of trust). |
When a mortgage is used as a security instrument, who holds the mortgage and the promissory note? | The lender holds the mortgage and the note. |
What is the difference between a pre-approval letter and a pre-qualification letter? | A pre-approval is verified by the lender, providing more assurance. |
Are early prepayment penalties also applied to refinance | Yes |
What is TRID? | TILA-RESPA Integrated Disclosures |
When considering loan risk, which two items will lenders consider in equal measure? | The property's value (as underlying collateral) and the borrower's ability to repay the loan will be equal considerations for the lender. |
Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full? | Defeasance |
What item is the most important in detecting mortgage fraud? | The original sales agreement and any addenda |
he mortgage becomes a lien on the property, but title remains with the buyer. Foreclosure proceedings in a this theory state may be more difficult for the lender. | Lien Theory State |
Phoebe’s gross monthly income is $4,200, and she has $360 in monthly non-housing debt payments. The lender’s qualifying ratios are 28% for the housing ratio and 36% for the total DTI ratio. What’s the maximum housing payment she can afford? | The maximum house payment is the lesser of the amounts calculated using both ratios. DTI: $4,200 x .36 = $1,512. $1,512 – $360 = $1,152. Housing ratio: $4,200 x .28 = $1,176. Phoebe’s maximum payment is $1,152. |
Manuel is selling his home to Selena. He has an existing loan that he’ll continue to make payments on, and he’s extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction? | Wrap-around loan |
Are RESPA requirements exempt from commercial loans? | Yes, they are |