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35 Cards in this Set
- Front
- Back
Interest |
- The charge for using another's money. |
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Usury |
- When a lender charges a rate of interest above that allowed by law. |
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Origination Fee |
- A fee charged by the lender for making the loan. |
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Discount Point |
- Fee charged by the lender to get a lower interest rate for the borrower. |
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Assumption |
- When a buyer assumes the current loan under the same terms and conditions of the original borrower. |
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Novation |
- Substituting a new obligation for an old one or for new parties to an existing obligation. |
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Estoppel Certificate |
- Legal instrument verifying the exact loan amount, the current rate of interest, and the date to which the interest is paid. |
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Loan to Value (LTV) |
- Ratio of a mortgage principal to the property appraised value or its sales price, whichever is lower. |
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- Standardized conventional loan that meet the requirements of Fannie Mae and Freddie Mac. |
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Non-Conforming Loan |
Loan that fails to meet requirements of Fannie Mae and Freddie Mac. |
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FHA Escape Clause |
- Borrower must be shown appraisal and if not, may withdraw from sale penalty free. |
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Prequalifying - Lender's Requirements |
- Lenders qualify borrowers by looking at: - Ability of repayment: -Occupation. -Salary. - Assets and Equity. -Debt. - Purpose of loan: -Title, survey, taxes. - Legal Description. - Improvements - Value to be established through appraisal. - Amount of Loan. |
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Prequalifying - Buyer's Requirements |
- Cash - Sufficient down payment and closing costs.
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Lending Charges |
- Interest. - Usury. - Arizona limit, "Whatever is reasonable". - Origination Fee: - Usually 1% of the loan amount. Discount Points: - Each point is 1% of the loan amount. - Points are negotiable. |
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Loan Options/Substitutions |
- Assumptions. - Novation. - Estoppel Certificate. - Used when the lender is selling note. |
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Lenders - Types of Primary Lenders |
- Savings and loan associations. - Mutual Savings Bank. - Life Insurance Companies. - Credit Unions. - Mortgage Bankers. - Mortgage Brokers. - Commercial Banks. |
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Lenders - Types of Secondary Lenders |
- Fannie Mae. - Freddie Mac. - Ginnie Mac |
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Primary Lenders |
- Deal directly with borrower. - Savings and Loan Association -Largest residential lenders. Mutual Savings banks. - Primarily savings institutions that do mortgages. - Life Insurance companies - - Commercial loans. - They want equity in the collateral. - i.e. Participation loans. - Credit Unions. - Mortgages usually have lower interest rates. - Mortgage Bankers -Provide own funds. - Mortgage brokers. - Act as intermediary between borrower and lender. - Commercial banks -Act as a depository for short duration loans. |
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Secondary Lenders |
- Fannie Mae - Established in 1938 as the Federal National Mortgage Association. - Buy V.A., FHA, and convectional loans. -Now a private corporation. - Ginnie Mae -Established as Government National Mortgage Association. - Guarantees payment of risky Fannie Mae loans.
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Classification of Loans |
- Conforming. - Under FHA mortgage cap amount. - Non-conforming. - Over FHA mortgage cap amount. - Sold to private investors. - Higher risk, therefore more costly. |
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Types of Loans - Conventional |
- Available in fixed rates over 15 or 30 years. - Generally not assumable. - Most have "due on sale" clause. - Not insured or guaranteed by the federal government. - Loan to Value ratio. - Lowest. - Most require a 20 % down payment or private mortgage insurance, (PMI) - Risk insurance for lender. - PMI can be requested to be dropped when the borrower reaches 20% of equity of the original price. If the borrower reaches 22% equity, the lender automatically drops the PMI. - |
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Types of Loans -Adjustable Rate Mortgages |
- ARM loan. - Lenders can adjust rate within a prescribed limit by tying it to an economic index. - Most have a rate cap. - i.e. 6/2 cap - Interest rate cannot change more than 2% up or down a year and cannot change more than 6% over the life of the loan. - Margin. - Lender's cost of doing business and does not fluctuate. |
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Types of Loans - Federal Housing Administration Loan |
- FHA loan. - PITI loan - (Principal, interest, taxes, insurance). - Requires 3.5% down payment. - Part of HUD. - For owner occupied 1 to 4 family residences. - FHA does not build homes. - Don't lend directly to borrower. - Don't do secondary financing. - Amount of loan varies from county to county. - Maximum loan amount varies periodically. |
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FHA Escape Clause |
- Separate form that must be signed by the seller and buyer. - Appraisal must be made by an FHA approved appraiser and shown to buyer. - If the buyer is not shown the appraisal, he an withdraw without any penalty. |
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MIP |
-Mortgage Insurance Premium- Requirement of all FHA loans. -Most borrowers need to pay MIP for the life of the loan. - MIP is paid up front at closing and then monthly. |
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Types of Loans - Veteran's Administration Loans (V.A.) |
- Can be used for construction, used homes or refinance. - No down payment and low interest rates. - Seller pays escrow fees. - Buyer pays V.A. funding fee - 2% of the loan. - Department of Veteran's Affairs guarantees to pay a lender a percentage of the loan. - Maximum entitlement is $60,000. - This amount may be changed periodically by V.A. - Loans guaranteed, not insured like FHA loans are. - No longer assumable after1988. - maximum loan amount is based on appraisal value/Certificate of Reasonable Value (CRV), whichever is lower. |
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V.A. Loans - Certificate of Reasonable value |
Veterans can use this entitlement more than once if:
- Previous loans are satisfied. - Release of liability through a credit check. - Substitution of another veteran's eligibility.
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Certificate of Eligibility - V.A. Loans |
- Document showing monetary amount veteran is entitled to. - Minimum 181 days of active duty between September 16, 1940 - September 7, 1981. - During wartime reduced to 90 days active duty. - Enlisted member who signed up after 1980 and commissioned officers after 1981 must serve 2 years activity to be eligible. - Lender will loan up to 4 times the entitlement. - Requires veteran to certify the property will be occupied by the borrower. - Must be given at loan application and at closing. |
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Commercial Finance - Capitalization Rate |
- Capitalization Rate (CAP) - measures risk for an investment. - High CAP rate means high risk and the opposite is true. |
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Commercial Finance - Cash-on-Cash Return |
- Determines how effectively the invested cash in a property has been used. - Formula = before tax cash flow divided by money invested in property. - Does not take into account income tax issues. - Only looks at 1 year's earnings, instead of future years. |
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Commercial Finance - Net Income to Debt Ratio |
- Gross income minus all expenses, creates net income, which is then divided by all debt/ expenses. |
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Commercial Finance - Cash Flow Projections |
- Amount of money left over on an investment after all operating expenses have been paid, but before depreciation and income tax. - Different from net income. |
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Uniform Commercial Code (UCC) |
- Provides uniform code to follow for commercial transactions including personal property. - Helps deal with fraud.' |
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UCC Search |
- To find liens against personal property. |
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Commercial Finance - Seller Carrybacks |
- Chattel mortgage - uses personal property as collateral for a loan. - Security agreement - Creates lien on chattel (personal property). - UCC -1 - A financing statement form to be filled to establish or"perfect" a creditor's security interest in chattel. - i.e. Used items that are security for a debt, but become a fixture when attached to realty. - Filed with Arizona Secretary of State. - Effective for 5 years from date of filing. - UCC-2 - Termination statement that releases the lien from personal property when the lien is paid off. - Filed with Arizona Secretary of State. |