Flashcards
SFR Flashcards
Cards in this deck (66)
- 1NoteAn IOU - A promise to pay a specified sum of money plus interest at a specified rate and length of time to fulfill a promise. A note by itself is not enough to purchase a home, you also need a mortgage.
- 2What does a note include?Dollar amount
Interest Rate
Maturity Date
Parties Involved
Borrower
Address
Terms of Loan (fixed or variable)
Where to send funds
Prepayment
Notice of Saleability (notice that we may sell your loan on the secondary market) - 3What is a Deed of Trust?An instrument wherein title of a real property is transferred to a trustee which holds it as security for a loan between a borrower and lender. Uses 3 parties while a mortgage is between borrower and lender.
- 4What are the key elements of a Deed of Trust?Name of Borrower(s)
Name of Lender
Legal description of property
Loan amount
Events of default
Insurance requirements
Use of property
Transfer of ownership - 5If FRB holds the mortgage on a property, do they own it? Explain.FRB does not own the property unless the bank completes the foreclosure process; until then the borrowers remain the owner of the record.
- 6What is the difference between a Grant Deed and a Quitclaim Deed?Quitclaim deeds are commonly used between spouses, relatives, or if a property owner is transferring his or her property into his or her trust. A grant deed is commonly used in most arms-length real estate transactions not involving family members or spouses. Both are instruments of transferring a person's interest in a property to another party.
- 7What is Title Insurance?Title insurance protects the borrower and Bank from any defects, issues, fraud, etc. on title to real property
- 8Who gets title insurance and why?Owner (optional) and Lender (required)
- 9What is a preliminary title report?A preliminary report is a document prepared by the title company confirming ownership of the property and the existence or absence of any liens r claims against he property including mortgages, judgement, easements, encroachments, etc.
- 10What is Hazard Insurance and why does lender care if there is adequate coverage?Hazard insurance provides replacement cost funds in the event of a fire/hazard to the subject property. May be used to pay off loan in this event.
- 114 most important items in legally documenting a real estate loan?Note
Deed of Trust/Mortgage
Title Insurance
Hazard Insurance - 12What is the role of an Escrow officer/Closing Attorney?They provide 3 main roles:
Agent
Custodian
Clearing House - 13What is the general rule on which party has priority in recording deeds?First to record has the highest priority
- 14What does first lien mean?First position lien holder has priority over any and all junior lien holders in the event of foreclosure
- 15Can there be liens ahead of first lien?Yes. Property Taxes, IRS liens, Mechanics' liens
- 16What is a subordination agreement?Document establishing one debt as ranking behind another in priority for collecting repayment from a debtor. A subordinate lender will only collect repayment after the primary lender has been repaid in full
- 17Who executes a Subordination Agreement?Borrower
Existing Lender - 18What are FRB's hazard insurance coverage requirements?Guaranteed Replacement Cost
- 19What does a blanket mortgage cover?More than one parcel of real estate
- 20What is the difference between easement and encroachment?Easement - Right of way giving persons other than the owner access to or over a property.
Encroachment - Building or some portion of it extends beyond the land of the owner and illegally intrudes on another owner's property - 21What is the difference between recourse and non-recourse loans?Recourse - bank has a right to pursue legal remedies fro an individual if the sale of the collateral is insufficient to pay off the loan fully.
Non-Recourse - no legal recourse available - 22What is a Notice of Default?A notification given to a borrower in the even that they have not made their payments by the predetermined deadline. It dictates that if the money owed (including unpaid interest and legal fees) is not paid in a given time, the lender may choose to foreclose the borrower's property
- 23What is rescission? When does it apply?Rescission - 3-day period after loan documents are signed where the borrower can elect to cancel the application. Treats the loan as if it never existed.
Applies on refinance of owner-occupied single family residences - 24Grace PeriodDays after the first of the month after which the payment is considered late (usually 10-15 days)
- 25Late ChargeFee charged to borrower when payment is received after grace period
- 26Joint TenantsProperty ownership by two or more people where upon an owner's death, their ownership passes on to the remaining owners (right of survivorship)
- 27Community PropertyPossessions, Real Estate, and Profits that a husband and wife receive during the marriage, excluding gifts and inheritances. Upon divorce, community property is distributed equally. This legal concept is recognized in Arizona, California, New Mexico, Idaho, Nevada, Texas, and Washington
- 28Tenants-in-CommonProperty ownership by two or more people where upon someone's death, their interest passes on to their estate (not necessarily the other owner(s))
- 29What is the difference between fee simple and leasehold?In fee simple, owner owns the house, land, air and ground rights. In a leasehold, owner rents the land and is subject to the terms of the lease (which must be longer than mortgage)
- 30What is Regulation Z?Requirement that the bank/lender provide initial disclosures regarding the proposed loan terms and fees within 3 business days of receipt of application
- 31What is Regulation B?Equal Credit Opportunity Act (ECOAA) intended to prevent applicants from being discriminated against in any aspect of a credit transaction
- 32Define a contractA legally binding agreement between two parties to buy/sell real estate
- 33What are the key components of a contract?Property Address
Purchase Price
Buyer/Seller
Escrow Deposit
Financing Contingencies
Inspection/Appraisal Contingencies
Realtors Involved
Transfer Fee Responsibility
Fixtures
Occupancy/Rentback
Closing Date
Counter Offers - 34What is a loan contingency?A condition that must be met by a certain date or the contract becomes null and void
- 35What is an escrow account?Account set up (usually by bank) to ay property taxes and/or hazard insurance by collecting an additional amount of payment monthly along with the loan payment. May be required by certain investors when LTV exceeds 80% or at borrower's request
- 36If Jim writes an offer to by Katie's house is this considered a contract? What are the possible ways Katie can respond? If Katie accepts the offer but changes the price, is this a binding contract?No, not until Katie accepts the offer
Accept, Decline, Counter
No, not until Jim accepts the counter offer - 37Define Prime RateInterest rate that US banks charge their preferred costumers or those with the highest credit ratings. Used to determine borrowing costs on many short-term loan products.
- 38Define COFIA monthly weighted average of the interest rates paid on checking and savings accounts offered by financial institutions in AZ, NV, and CA. Will be phased out due to lack of participating banks.
- 39Define LIBORLondon Inter-Bank Offered Rate is the average of interest rates estimated by each of the leading banks in London that it wold be charged were it to to borrow from other banks.
- 40Define CMTConstant Maturity Treasury based on corresponding treasury yield curve rate and is usually computed by averaging either the past weeks or the past months daily rates of the underlying constant maturity treasury. I.E. Monthly 1-Year CMT.
- 41Pros and Cons of: 30 Year FixedRate never changes
Loan amortizes from day one
Rate higher than ARMs
May include prepayment penalties - 42Pros and Cons of: 15 Year FixedRate never changes
Loan amortizes from day one
Monthly payment higher than 30 year because of shorter term - 43Pros and Cons of: LIBOR AdustableLow start rate
Highly volatile index - 44Pros and Cons of: COFI AdustableLower start rate
Lagging (slow to react) index - 45Pros and Cons of: 5, 7, 10 ARMsLow fixed rate for part of amortization
Adjustable rate after fixed period
Lower starting rate
Potentially higher rate when adjusting - 4625 bps in %0.25%
- 47A mortgage payment due on May 1st pays what month's mortgage payment?April
- 48Difference between Rate/Term Refi vs. Cash out RefiRate/Term - Only pays off existing loan balance
Cash out - Pays of existing loan balance and some amount (over 1% of loan amount) goes back to borrower - 49Fully Amortizing vs. Interest OnlyFully Amortizing - Required payments reduce the principal balance each time
Interest Only - Required payments only pay interest due on loan - 50What is auto-debit? Why does FRB want it?Bank automatically withdraws monthly payments from checking account
FRB wants this because it makes it easier to process timely payments on loans and encourages larger banking relationship from borrowers - 51When is mortgage payment paid?1st of month
- 52Features of an ARM loanTeaser rate - Lower than market introductory rate
Fully-indexed rate - Index plus margin, no discounts
Margin - An amount added to the index to arrive at a rate - 53Interim Cap vs. Life CapInterim Cap - How much a rate can adjust up or down each adjustment period
Life Cap - How much a rate can adjust up or down over whole life of loan - 54$1.1 MM loan. 7.5% interest rate fully amortized over 30 years. Monthly payment?$7,691.36
- 55$1.1 MM loan. 7.5% interest rate amortizing over 30 years. Monthly payment if interest only?$6,875.00
- 56$1.1 MM loan. 7.5% interest rate fully amortizing over 30 years. Principal balance after 5 years?$1,040,791
- 57$1.1 MM loan. 7.5% interest rate fully amortizing over 30 years. How much principal is paid and how much interest is paid after 30 years?Principal: $1,100,000
Interest: $1,768,889 - 58Condo vs. CoopCondo - Own your physical unit "walls in" and a percentage of common areas. Has HOA dues.
Coop - Own shares of stock in a company which owns the building. Has Maintenance fees. Requires board approval for mortgage. Bank secures lien via mortgage, on the unit with a recognition agreement, signed proprietary lease and UCC1 filing - 59What is an appraisal?An objective, third party valuation of a property. Required on real estate loans in excess of $250k
- 60Name 3 different approaches used for valuation of a propertySales comparison
Cost approach
Income valuation
Sales comparisons approach most commonly used in residential buildings - 61How do you calculate LTV?Loan amount/Property value
- 62What is PITI?Principal, Interest, Taxes, and Insurace
- 63How do you qualify a HELOC on a borrower's debt service?Obligate as if HELOC is fully drawn at the current qualifying rate.
This is because borrower can theoretically draw this full amount at any time of their choosing so much debt service as such - 64What is a Qualifying Rate?Rate used to "stress test" the borrower's financial ability to repay the subject loan. This rate is sometimes higher than the actual rate but not always (fixed rates)
- 65Is the Qualifying Rate the same as the Note Rate?Sometimes. For FRB 30 yr. fixed, 15 yr. fixed, and 10/1 ARMs, it is the same.
Other monthly ARMs use a qualifying rate higher than introductory note rate - 66How do you calculate PLL?Pre loan liquidity + loan amount - purchase price - closing costs
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- Flashcards for single family residential training and certification
- Created by
- Connor Abernathy
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