REAL ESTATE 2 EXAM PREPARATION
QUESTIONS
◉ Disadvantage of ARM Loans. Answer: Early refinancing.
Unpredictable home mortgage payments. Long-term cost. Confusion.
◉ Hybrid ARMs. Answer: Offers the consumer an interest rate that is
fixed for an initial period of time, then readjusts over the remainder
of the life of the loan. These loans are a mix, of a fixed-rate period
and an adjustable-rate period.
◉ Interest-Only (I-O) ARM. Answer: Allows a borrower to pay only
the interest for a specified number of years, typically for 3 to 10
years, making it possible for a borrower to have smaller monthly
payments for a period of time. After that, the monthly payment will
increase, even if interest rates stay the same, because the borrower
must start paying back the principal, as well as the interest each
month.
◉ Advantages of Interest-Only (I-O) ARM. Answer: Pay Principal
When Convenient. Buy More House. Invest the Cash Flow.
◉ Blanket Mortgage. Answer: Covers more than one piece of
property. A builder may buy more than one lot in a new subdivision;
he will do so with one loan. This type of loan is likely to contain a
,release clause, allowing the borrower to obtain partial releases of
specific lots by making required lump sum payments.
◉ Package Mortgage. Answer: Includes both real and personal
property (fixtures and furnishings). Furnished condominiums in
resort areas are often sold this way.
◉ Budget Mortgage. Answer: The monthly house payment includes
principal, interest, taxes and insurance (known as PITI). The tax and
insurance portion of the payment is held in a special account called
an escrow account. It is also called an impound, trust, or reserve
account.
◉ Balloon Note. Answer: Beneficial to some borrowers, especially
those who do not plan to stay in their home for an extended period
of time. It is a partially amortized loan with a final payment
substantially larger than the others. The benefit of this type of loan
is a lower interest rate. The main disadvantage is the high cost of
refinancing.
◉ Hard-Money Loan. Answer: A specific type of asset-based
financing in which a borrower receives funds secured by the value of
a parcel of real estate.
◉ Wraparound Mortgage. Answer: A method of financing which
preserves the low, existing interest rate on the original note. It is
,seller financing, in which a new loan takes a secondary lien position
and the original mortgage is not repaid.
◉ Open-End Mortgage. Answer: Permits additional borrowing on
the same note and mortgage.
◉ Contract for Deed. Answer: A type of seller financing wherein the
owner retains title to the property while the purchaser takes
possession of the premises and pays on the principal. When the final
payment is made to the seller, title will transfer to the buyer. This is
also known as a land contract or installment land contract.
◉ Participation Financing. Answer: A mortgage in which the lender
participates in the income of the mortgaged venture beyond a fixed
return or receives a yield on the loan in addition to the straight
interest rate.
◉ Shared-Appreciation Mortgage. Answer: A mortgage loan in which
the lender, in exchange for a loan with a favorable interest rate,
participates in the profits (if any) the mortgagor receives when the
property is eventually sold.
◉ Reverse Annuity Mortgage. Answer: Homeowners who are least
62 years of age can borrow against the equity in their property. The
loan becomes due upon the sale of the property or the death of the
owner. The borrower can NEVER be forced to sell the home. This is
, considered the most expensive home equity loan because the debt
continues to accrue or grow with interest, and heirs will inherit the
property with a lien on it.
◉ Sub-Prime Loans. Answer: Have risk-based pricing. The rates are
not published on these loans. Borrowers are rated A-F with a prime
borrower having an A rating. A minus to F-rated borrowers will pay
1 to 5 % higher than those with good credit. These are non-
conforming loans.
◉ Predatory Lending. Answer: When an unscrupulous lender takes
advantage of a consumer's lack of knowledge regarding lending
practices.
◉ Government Loans. Answer: Mortgages insured or guaranteed by
the US Government. Includes FHA, VA, and USDA loans.
◉ Conventional Loans. Answer: Refers to a loan made with real
estate as security and which does not involve government
participation in the form of insuring or guaranteeing the loan.
◉ FHA Loans. Answer: Are fully insured by the Federal Housing
Administration, which is a part of the Department of Housing and
Urban Development (HUD). Is a mortgage insurance program that
protects the lender from loss in the event of default by the borrower
by insuring the full amount of the loan.
QUESTIONS
◉ Disadvantage of ARM Loans. Answer: Early refinancing.
Unpredictable home mortgage payments. Long-term cost. Confusion.
◉ Hybrid ARMs. Answer: Offers the consumer an interest rate that is
fixed for an initial period of time, then readjusts over the remainder
of the life of the loan. These loans are a mix, of a fixed-rate period
and an adjustable-rate period.
◉ Interest-Only (I-O) ARM. Answer: Allows a borrower to pay only
the interest for a specified number of years, typically for 3 to 10
years, making it possible for a borrower to have smaller monthly
payments for a period of time. After that, the monthly payment will
increase, even if interest rates stay the same, because the borrower
must start paying back the principal, as well as the interest each
month.
◉ Advantages of Interest-Only (I-O) ARM. Answer: Pay Principal
When Convenient. Buy More House. Invest the Cash Flow.
◉ Blanket Mortgage. Answer: Covers more than one piece of
property. A builder may buy more than one lot in a new subdivision;
he will do so with one loan. This type of loan is likely to contain a
,release clause, allowing the borrower to obtain partial releases of
specific lots by making required lump sum payments.
◉ Package Mortgage. Answer: Includes both real and personal
property (fixtures and furnishings). Furnished condominiums in
resort areas are often sold this way.
◉ Budget Mortgage. Answer: The monthly house payment includes
principal, interest, taxes and insurance (known as PITI). The tax and
insurance portion of the payment is held in a special account called
an escrow account. It is also called an impound, trust, or reserve
account.
◉ Balloon Note. Answer: Beneficial to some borrowers, especially
those who do not plan to stay in their home for an extended period
of time. It is a partially amortized loan with a final payment
substantially larger than the others. The benefit of this type of loan
is a lower interest rate. The main disadvantage is the high cost of
refinancing.
◉ Hard-Money Loan. Answer: A specific type of asset-based
financing in which a borrower receives funds secured by the value of
a parcel of real estate.
◉ Wraparound Mortgage. Answer: A method of financing which
preserves the low, existing interest rate on the original note. It is
,seller financing, in which a new loan takes a secondary lien position
and the original mortgage is not repaid.
◉ Open-End Mortgage. Answer: Permits additional borrowing on
the same note and mortgage.
◉ Contract for Deed. Answer: A type of seller financing wherein the
owner retains title to the property while the purchaser takes
possession of the premises and pays on the principal. When the final
payment is made to the seller, title will transfer to the buyer. This is
also known as a land contract or installment land contract.
◉ Participation Financing. Answer: A mortgage in which the lender
participates in the income of the mortgaged venture beyond a fixed
return or receives a yield on the loan in addition to the straight
interest rate.
◉ Shared-Appreciation Mortgage. Answer: A mortgage loan in which
the lender, in exchange for a loan with a favorable interest rate,
participates in the profits (if any) the mortgagor receives when the
property is eventually sold.
◉ Reverse Annuity Mortgage. Answer: Homeowners who are least
62 years of age can borrow against the equity in their property. The
loan becomes due upon the sale of the property or the death of the
owner. The borrower can NEVER be forced to sell the home. This is
, considered the most expensive home equity loan because the debt
continues to accrue or grow with interest, and heirs will inherit the
property with a lien on it.
◉ Sub-Prime Loans. Answer: Have risk-based pricing. The rates are
not published on these loans. Borrowers are rated A-F with a prime
borrower having an A rating. A minus to F-rated borrowers will pay
1 to 5 % higher than those with good credit. These are non-
conforming loans.
◉ Predatory Lending. Answer: When an unscrupulous lender takes
advantage of a consumer's lack of knowledge regarding lending
practices.
◉ Government Loans. Answer: Mortgages insured or guaranteed by
the US Government. Includes FHA, VA, and USDA loans.
◉ Conventional Loans. Answer: Refers to a loan made with real
estate as security and which does not involve government
participation in the form of insuring or guaranteeing the loan.
◉ FHA Loans. Answer: Are fully insured by the Federal Housing
Administration, which is a part of the Department of Housing and
Urban Development (HUD). Is a mortgage insurance program that
protects the lender from loss in the event of default by the borrower
by insuring the full amount of the loan.
