Chapter 11: Loan Classifications

Question 1

What is the VA Loan?

Answer 1

A loan for military personnel that is “guaranteed” by the government

1. Has 100% L/V
2. Has no limit of what is guaranteed
3. Lender determines amount limit it will lend
4. VA determines amount limit it will approve
5. VA does not provide loan; must get loan from lender
6. Does not require a down payment
7. Does have a funding fee (waived for disable vets)
8. Must be owner occupied
9. Can only have 1 VA loan active at a time
10. Can prepay w/o penalty
11. May not be required to pay more than 1% orig. fee

Question 2

What is the instrument a VA loan uses to determine what it will guarantee on its loan?

Answer 2

Certificate of Eligibility

Question 3

What is a Certificate of Reasonable Value (CRV)

Answer 3

Instrument used by the VA to determine the market value appraisal for a home.

Question 4

What form does a VA loan appraiser use?

Answer 4

URAR (Uniform Residential Appraisal Report)

Question 5

What is an FHA Loan?

Answer 5

1. Insures loan (not guarantee it)
2. Doesn’t build homes or lend
3. Had MIP (Mortgage Insurance Premiums)
4. No longer allows closing costs to be financed
5. Sets a “maximum mortgage limit”
6. Can pre-pay w/o penalty
7. Can use loan for home improvement
8. Loans after 12/5/89: no assumptions w/o complete buyer qualification

Question 6

Who is RECD (Rural Economic & Community Development Administration)?

Answer 6

A federal agency under he U.S. Department of Agriculture that handles emergency farm financing that channels credit to farmers and rural residents and communities.

Question 7

What is a conventional loan?

Answer 7

1. Any loan that’s not VA or FHA
2. Conventional Loans have PMI (Private Mortg. Insur.)
   3.

Question 8

Who was the first insurance company to insure conventional loans?

Answer 8

The Mortgage Guaranty Insurance Corporation (MGIC)

Question 9

What is an Adjustable Rate Mortgage?

Answer 9

1. Rate fluctuates based on economic “index”
2. Rate determined by adding premium “margin” to the index
3. Rates are limited to 1 per year
4. Has a “CAP” on how much it can increase in 1 yr and over the life of the loan.

Question 10

What is a Graduated payment mortgage?

Answer 10

1. Interest rate and maturity are fixed

2. Monthly payment gradually increases

Question 11

What is a Buydown mortgage?

Answer 11

Some of the interest is paid in advance to temporarily lower the interest rate

Question 12

What is a Budget Mortgage Loan?

Answer 12

A mortgage that consolidates insurance and tax payments into the principal and interest. This allows the property owner to write one check each month for all housing expenses.

1. Required on all FHA and VA loans

Question 13

When taxes and insurance are combined together it is called?

Answer 13

Impounds (Called “Lender’s Reserve”)

Question 14

What is a package mortgage?

Answer 14

Loan that includes the real estate, fixtures, and appliances installed on the premises.

Question 15

What is a blanket mortgage?

Answer 15

Loan that covers more than one parcel or lot.

1. Normally used to finance subdivision developments
2. Includes a “partial release” clause.

Question 16

What is a partial release clause?

Answer 16

Allows the borrower to obtain the release of any one lot or parcel from the lien by repaying a definite amount of the loan

Can get title to each individual lot as they’re paid off

Question 17

What is a wraparound mortgage (all inclusive mortg.)

Answer 17

A type of junior loan which wraps or includes, the current note due on the property. The wraparound loan will consist of the balance of the original loan plus an amount to cover the new purchase price for the property.

Question 18

What is a reverse annuity mortgage?

Answer 18

mortgage that allows one to borrow against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit

1. doesn’t require the homeowner to make payments.
2. Entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home

Question 19

What is an open end mortgage?

Answer 19

A mortgage that allows the borrower to increase the amount of the mortgage principal outstanding at a later time.

Open-end mortgages permit the borrower to go back to the lender and borrow more money.

There is usually a set dollar limit on the additional amount that can be borrowed.

Question 20

What is a shared-appreciation mortgage (Participation Loan)?

Answer 20

Lender provides loan at a favorable interest rate in return for a guaranteed share of the gain the borrower will realize when the property is eventually sold

loan in which the lender offers a below-market interest rate in exchange for a share of the profit when the house is sold

Question 21

What is a purchase money mortgage?

Answer 21

1. When the seller is the lender to the buyer
2. Also called owner financing
3. Seller acts as the mortgage company

Question 22

What is a construction loan?

Answer 22

A loan used to finance the construction of improvements on real estate.

1. Loan is provided in “installments” not all at once
2. Is usually a “term loan” initially
3. It is usually a “short term” or interim loan
4. The “end loan” or “take out loan” will take out the construction lender when the work is finished

Question 23

What does “subject to” mean when purchasing real estate with an outstanding balance?

Answer 23

1. The purchaser is not obligated to pay the debt in full

2. If buyer defaults, home will be sold, but balance difference won’t be owed by the borrower

Question 24

What does it mean to “assume” a loan when purchasing real estate with an outstanding blance?

Answer 24

1. The purchaser is obligated to pay the debt in full
2. A deficiency judgment will be released against the assumer and the original owner
3. If assumer defaults, he has primary liability and the original owner “2nd liability”.