Az Real Estate Exam Prep Rol5

Front 1

Interest

Back 1

- The charge for using another's money.

Front 2

Usury

Back 2

- When a lender charges a rate of interest above that allowed by law.

Front 3

Origination Fee

Back 3

- A fee charged by the lender for making the loan.

Front 4

Discount Point

Back 4

- Fee charged by the lender to get a lower interest rate for the borrower.

Front 5

Assumption

Back 5

- When a buyer assumes the current loan under the same terms and conditions of the original borrower.

Front 6

Novation

Back 6

- Substituting a new obligation for an old one or for new parties to an existing obligation.

Front 7

Estoppel Certificate

Back 7

- Legal instrument verifying the exact loan amount, the current rate of interest, and the date to which the interest is paid.

Front 8

Loan to Value (LTV)

Back 8

- Ratio of a mortgage principal to the property appraised value or its sales price, whichever is lower.

Front 9

Conforming Loan

Back 9

- Standardized conventional loan that meet the requirements of Fannie Mae and Freddie Mac.

Front 10

Non-Conforming Loan

Back 10

Loan that fails to meet requirements of Fannie Mae and Freddie Mac.

Front 11

FHA Escape Clause

Back 11

- Borrower must be shown appraisal and if not, may withdraw from sale penalty free.

Front 12

Prequalifying - Lender's Requirements

Back 12

- 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.

Front 13

Prequalifying - Buyer's Requirements

Back 13

- Cash - Sufficient down payment and closing costs.

-
Credit - Pay stubs and tax returns, and acceptable FICO score.

Front 14

Lending Charges

Back 14

- 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.

Front 15

Loan Options/Substitutions

Back 15

- Assumptions.

- Novation.

- Estoppel Certificate.

- Used when the lender is selling note.

Front 16

Lenders -

Types of Primary Lenders

Back 16

- Savings and loan associations.

- Mutual Savings Bank.

- Life Insurance Companies.

- Credit Unions.

- Mortgage Bankers.

- Mortgage Brokers.

- Commercial Banks.

Front 17

Lenders -

Types of Secondary Lenders

Back 17

- Fannie Mae.

- Freddie Mac.

- Ginnie Mac

Front 18

Primary Lenders

Back 18

- 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.

Front 19

Secondary Lenders

Back 19

- 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.

Front 20

Classification of Loans

Back 20

- Conforming.

- Under FHA mortgage cap amount.

- Non-conforming.

- Over FHA mortgage cap amount.

- Sold to private investors.

- Higher risk, therefore more costly.

Front 21

Types of Loans - Conventional

Back 21

- 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.

-

Front 22

Types of Loans -Adjustable Rate Mortgages

Back 22

- 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.

Front 23

Types of Loans - Federal Housing Administration Loan

Back 23

- 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.

Front 24

FHA Escape Clause

Back 24

- 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.

Front 25

MIP

Back 25

-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.

Front 26

Types of Loans - Veteran's Administration Loans (V.A.)

Back 26

- 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.

Front 27

V.A. Loans - Certificate of Reasonable value

Back 27

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.

Front 28

Certificate of Eligibility - V.A. Loans

Back 28

- 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.

Front 29

Commercial Finance - Capitalization Rate

Back 29

- Capitalization Rate (CAP) - measures risk for an investment.

- High CAP rate means high risk and the opposite is true.

Front 30

Commercial Finance - Cash-on-Cash Return

Back 30

- 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.

Front 31

Commercial Finance - Net Income to Debt Ratio

Back 31

- Gross income minus all expenses, creates net income, which is then divided by all debt/ expenses.

Front 32

Commercial Finance - Cash Flow Projections

Back 32

- 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.

Front 33

Uniform Commercial Code (UCC)

Back 33

- Provides uniform code to follow for commercial transactions including personal property.

- Helps deal with fraud.'

Front 34

UCC Search

Back 34

- To find liens against personal property.

Front 35

Commercial Finance - Seller Carrybacks

Back 35

- 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.