Deck 7: Real Estate Financing

Question 1

Borrowing money to purchase property involves two documents: the note and the deed of trust/ mortgage contract?

Answer 1

True

Question 2

According to the text, it is always a good idea to pay off a mortgage early.

Answer 2

False

Question 3

Which document places a lien on real property?

A) The promissory note
B) The deed of trust or mortgage contract
C) The affidavit of debt
D) The deed in lieu of foreclosure

Answer 3

The deed of trust or mortgage contract

Question 4

The person who borrows money to purchase real estate is called:

A) the mortgagor.
B) the mortgagee.
C) the grantee.
D) the collateral.

Question 5

In an installment land contract:

A) the borrower gets legal title to the property.
B) the lender is normally a bank.
C) the title is held in trust by a third party.
D) the seller keeps legal title until the contract has been performed and the money owed to the seller has been paid in full.

Question 6

The promissory note:

A) states the amount borrowed and the terms of repayment.
B) states the interest rate.
C) defines when the borrower is in default.
D) all of the above.

Question 7

In mortgage documents, the provisions that apply to all transactions are called:

A) non-uniform covenants.
B) uniform covenants.
C) open-ended covenants.
D) LTV covenants.

Question 8

Uniform mortgage covenants might include which of the following?

A) Covenant to keep the collateral in good condition
B) Covenant to keep insurance on the collateral
C) Covenant explaining how each payment will be credited
D) All of the above

Question 9

Loan origination happens in:

A) the primary mortgage market.
B) the secondary mortgage market.
C) the international mortgage market.
D) the Federal National Mortgage Association.

Question 10

Loan-to-value ratio is used by lenders as one factor in determining whether to grant a loan. Loan-to-value ration means:

A) the ratio between the fair market value and the appraised value.
B) the ratio between the amount of the loan and the value of the loan to the lender.
C) the ratio between the loan amount and the sales price or the appraised value, whichever is lower.
D) the ratio between the loan amount at 80% and the loan amount at 90% of the sales price.

Question 11

In a conventional mortgage:

A) the government does not participate as an insurer or guarantor.
B) the FHA insures the loans.
C) the VA guarantees the loans.
D) the FDIC insures the loans.

Question 12

A mortgage that allows the borrower to take the loan in increments, with the borrower having a credit limit, is called:

A) an open-end mortgage.
B) an adjusted rate mortgage.
C) a package mortgage.
D) a blanket mortgage.

Question 13

The Federal Housing Administration (FHA):

A) guarantees that 100% of a loan will be paid.
B) guarantees that at least 75% of the loan will be paid.
C) insures that a portion of the loan will be paid.
D) loans money to low-income individuals.

Question 14

A mortgage that starts with relatively low payments that increase at regular intervals for several years until a level is reached that will fully amortize the loan over its remaining term is called:

A) a graduated payment mortgage.
B) an adjusted rate mortgage.
C) a growing equity mortgage.
D) a reverse equity mortgage.

Question 15

The Federal National Mortgage Association (Fannie Mae):

A) is a private corporation.
B) buys paper from the primary market.
C) provides funds to lenders at a set interest rate.
D) all of the above.

Question 16

What is a due on sale clause?

Question 17

Name the three parties involved in a deed of trust.

Question 18

What was the primary cause of the savings and loan scandal of the 1980s?

Question 19

What is a land contract (installment land contract)? What are the pros and cons of such an arrangement?

Question 20

Describe several different ways loans can be structured. Discuss amortization, the different ways that interest may be charged, the lengths of loans, the ways that notes may be paid, and prepayment clauses.