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| Three basic components of the finance market |
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Definition
(1.) Government influences
(2.) Primary mortgage market
(3.) Secondary mortgage market |
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Term
| What is the role of the Fed? |
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Definition
(1.) maintain sound credit conditions
(2.) help counteract inflationnary and deflationary trends
(3.) create a favorable economic climate |
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| Money that banks must keep in reserve to be able to honor depositors requests for withdrawals |
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| The interest charged to banks when they borrow money from the Fed |
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| Rate the Federal Reserve recommends the member banks to charge each other on short term loans |
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| short term interest rate charged to a bank's largest customers with good credit |
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| term used when the Fed buys and sells government securities on the open market |
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| Federal Deposit Insurance Corporation |
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The Department of Housing and Urban Development
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| United States Department of Agriculture - Rural Development |
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| privately owned cooperative that provides financial assistance to farmers, ranchers, and others in rural areas |
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Community Reinvestment Act
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| lenders that originate mortgage loans directly to borrowers |
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| Originate mortgage loans with insurance companies, pension funds, etc They originate real estate loans with the intention of selling them. |
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Definition
| intermediaries who bring borrowers and lenders together |
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Definition
| deals in conventional, FHA, and VA loans. Fannie Mae buys a block of mortgages from a lender used as collateral for mortgage backed securities sold on the global market |
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Definition
| similar to Fannie Mae financed by selling bonds but they do not guarantee the loan |
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Definition
| government entity that issues pass through certificates |
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| government sponsored enterprise created to establish a secondary market for farm property |
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Term
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Definition
written contract specifying how the propety will be used as security for the loan
Bank is the Mortgagee
Homeowner is the Mortgagor |
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Definition
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Term
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Term
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| Fee charged for the use of the money / loan |
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| the time it takes to pay off the loan |
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Term
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1% of the loan value
prepaid interest
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Term
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Definition
| generally large enough to cover lender's cost of foreclosure and selling the property |
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Term
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Definition
Private Mortgage Insurance
guarantees lenders will be repaid if the borrowers default
usually required if one pays down less than 20% |
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Definition
Mortgage Insuracne Premimum
same as PMI but used for FHA loans |
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Definition
| Penalty charged for paying the loan off early |
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Definition
Federal Housing Administration
Guarantees Loans for low to moderate income people |
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Term
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Definition
Loan to Value
Mortgage / Lesser of Appraised or Purchase Price = LTV
ex:
160,000 / 200000 = 80% |
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Term
| How much is one's maximum monthly payment for a FHA loan? |
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Definition
Gross income x 29%
Includes PITI |
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Term
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Definition
| Principle+Interest+Taxes+Insurance |
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Term
| Total Debt to Effective Income Ratio |
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Definition
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Definition
Department of Veterans Affairs guarantees loans to purchase or construct homes at market interest rate
little or no down payment
no pre-payment penalty
borrower pays a loan origination fee to the lender
2% or 3% funding fee to FA |
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Term
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Definition
certificate of reasonable value
"a VA appraisal" |
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Term
| USA Rural Development Loans |
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Definition
low to middle income loans available in rural areas with a population of fewer than 30,000
(1.) little or no money down payment
(2.) 41% / 29% debt to income ratios
(3.)620 credit bureau score
(4.) ability to personally occupy the dwelling
(5.) citizen
(6.) generally, borrowers must sell theri existing home
(7.) limits income of borrowers to 115% of the median household income for the area |
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Term
| Straight Loans / Term Loan |
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Definition
| Interest is paid first and then the principle |
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Term
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Definition
| Pay interest only for a specified time and then the loan is restructured to include interest and principle for the balance of the loan |
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Definition
| Short-term mortgage with a reduced interest rate. At the end of the term, the loan is due, "thus a balloon payment." |
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| Non-conforming or Jumbo Mortgage |
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Definition
| Mortgages for more than the "conforming" limit for the region. In Arkansas, the conforming limit is $417,000. |
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Definition
| the interest rate is fixed for the duration of the loan |
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Term
| Adjustable-rate Mortgage (ARM) |
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Definition
| The rate of the mortgage is fixed for a period of time after which the rate is adjusted based on determined base index |
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Term
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Definition
| The maximum that a rate can increase or decrease on an Ajustable Rate Mortgage |
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Term
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Definition
| limits how much the interest rate can increase at one time |
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Term
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Definition
| limits the total increase over the term of the ARM |
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Term
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Definition
have payments and interest rates that are fixed for a time; i.e., 3,5,7,10 after which they convert to an ARM
Usually have rates less than fixed but greater than ARM |
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Term
| ARM Initial Interest Rate may also be called |
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Definition
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Term
| What does 5/1 mortgage mean |
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Definition
| fixed period for five years then adjusts annually |
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Term
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Definition
| 30 year mortgage, 5 year fixed, annually adjusted beginning year 6 |
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Term
| Purchase-Money Mortgage / PMM |
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Definition
| includes some form of seller financing |
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Definition
| the seller finances and no money changes hands |
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Term
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Definition
| seller gets money after closing from the mortgage company |
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Term
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Definition
| used by person whose income is expected to increase. Mortgage begins with homeowner paying fixed interest rate but the principle payment is reduced. The principle payment increases as the loan matures |
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Term
| Reverse-Annuity Mortgage (RAM) |
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Definition
| available to persons 62 or older. Mortgage company loans money using the home as collateral. Homeowner does not make payments; however, the estate is responsible for the compounded debt (principle and interest) at the death of the mortgagee. |
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Definition
| used when buyers purchase a new home before they've sold their first / previous home |
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| loan to purchase the home/condominum plus furnishings |
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Term
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| covers more than one parcel of land or lot. Used to finance subdivisions where each lot can be released from the mortgage as the lots are sold |
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Term
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Definition
| a second lender lends a borrower money and also assumes responsibility of the first; however, they only make payments on the first--they do not payoff the first. If the second lender fails to make payments on the first, the borrower is still responsible for the debt on the first mortgage |
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| Used by builders as a short term loan to finance the materials, labor, and property when building a house |
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| Sale-and-leaseback arrangements |
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Definition
| used by large commercial or industrial properties |
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Term
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| Loan using the equity of the home or property as collateral |
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Term
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Definition
| requires lenders inform borrowers of the true cost of obtaining credit. Only applies to loans of 25m or less for personal, familial, or household uses. |
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Term
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Definition
| requires consumer be fully informed of all finance charges and the true interest rate, etc. |
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Term
| Three-day right of recission |
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Definition
| applies to consumer credit only and gives the borrower three days to rescend the transaction by merely notifying the lender. |
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Term
| ECOA / Federal Equal Credit Opportunity |
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Definition
| prevents lenders from discrimination based on 8 protected categories |
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Term
| RESPA / Real Estate Settlement Procedures Act |
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Definition
| prohibits sellers from conditioning the home sale on the use of a specific title insurance company, etc. |
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