Real Estate Finance Flashcards

A veteran applies for a VA loan on a $400,000 home with no prior VA loan use. What is the standard funding fee for a first-time use with 0% down?

Answer: 2.15%

For a first-time use VA loan with no down payment, the standard funding fee is 2.15% of the loan amount.

What is the purpose of Private Mortgage Insurance (PMI)?

Answer: To protect the lender against default losses when LTV exceeds 80%

PMI protects the lender, not the borrower, against financial loss if the borrower defaults on a loan with LTV above 80%.

Which appraisal approach estimates value by analyzing the income a property generates?

Answer: Income capitalization approach

The income capitalization approach estimates value by dividing the net operating income by the capitalization rate.

What does 'escrow' refer to in a mortgage context?

Answer: An account held by the lender to collect and pay property taxes and insurance

An escrow account is maintained by the lender to collect monthly reserves from the borrower and pay property taxes and insurance premiums when due.

Which type of deed transfers property with the greatest level of protection to the buyer?

Answer: General warranty deed

A general warranty deed provides the buyer the broadest protection by guaranteeing the grantor will defend the title against all claims, past or present.

A borrower's monthly PITI is $2,100 and gross monthly income is $7,000. What is their front-end ratio?

Answer: 30%

The front-end (housing) ratio is PITI ($2,100) divided by gross monthly income ($7,000), which equals 30%.

What is 'subordination' in real estate finance?

Answer: An agreement where a junior lienholder agrees to remain in a lower lien priority

Subordination is when a junior lienholder (such as a second mortgage holder) agrees to remain in a secondary lien position behind a new first mortgage.