Real Estate Financing Flashcards

A seller allows the buyer to take over payments on the existing mortgage without formally qualifying for a new loan. This is known as:

Answer: Assumption

Assumption occurs when a buyer takes over the seller's existing mortgage obligation, subject to lender approval in most cases.

Which clause in a mortgage allows the lender to demand full repayment if the property is sold?

Answer: Due-on-sale clause

The due-on-sale (or alienation) clause requires the entire loan balance to be paid when the property is transferred to a new owner.

A lender charges 2 discount points on a $300,000 loan. How much does the borrower pay in points?

Answer: $6,000

Each point equals 1% of the loan amount; 2 points × 1% × $300,000 = $6,000.

In a deed of trust, who holds legal title to the property until the loan is repaid?

Answer: The trustee

In a deed of trust, the trustee holds legal title on behalf of the lender until the borrower satisfies the debt.

What type of loan features payments that start low and gradually increase over time to match anticipated income growth?

Answer: Graduated payment mortgage (GPM)

A graduated payment mortgage (GPM) starts with lower payments that increase at set intervals, designed for borrowers who expect their income to rise.

Which government-sponsored enterprise was created to provide a secondary market for conventional mortgages?

Answer: Fannie Mae (FNMA)

Fannie Mae (Federal National Mortgage Association) was created to purchase conventional mortgages and provide liquidity in the secondary mortgage market.

A borrower's monthly gross income is $5,000. If their proposed housing payment is $1,400, what is their front-end (housing) ratio?

Answer: 28%

Front-end ratio = housing payment ÷ gross income = $1,400 ÷ $5,000 = 28%.