FREE Real Estate Sales Financing and Mortgages Questions and Answers Flashcards
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What is the primary purpose of a loan estimate (LE) as required by the TILA-RESPA Integrated Disclosure (TRID) rule?
Answer: To provide borrowers with estimated loan costs within three business days of application
The Loan Estimate must be provided within three business days of receiving a mortgage application and outlines estimated costs, terms, and fees.
In a wraparound mortgage, what happens to the original loan?
Answer: It remains in place while the new loan wraps around it
A wraparound mortgage keeps the existing loan intact while creating a new, larger loan that encompasses the original balance.
Which type of mortgage clause prevents a borrower from paying off the loan early without penalty?
Answer: Prepayment penalty clause
A prepayment penalty clause charges the borrower a fee for paying off the mortgage before the scheduled maturity date.
What does the debt-to-income (DTI) ratio measure in mortgage qualification?
Answer: The borrower's monthly debt obligations compared to gross monthly income
The DTI ratio compares a borrower's total monthly debt payments to their gross monthly income to assess repayment ability.
What is the key difference between a purchase money mortgage and a home equity loan?
Answer: A purchase money mortgage is used to buy the property, while a home equity loan borrows against existing equity
A purchase money mortgage finances the actual purchase of a property, whereas a home equity loan allows owners to borrow against equity already built up.
Under the Truth in Lending Act (TILA), what must lenders disclose to borrowers as the total cost of credit expressed as a yearly rate?
Answer: The annual percentage rate (APR)
TILA requires lenders to disclose the APR, which reflects the total cost of borrowing including fees and interest expressed as an annualized rate.
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