Real Estate Investing Real Estate Financing Methods 2 — Questions and Answers
Question 1: What is a 'blanket mortgage' used for in real estate investing?
- Financing a single-family home purchase
- Covering multiple properties under one loan (Correct answer)
- Refinancing an existing mortgage
- Funding commercial renovations only
Correct answer: Covering multiple properties under one loan
A blanket mortgage covers multiple properties under a single loan, commonly used by developers and investors acquiring several properties at once.
Question 2: In a seller carryback arrangement, who acts as the lender?
- A commercial bank
- The property seller (Correct answer)
- A private equity firm
- The local credit union
Correct answer: The property seller
In a seller carryback (also called owner financing), the seller extends credit to the buyer, essentially acting as the lender.
Question 3: What does LTV stand for in real estate financing?
- Long-Term Value
- Loan-to-Value (Correct answer)
- Lender Transfer Verification
- Lease-to-Vacancy
Correct answer: Loan-to-Value
LTV (Loan-to-Value) is the ratio of the loan amount to the appraised value of the property, used by lenders to assess risk.
Question 4: Which loan type allows investors to use equity in existing properties to fund new purchases?
- FHA loan
- Bridge loan
- Home Equity Line of Credit (HELOC) (Correct answer)
- Construction loan
Correct answer: Home Equity Line of Credit (HELOC)
A HELOC allows investors to borrow against the equity built in existing properties to fund additional real estate purchases.
Question 5: What is the primary advantage of an adjustable-rate mortgage (ARM) for a short-term investor?
- Lower interest rates for the life of the loan
- Fixed payments regardless of market changes
- Lower initial interest rate during the introductory period (Correct answer)
- No requirement for a down payment
Correct answer: Lower initial interest rate during the introductory period
ARMs offer a lower initial rate during the introductory period, which benefits short-term investors who plan to sell before the rate adjusts.
Question 6: A 'subject-to' financing deal means the buyer:
- Pays off the seller's mortgage before closing
- Takes ownership while the seller's existing mortgage stays in place (Correct answer)
- Refinances the property immediately after purchase
- Qualifies for a new conventional loan
Correct answer: Takes ownership while the seller's existing mortgage stays in place
In a subject-to deal, the buyer takes title to the property subject to the existing mortgage, which remains in the seller's name.
Question 7: What is a debt service coverage ratio (DSCR) loan primarily based on?
- The borrower's personal credit score only
- The property's income relative to its debt obligations (Correct answer)
- The borrower's W-2 employment history
- The property's location and zip code
Correct answer: The property's income relative to its debt obligations
DSCR loans qualify borrowers based on the property's rental income relative to its debt obligations, not the borrower's personal income.
Real Estate Investing Real Estate Financing Methods 2
What is a 'blanket mortgage' used for in real estate investing?