Real Estate Financing Flashcards

An elderly homeowner receives monthly payments from a lender based on the equity in their paid-off home. This arrangement is a:

Answer: Reverse mortgage

A reverse mortgage allows senior homeowners (typically 62+) to convert home equity into cash payments without selling the property.

Which type of mortgage requires the borrower to pay interest only during the initial period, with no principal reduction?

Answer: Interest-only mortgage

An interest-only mortgage requires payments that cover only interest during the initial term, meaning the principal balance does not decrease.

RESPA requires that buyers receive a Loan Estimate within how many business days of submitting a loan application?

Answer: 3 business days

Under RESPA and TILA (TRID rules), lenders must provide the Loan Estimate within 3 business days of receiving a completed loan application.

A borrower's existing loan is replaced with a new loan at a lower interest rate. This process is called:

Answer: Refinancing

Refinancing replaces an existing mortgage with a new loan, often to secure a lower interest rate or different loan terms.

Which FHA mortgage insurance premium is collected at loan closing?

Answer: Upfront MIP (UFMIP)

FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), currently 1.75% of the base loan amount, paid at closing.

A construction loan that automatically converts to a permanent mortgage upon project completion is called a:

Answer: Construction-to-permanent loan

A construction-to-permanent loan funds the building phase and then converts automatically to a long-term mortgage when construction is complete.

What term describes the process by which a mortgage lender sells loans to investors in the secondary market?

Answer: Securitization

Securitization bundles individual mortgages into mortgage-backed securities (MBS) that are sold to investors in the secondary market.