Loan Signing & Real Estate Exam 2023 Study Guide with
complete solution
Borrower (Mortgagor)
An individual who applies for and receives funds in the form of a loan and is obligated to
repay the loan in full under the terms of the loan.
Title
Title is the document that gives evidence of ownershipof a property. Also indicates the
rights ofownership and possession of the property. Individualswho will have legal
ownership in theproperty are considered "on title" and will sign themortgage and other
documentation
Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the
same property.
Escrow Company
An escrow company is a licensed neutral third party that distributes legal documents
and funds on behalf of a buyer and seller. Or more simply stated, they are the middle
man. They are the authority to make sure that the seller, lender, and borrower all follow
through on their agreed upon terms. The seller doesn't get any less than what they
agreed upon and buyer doesn't pay any more than what they agreed upon. The same
goes between the borrower and bank. The bank agreed to only charge the borrower 'x'
fees and escrow makes sure of that. Escrow is the neutral third party to make sure
everyone behaves.Their role is to keep track of what is going on between the borrower,
lender, and title company.Escrow keeps records of what is going on between on all the
parties.
Escrow Agent
A person with fiduciary responsibility to the buyer and seller, or the borrower and lender,
to ensure that the terms of the purchase/sale or loan are carried out.
Title Company
The title company makes sure that a piece of real estate is legitimate, then issues title
insurance for that property that protects both the lender and the owner from lawsuits as
a result of title disputes. Their main responsibilities in a mortgage transaction is to
accurately record liens, lien holders and ownership to the property in the
transaction.The title company's role is to be in charge of anything that is being recorded
against the property. Lastly, their job is to make sure all the liens, ownership and lien
holders are recorded with the county the property resides in.
Title Insurance
Title insurance protects a lender against any title dispute that may arise over a particular
property. It is required to close on your home. You may also purchase owner's title
insurance which protects you as the homeowners.
Lender
The lender is the bank that is lending the money.The lender has the biggest role in the
process, because without them lending the money, there would be no need for a title or
escrow company.This is the reason why the majority of the documents in your loan
signings are lender documents.
,Deed of Trust & Rider
The deed of trust, also known as the mortgage in some states, has 5 main functions: 1.
It records who actually owns the property: e.g. Jane Doe and John Doe, husband and
wife as joint tenants 2. It records the amount the borrower is borrowing from the bank,
also known as the lien amount. 3. It records who is lending the money, also known as
the lien holder. 4. It records the legal description of the property. We all know the street
address to a property. E.g. 123 Springdale Avenue. The legal description is how the
county recognizes the property location via the lot boundaries and lot location within the
county. 5. Last but not least, it states the rules and regulations in which the property
owner has to abide by. Riders are simply amendments to the deed of trust. Something
the lender wants to add to the deed. As an example, you may see a VA rider letting
everyone know that it is a VA loan. Riders are just amendments that get recorded with
the deed. Examples would be condo riders, adjustable rate riders, or PUD riders.
Principal
The amount of debt, not counting interest, left on a loan.
Note
The note is a fancy way of saying contract. The bank note is where the the borrower
agrees to the terms of the loan. For example, the note would specify that the borrower is
borrowing $300,000 at a 4% interest rate, and will have a certain fixed payment for 30
years.
Interest Rate
The interest rate is what the borrower agrees to pay back the bank on the money that is
borrowed. How are interest rates determined? The generic answer is a rate sheet that
lenders used, but more specifically interest rates are tied to risk. The lower the
perceived risk, the lower the interest rate. The main computation of interest that you
qualify for off a rate sheet is based of credit score, LTV, term, and whether or not you
occupy the property. Hence why if you have a high credit score, you have shown that
you regularly pay back the money that you borrow. Therefore you get a lower interest
rate because of the lower perceived risk for the bank to lend you money. The opposite
is true when you have a lower credit score, you get a higher interest rate.
Loan to value
Loan to value means how much you owe versus the value (appraised value or sale
price, whichever is lower) of the home. For instance if your house is worth 200k and you
owe 100k, your loan to value is 50%. The higher the loan to value, the higher the
perceived risk
Fix Rate Note
This means the interest rates will not change for the duration of the loan. Whether that
means 10, 15, 20 or 30 years. This allows the payment to stay the same for full amount
of the term. The longer the term, the higher interest rate. For example, interest on a 15
year loan might be 5% while a 30 year loan might be 5.5%. So you can see the
advantage of opting for a shorter term, however the payment would be higher because
the loan has to be paid back in shorter duration of time.
Adjustable Rate Mortgage Loans (ARM)
Unlike a fixed rate mortgage, an adjustable rate loan's interest rate will change, often
after a set amount of years of fixed payments. The payment may be low initially
because it is based on payment that is 30 years but the rate will change/adjust after "X"
, years. The most common adjustable rate terms are 3, 5, 7, or 10 years. After the fixed
term is up, the interest rate will change on a yearly basis until it is completely paid off.
Hence why they are called 5/1, 7/1 or 10/1. Fixed for 5 years and changes every year
thereafter. After the term is up, the rate will change via an index (usually the treasury bill
or the LIBOR) plus a margin that is set by the lender. The margin never changes but the
index will go up or down with the libor or treasury note. For example if the is index 3%
and the margin is 3% the rate for that year would be 6%.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a line of credit that is tied to the equity of your house. For
instance, the home is worth $500,000 and there is a first loan for $200,000, that means
there is $300,000 of equity. In this example, a bank may approve the borrower for a line
of credit for $100,000. Unlike a loan that has a specific payoff term (15, 20 or 30 years),
the line of credit works like a credit card. So in this example, the borrower may buy a car
for $15,000 on that line of credit, which then means they would have $85,000 remaining
that they could charge against the HELOC. If they borrowed $15,000, they would make
payments only on the amount borrowed, just like a credit card.
Reverse Mortgage
A reverse mortgage enables older homeowners (62+) to convert part of their equity in
their homes into tax-free income without having to sell the home, give up title, or take on
a new monthly mortgage payment. The reverse mortgage is aptly named because the
payment stream is "reversed." Instead of making monthly payments to a lender, as with
a regular mortgage, a lender makes payments to you based off the equity you have in
the home. For example, if the home's value is $500,000 and the borrower owes
$100,000, a reverse mortgage would literally pay out the equity you own on a monthly
basis, until a cap is reached.
Discount Points/Buy Down
Points are an up-front fee paid to the lender at the time that you get your loan to lower
the interest rate You qualified for. You can literally buy down an interest rate. Let's say
you qualify for a 5% rate on a 30 year fixed. You could pay the bank $2400 (whatever
the agreed upon price is) to get 4.5%. This is why the call it buying the rate down.
Default
Lenders only lend on house if they have the right to take the house from the borrower if
the borrower fails to pay back the loan on the terms that were agreed upon. Banks
usually give you 30 days past your due date before they consider you in default of your
loan. Default means the borrower has not lived up to the agreed upon terms.
Foreclosure
If the borrower has not lived up to the terms of the loan the bank can foreclose on the
house. Meaning that can take the home away from the borrower. The bank then owns
the house not the borrower. Typically most banks allow the start of the foreclosure
process after 3 consecutive missed payments
Lien
A lien is a form of security interest granted over a property to secure the payment of a
debt. Anyone can put a lien against a home as long as they have the homeowners
consent. In term of mortgages, when the bank lends money to a borrower, the way they
guarantee repayment is by recording a lien against the house. The amount of lien
recorded is equivalent to the amount lent to the borrower. If the borrower fails to live up
complete solution
Borrower (Mortgagor)
An individual who applies for and receives funds in the form of a loan and is obligated to
repay the loan in full under the terms of the loan.
Title
Title is the document that gives evidence of ownershipof a property. Also indicates the
rights ofownership and possession of the property. Individualswho will have legal
ownership in theproperty are considered "on title" and will sign themortgage and other
documentation
Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the
same property.
Escrow Company
An escrow company is a licensed neutral third party that distributes legal documents
and funds on behalf of a buyer and seller. Or more simply stated, they are the middle
man. They are the authority to make sure that the seller, lender, and borrower all follow
through on their agreed upon terms. The seller doesn't get any less than what they
agreed upon and buyer doesn't pay any more than what they agreed upon. The same
goes between the borrower and bank. The bank agreed to only charge the borrower 'x'
fees and escrow makes sure of that. Escrow is the neutral third party to make sure
everyone behaves.Their role is to keep track of what is going on between the borrower,
lender, and title company.Escrow keeps records of what is going on between on all the
parties.
Escrow Agent
A person with fiduciary responsibility to the buyer and seller, or the borrower and lender,
to ensure that the terms of the purchase/sale or loan are carried out.
Title Company
The title company makes sure that a piece of real estate is legitimate, then issues title
insurance for that property that protects both the lender and the owner from lawsuits as
a result of title disputes. Their main responsibilities in a mortgage transaction is to
accurately record liens, lien holders and ownership to the property in the
transaction.The title company's role is to be in charge of anything that is being recorded
against the property. Lastly, their job is to make sure all the liens, ownership and lien
holders are recorded with the county the property resides in.
Title Insurance
Title insurance protects a lender against any title dispute that may arise over a particular
property. It is required to close on your home. You may also purchase owner's title
insurance which protects you as the homeowners.
Lender
The lender is the bank that is lending the money.The lender has the biggest role in the
process, because without them lending the money, there would be no need for a title or
escrow company.This is the reason why the majority of the documents in your loan
signings are lender documents.
,Deed of Trust & Rider
The deed of trust, also known as the mortgage in some states, has 5 main functions: 1.
It records who actually owns the property: e.g. Jane Doe and John Doe, husband and
wife as joint tenants 2. It records the amount the borrower is borrowing from the bank,
also known as the lien amount. 3. It records who is lending the money, also known as
the lien holder. 4. It records the legal description of the property. We all know the street
address to a property. E.g. 123 Springdale Avenue. The legal description is how the
county recognizes the property location via the lot boundaries and lot location within the
county. 5. Last but not least, it states the rules and regulations in which the property
owner has to abide by. Riders are simply amendments to the deed of trust. Something
the lender wants to add to the deed. As an example, you may see a VA rider letting
everyone know that it is a VA loan. Riders are just amendments that get recorded with
the deed. Examples would be condo riders, adjustable rate riders, or PUD riders.
Principal
The amount of debt, not counting interest, left on a loan.
Note
The note is a fancy way of saying contract. The bank note is where the the borrower
agrees to the terms of the loan. For example, the note would specify that the borrower is
borrowing $300,000 at a 4% interest rate, and will have a certain fixed payment for 30
years.
Interest Rate
The interest rate is what the borrower agrees to pay back the bank on the money that is
borrowed. How are interest rates determined? The generic answer is a rate sheet that
lenders used, but more specifically interest rates are tied to risk. The lower the
perceived risk, the lower the interest rate. The main computation of interest that you
qualify for off a rate sheet is based of credit score, LTV, term, and whether or not you
occupy the property. Hence why if you have a high credit score, you have shown that
you regularly pay back the money that you borrow. Therefore you get a lower interest
rate because of the lower perceived risk for the bank to lend you money. The opposite
is true when you have a lower credit score, you get a higher interest rate.
Loan to value
Loan to value means how much you owe versus the value (appraised value or sale
price, whichever is lower) of the home. For instance if your house is worth 200k and you
owe 100k, your loan to value is 50%. The higher the loan to value, the higher the
perceived risk
Fix Rate Note
This means the interest rates will not change for the duration of the loan. Whether that
means 10, 15, 20 or 30 years. This allows the payment to stay the same for full amount
of the term. The longer the term, the higher interest rate. For example, interest on a 15
year loan might be 5% while a 30 year loan might be 5.5%. So you can see the
advantage of opting for a shorter term, however the payment would be higher because
the loan has to be paid back in shorter duration of time.
Adjustable Rate Mortgage Loans (ARM)
Unlike a fixed rate mortgage, an adjustable rate loan's interest rate will change, often
after a set amount of years of fixed payments. The payment may be low initially
because it is based on payment that is 30 years but the rate will change/adjust after "X"
, years. The most common adjustable rate terms are 3, 5, 7, or 10 years. After the fixed
term is up, the interest rate will change on a yearly basis until it is completely paid off.
Hence why they are called 5/1, 7/1 or 10/1. Fixed for 5 years and changes every year
thereafter. After the term is up, the rate will change via an index (usually the treasury bill
or the LIBOR) plus a margin that is set by the lender. The margin never changes but the
index will go up or down with the libor or treasury note. For example if the is index 3%
and the margin is 3% the rate for that year would be 6%.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a line of credit that is tied to the equity of your house. For
instance, the home is worth $500,000 and there is a first loan for $200,000, that means
there is $300,000 of equity. In this example, a bank may approve the borrower for a line
of credit for $100,000. Unlike a loan that has a specific payoff term (15, 20 or 30 years),
the line of credit works like a credit card. So in this example, the borrower may buy a car
for $15,000 on that line of credit, which then means they would have $85,000 remaining
that they could charge against the HELOC. If they borrowed $15,000, they would make
payments only on the amount borrowed, just like a credit card.
Reverse Mortgage
A reverse mortgage enables older homeowners (62+) to convert part of their equity in
their homes into tax-free income without having to sell the home, give up title, or take on
a new monthly mortgage payment. The reverse mortgage is aptly named because the
payment stream is "reversed." Instead of making monthly payments to a lender, as with
a regular mortgage, a lender makes payments to you based off the equity you have in
the home. For example, if the home's value is $500,000 and the borrower owes
$100,000, a reverse mortgage would literally pay out the equity you own on a monthly
basis, until a cap is reached.
Discount Points/Buy Down
Points are an up-front fee paid to the lender at the time that you get your loan to lower
the interest rate You qualified for. You can literally buy down an interest rate. Let's say
you qualify for a 5% rate on a 30 year fixed. You could pay the bank $2400 (whatever
the agreed upon price is) to get 4.5%. This is why the call it buying the rate down.
Default
Lenders only lend on house if they have the right to take the house from the borrower if
the borrower fails to pay back the loan on the terms that were agreed upon. Banks
usually give you 30 days past your due date before they consider you in default of your
loan. Default means the borrower has not lived up to the agreed upon terms.
Foreclosure
If the borrower has not lived up to the terms of the loan the bank can foreclose on the
house. Meaning that can take the home away from the borrower. The bank then owns
the house not the borrower. Typically most banks allow the start of the foreclosure
process after 3 consecutive missed payments
Lien
A lien is a form of security interest granted over a property to secure the payment of a
debt. Anyone can put a lien against a home as long as they have the homeowners
consent. In term of mortgages, when the bank lends money to a borrower, the way they
guarantee repayment is by recording a lien against the house. The amount of lien
recorded is equivalent to the amount lent to the borrower. If the borrower fails to live up
