DM21121120Scratch & Grain baking, natural and organic ba.docx

DM211
2/11/20
Scratch & Grain baking, natural and organic baking kits.
Homemade baking with individually packaged and labeled
wholesome quality ingredients. My recommendation to the
founders Leah Tutin and Taya Geiger, to get their product off
the ground or to build their customer base through direct
marketing is first to affirm their target market. Their target
market is adults aged 30-60, not really binge on sweets and
children with healthy lifestyles and middle/upper-middle class.
Then do a SWOT analysis to illustrates their strengths,
weaknesses, opportunities, and threats. The strategy I suggest is
face to face marketing since their product is bakery; they have
to let the customer taste it first. What they can do is go around
the neighborhood and give them samples. Another one is
television marketing. They can show the audience their process
of making the cookie because their primary product object is
natural and organic.
© 2018 Rockwell Publishing
Financing Residential Real Estate
Lesson 6:
Basic Features of a Residential Loan

Introduction
This lesson will cover:amortizationrepayment periodsloan-to-
value ratiosmortgage insurance and loan guarantiessecondary
financingfixed and adjustable interest rates
*
Amortization
Loan amortization refers to how principal and interest are paid
to lender during loan term.
Amortized loan: borrower required to make regular installment
payments that include principal as well as interest.
*
Amortization
Payments for fully amortized loan are enough to pay off all
principal and interest by end of loan term.Payment amount same
throughout term.Every month, interest portion of payment gets
smaller, principal portion gets larger.
Fully amortized loan

*
Amortization
Partially amortized loan: requires regular payments including
principal and interest. But payments not enough to pay off debt
by end of loan term.Balloon payment required to pay remainder
of principal.
Partially amortized loan
*
Amortization
Interest-only loan: calls for regular payments that cover only
interest accruing, without paying any of principal, either:during
entire loan term, orduring specified interest-only period at
beginning of term.
Interest-only loan

*
Amortization
If payments interest-only during limited period: at end of that
period, amortized payments must beginpayment may increase
sharply at end of interest-only period
Interest-only loan
*
Repayment Period
Number of years borrower has to repay loan.Also called loan
term.
*
Repayment Period
Until 1930s, typical repayment period for mortgage was 5
years.If lender didn’t renew loan, balloon

payment required.
Now 30 years is standard repayment period.15-, 20-, and 40-
year loans also available.
*
Repayment Period
Length of repayment period affects:amount of monthly
paymenttotal amount of interest paid over life of loan
May also affect interest rate charged.
*
Repayment Period
Longer repayment period reduces amount of monthly payment.
30-year loan more affordable than 15-year loan.
Shorter repayment period:higher payment amountequity builds
fastermore difficult to qualify for
Monthly payment amount

*
Repayment Period
Shorter repayment period substantially decreases total amount
of interest paid on loan.Total interest for 15-year loan less than
half total interest for 30-year loan.
Total interest
*
Repayment Period
Advantages of 15-year loan:lower interest ratetotal interest
much lessclear ownership in half the time
Disadvantages of 15-year loan:higher monthly payments
15-year vs. 30-year loan
*

Repayment Period
20-year loan is compromise between 15-year and 30-year
loan.Monthly payments higher than 30-year loan.But not as high
as 15-year loan.
20-year loans
*
Repayment Period
Some lenders offer 40-year loans, but they aren’t
common.Monthly payments even more affordable than 30-year
loan.Most commonly used in areas with very high housing
costs.
40-year loans
*
Summary
Amortization & Repayment PeriodAmortizationFully

amortizedPartially amortizedBalloon paymentInterest-only
loanLoan term
Loan-to-Value Ratio
Loan-to-value ratio (LTV): expresses relationship between loan
amount and value of home being purchased.With 80% LTV,
loan amount is 80% of home’s value.
Higher LTV = smaller downpayment
*
Loan-to-Value Ratio
Because downpayment is smaller, higher LTV loans riskier than
lower LTV loans.Borrower has less money invested, won’t try
as hard to avoid default.If foreclosure necessary, property may
not sell for enough to pay off debt and costs.
Higher LTV = higher risk
*

Loan-to-Value Ratio
Lenders set maximum LTV for particular loan program or loan
type.
In transaction, maximum LTV determines:maximum loan
amountminimum downpayment
Key factor in determining “how much house” borrower can buy.
Maximum LTV
*
Loan-to-Value Ratio
Lenders traditionally protected themselves by setting low LTV
limits.Traditional maximum: 80%Higher LTVs allowed only in
special
programs (FHA, VA).
Maximum LTV
*

Loan-to-Value Ratio
In recent years, loans with higher LTVs widely available.With
higher maximum LTVs, people without much cash can buy
homes.
Maximum LTV
*
Mortgage Insurance/Loan Guaranty
Purpose of mortgage insurance or guaranty: to protect lender
from foreclosure loss.Also encourages lenders to make loans
that would otherwise be too risky.
*
Mortgage Insurance/Guaranty
Mortgage insurance works like other insurance:policyholder
pays premiumsinsurer provides coverage for certain
losses, up to policy limit

Mortgage insurance
*
Policy protects lender against losses from borrower default and
foreclosure. Mortgage insurance company agrees to indemnify
lender.If foreclosure sale proceeds fall short,
insurer will make up difference.
Mortgage insurance
*
With loan guaranty, third party (guarantor) takes on secondary
legal responsibility for borrower’s obligation to lender.If
borrower defaults, guarantor must reimburse lender for losses.
Loan guaranty

*
Secondary Financing
Secondary financing: second loan obtained to pay part of
downpayment or closing costs required for primary loan.May be
provided by institutional lender, private third party, or property
seller.
*
Secondary Financing
Lender of primary loan often restricts type of secondary
financing borrower can use.Intended to prevent secondary loan
from increasing default risk.Borrower must qualify for
combined payment on both loans.Borrower still required to
make small downpayment from own funds.
*
Summary

LTV Ratio and Other FeaturesLoan-to-value ratioMaximum loan
amountMinimum downpaymentMortgage
insuranceIndemnifyLoan guarantyGuarantorSecondary financing
Fixed or Adjustable Interest Rate
Fixed-rate mortgage: interest rate charged on loan remains
constant throughout loan term.When market rates rise or fall,
loan rate
stays the same.Considered standard.
Fixed-rate mortgages
*
Fixed or Adjustable Interest Rate
Adjustable-rate mortgage (ARM): allows lender to adjust loan’s
interest rate to reflect changes in cost of money.Transfers rate
fluctuation risk to borrower.ARM’s initial interest rate often
lower than market rate for fixed-rate loan.
Adjustable-rate mortgages

*
Adjustable-Rate Mortgages
Borrower’s initial rate determined by market rates at time loan
is made.
Interest rate on loan tied to index.Index: published statistical
report used
as indicator of changes in cost of money.Lender chooses index
when loan is made.
How ARM works
*
Loan’s interest rate periodically adjusted to reflect changes in
index rate.If index rate has increased, lender
raises interest rate charged on loan.If index rate has decreased,
lender lowers interest rate charged on loan.
How ARM works

*
note rateindexmarginrate adjustment periodpayment adjustment
periodlookback periodinterest rate cappayment capnegative
amortization capconversion option
ARM features
ARM may have some/all of these features:
*
ARM Features
Note rate: ARM’s initial interest rate, as stated in promissory
note.
Some ARMs have teaser rate: discounted initial rate that doesn’t
include the margin typically added to the index rate.
Note rate
*

ARM Features
When loan is made, lender chooses one of several published
indexes, such as:Treasury securities index11th District cost of
funds indexLIBOR index
Index
*
ARM Features
Margin: difference between index rate and interest rate lender
charges borrower.Lender adds margin to index to cover
administrative expenses and provide profit.Margin stays same
throughout loan term,
even when interest rate changes.
Margin
*

ARM Features
ARM’s interest rate adjusted only at specified intervals.For
example, every 6 months, once a year, or every 3 years.One-
year adjustment period most common.
Rate adjustment period
*
ARM Features
At end of period, lender:checks index for increase or
decreaseraises or lowers loan’s rate based on
change in index rate
*
ARM Features
Hybrid ARM: combination of ARM and fixed-rate loan, with
two-tiered adjustment structure. Longer initial period, with

more frequent adjustments after that.Example: 3/1 hybrid ARM
*
ARM Features
Determines when lender changes payment amount to reflect
change in interest rate.Most ARMs have payment adjustment at
same time as rate adjustment.With some loans, payment
adjusted
less frequently than interest rate.
Mortgage payment adjustment period
*
ARM Features
Typical lookback period is 45 days. Loan’s rate and payment
adjustments determined by what index was 45 days before end
of adjustment period.
Lookback period

*
ARM Features
When ARM’s payment amount is adjusted, borrower may
experience payment shock.
Occurs when:market rates/index rise dramaticallysharp increase
in loan’s interest ratepayment amount increases drastically
Interest rate cap
*
ARM Features
To protect borrower from payment shock, most ARMs have
interest rate cap:limits how much loan’s interest rate can
increase per adjustment period and over life of loan
Interest rate cap
*

ARM Features
Payment cap: directly limits how much loan’s payment amount
can increase.Cap applies only to principal and interest
payment, not tax and insurance portion.Many ARMS have only
interest rate cap,
with no payment cap.
Mortgage payment cap
*
ARM Features
Negative amortization: when unpaid interest is added to loan’s
principal balance, increasing amount owed.Normally, balance
goes down steadily as principal is paid off.Negative
amortization causes principal
balance to go up.
Negative amortization
*

Negative Amortization
ARM features that can lead to negative amortization:payment
cap without rate cappayments adjusted less often than interest
rate
Features causing NA
*
Many ARMs structured to prevent negative amortization.
But if NA is possible, loan may have negative amortization
cap.Limits amount of unpaid interest that
can be added to principal balance.When limit is reached, loan
must be recast.
Negative amortization cap
*

Each month, borrower chooses payment option:P&I payment
based on 15-year amortizationP&I payment based on 30-year
amortizationinterest-only paymentminimum (limited) payment
Option ARMs
*
Minimum payment option doesn’t cover interest, resulting in
negative amortization.After negative amortization limit reached
and loan recast, many borrowers default.Option ARMs no
longer widely available.
Option ARMs
*
ARM Features

If ARM has conversion option, borrower allowed to convert
loan to fixed-rate mortgage.Conversion typically can take place
only during limited period Lender usually charges conversion
fee.
Conversion option
*
Summary
Fixed or Adjustable Interest RateFixed-rate
mortgageAdjustable-rate mortgageIndexNote rateMarginRate
and payment adjustment periodsLookback periodInterest rate
and mortgage payment capsNegative amortizationOption
ARMConversion option
Financing Residential Real Estate
Lesson 5:
Finance Instruments

Introduction
This lesson will cover:types of finance instrumentshow
instruments workcommon provisions
*
Promissory Notes
Promissory note: written promise to pay money.
Maker: the one who makes the promise.
Payee: the one to whom the promise is made.
Note: evidence of the debt and a promise to pay.
*
Promissory Notes
Can be brief, simple document. Usually contains:names of
partiesamount of debtinterest ratehow/when money is to be
repaid
Basic provisions
*

Promissory Notes
Must be signed by maker.
If certain requirements are met, it’s a negotiable instrument:
right to receive payment can be transferred by endorsement.
Basic provisions
*
Promissory Notes
Negotiable instrument requirements: written, unconditional
promiseto pay a certain sum of moneyon demand or on a certain
datepayable to order or to bearersigned by maker
Negotiability
*

Promissory Notes
“Without recourse” endorsement: issue of future payment
strictly between maker and third party the instrument is
endorsed to. Original payee not liable if maker
fails to pay.
Without recourse
*
Promissory Notes
Holder in due course: someone who buys negotiable
instrument:for valuein good faithwithout notice of defenses
Even if maker has defense against original payee, maker still
required to pay holder in due course.
Holder in due course
*
Promissory Notes
Promissory notes classified as to how principal and interest are

paid off.Straight note: periodic payments are interest only, with
principal due on maturity date.Installment note: periodic
payments include both principal and interest.
Types of notes
*
Summary
Promissory NotesMakerPayeeNegotiable instrumentWithout
recourseHolder in due courseStraight noteInstallment note
Security Instruments
In real estate transactions, promissory note is accompanied by
security instrument:mortgagedeed of trust
Gives lender security interest in property, enabling lender to
foreclose if borrower defaults.
Purpose
*

If no collateral, lender can still enforce promissory note.Lender
sues borrower, obtains judgment.But borrower may be
“judgment-proof.”
Secured lender much more likely to collect payment.
Purpose
*
Personal property used as collateral for early forms of secured
lending.Borrower gave lender possession of collateral property
until loan repaid.Lender kept property if loan wasn’t repaid.
Historical background
*

Hypothecation: pledging property as collateral without giving
up possession of it.For real property loans, became standard
arrangement for borrower to retain possession of land.Lender
held title until debt repaid.
*
Legal title: title transferred only as collateral, without
possessory rights.
Equitable title: property rights retained by borrower, without
legal title.
*
Eventually, transfer of legal title wasn’t necessary. More
common to place lien against borrower’s property.

Lien: financial encumbrance on owner’s title, allowing
lienholder to foreclose on property to collect debt.
*
Two-party security instrument in which borrower mortgages his
property to lender.Mortgagor = borrowerMortgagee = lender
Mortgage
*
Mortgages
Mortgage must include:names of partiesaccurate legal
description of property
Also must identify promissory note it secures.
Basic provisions

*
Mortgages
Mortgagor promises to:pay property taxes keep property insured
against
fire and other hazardsmaintain structures in good repair
Mortgagee has right to inspect property.
Covenants
*
Mortgages
Satisfaction of mortgage: document given to mortgagor by
mortgagee after mortgage is paid off, releasing property from
lien.Mortgagor records document.
Satisfaction
*

Similar to mortgage, but involves three parties, rather than
two.Grantor/trustor = borrowerBeneficiary = lenderTrustee =
neutral third party
Trustee arranges for release of property or foreclosure, as
necessary.
Deed of trust
*
Deed of Trust
Deed of trust usually includes same basic provisions found in
mortgage:names of partiesproperty description identification of
promissory note grantor’s promises to pay taxes and insure
propertybeneficiary’s right to inspect property
Basic provisions
*

Deed of Trust
Deed of reconveyance: document releasing property from lien,
executed by trustee when loan is paid off.Recorded by grantor.
Reconveyance
*
Summary
Security InstrumentsHypothecationLegal titleEquitable
titleLienMortgageSatisfaction of mortgageDeed of trustDeed of
reconveyance
Key difference between deeds of trust and mortgages:
procedures used for foreclosure.
Foreclosure
*

Foreclosure
At one time, judicial foreclosure was only option. Lender filed
lawsuit against borrower.Sheriff’s sale ordered by court if
borrower found to be in default.
Alternative to judicial foreclosure was eventually developed.
Methods
*
Methods of Foreclosure
Nonjudicial foreclosure is generally associated with deeds of
trust. Lender doesn’t have to file lawsuit.Trustee arranges for
property to be
sold at trustee’s sale.Property sold to highest bidder.
Judicial vs. nonjudicial
*

Nonjudicial foreclosure requires power of sale clause in
security instrument.
Power of sale clause: authorizes trustee to sell property in event
of default.All deeds of trust contain one.May be included in
mortgage, but usually not.
Power of sale
*
Judicial foreclosure used when:state law doesn’t allow
nonjudicial foreclosurethere’s no power of sale clause in
security instrumentcircumstances make it better choice for
lender
Judicial foreclosure
*

Judicial Foreclosure
Acceleration of debt
Foreclosure lawsuit
Equitable redemption or
cure and reinstatement
Writ of execution
Sheriff’s sale
Statutory redemption
Sheriff’s deed
Steps in judicial foreclosure
*
Judicial Foreclosure Steps
1. Acceleration of debt: if mortgagor defaults, mortgagee
notifies mortgagor that entire outstanding loan balance is due.
2. Foreclosure lawsuit: unless mortgagor pays off accelerated
debt, mortgagee files foreclosure action.
Acceleration and lawsuit
*

3. Equitable redemption vs. cure & reinstatement: while lawsuit
is pending, mortgagor has right to stop proceedings by paying
mortgagee.Depending on state law, may be:equitable right of
redemption, orright to cure and reinstate.
Stopping a pending foreclosure
*
Equitable right of redemption: mortgagor’s right to stop
proceedings by paying entire amount owed, plus costs.Loan is
paid off and property is redeemed.
*

Cure and reinstatement: mortgagor may “cure” default by
paying just delinquent amount plus costs.Foreclosure
proceedings terminate and loan is reinstated.
*
4. Writ of execution: if loan not cured or redeemed, judge
schedules hearing to determine if default exists.If so, judge
issues writ of execution.Directs sheriff to seize and sell
property.
Court order
*
5. Sheriff’s sale: public auction where property is sold to
highest bidder. Purchaser given certificate of sale. Proceeds of
sale pay costs and debt.
Sale of property

*
If proceeds aren’t enough to pay off foreclosed mortgage, court
may award deficiency judgment against debtor for amount of
deficiency.
Sale of property
*
6. Statutory right of redemption: additional period after
sheriff’s sale to redeem property.Must pay purchaser amount
paid at auction, plus interest.Many states do not allow; states
that do limit period to 6 months - 2 years.
After sheriff’s sale
*

7. Sheriff’s deed given to purchaser at end of redemption
period.State law may allow purchaser to:take possession of
property immediately, orcollect rent from debtor during
redemption period.
Rights of sheriff’s sale purchaser
*
Nonjudicial Foreclosure
Notice of default
Notice of sale
Cure and reinstatement
Trustee’s sale
Trustee’s deed
Steps
*
Nonjudicial Foreclosure Steps

1. Notice of default: to begin, trustee must give notice of
default to grantor.
2. Notice of sale: trustee must wait certain time after notice of
default before issuing notice of sale. Usually 3 to 6 months.
Notice to borrower
*
3. Cure and reinstatement: grantor allowed to cure default
and reinstate loan by paying delinquent amounts plus
costs.Right ends shortly before trustee’s sale.No right of
redemption after trustee’s sale.
Stopping the foreclosure
*
4. Trustee’s sale: like sheriff’s sale, trustee’s sale is public
auction. Proceeds first applied to costs, then to

debt, then junior liens.
Sale of property
*
5. Trustee’s deed: highest bidder receives trustee’s deed
immediately after sale.Debtor’s title terminates
immediately.Must vacate property within short period (such as
30 days).
No redemption period
*
Nonjudicial Foreclosure
State law may place restrictions on nonjudicial foreclosures,
such as:requiring post-sale redemption period for agricultural
propertyprohibiting beneficiary from obtaining
deficiency judgment after sale
Restrictions

*
Judicial vs. Nonjudicial
Judicial foreclosure advantages:borrower can’t reinstate
loanright to deficiency judgment
Nonjudicial foreclosure advantages:quick and inexpensive
Lender’s point of view
*
Judicial vs. Nonjudicial
Judicial foreclosure advantages:slow processpost-sale
redemption
Nonjudicial foreclosure advantages:right to cure and reinstate
Borrower’s point of view
*

Summary
ForeclosureJudicial foreclosureEquitable right of
redemptionSheriff’s saleDeficiency judgmentStatutory right of
redemptionNonjudicial foreclosurePower of saleCure and
reinstatementTrustee’s sale
Alternatives to Foreclosure
Three alternatives allow borrowers who can no longer make
payments to avoid foreclosure:loan workoutdeed in lieushort
sale
*
All three alternatives require lender’s consent.
Lender’s incentives to cooperate:avoiding foreclosure
costsending money-losing situation

more quickly
Lender’s consent needed
*
First step for borrower hoping to avoid foreclosure: asking
lender for loan workout.Borrower will need to demonstrate
inability to make current payments.
Two types of workouts:repayment planloan modification
Workouts
*
Workouts
With repayment plan, lender allows borrower to change timing
of limited number of payments.
Borrower in more dire situation may need loan modification:
permanent change in terms of repayment (like reduced principal

or interest rate).
Repayment plans / loan modifications
*
If borrower can’t negotiate workout and will lose property
anyway, can offer lender deed in lieu.
If lender accepts deed in lieu:borrower deeds property to
lenderdebt satisfied
Deed in lieu of foreclosure
*
Deed in Lieu of Foreclosure
Lender agrees to release borrower even though property is
usually worth less than amount owed.Lender could require
borrower to sign
promissory note for shortfall, but that isn’t typical.

Settlement of debt
*
Compared to foreclosure, deed in lieu is:simplerless public
Borrower’s credit rating suffers almost as much as from
foreclosure.
Impact on borrower
*
Lender takes title subject to other liens.Not like foreclosure,
which extinguishes
junior liens.

Junior liens
*
Short sale: when borrower sells property to third party for less
than amount owed.Borrower facing foreclosure may ask lender
to approve short sale.If lender approves buyer, lender receives
sale proceeds and releases lien.
Short sales
*
Short Sales
Like ordinary sale, short sale doesn’t extinguish junior liens.If
there are junior liens, short sale must be approved by all
lienholders.Junior lienholders unlikely to consent.
Junior liens

*
To arrange workout, deed in lieu, or short sale, borrower
contacts loan servicer.May need approval from more than one
department or entity.
Obtaining lender’s consent
*
Obtaining Lender’s Consent
Borrower wanting help with process for modification or other
alternatives should contact nonprofit HUD-approved housing
counseling service.Problems with predatory for-profit loan
modification companies.Many states now have “distressed
property laws” regulating them.
Assistance for borrowers

*
Obtaining Lender’s Consent
If loan has been securitized, it’s difficult to obtain
consent.Under some MBS contracts, any purchaser (investor)
can object and prevent loan modification or
settlement.Impractical to obtain consent of all investors.
Securitized loans
*
Generally, IRS views debt relief (reduction in amount owed) as
income.Borrower who enters arrangement reducing amount
owed may have to pay income tax on debt relief.
Income tax implications
*

Exceptions: debt relief not taxed if:debt was secured by
principal residence
and forgiven between 2007-2017debtor was insolvent when debt
forgiven
Income tax implications
*
Summary
Alternatives to ForeclosureLoan workoutRepayment planLoan
modificationDeed in lieuShort saleHousing counseling
serviceDistressed property lawsDebt relief
Finance Instrument Provisions
Rights and responsibilities of borrower and lender may be
affected by:subordination clauselate charge
provisionprepayment provisionpartial release clauseacceleration
clausealienation clause

*
Subordination clause: gives a mortgage lower priority than
another mortgage that will be recorded later on.Common in
construction financing.
Subordination clauses
*
Promissory notes usually provide for late charges if borrower
doesn’t make payments on time.
State laws may override late charge provision, to protect
borrowers from excessive charges.
Late charge provisions
*

Prepayment provision: imposes penalty on borrower who repays
some or all of principal before due.
Prepayment deprives lender of some of interest it expected to
receive over loan term.
Prepayment provisions
*
Most residential loan agreements don’t have.Mortgages with
prepayment penalties aren’t eligible for sale to Fannie
Mae/Freddie Mac.Prepayment penalties prohibited with FHA
and VA loans.Dodd-Frank Act places restrictions on prepayment
penalties.
Prepayment provisions
*

Partial release clause: obligates lender to release part of
property from lien when part of debt is paid.Typically found in
deed of trust or mortgage that covers subdivision, allowing
release of individual lot from lien when lot is sold.
Partial release clauses
*
Acceleration clause: allows lender to declare outstanding loan
balance due immediately in event of default.Most lenders wait
90 days before
accelerating.Some states now have laws requiring
specific waiting period.
Acceleration clauses
*

Alienation clause: prevents borrower from selling security
property without lender’s permission unless loan paid off at
closing.If title transferred without permission, lender can
accelerate loan.Also called due-on-sale clause.
Alienation clauses
*
Alienation Clauses
Most alienation clauses triggered by transfer of any significant
interest in property.Includes long-term leases, or leases with
options to purchase.Lender can’t forbid transfer, but can
demand payment of loan.
Triggered by transfer of any interest
*
Alienation Clauses
To understand purpose of alienation clause, consider what
happens when borrower sells property without paying off loan.

Transfer of title without loan payoff
*
Alienation Clauses
Three possibilities:
1. New owner takes title subject to loan but
does not assume it.
2. New owner assumes loan but original
borrower is not released.
3. New owner assumes loan and lender
agrees to release original borrower.
Transfer of title without loan payoff
*
Summary
Finance Instrument ProvisionsSubordination clauseLate charge
provisionPrepayment provisionPartial release

clauseAcceleration clauseAlienation clauseAssumption
Types of Real Estate Loans
Junior mortgage: mortgage with lower lien priority than another
against same property.
Senior mortgage: mortgage with higher lien priority than
another on same property. At foreclosure, junior mortgage paid
only after senior has been paid in full.
Junior or senior mortgage
*
Lien having most senior (first) position is called first
mortgage.Junior mortgages may be referred to as second
mortgage, third mortgage, etc.
First mortgage

Purchase money mortgage: any mortgage loan used to finance
purchase of property that is collateral for loan.A mortgage that
buyer gives to seller in seller-financed transaction.
Purchase money mortgage
*
Home equity loan: loan secured by mortgage against borrower’s
equity in home she already owns. (Interest rates higher than on
purchase loans.)
Equity: difference between property’s market value and total
liens against it.
Home equity loan
*
Home equity line of credit (HELOC): line of credit with limit
and minimum monthly payments; homeowner can draw upon as

needed. Automatically secured by borrower’s home.
Home equity loan
*
Refinancing: new loan used to pay off existing mortgage against
same property.
Often used:to take advantage of market interest rate
decreasewhen balloon payment due on existing loan
Refinance mortgage
*
Bridge loan: provides cash for purchase of new home pending
sale of old home.Secured by equity in old home.Usually has
interest-only payments.Also called swing loan or gap loan.
Bridge loan

*
Budget mortgage: loan with monthly payments that include
property taxes and hazard insurance.Lender holds tax and
insurance portions
of borrower’s payments in impound account until payments due.
Budget mortgage
*
Package mortgage: loan secured by personal property as well as
real property.
Alternatively, personal property may be financed separately,
using separate security agreement.Lender must file financing
statement with Secretary of State.
Package mortgage

*
Bi-weekly mortgage: requires a payment every two weeks, so
that loan is paid off on accelerated schedule.
Borrower pays off loan faster and with less total interest.
Bi-weekly mortgage
*
Blanket mortgage: loan secured by more than one parcel of
land; contains partial release clause.
Partial release clause: requires lender to release some of
security property from lien when portion of debt is paid off.
Blanket mortgage
*

Construction loan: short-term loan used to finance construction
on land already owned by borrower.
Once construction completed, construction loan replaced by
take-out loan.Borrower repays amount over specified term.
Construction loan
*
Nonrecourse mortgage: loan that gives lender no recourse
against borrower.Lender’s only remedy in event of default is
foreclosure on collateral property.Borrower not personally
liable for loan
repayment.
Nonrecourse mortgage
*

Participation mortgage: allows lender to participate in earnings
generated by mortgaged property, in addition to collecting
interest payments.
Shared appreciation mortgage: entitles lender to share of
increase in property’s value.
Participation / shared appreciation
*
Wraparound mortgage: new mortgage that includes existing first
mortgage on property.Used almost exclusively in seller-
financed transactions.
Wraparound mortgage
*

Reverse mortgage: provides elderly homeowners source of
income, without requiring sale of home.Homeowner borrows
against equity.Can get a monthly check from lender.Borrower
required to be over certain age.Home sold after death to repay
loan.
Reverse mortgage
*
Summary
Types of Real Estate LoansPurchase money mortgageHome
equity loan or HELOCRefinancingBridge loanBudget
mortgagePackage mortgageBi-weekly mortgageBlanket
mortgageConstruction loanNonrecourse mortgageWraparound
mortgageReverse mortgage
*
2/27/2020 Sample Content Topic
https://purdueglobal.brightspace.com/d2l/le/content/115691/vie
wContent/9226883/View 1/2

Loans Based on Client Needs
Introduction: Client needs are usually the driving force in
determining the best loan to use to acquire real estate. Some
loans require little or no down payment while others offer lower
interest rates that allow the client to obtain a larger loan. Still
others reduce the clients’ costs during the investment holding
period.
Read the scenario and respond to the checklist items.
Scenario: Henri and Lila are having second thoughts
regarding their choice of a home mortgage. They thought they
should just get a 15-year mortgage, but now they are not so
sure. The restaurant is doing alright so far, but they are not
sure about the future and they have had some recent flooding
on the restaurant property. The flooding may entail mitigation
work involving shutting down the restaurant for some period of
time. Because of the flooding issues, Henri and Lila now want
to keep as much cash in their pocket as possible to pay current
expenses. What are the couples best mortgage options if they
can put down $57,000 on their new home? The home price
agreed upon is $289,900 and this is the appraised price as
well.
Checklist:
Calculate the LTV for this home if they were to use a
conventional mortgage and explain the significance of your
findings.
Compare the mortgage options covered in the weekly reading
and recommend a mortgage option that would fit Henri and
Lila’s needs based on the scant information you have.
Explain the pros and cons of selecting whatever mortgage you

recommend to them.
Assignment Details
2/27/2020 Sample Content Topic
https://purdueglobal.brightspace.com/d2l/le/content/115691/vie
wContent/9226883/View 2/2
Write a 2-page (minimum of 600 words) response with
additional title and reference pages using APA format and
citation style.
Access the Unit 5 Assignment grading rubric.
Submit your response to the Unit 5 Assignment Dropbox.
https://kapextmediassl-
a.akamaihd.net/business/MT431/1904c/rubrics/u5_rubric.pdf
DM211
2/18/20
Scratch & Grain baking, natural and organic baking kits.
Homemade baking with individually packaged and labeled
wholesome quality ingredients. Our business objective goals are
to increase purchase frequency (in-store and digital) and expand
the selling season, and our primary product object is natural and
organic.
Jessica Kaye, thirty-five years old white-collar professionals
work for RooneyPartners, a PR firm in NYC. She has an annual

income of around $120,000. She also has an advanced
educational degree and a high degree of autonomy in work. She
has a warm and happy family. She has two children, and both
are currently in a private primary school. She lives on the upper
west side of New York. She works from 9 am to 4 p,m and she
believes in a healthy lifestyle. She gives herself an hour to work
out after work every day. She loves going to the supermarket
and buys healthy vegetables for salads at whole foods every day
after her workout. She would like to see and research the
ingredients of the foods because she wants to make sure her
family lives in organic life.

DM21121120Scratch & Grain baking, natural and organic ba.docx

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