chapter 6 Flashcards
Financing and Settlement
purchase money mortgage
any portion of the purchase price which the seller “carries.” In real estate, the owner of the property being sold may be in the position to act as the lender. In fact what is happening is the seller is willing to wait for the payment of the purchase price over time from the
buyer.
mortgage
a contract which creates a monetary lien against real property.
discount points
– One point equals 1% of the loan amount. The IRS considers a point to be a form of interest paid upfront instead of over the term of the loan. As a result, points paid on a mortgage loan are generally tax deductible. According to the IRS, the following terms are often used to
describe points: discount points, loan discount points, maximum loan charges, and loan origination fees. Discount points are charged when there is a cost to receive a certain rate or to buy a rate down (buydown) and hence the name “discount.”
hypothecation
the pledging of property as security for a debt but retaining possession and use of the property so long as the debt is being performed as agreed. Hypothecation is the most common form of secured lending arrangements. An example would be, you buy your home using a 30-year loan. You may have possession and use of the home so long as you are performing as agreed on your home loan; this is a hypothecation of your home.
collateral
the real or personal property upon which the lien is given to secure the borrowing.
monetary lien or mortgage encumbrance
giving another the right to repossess or foreclose against
real or personal property and to sell the property to pay that debt or obligation owed to the lien holder.
prime rate
the prime rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always
the same amongst major U.S. banks. Adjustments to the prime rate are usually made by the banks at the same time, but the prime rate does not adjust on any regular basis.
mortgagor vs mortgagee
There are two parties to the mortgage; the mortgagor who is the borrower, and the mortgagee who is the lender
usury
Many states have established the maximum amount of interest a lender may charge on certain types of loans. To the extent that the interest charged exceeds the statutory amount, it is referred to as usurious and cannot be collected. Not all states have such provisions.
subordination agreement
A subordination agreement is an agreement between two
lien holders to swap priority position.
priority
priority refers to the order in which these mortgages were recorded.Their priority governs which lender will be paid first, then second, etc., in the event of a foreclosure
sale. A second mortgage really means that it is a second mortgage on a specific property recorded after the recordation of a first mortgage.
financing
financing is simply the borrowing of money.
The borrowing may be unsecured (no collateral, only the credit worthiness of the borrower is considered), or the borrowing may be secured (real or personal property is given to assure repayment of the loan).
interest
compensation paid by the borrower to the lender for the period during which the borrower has use of the lender’s money
note
is a legal document which creates and identifies the debt. The note will contain the following:
- borrower’s name
- lender’s name
- amount borrowed
- interest rate
- date first payment is due, frequency of payments
- term or length of time borrower has to repay loan
- amount of final payment + due date
- address to which payments are sent
- collateral documents may be referenced
- any other provisions the borrower has agreed to
- a contract and the equivalent of an I.O.U.
- evidence of debt
equity loans
or home equity lines of credit (HELOC), may be done when the homeowner has a substantial amount of equity in the property and wishes to use that equity (by borrowing against it) for some other purpose.
