Finance 7 - Real Estate Financing Programs Flashcards
A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.
adjustable-rate mortgage (ARM)
A Latin term meaning “to value” or “in proportion to the value.” Used to describe taxes where the amount of tax is based on the value of the thing taxed.
ad valorem
The liquidation of a financial obligation on an installment basis The recovery of cost or value over a period of time. An amortized loan is one in which the principal, as well as interest, is payable in monthly or other periodic installments over the term of the loan.
amortization
A final payment of a mortgage loan that is considerable larger than the required periodic payments because the loan amount was not fully amortized.
balloon payment
A mortgage secured by pledging more than one property as collateral.
blanket mortgage
Money or property given to make up any difference in value commissioned by a bank or an attorney and provided by a broker.
boot
A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or the seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.
buydown
A surety bond posed by a landowner or developer to guarantee that a proposed development will be completed according to specifications, free and clear of all mechanics’ liens.
completion bond
Under a construction loan, payments that the lender disburses during construction.
draws
Funds collected by the lender to pay property taxes and homeowners insurance; also called impound funds in some states.
escrow funds
A loan where the interest rate stays constant for the life of the loan.
fixed-rate loans
Now required on any home in the FEMA-designated flood hazard zone.
flood insurance
Insurance that only covers physical hazards to the property.
hazard insurance
Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.
homeowners insurance
Permits the note holder to make advances from time to time, secured by the real estate described in the deed.
home equity line of credit (HELOC)
Funds collected by the lender along with mortgage payment to pay for property taxes and homeowners insurance. See escrow funds.
impound funds
A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term.
interest-only loans
The number of dollars it takes to pay down $1,000 of a loan based on the interest rate and the term of the loan.
interest rate factor
Allows recognition of gain for tax purposes to be postponed by exchanging like kind income-producing properties.
Internal Revenue Code Section 1031
A leas under which the tenant has the right to purchase the property at an agreed-upon price either during the lease term or at its end.
lease option
The purchase of real property, the consummation of which is preceded by a leas, usually long term, that is typically done for tax or refinancing purposes.
lease purchase
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.
loan-to-value (LTV) ratio
Dwellings that are built off site and trucked to a building lot where they are installed or assembled.
manufactured housing
Process by which the amount of the loan increases. The mortgagor sets a payment cap, or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance.
negative amortization
A real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings, and major appliances.
package mortgage
When the borrower takes out a first and second mortgage simultaneously in order to avoid private mortgage insurance 9there is no PMI as long as the first mortgage is 80% or less).
piggy-back loan
The mortgage market which loans are originated, consisting of lenders such as commercial banks, savings associates, and mutual savings banks.
private mortgage insurance (PMI)
The practice of charging excessive interest rates and fees to unsuspecting borrowers.
predatory lending
A form of mortgage that enables elderly homeowners to borrow against the equity in their homes to they can receive monthly payments needed to help meet living costs. Under this plan, the inflow and outflow of funds is in reverse to the standard conventional loan. The homeowner receives periodic (not necessarily equals) payments based on accumulated equity; the payments are made directly by the lender or through the purchase of tan annuity from an insurance company.
reverse annuity mortgage (RAM)
A clause allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.
right of first refusal
When a second mortgage is taken out in order to avoid private mortgage insurance (see piggy-back loan.
split loan
The date on which the entire principal balance on a term loan must be paid.
stop date
A loan modification program initiated in 2008 for at-risk borrowers with Fannie Mae and Freddie Mac loans.
Streamlined Modification Program (SMP)
Lenders specializing in loans for less than credit-worthy borrowers; blamed for much of the financial crisis starting in 2007 due to adjustable-rate loans that borrowers were not able to make payments on when the ARM reset after two or three years.
subprime lender
Any type of interest-only loan is referred to as a term loan.
term loan
A term used for a percentage of the principal loan amount charged by the lender. Each point is equal to 1% of the loan amount.
point
