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Real Estate > Intro To Real Estate Financing > Flashcards

Intro To Real Estate Financing Flashcards

1
Q

What is financing

A

Receiving or providing money for the purposes of buying real estate

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2
Q

Mortgagor

A

The buyer

who applies to a lender for a loan

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3
Q

Mortgagee

A

The lender or the bank

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4
Q

Financial Steps

A
  1. Buyer applies to lender for a loan
  2. Lender uses gross salary, FICO score, credit history, and debt to income ratio to assess a buyers liability
  3. Buyer receives a pre-approval or pre-qualified letter, pre-qualification is a preliminary idea of how much a borrower can afford
    Pree approval =a conditioner
  4. Buyer finds a property to purchase
  5. Lender’s attorney checks public records at county of registry of deeds for title defects. If it does, the seller must fix them before closing
  6. Letter of commitment to buyer, requiring them to make loan
  7. At closing lender makes the loan for borrower, borrower gives a note
  8. Buyer pay back loan upon repayment lender returns nota and mortgage to buyer
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5
Q

Collatoral

A

The property

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6
Q

Amortization

A

The payment of the debt in equal installments

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7
Q

Balloon Mortgages

A

a loan with an amortization period that is longer than its payment period. Meaning the loan is lower than necessary to pay off by the end of the period making them more affordable
ex. a 10 yr loan whose payments are calculated on a 30-year schedule

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8
Q

Forclosure

A

Legal process a lender attempts to recover the balance of a loan from a borrower by forcing the sale of the asset used as collateral for the loan.

  • Judicial (under court supervision) but some states allow non - judicial foreclosures
  • Foreclosures are processed through public auction
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9
Q

Short Sale

A

When the seller is underwater or owes more than what they can sell their home for

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10
Q

The Note

A

The evidence of the debt

I OWE U

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11
Q

Mortgage

A

The security of the note (or debt) provides a piece of property as collateral for the loan.

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12
Q

Title Theory

A

Technically the banks owns the property until loan is paid off.

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13
Q

Power of Sale Clause

A

Permits the lender to take the property and sell it in the event of a default on the terms of the loan (most often non-payment of the loan)

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14
Q

Mortgage covenants

A

Everything the borrower promises to do.

Making monthly payments, pay their property taxes as impounds to the bank, maintain insurance, etc.

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15
Q

Defeasance Clause - Alienation clause

A

Permits maturity of the loan in the event of a Due on Sale Clause

When the loan is paid back, collateral is automatically released

-Prevents from wrap-around mortgages or transferring to a third party.

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16
Q

Subordination Clause

A

Makes the mortgage junior to any future mortgage.

Junior mortgages get paid second

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17
Q

Points

A

One percent of the loans
Often used to increase the value of a loan.
Ex. if the interest rate is so low on a loan bank might charge borrower points to increase profit.

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18
Q

Discount Points

A

Borrow’s capability of buying down the loan interest rates.

Borrower owes less interest every month

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19
Q

Mortgage Brokers

A

Do not originate the loan, but instead broker the loan between the borrower and lender

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20
Q

Partial Release Clause

A

Used in blanket mortgages

Releases a portion of the collateral in exchange for partial payment of loans

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21
Q

Gran St. Germain Act

A

The due on sale clause cannot be triggered upon death, devising of the property, leasing, marriage, divorce, or transfer to a family trust

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22
Q

Mortgage

A

-Security or the note, providing a piece of property as collateral for the loan.

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23
Q

Title Theory

A
  • The bank legally owns the property until the borrower pays off loan
  • The mortgagor (borrower) has equitable title (future right to gain legal title)
24
Q

Lien theory

A

Borrow will holds legal title during the life of the loan

25
Q

Equity Right of Redemption

A

Right to pay off debt and prevent foreclosure

26
Q

Letter of Commitment

A

When the lender is satisfied with the collateral; requires them to make the loans as long as the buyer satisfies lenders conditions in the letter

27
Q

Pre-approval letter

A

Lender receives a preapproval letter from lender
Allows buyer to search for homes within loan amount.
Also called the commitment letter or letter of commitment

28
Q

Collateral

A

the property

29
Q

A default

A

failure to make payments

30
Q

A note

A

evidence of the debt, and mortgage securing the debt

also known as a promissory note or mortgage note

Beware of two clauses:

  1. Acceleration clause
  2. Prepayment Penalty Clause
31
Q

Equity of Redemption

A

Being able to payback lender what is owed along with foreclosure costs before public auction

32
Q

Short Sale

A

Homeowner decides to sell house short of what’s owed, bank settles with whatever open market price homeowner finds

33
Q

Equity

A

Money in excess of debt, borrower receives proceeds from auction

34
Q

Deficiency Judgement

A

Property is sold under the debt debt owed

35
Q

REO (Real estate owned)

A

If lender owns the property after foreclosure they sell it in the open market

36
Q

Acceleration Clause

A

Permits the lender to accelerate the maturity date (due date of loan.

37
Q

Prepayment Penalty Clause

A

Requires borrower to pay a penalty for prepayment of the loan; guarantee’s the lender gets paid the interest on the loan
Uncommon in residential; common in commercial

38
Q

Power of Sale Clause

A

Permits lender to sell property if there is a default

39
Q

Defeasible Clause

A

Collateral is automatically relieved when loan is paid back,

bank no longer has rights to property

40
Q

Subordinate Clause

A

Mortgage becomes junior to any future mortgage,
Get paid second
in a forclosure after any senior mortgages

41
Q

Junior Mortgage

A

mortgage gets paid second (3rd, 4th, etc), in a foreclosure auction after any senior mortgages

42
Q

Due -On -Sale Clause (Assumption Clause)

A

Acceleration of maturity of loan due to (mostly) title transfer, which prevents the bank from transferring the mortgage to a third party.

43
Q

Defeasance clause

A

When loan is paid back, the bank’s claim to the collateral is automatically relieved

44
Q

St. Germain Act

A

The due on the sale clause cannot be triggered by death, divorce, transfer of property via family, lease, marriage, devising of property or family trust.

45
Q

MA Title Theory

A

In MA bank legally owns your property until it is paid in full
Equitable title as the borrower

46
Q

Partial release clause

A

Used in blanket mortgages, releases a portion of the collateral in exchange for partial payment of the loan

Example: subdivision development or cross-collateralized loans

47
Q

Blanket mortgages

A

Mortgages that cover several parcels of land

48
Q

Points (percentage)

A

1% of the loan
Used to increase value of a loan; used basically when the interest rate on a loan is so low that it isn’t worth making a lender can charge borrowr points as in an origination fee to increase profit.

49
Q

Math example of points/origination fee:
A property was sold for $100,000 with a loan for $80,000. The lender charged the borrower two points. How much did the points cost the borrower?

A

80,000x.02 = $1,600

50
Q

Mortgage Brokers

A

3rd parties between the borrower and lender; offer more flexibility in terms of payments

offer loan comparisons, through a higher cost (because broker charges a fee)

51
Q

Mortgage brokers

A

Directly work with lenders

do not orginate loan

52
Q

Assumption Clause

A
53
Q

Acceleration Clause (aka calling in the note)

A

Permits lender to accelerate the maturity date (due date) of the loan in the event of a default;

lenders first step to in foreclosure

54
Q

Prepayment Penalty Clause

A

Penalty for prepayment of the loan

Gaurentees lenders gets paid interest on the loan (common in commercial)

55
Q

Junior Mortgage

A

gets paid second, something that happens when primary mortgage gets sold to another bank

Real Estate (20 decks)

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