Real Estate Finance Flashcards
Mortgage Financing
Financing that uses mortgaged real property as security for borrowed funds
Hypothecation
Use of real property as collateral for a mortgage loan
Lien Theory
A state whose laws give a lender on a mortgaged property equitable title rather than legal title
Title Theory
A state whose laws give legal title of a mortgaged property to the mortgage until the mortgagor satisfies the terms and obligations of the loan
Note
An agreement to repay a loan of an indicated amount under certain terms
Mortgage
A legal document wherein a mortgagor pledges ownership interest in a property to a lender, or mortgage, as collateral against performance of the mortgage debt obligation
Mortgagor
The borrower in a mortgage
Mortgagee
The lender in a mortgage
Deed of Trust
An instrument used by a buyer to convey title to mortgaged property to a trustee to be held as security for the lender, who is the beneficiary of the trust
Principal
The loan balance to which interest charges are applied
Loan Balance
At any point during the life of a mortgage loan, the remaining unpaid principle is called the loan balance, or remaining balance
Interest
A lender’s charge for the use of the principle amount of a loan
Points
A discount point is one percent of the loan amount. Thus, one point on a $100,000 loan equals $1000. The lender charges this as pre-paid interest at closing by funding only the face amount of the loan minus the discount points. The borrower, however, must repay the full loan amount, along with interest calculated on the full amount
Term
The loan term is the period of time over which the loan must be repaid. A “30-year loan” is a loan whose balance must be paid off at the end of 30 years
Payment
The loan term, loan amount, and interest rate combine to determine the periodic payment amount. What these three quantities are know, it is possible to identify the periodic payment from a mortgage table or with a financial calculator. Mortgage payments are usually made on a monthly basis. On an amortizing loan, a portion of the payment goes to repay the loan balance in advance, and a portion goes to payment of interest in arrears
Mortgage Insurance
An insurance policy, purchase by a borrower, that protects a lender against loss of that portion of a mortgage loan which exceeds the acceptable loan-to-value ratio
Underwritten
A process of investigating the financial capabilities and creditworthiness of a prospective borrower and granting credit to a qualified borrower
Qualification
A mortgage underwritten procedure to determine the financial capabilities and credit history of prospective borrower
Loan-to-Value Ratio
An underwritten ratio that relates the size of a loan to the market value of the collateral. The closer the loan value is to market value, the riskier the loan is for the lender, since the lender is less likely to recover the debt fully from the proceeds of a foreclosure sale
Equal Credit Opportunity Act
Requires a lender to evaluate a loan applicant on the basis of that applicant’s own income and credit rating, unless the applicant requests the inclusion of another’s income and credit rating in the application
Income Ratio
An underwritten ratio that relates a borrower’s gross or net income and debt service of a loan; used to determine how large a loan a borrower can reasonably afford
Debt Ratio
An underwritten equation that is used to determine how much debt an individual can afford in view of the party’s or household’s income
Loan Commitment
A lender’s written pledge to lend funds under specific terms. May contain deadlines and conditions
Regulation Z
A fair financing law applying to residential loans; lenders must disclose financing costs and relevant terms of the loan to the borrower
Real Estate Settlement Procedures Act
A federal law which aims to standardize settlement practices and ensure that buyers understand settlement costs. RESPA applies to purchases of residential real estate (one- to four- family homes) to be financed by “ federally related” first mortgage loans
Primary Mortgage Market
Lenders and mortgage brokers who originate loans directly to borrowers
Secondary Mortgage Market
Lenders, investors, and government agencies who buy, sell, insure, or guarantee existing mortgages, mortgage pools, and mortgage-backed securities
Fannie Mae
A government-sponsored agency in the secondary mortgage market which buys conventional, FHA, and VA loans, sells mortgage- backed securities, and guarantees payment of principle and interest on the securities
Ginnie Mae
A division of HUD which guarantees FNMA mortgages and securities backed by pools of VA-guarentees and FHA-insured mortgages
Freddie Mac
A major secondary mortgage market organization which buys conventional, FHA, and VA loans and sells mortgaged-backed securities
FHA
The Federal Housing Administration is an agency of the Department of Housing and Urban Development (HUD). It does not lend money, nut insures permanent long-term loans made by others
Assumability
Rules for assumability vary according to when the FHA-insured loan was originated and whether the original loan was for an investment property or an owner-occupied principal residence. Loans originated before Dec. 1, 1986, are generally assumable without restriction. Loans originated after Dec 1,1986, require that the assumer show creditworthiness. Loans originated after Dec. 15, 1989, may not be assumed unless the borrower fully qualifies. No loans for investment or non-owner-occupied properties originated after the latter date are assumable
VA
The Veterans Administration (Department of Veterans Affairs) offers loans guarantees to qualified veterans. The VA, like the FHA, does not lend money except in certain areas where other financing is not generally available. Instead, the VA partially guarantees permanent long-term loans originated by VA- approved lenders to issue loans with higher loan-to-value ratios than would otherwise be possible. The interest rate on a VA- guaranteed loan is usually lower than one on a conventional loan. The borrower does not pay any premium for the loan guarantee, but does pay a VA funding fee at closing
Amortization
A partial or complete reduction of a loan’s principal balance over the loan term, achieved by periodic payments which include principal as well as interest
Adjustable Rate Loan
A mortgage loan having an interest rate that can be periodically raised or lowered in accordance with the movement of a financial index
Seller Financing
Any financing arrangement where a seller takes a note and mortgage from the buyer for all or part of the purchase price of the property
