Real Estate Finance Flashcards
Mortgage
Legal agreement by which a bank lends money in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon payment of the debt.
- mortgage only related to real estate (real property)
- lein against real estate used as security
-The person(s) on the deed owns the real estate and is required to sign the mortgage
Promissory Note
A signed document containing a written promise to pay a stated sum to a specified person/institution or the bearer at a specified date or on demand
- personal promise to pay
- not everybody is required to sign the note
- The person who signs the note is responsible for the payment
Mortgagor
The borrower, typically a home owner Borrower's Obligations: -pay the mortgage -keep property in good condition -Keep title "as is"
Borrower’s Rights:
- Right to occupy the real estate
- right to pay off the mortgage
Mortgagee
The lender or bank who provides a loan to the borrower or homeowner
Lender’s Rights:
-Right to foreclose on the property if borrower defaults (over 90 days late on mortgage payments)
-Right to take possession of real estate if borrower defaults
-Right to assign the mortgage to another lender
“Due on Sale” Clause
Allows lender to require the balance of a loan to be paid in full if the collateral is sold (also known as an Alienation Clause).
- If you sell the real estate, the mortgage is due
- If you change ownership to the real estate from the way it was taken originally, mortgage is due
Mortgage Clauses & Covenants
- Dates and name
- Prepayment Penalty
- Acceleration Clause
- Defeasance Clause
- Right foreclose
- Must maintain good and marketable title
- Alienation clause (due-on-sale-clause)
- Signature
- Acknowledgement
Private Mortgage Insurance (PMI)
Insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan
Mortgage Payments includes…
Mortgage Payment = Principal + Interest + Taxes + Insurance (PITI)
- Principal (amount you borrowed)
- Interest
- Real Estate Taxes
- Insurance
- Common Charges
- Mortgage Insurance
- Flood Insurance
- Second Mortgage
Parties at Closing
- Buyer
- Seller
- Buyer’s Attorney
- Seller’s Attorney
- Lender’s representative
- Title Company representative
- Real Estate Agent(s)
Conventional Mortgage
A loan secured by real property through the use if a mortgage note. Regular mortgage.
-Fannie Mae, Freddie Mac, Regular lenders (banks)
-Fixed Rate Loans
-Adjustable rate loans
-Conventional Conforming: loan up to $417,000,
High Balance conforming $417,000-$625,000,
Jumbo Loan over $625,000
FHA Mortgage
Backed loans that usually require a lower down payment and may sometimes have a lower interest rate
- gov’t loan
- insured by the federal government
- Best suited for first time home buyers who lack the funds for a large down payment. (typically as low as 3% down payment)
- Have to pay MIP. Can have it removed later on
- mortgage officers get a better commission with these loans
Government Mortgage
-FHA Mortgages, VA Mortgages, Sunny Mae, anything that’s back or insured by the gov’t
Fixed Mortgage Rates
- interest is fixed for the life of the loan. Principal and interest will be the same from first month to last month
- longer the term, the higher the interest rate
- monthly payment larger with shorter time
- Least amount of risk and is preferred among long-term home owners
Adjustable Rate Mortgage (ARM)
a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets
-hybrid
-Best suited for people who frequently move
-How long is the interest rate fixed in the beginning?
10/1 ARM (fixed for 10 yrs and then adjusts every year), 7/1 ARM, 5/1 ARM, 3/1 ARM
-When considering ARMs, look at Start Rate, Annual Cap, Lifetime Cap and Margin
CAP and Margin
Determine how much the adjustable mortgage rate is going to be
Typical margin is 2.75%
The annual Cap is typically 2%
A lifetime Cap is typically 5-6% off of the start rate
Negative Amortization
Occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases
- Monthly payment can be cheap, but keep tacking on interest. Amount you owe keeps growing
- not offered anymore
Interest Only Loan
- don’t pay principal, just the interest
- mostly high end buildings and co-ops, NYC
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the FHA or to a private mortgage insurance (MI) company.
VA Mortgage
A mortgage loan designed to offer long-term financing to eligible American veteran or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.
-guaranteed by the fed gov’t, not insured
Reverse Annuity Mortgage
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as satisfaction of mortgage.
Reverse Mortgage
Loan available to homeowners who are 62 yrs or older that enables them to convert part of the equity in their home into cash.
Construction Mortgage
A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property. Want the loan to “roll into” permanent mortgage.
Types:
-Straight construction loan
-Rehab loan (taking out chunk of $ distributed over period of time)
-Purchase/Rehab loan
Home Equity Line of Credit (HELOC)
A line of credit extended to a homeowner that uses the borrower’s home as collateral.
- typically interest only payments, but the person can pay it back and then use it again, so it never really goes away
- can be a first mortgage
- not offered too much anymore
