Real Estate Financing Flashcards
Mortgagor
Lender
Mortgaee
borrower; has conditional title to the lender in order to secure payment
Second Mortgage Market
loans being sold off to investors
List the 3 Major Loan Buyers
- Fannie Mae - Federal National Mortgage Association
- Freddie Mac - Federal Home Loan Mortgage Corporation
- Ginnie Mae - Government National Mortgage Association
Ginnie Mae (Government National Mortgage Association
Founded 1968
Specializes in low income loan
Fannie Mae (Federal National Mortgage Association)
Founded 1938
Focus: conventional, FHA and VA loans
Founded by US government to inject liquidity into the credit market, making loans more readily available
Freddie Mac (Federal Home Loan Association)
Founded in 1970
Conventional, FHA and VA loans
Innovated securitization of mortgages
Amortization
payment of debt in equal installment
Fully Amortized loans (Direct Reduction loans)
Loans that are completely paid off when the last payment is made
Interest and principal payments as well as insurance and taxes due
Assume 12 days in a year
Amount going to interest vs principal is recalculated each month
PITI
What is included in the amortization of loans payments
Principal
Interest
Taxes
Insurance
-Assumes only 12 days in a year (first of the month)
Amortization Tables
Way to calculate mortgage payments
pg 70
Formula: (loan / 1000) * PI = Monthly Payment
Formula to calculate amortized loans
(Loan/1000) x PI = Monthly
Second Mortgages (junior liens)
Paid second not the primary mortgage
Used to pay a portion of the down payment for the first mortgage
OR
Renovations
In event of foreclosure, the first mortgagee has the first claim on the property
Balloon Mortgages
a loan with an amortization period that is longer than its payment period
(e.g. 10-year loan payments are calculated on a 30-year amortization schedule)
- Making fewer principal payments means unpaid principal need to be discharged with the final payment
- Loan is refinanced
Straight loans
- interest-only loans
- principal paid in a lump sum on the last payment
- Common in home flipping - investor takes a short term loan and paid back
when sold
Simple Interest loans
non-compounding loans
Interest calculated daily
example: short term investment
Purchase Money Mortgages
seller financing or seller carry-back loans
- The seller acts as a bank for the buyer; buyer makes mortgage payments
directly to buyer - Buyer gives the seller a note and a mortgage
Wraparound Mortgages
Seller hasn’t finished paying off debt but wants to set up seller financing
Wraps the seller financing around seller’s existing debt
Buyer forwards the money to sellers bank to pay off their own debt to the bank; typically seller charges more to make a profit
If the seller does not forward to bank watch out b/c this could mean foreclosure
- due-on sale clause prohibits wraparound mortgages
Package Loans
covers real and personal property
if you default on this mortgage both personal and real property are in foreclosure
Chattel Mortgage
Covers personal property only, example being businesses
Home Equity Line of Credit
Give borrower a line of credit to the borrower against the equity in their home aka a junior lien,
aka what Joe Envoy told me
Reverse-Annuity Mortgage
- homeowners of 62+ access equity they have on their home
- bank makes payments to borrowers against the equity in their home
- loan plus interest repaid when homeowner passes away or sells home
Fixed Rate Mortgage
the interest rate that is locked in when the loan originates does not change over the lifetime of loan
Adjustable Rate Mortgage (ARM)
the interest rate that adjusts, based on prime interest rate or lowest interest rate at the bank
Graduated Payment Mortgage
loan aimed at home buyers with predictable rising incomes
at first, the loan is affordable and increased over time as income increases
Growing Equity Mortgage (GEM)
A loan where extra payments going towards principal
Participation Mortgage
lender participates as an equity partner in a development project
Shared Appreciations Mortgage (SAM)
an investor makes the down payment for the buyer in exchange for a share of the property equity or appreciation value
Blanket Mortgage
A loan that covers several pieces of land
Typically used by real estate developers include partial release clause
Partial Release Clause
Included in a blanket Mortgage to allow partial payment of developers mortgage every time an individual property is sold and for the property to be released from the mortgage
Bridge loans
A short term loan designed to bridge the borrower over some gap in cash flow e.g. shortfall in a construction between stages of a project
Swing loans
Allows a HOMEBUYER to borrow against a new home they’re purchasing to carry two mortgages while selling home
non recourse loan
the borrower is not responsible for loan deficiency in foreclosure, no personal guarantee
Paycap
prevents loan payments from exceeding a certain dollar amount
Buy Down or Pledged Account Mortgages (PAMs)
make loan payments affordable, with high interest rates
Take over Mortgages
like subletting the mortgage
if no due on sale clause buyer can take over mortgage by paying seller their equity and receive a dead
Subject to
Method of taking over seller’s lien - original morgagor and new owner are responsible for the loan
Assumption of
Method of taking over the mortgage,
both new owner and seller are responsible or loan
Novation
The seller’s note is canceled and a new noted is written between the lender and the buyer
Helping Families Save Their Homes Act (part of Truth and Lending Act)
Mortgagor must be informed of the sale of their mortgage to another bank
Participation Loan
A loan when a lender participates as an equity partner
Short Sale
sale for less than the seller owes on their loan
