Real Estate Financing Flashcards
PITI
principal, interest, taxes, insurance
DTI
debt to income ratio
LTV
loan to value ratio; the amount of the loan as a percentage of the purchase price of the property
Promissory Note
financing instrument; a borrower’s personal promise to repay a debt according to the agreed terms
Negotiable Instrument
the payee who holds the note may transfer the right to receive payment to a third party
Payor
buyer
Payee
lender
Interest
a charge for the use of money
Arrears
payments made at the end of a period
Usury
charging interest in excess of the maximum rate allowed by law
State Usury Laws
do not apply to federally related residential first mortgage loans as of March 31, 1980
Loan Origination Fee
charged by most lender to cover the expenses involved in generating the loan
Discount Points
used to increase the lender’s yield / rate of return on its investment; one discount point equals 1% of the loan amount (not purchase price)
Prepayment Penalty
a payment against the unearned portion of the interest for any payments made ahead of schedule
Financing Instrument
creates the debt
Security Instrument
specifies the property that the debtor will use as collateral for the debt
Hypothecation
the debtor retains the right of possession and control of the secured property, while the creditor receives an equitable right in the property
Mortgage
a lien on the real property of a debtor
Mortgagor
the borrow who receives a loan and in return gives a promissory note and mortgage to a lender
Mortgagee
the lender of the loan
Satisfaction of Mortgage
the document that verifies that the loan is paid in full; filed in the public record as evidence of the removal of the security interest
Lien Theory
the mortgagor retains both legal and equitable title to property that serves as security for a debt; the mortgagee has a lien on the property
Deed of Trust
conveys bare legal title (w/o right of possession) from the borrower/trustor to a third party / trustee
Title Theory
the borrower is the trustor who conveys legal title to the trustee but retains equitable title and the right of possession; legal title is returned only when the debt is paid in full
Acceleration Clause
if the borrower defaults the lender has the right to accelerate the maturity of the debt; the entire principle balance is due and payable immediately
Defeasance Clause
the lender is required to execute a satisfaction of mortgage; returns to the buyer all interest in the real estate originally conveyed to the lender
Assumption of Mortgage
the buyer assumes the mortgage or deed of trust and agrees to pay the debt
Alienation Clause
resale clause; provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender
Priority of Liens
determined in the order by which they were recorded
Straight Loan
interest-only loan; borrower makes periodic payments of interest only, followed by the payment of the principal in full at the end of the term
Amortized Loan
pays interest as well as a portion of the principal owed
Adjustable Rate Mortgage (ARM)
begins at one rate of interest, then fluctuates up or down during the loan term based on a specified economic indicator
Margin
the interest rate is the index rate plus a premium; the premium represents the lender’s cost of doing business
Negative Amortization
the amount of the loan increasing instead of decreasing; can happen when property values do not increase as anticipated or the borrower can no longer afford to make mortgage payments
Growing-Equity Mortgage
rapid-payoff mortgage; uses a fixed interest rate but payments of principal are increased according to an index or schedule - used when a borrower’s income is expected to grow to keep pace with increasing loan payments
Balloon Payment
a final payment that is at least twice the amount of any other payment
Reverse Morgage
allows a homeowner age 62 or older to borrow money against the equity built up in the home
Foreclosure
a legal procedure in which property pledged as security for a debt is sold to satisfy the debt when a borrower defaults on any required payment or fails to fulfill any of the other obligations set forth in the mortgage or deed of trust
REO
real estate owned; lender portfolio of property
Judicial Foreclosure
allows the property to be sold by court order after the morgagee has given sufficient public notice
Nonjudicial Foreclosure
used when the security instrument contains a power of sale clause; no court action is required
Strict Foreclosure
notice is given to delinquent borrower; court establishes a deadline for the balance to be paid in full if it’s not paid by that date court awards full legal title to the lender; no sale takes place
Deed in Lieu of Foreclosure
carried out by mutual agreement rather than lawsuit; eliminate equity but not junior liens
Equitable Redemption
after default but before the foreclosure sale pay off to the lender
Statutory Right of Redemption
a period in which defaulted borrowers can redeem their real estate after sale
Deficiency Judgement
if the foreclosure sale does not produce enough to pay the loan balance in full the morgagee may be entitled to a personal judgment against the borrower for the unpaid balance
Short Sale
a sale in which the sales price is less than the remaining indebtedness
Forebearance
a postponement of obligations under a mortgage loan but not forgiveness of the debt
Basic Form Homeowners Insurance
fire and lightening, glass breakage, windstorm, explosion, riot, damage by aircraft of vehicle, smoke damage, vandalism and theft
Broad Form Homeowners Insurance
falling objects, ice damange, collapse, burst HVAC and pipe, freezing of plumbing and HVAC, electrical damage
