Section 4 - Finance & Valuation Flashcards
acceleration clause
A mortgage clause stating that the entire balance of the debt becomes due and payable immediately upon default of any of the terms of the mortgage.
accrue
To make periodic additions of increase; to augment Accrued depreciation is accumulated depreciation; accrued interest already earned.
acre
43,560 square feet.
adjustable rate mortgage
A mortgage loan on which the interest rate rises and falls with changes in prevailing rates.
adjusted basis
Sales price of property less commissions, fix-up fees, and closing costs.
ad valorem
(Latin) “According to the value.” The principal usage is in Ad Valorem taxes that are assessed in proportion to the property’s value.
amortization
The gradual repayment of a debt in periodic amounts.
annual percentage rate (APR)
A uniform measure of the cost of credit that includes interest, discount points, and loan fees.
annuity
An annual allowance, payment, or income.
appraisal
A supportable and defensible estimate or opinion of the value of property as of a specific date, for a specific purpose.
appreciation
Increase in value of a property due to natural or economic factors. The opposite of depreciation.
arrears
Overdue or past due.
assessed value
The valuation placed upon property by a public tax assessor as the basis for taxes.
assumption of mortgage
When taking title to property with an existing mortgage, assuming full personal liability for its repayment.
balloon mortgage
A mortgage that requires a lump sum payment (balloon payment) at the end.
bankrupt
A person whose liabilities exceed his assets making him unable to meet all financial obligations. Bankruptcy is a legal status; a court of law must judge the person to be insolvent. Declaring bankruptcy does not automatically absolve a person from all financial obligations.
basis
The price paid for property; used in calculating income taxes.
blanket mortgage
A mortgage covering more than one parcel of land.
buy-down
A cash payment to a lender so as to reduce the interest rate a borrower must pay.
call provision
Allows the lender to demand immediate and full payment of loan.
cap
Maximum increase in the interest rate of an ARM (adjustable rate mortgage).
capital gain
The gain (profit) on the sale of an appreciated asset.
capitalization
A method of determining the present value of a future income stream.
capitalization rate
The percentage rate of return used in capitalization.
cash flow
The net spendable income from an investment, determined by the deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results.
cash-on-cash
The cash flow produced by a property divided by the amount of cash necessary to purchase it.
certificate of eligibility
Needed by a veteran in order to obtain a VA loan.
chain
A method of measurement; 66 feet.
chattel mortgage
A mortgage secured by personal property.
closing costs
The expenses incurred and paid at the time of settlement in the transferring of property.
co-borrower
An individual who shares responsibility for repaying a loan with the original borrower.
collateral
Property that is used as security on a loan.
commingle funds
To combine escrow funds in the same account with personal or business funds.
commission
Earnings based on a percentage of the total amount of sales.
commitment
A promise, or firm agreement, that may legally be relied upon by other parties, such as a loan commitment.
consideration
Anything of value given to induce another person to enter into a contract.
conventional loan
Commonly, any loan not insured or guaranteed by a government agency.
convertible
An ARM that may be converted to a fixed-rate loan
credit history
A summary of a person’s borrowing and repayment history.
credit report
A detailed report of an individual’s credit history prepared by a credit bureau and used by a lender to in determining a loan applicant’s creditworthiness.
credit unions
Member owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.
debt
Money owed.
debt service
Periodic payment of the principal and interest on a loan.
deed in lieu of foreclosure
Voluntary act by borrower and lender. Sometimes called a “friendly foreclosure.”
deed of trust
Used instead of a mortgage in some states.
default
Failure to pay back a loan.
depreciation
Decrease in the value of property due to natural economic factors. The opposite of appreciation.
direct capitalization
A method of converting an estimate of a single year’s income into value in one direct step.
discount points
A fee charged by the lender at settlement that results in increasing the lender’s effective yield on the money borrowed. One discount point equals one percent of the loan amount.
due-on-sale clause (alienation or call clause)
Gives the lender the right to call the entire loan balance if the property is sold or otherwise conveyed.
economic life (useful life)
The time remaining during which a property can be profitably and feasibly used.
economic obsolescence
A loss in property value brought about by external environmental or economic forces.
economic rent
The estimated income that a property should provide under current market conditions. It may be above or below actual rent.
effective yield
Calculation of the return on investment that considers price paid, the time held, and the interest rate.
equity
Market value of a property less the debt against it.
exculpatory clause
Clause in a lease that relieves the landlord of a liability for personal injury to tenants and for property damage, but does not protect the lessor from injuries to third parties. Also used in mortgages to restrict a borrower’s liability to a specific property.
Fannie Mae (FNMA)
Federal National Mortgage Association – A quasi-governmental private corporation whose primary function is to purchase and sell mortgages in the secondary mortgage market.
fair market value
Price a property should bring if a reasonable period of time is allowed to find a buyer and both parties are fully informed and neither party is under undue influence.
FHA loan
A loan insured by the Federal Housing Administration.
Freddie Mac (FHLMC)
(Federal Home Loan Mortgage Corporation) Provides a secondary mortgage market for residential mortgages written by federally chartered institutions.
functional obsolescence
A loss in property value brought about by defects in the design or structure of a building.
Ginnie Mae (GNMA)
(Government National Mortgage Association) An agency of HUD, whose principal objectives are in the area of government housing programs. It offers permanent financing for low-rent housing.
gross income
The total amount of money received from income property, before deducting expenses.
gross rent multiplier (grm)
A number that when multiplied by a property’s gross rents produces a rough estimate of the property’s worth.
home equity loan
A type of loan in which the borrower uses the equity in his or her home as collateral for the loan.
hypothecate
To use property as security for a debt without giving up possession of it.
inflation
A continuous rise in the price of goods and services.
installment sales method
Method of reporting gains on sale of property to spread out payment of taxes.
jointly and severally liable
Enforceable on the makers as a group and upon each maker individually.
leasehold value
The difference between the market value of a lease and what is being paid of the lease.
leverage
The use of borrowed funds to obtain the maximum percentage of return on one’s holdings.
liquid asset
An asset that can quickly be converted into cash.
lot-and-block description
A description of real property that identifies a parcel of land by reference to lot and block numbers within a subdivision, as identified on a subdivided plat.
maker
The person who signs a promissory note.
market price
The actual amount for which a piece of property is sold.
market value
The amount that a willing buyer would pay, or that a willing seller would take. Often substantially different from market price.
metes-and-bounds
A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using directions and distances around the tract, back to the point of beginning.
mill
One tenth of a cent, one-thousandth of a dollar ($.001).
millage rate
Rate per dollar of assessed valuation. The rate of real property taxes is often expressed as a millage rate.
mortgage, mortgagee, mortgagor
A pledge of property for security of a debt. The mortgagor gives the mortgage and is generally the present owner or buyer; he is the borrower (debtor). The mortgagee receives the mortgage and is the lender of funds (creditor).
mortgage banker, mortgage loan correspondent, mortgage company
A person or firm that specializes in originating and servicing mortgage loans, normally using money from other sources.
mortgage broker
A person who arranges or obtains mortgage financing for others.
mortgage insurance premium
One time lump-sum payment charged by FHA for insurance when loan is made.
negative amortization
A situation wherein a loan payment is insufficient to pay the interest due and the excess is added to the balance owned.
neighborhood
A section of a town or city.
net income
The amount of income left after deducting operating expenses from gross income.
net operating income
Gross income less operating expenses, vacancies, and collection losses.
note
A signed instrument acknowledging the existence of a debt and the promise to pay.
obsolescence
The state, process, or condition of being or becoming obsolete.
operating expenses
Costs involved in operating a business, such as rent, utilities, and salaries.
origination fee
Service fee for processing a loan. Not considered interest.
parcel
Part of a larger tract of real estate.
physical depreciation
A decline in property value due to time and the action of the elements; physical deterioration.
physical deterioration
The loss in value due to wear and tear of the structure.
P.I.T.I.
(principal, interest, taxes, and insurance)
Most residential mortgage payments include the above and are therefore referred to as P.I.T.I.
plat map
A map of a town, section, or subdivision indicating the location and boundaries of individual properties. Also called a subdivision plat.
plottage
The appraisal principle that holds that merging separately owned pieces of property into one large single lot will increase the value of the separate pieces.
PMI (private mortgage insurance)
Insures top 20%-25% of a loan to protect lender against losses.
point
One percent of the principal or face amount of a mortgage.
prepayment penalty
A stipulated (normally expressed as a percentage of the balance) for prepayment of a mortgage.
promissory note
A written evidence of a debt, together with the promise to repay.
prorate
To allocate according to one’s interest or share.
Real Estate Settlement Procedures Act (RESPA)
A federal law that deals with procedures to be followed in certain types of real estate closings.
Regulation Z (truth in lending)
A federal law requiring certain disclosures when extending or advertising credit.
reverse mortgage
The lender makes payments to a homeowner who later repays in a lump sum.
sales comparison approach
Process of estimating the value of property through examination and comparison of actual sales of comparable properties.
satisfaction of mortgage
An instrument that acknowledges the full payment and completion of all terms of a mortgage.
scarcity
Limited quantities of resources; a lack of supply.
secondary mortgage market
A market created to provide liquidity for mortgage financing.
securities and exchange commission
An independent agency of the government that regulates financial markets and investment companies.
settlement agent
Person who collects all the funds necessary to close the transaction and disburses the funds to the appropriate parties.
special assessment
A special tax levied to pay for a specific improvement, such as sidewalks, sewers, etc.
stigmatized property
A property that has acquired an undesirable reputation due to an event that occurred on or near it, such as a violent crime.
subordination
A process in which the holder of a superior mortgage agrees to give up his priority position.
subrogation
The substitution of one creditor for another, as in the selling of a mortgage.
tax sale (tax certificate) (tax deed)
A sale, normally an auction of property that is in default of taxes assessed against it. Title to the property is passed by a tax certificate or tax deed; the exact procedure varies from state to state.
term loan
A loan requiring interest-only payments until the maturity date (due date) at which time the entire principal is due.
trust, trustor, trustee
A property interest held by one person or entity for the benefit of another. The trustor is the creator of the trust; the trustee is the administrator; the beneficiary receives the income or benefits of the trust.
useful life
The estimated or useful life of a property.
usury
The lending of money at greater than the maximum rate allowed by law.
uniqueness
A physical characteristic of real estate referring to the fact that each parcel of land, each building, and each house is said to be different.
VA loan
A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs.
value (valuation)
The estimated worth of a property as measured by its capacity to command other goods in exchange.
variable rate mortgage
A mortgage on which the interest rate rises and falls with changes in prevailing interest rates.
yard
3 feet.
yield
The dollar amount of income realized on an investment. Yield is expressed as a percentage of principal: Annual Yield (%) = net annual return invested principal
