Unit 12 Flashcards
PITI
Principal
Interest
Taxes
Insurance
What will be considered by the lender?
Credit report, credit score, debt to income ratio
Equity
The difference between the amount owed on a property and its current market value
A mortgage loan requires 2 instuments
Financing instrument and security instrument
Promissory note
as a fincancing instrument, is a contract with a lender that sets out the terms under which a borrower promises to repay a debt. Negotiable instrument that can be transferred to a third party
Interest
A charge for the use of money
Usury
An excessive rate of interest. Most home loans are exempt
Discount points
Percentage of a loan amount and are charges by a lender to increase the lender’s yield on its investment.
Prepayment Penalty
Hypothecation
Process a mortgage is secured by the borrower’s real property. Borrower retains the right of possession and control of the property.
Mortgage
The mortgagor (owner) borrows money from the mortgagee (lender) and the real estate purchased with the borrowed money is used as security for the debt
Deed of trust
Transfers title from the trustor (owner) to a trustee, who holds it on behalf of a beneficiary (lender)
Defeasance Clause
When loan is paid in full, requires the beneficiary to request the trustee to execute and deliver to the trustor a deed of reconveyance (release deed) to return legal title to the trustor
Deed of trust with power of sale
If borrower continues to default, allows beneficiary (lender) to ask the trustee to conduct the trustee’s sale without court action
Mortgage with power or sale
Enables a sale without court action
If borrower defaults, lender can accelerate the due date of the remaining principal balance and all overdue costs
Impound (escrow) account
May be required to create a reserve fund to ensure that future tax, property insurance, and other payments made.
National Flood Insurance Reform Act of 1994
Imposes obligations on lenders and loan servicers to set aside escrow funds for flood insurance on new loans for property in flood-prone areas
When property with an outstanding mortgage/deed is conveyed, the new owner may take title in one of two ways
1) “subject to”- the new owner makes payments on existing loans but is not personally liable if the property is sold on default and proceeds of the sale do not satisfy debt
2) ASSUMING existing mortgage/deed and agreeing to pay the debt. New owner takes personal responsibility for existing loans and is subject to a deficiency judgement if the property is sold on default and proceeds of the sale do not satisfy the debt
Alienation clause/ due-on-sale clause
in a loan document requires full payment on the sale of the property and can prevent future purchasers of the property from assuming the loan
Priority of mortgages
Determined by order in which they were recorded. May be changed by subordination agreement
Subordination agreement
Amortization
Straight loan
Interest only loan
