TX Real Estate Section 2

Amoritization

The repayment of a loan principle over time

Arrears

Payment for an item or service after it's received

Down Payment

The initial payment made when buying something on credit, a ____________ is paid directly by the buyer to the seller

Proration

The allocation or distribution of an annual expense across smaller chunks of time

Appraisal

The value of property, based on factors determined by a certified appraiser

General data

Information about the area surrounding a property, this could include the city, region, and neighborhood in which the property is situated

Specific data

Information regarding the property itself

Limited appraisal

A simple, abbreviated version of a regular appraisal

Market value

The price for which a property would sell if offered openly under normal conditions. This refers to the economic principle, it's the price that a buyer and seller would probably accept

Appraised value

Refers to the value given by a licensed appraiser during the mortgage origination process. Appraisers are chosen by the lender but paid for by the homebuyer.

Assessed value

Refers to the value placed on a property by a governmental unit for use in levying annual real estate taxes

Loan-to-Value Ratio (LTV)

The limit on the value of a loan, usually a certain percentage of the home's appraised value or sales price, whichever is lower

Subject property

The property that is being evaluated in any given appraisal

Highest and best use

What is achieved when a property is used for the most appropriate purpose with the highest returns

Principle of anticipation

The present value of a property is affected by the anticipated income or utility that property will give to the property owner

Principle of contribution

A property's overall value is made of the combined value of each of its parts

Principle of substitution

The value of something is effected by the cost of getting a similar (substitute) item elsewhere

Principle of change

The condition of a property, the desirability of its location, and the market in which it exists can always change

Principle of conformity

Values are the highest when houses in a neighborhood look roughly the same

Principle of regression

Lower value properties surrounding a subject property are can drag down the value of a property

Principle of progression

Higher value properties of a subject property can bump of the value of a property

Sales comparison approach

Determining value by comparing the subject property to similar properties ("comps") that have sold recently. It's most commonly used for single family residences.

Cost approach

Determining value by considering how much the same property would cost to build brand new at current prices (replacement cost), then adjusting for depreciation

Income approach

Determining value by considering how much income the property would generate when used as rental property

Depreciation

The loss of value because of obsolescence or deterioration

Functional obsolesce

Loss of value because a property's function or appearance has gone out of style or has been replaced by a more appealing version

External Obsolence

Loss of value caused by negative forces outside the property which are beyond the control of the owner (unfavorable changes in the environment or market)

Deterioration

Loss of value caused by physical wear and tear over time

Chronological age

The literal age of a property; a home built 30 years ago has a ________________ age of 30

Effective age

An estimated age that is influenced by the updates and quality of maintenance of the property; a 30 year house that has been well cared for might have an effective age of 15

Reconciliation

When an appraiser compares estimates using different techniques (cost approach, sales approach, and/or income approach) and comes to a single number for value

Appraisal report

a report from a licensed appraiser that sums up a property's market value based on collected data

Appraisal review

a review of the appraisal report to make sure the appraisal meets the lender's standards

Desk review

When a lender carries an appraisal review at the desk (as opposed to sending someone to the field) to make sure the original appraisal is accurate

Field review

When a third party appraiser is sent back out to the property to check the validity of the first appraisal

Fair market value

The price for which a property will sell if offered openly under normal market conditions

Subject property

The property that is subject of the CMA

Comparative market analysis

Also known as a CMA, this is a report generated by a license holder that compares prices of recently sold homes (comparables) in order to estimate the fair market value of a similar property (the "subject property")

Government sponsored enterprises

Publicly traded institutions that were created by Congress to provide liquidity, stability, and affordability to the mortgage market

General Agricultural Mortgage Corporation

A government-sponsored enterprise (GSE) providing a secondary market for agricultural and rural mortgage loans; also known as Farmer Mac

Depository lenders

Institutions that make mortgage loans from funds derived from their customers' savings accounts

Saving associations

Specialize in long-term residential loans; primary function is to promote thrift and home ownership

Federal Home Loan Bank System

eleven private, wholesale regional U.S. banks chartered to regulate member organizations, set reserve requirements establish discount rates, and provide insurance or depositors

Federal Deposit Insurance Corportation

created by Congress in 1933 to insure deposits, supervise financial institutions, make large financial institutions resolvable, and manage receiverships

Commercial banks

designed to be sage depositories and lenders for a multitude of commercial banking activities, relying mainly on demand deposits (checking accounts) for their basic supply of funds

Credit unions

provide members with a source of funding for personal property and, more recently, real estate mortgage loans

Savings banks

Play an active and important role in local real estate financing activities, providing long-term mortgage loans with funds derived from customer savings accounts

Life Insurance Companies

prefer investments in large projects such as shopping centers as opposed to smaller loans for home mortages and construction loans

Mortgage bankers

not bankers in the traditional sense, but as private entrepreneurs, their income is derived from fees received for originating and servicing real estate loans

Mortgage brokers

bring together borrowers and lenders and earns a fee for that service

Fannie Mae

a government-sponsored enterprise created to act as a secondary mortgage market facility that could purchase, hold, and sell FHA-insured loans

Freddie Mac

a government-sponsored enterprise created in 1970 to further support the secondary mortgage market, specifically to support smaller thrift banks

Ginnie mae

a Government National Mortgage Association is a government-owned entity that supports the secondary mortgage market by guaranteeing timely payment of principal and interest on privately issued mortgage-baked securities (MBS) collateralized by FHA, VA, or other government -insured or guaranteed mortgages

Balloon payment

a payment made at the mortgage term's end that is comparatively much larger than the payments that preceded it

Pre-qualifications

the first step in the loan application process where lenders take prospective borrowers at their word and give borrowers a general estimate of the amount for which they will be approved

Pre-approval

the second step in the loan application process where lenders thoroughly review the borrower's qualifications and, if approved, offer a pre-approval letter indicating the borrower's ability to obtain financing

Loan approval

the final step in the loan application process, here lenders review the borrower's credit-worthiness and the value of the property

Fixed-rate

when the interest rate does NOT change over the life of a loan

Adjustable-Rate

when the interest rate can change over the life of the loan; adjustable-rate mortgages are known as "ARMs"

Flexible-Payment Loan

a specific type of adjustable rate mortgage that starts with a lower payment for the first several years then shifts to larger payments for the remainder of the term

Balloon payment loan

employs periodic payments that will not fully amortize the loan, thereby requiring a final payment that is larger than previous payments

Interest-Only loans

a type of balloon payment loan that calls for periodic payments of interest. the principal is to be paid in full at the end of the term as a balloon payment

Conventional loan

a loan that is not underwritten by any agency of the federal government

Government-backed Loan

a loan that is insured guaranteed, or provided by any government agency

Loan-to-value Ratio

a ratio of debt to value of the property

Nonconforming Loan

loans that do not meet Fannie Mae/Freddie Mac guidelines

Texas Veterans Land Board (VLB)

a division of the General Land Office of Texas that administers three programs to assist Texas veterans in purchasing a principal residence and/of land and in financing home improvements

Texas Bootstrap Loan Program

a self-help housing construction program that provides very low-income families (owner-builders) an opportunity to purchase or refinance real property on which to build new housing or repair their existing homes

Veterans Land Loan Program

a program that gives Texas veterans the opportunity to borrow up to 150000 to purchase land at competitive interest rates while typically requiring a minimum 5% down payment for tracts of one acre or more, only one of its kind in the nation

Targeted Area

a census tract in which 70% or more of the families have incomes that are 80% or less of the statewide median income or an area of chronic economic distress

Federal reserve

the nation's central bank operates to maintain sound credit conditions, help counteract inflationary and deflationary trends, and create a favorable economic climate

Federal funds rate

rate banks charge other banks to lend money - the Fed indirectly controls this rate

Discount rate

rate the Fed charges banks to lend money - the Fed directly controls this rate

Prime rate

rate banks charge their most credit-worthy customers. This rate is strongly influenced by the federal funds rate and discount rate

Open market operations (OMOs)

the purchase and sale of securities in the open market by a central bank

Graduated Payment Mortgage

a fixed-rate mortgage that has a lower initial interest rate in its first years, but includes gradual increases each year

Bridge loan

short-term loans used to transition from one loan to another, can connect borrower from their current construction loan to their eventual mortgage loan (or present home to their new home)

Wraparound loan

like a bridge loan, enables a borrower to obtain additional financing from a second lender without paying off the first loan - gives borrower new, increased rate at higher interest rate and assumes payment of existing loan

Subprime mortgage

a mortgage with an interest rate higher than the rates of prime mortgages due to the higher risk associated with a less qualified borrower

Predatory lending

the act of a lender putting their welfare above that of their borrowers

Three-Day Right of Rescission

the right of a borrower via Regulation Z of the Truth in Lending Act to rescind the transaction within three days by notifying the lender

Equal Credit Opportunity Act (ECOA)

law prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance

Usury laws

laws that limit interest rates

Police power

a government's constitutional right to regulate an individuals conduct or property to protect the health, safety, welfare, and morals of the community

Zoning

the division of land within a jurisdiction into separate districts within which uses are permitted, prohibited, or permitted with conditions

Variance

permission granted by the government so that property may be sued in a manner not allowed by the current zoning

Building codes

sets of regulations pertaining to building design, materials, safety, sanitation, and structure

Eminent domain

the power of government or public entity to take private property for public use without consent of the property's owner

Condemnation

the governmental act of seizing private land through exercise of power of eminent domain

Escheat

the legal doctrine by which the decedent's property will pass to the state without their consent if that individual dies without a will, a surviving spouse, lineal descendants, or other known heirs

Interstate

describes someone who dies without a will; their estate will be distributed to surviving heirs according to the law of descent

Deed restrictions

non-governmental limitations that control the land's use

Property report

document that contains all essential info about a property, such as distance over paved roads to nearby communities, number of homes currently occupied, soil conditions, affecting foundations and septic systems, type of title a buyer will receive, and existence of liens

Remediation

the reversing or stopping of environmental damage, such as mold remediation

Comprehensive Environmental Response, Compensations, and Liability Act (CERCLA)

1980 act that created a process for identifying potential responsible parties of environmental damage and ordering them to take responsibility for the cleanup action

Property manager

a real estate license holder who oversees the day-to-day operation of a property for its owner

Resort homes

a home in which the owner usually does not live in on a full-time basis, and the length of ownership as compared to a residential home is usually much shorter

Investment property

a property purchased primarily or exclusively for investment purpose rather than as a place to live

Improvements

any permanent attachment to land that increases its value or increases its useful life. That would include building, private roads, planted trees, etc.