Real Estate Unit 12*

Real Estate Financing

Acceleration Claus

A provision in a loan agreement that allows the lender to demand full repayment of the outstanding loan balance if certain conditions are met, such as missed payments or bankruptcy of the borrower.

Adjustable Rate Mortgage (ARM)

A type of mortgage where the interest rate is adjusted periodically based on a specific index, affecting the monthly payments.

Alienation Clause

A provision in a mortgage contract allowing the lender to require full repayment if the borrower transfers ownership of the property without the lender's consent.

Amortized Loan

A loan where principal and interest are paid in regular installments over a specified term, resulting in the loan being paid off at the end of the term.

Assumption Of Mortgage

The transfer of a mortgage obligation from the original borrower to a new borrower, allowing the new borrower to take over the payments and terms of the existing mortgage.

Balloon Payment

A large final payment due at the end of a loan term after smaller periodic payments.

Beneficiary

The person or entity designated to receive benefits or payments from a trust or insurance policy, often associated with a mortgage in real estate transactions.

Comprehensive Loss Underwriting Exchange (CLUE)

An assessment of total financial loss, including both direct and indirect losses associated with a property.

Debt to Income

A service that provides access to claims history for properties to help insurers assess risk.

Deed in lieu foreclosure

A process where a borrower voluntarily transfers the title of their property to the lender to avoid foreclosure proceedings, thereby settling the mortgage obligation.

Deed of Reconveyance

A document used to transfer the title from a trustee back to the borrower once a loan is paid off, effectively clearing the mortgage from the property.

Deed of Trust

A legal document that secures a loan by transferring the title of the property to a trustee, who holds it as collateral until the borrower repays the loan.

Defeasance Clause

A clause in a mortgage or deed of trust that allows for the cancellation of the loan once it's been repaid in full, restoring the borrower's rights to the title.

Deficiency Judgment

A court order that allows a lender to collect the remaining balance owed on a loan after the property has been sold in a foreclosure, if the sale proceeds were insufficient to cover the debt.

Equity

The difference between the market value of a property and the amount owed on any liens against it. It represents the owner's financial interest in the property.

FICO Score

A three-digit number that represents a borrower's creditworthiness, based on their credit history and other financial behaviors. It is widely used by lenders to determine credit risk.

Foreclosure

The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments. This often involves selling the property at auction to recover the owed debt.

Growing-equity mortgage

A type of mortgage in which the monthly payments increase over time, allowing the borrower to pay down the principal more quickly while building equity.

Homeowners Insurance

A type of insurance that protects homeowners from financial losses related to their property, including damage or loss from events such as fire, theft, or natural disasters.

Hypothecation

The practice of pledging an asset as collateral for a loan without giving up possession of the asset. In real estate, it typically refers to using property to secure a mortgage.

Index

A statistical measure used to assess changes in economic conditions, typically influencing adjustable-rate mortgages.

Interest

The charge for the use of borrowed money, usually expressed as a percentage of the principal amount, which can affect mortgage payments.

Interest Only Loan

A type of mortgage where the borrower pays only the interest for a specified period, typically resulting in lower initial payments before the principal repayment begins.

Loan Origination Fee

A fee charged by lenders for processing a new loan application, often calculated as a percentage of the loan amount.

Loan to value ratio (LTV)

A financial term that compares the amount of a loan to the appraised value of the property, typically expressed as a percentage. This ratio helps lenders assess risk when approving a mortgage.

Margin

The difference between the interest rate on a loan and the index rate used to determine the loan's interest payments. It represents the lender's profit on an adjustable-rate mortgage.

Mortgage

A legal agreement in which a borrower receives funds from a lender to purchase real estate, secured by the property itself. The borrower agrees to repay the loan with interest over a specified period.

Mortgagee

The lender in a mortgage agreement who provides the funds to the borrower and holds the right to the property until the loan is repaid.

Mortgagor

The borrower in a mortgage agreement who receives funds from the lender to purchase real estate and pledges the property as collateral.

Negative Amortization

A situation where the loan balance increases because payments made are not enough to cover the interest due, leading to the borrower owing more than the original loan amount.

Negotiable Instrument

A financial document that promises a specific sum of money to a designated person or bearer at a set time, and can be transferred to others.

Note

A written promise to pay a specified sum of money to a designated party at a specified time, often secured by a mortgage.

PITI (principle, interest, taxes, and insurance)

The components of a monthly mortgage payment, which include the principal amount, interest on the loan, property taxes, and homeowners insurance.

Prepayment penalty

A fee charged to a borrower for paying off a loan early, which compensates the lender for lost interest income.

Promissory Note

A type of note that contains a written promise by one party to pay a specified sum of money to another party at a defined time, often used in real estate transactions.

Release Deed

A legal document used to release a property from a lien or mortgage obligation, effectively clearing the title for the owner.

Reverse Mortgage

A financial agreement allowing homeowners, typically seniors, to convert a portion of their home equity into cash, which must be repaid when the borrower moves out or passes away.

Satisfaction of Mortgage

A document that confirms a mortgage has been fully paid off and releases the lien on the property.

Short Sale

A real estate transaction where a property is sold for less than the amount owed on the mortgage, typically requiring lender approval to accept the sale proceeds as full satisfaction of the debt.

Straight Loan

A type of loan where the borrower pays only the interest for a specified period, followed by a lump sum payment of the principal at maturity.

“Subject to”

An arrangement where the buyer takes over the seller's mortgage payments without assuming personal liability for the loan, often used in real estate transactions.

Trustee

An individual or entity appointed to manage property or assets for the benefit of another party, often involved in trust arrangements or the administration of real estate transactions.

Trustor

The person who creates a trust and transfers assets into it, retaining the right to set terms for its distribution.

Usury

The illegal practice of lending money at excessively high-interest rates, violating state laws.