Chapter 5- Real Estate Finnancing

Acceleration Clause

A part of a loan agreement that lets the lender ask for all the money back sooner if the borrower doesn’t meet certain conditions.

Alienation Clause

A rule in a mortgage that allows the lender to demand full payment if the owner sells the property.

Assignment of Mortgage

A document that shows when a mortgage is given from the original lender or borrower to someone else.

Assumption of Mortgage

When one person takes over another person's home loan with the same terms; used to save money when interest rates were very high.

Buydown

A method to lower a borrower's interest rate temporarily or permanently, making it easier to qualify for a loan.

Discount Points

Payments made to lower the interest rate on a loan, where one point equals 1% of the loan amount.

Foreclosure

The legal process where a lender takes possession of a property when the borrower stops making payments.

Real Estate Owned (REO)

A term for a property that a bank owns after taking it back due to foreclosure.

Judicial Foreclosure

Foreclosure that happens through the court system.

Nonjudicial Foreclosure

Foreclosure that occurs outside of court because of a specific clause in the mortgage allowing it.

Strict Foreclosure

The process of seizing personal property that has a specific interest attached to it.

Deed in Lieu of Foreclosure

A friendly way to give the property back to the bank without going through a full foreclosure.

Loan Origination Fee

A fee charged by a lender for starting the loan process, usually a percentage of the loan amount.

Prepayment Penalty

A fee some lenders charge if the borrower pays off their mortgage early.

Promissory Note

A written promise to pay a specific amount of money at a certain time.

Satisfaction of Mortgage

A document confirming that a mortgage has been fully paid off.

Short Sale

A sale of property where the selling price is less than what the borrower owes, under a program forgiving certain debts.

Usury

The practice of lending money at illegal or overly high-interest rates.

Mortgage

A loan that helps you buy a home. The bank lends you money, and you pay it back over time with interest.

PITI

A short way to remember the four parts of your monthly home payment: Principal (loan payment), Interest (the cost of borrowing), Taxes (property taxes), and Insurance (home insurance).

Principal

The part of your mortgage payment that reduces the total amount you owe on the loan.

Interest

The extra money you pay the bank for lending you money.

Taxes

Fees you pay based on the value of your property, included in your monthly mortgage payment.

Insurance

Money you pay to protect your home from damages, also included in your monthly payment.

Escrow Account

A special account where your taxes and insurance money is kept until it's time to pay those bills.

Credit Score

A number that shows how good you are at paying back borrowed money, ranging from 300 to 850.

Loan to Value (LTV)

How much money you borrow compared to the price of the home.

Down Payment

The initial amount of money you pay when buying a home. It's the price minus what you borrow.

Appraisal Value

The value determined by the bank to ensure you're not paying too much for your home.

Debt to Income (DTI)

A way to see how much money you can borrow based on your income and existing debts.

28% Housing Debt Limit

The maximum amount of your monthly income that can go toward housing costs (like the mortgage payment).

36% Overall Debt Limit

The most of your monthly income that can be used for all debts, including your mortgage and other loans.

Mortgage Factor Chart

A tool that helps you figure out how much your monthly loan payments will be for different loan types.

Interest Rate Factor

The cost you'll pay each month for borrowing $1,000, based on the interest rate and loan length.

Amortized Loan

A loan where you pay back a fixed amount every month, covering both the money you borrowed and the interest.

Conventional Mortgages

Loans from banks or credit unions that aren't backed by the government and usually have stricter rules for getting approved.

Private Mortgage Insurance (PMI)

Extra insurance you pay if you put less than 20% down when getting a conventional loan.

FHA Insured Loans

Loans backed by the government for people with lower incomes, allowing smaller down payments and easier credit requirements.

VA Guaranteed Loans

Loans that are backed by the government to help veterans and their families buy homes with little or no down payment.

Certificate of Reasonable Value (CRV)

An estimate by an appraiser of how much a VA house is worth, which limits the amount of the loan.

USDA Loans

Loans for buying homes on farms or in rural areas, offered to people in smaller communities.

Adjustable-Rate Mortgage (ARM)

A type of loan where the interest rate can change over time, affecting your monthly payments.

Negative Amortization

When the payments you make don't cover all the interest, so the loan amount actually increases.

Straight Loan

A loan where you only pay interest during the term and then pay back the whole amount you borrowed at the end.

Construction Loan

A short-term loan to cover the costs of building a house before you get a permanent loan.

Balloon Payment Loan

A type of loan where you pay smaller amounts for a while, but at the end, you have to pay a big lump sum called a balloon payment.

Blanket Loan

A loan that helps buy more than one piece of property, often used by builders to develop large areas of land.

Bridge Loan

A short-term loan to cover expenses until you get a longer-term loan or sell an existing property.

Growing Equity Mortgage

A loan where the monthly payments go up over time, which helps you build home equity faster.

Home Equity Loan

A type of loan where you borrow money using the value of your home as collateral.

Open-End Loan

A loan where you can borrow more money later up to a certain limit.

Owner Financing

When the person selling a home loans you money to help you buy it, instead of using a bank.

Package Loan

A loan that lets you buy both a property and personal belongings that come with it.

Reverse Mortgage

A loan for older homeowners that lets them take money from their home value without making monthly payments.

Sale and Leaseback Loan

A deal where a company sells an asset and then leases it back right away, becoming the tenant.

Federal Reserve System

The Federal Reserve, or The Fed, is the central bank of the U.S. that helps manage the economy.

Monetary Policy

The actions the Fed takes to help keep jobs available, prices stable, and interest rates reasonable.

Financial System Stability

This is what the Fed does to keep the financial system safe by watching for risks.

Consumer Protection and Community Development

The Fed helps protect consumers and encourages community growth and development.

Primary Mortgage Market

The place where people can get mortgage loans directly from lenders.

Primary Lenders

These are banks, brokers, or credit unions that provide loans in the primary mortgage market.

Secondary Mortgage Market

A market where mortgage loans are sold, helping free up cash for new loans.

Government-sponsored enterprises

Fannie Mae, Freddie Mac, and Ginnie Mae are key players in the secondary mortgage market.

Fannie Mae

This organization buys and sells mortgages, helping people get home loans.

Freddie Mac

Similar to Fannie Mae, but mostly deals with conventional loans.

Ginnie Mae

Focuses on loans that help those who need extra assistance.

Farmer Mac

This entity helps with loans for farmers and agricultural businesses.