16. Real Estate Financing Practice

Unit 16. Real Estate Financing: Practice

Adjustable-Rate Mortgage (ARM)

A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index

Amortized Loan

A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan

Balloon Payment

A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Blanket Loan

A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.

Buydown

A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or the seller to buy down or lower the effective interest rate paid by the buyer, this reducing the monthly payments for a set time.

Certificate of Reasonable Value (CRV)

A form indicating the appraised value of a property is being financed with a VA loan

Community Reinvestment Act (CRA)

Under the act, financial institutions are expected to meet the deposit and credit needs of their communities; participate and invest in local community development and rehabilitation projects; and participate in loan programs for housing, small businesses, and small farms.

Construction Loan

A short-term loan usually made during the construction phase of a building project.

Conventional Loan

A loan that requires no government insurance or guarantee

Equal Credit Opportunity Act (ECOA)

The federal law that prohibits discrimination in the extension of credit based of race, color, religion, national origin, sex, age, or marital status.

Fannie Mae

A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage markets from the primary lenders.

Federal Reserve System (the Fed)

The country’s central banking system, which controls the nation’s monetary policy by regulating the supply of money and interest rates.

FHA Loan

A loan instituted by the Federal Housing Administration and made by an approved lender in accordance with the FHA’s regulations.

Freddie Mac

A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

Ginnie Mae

A government agency that plays an important role in the secondary mortgage market. It sells mortgage-backed securities that are backed by pools of FHA and VA loans.

Growing Equity Mortgage (GEM)

A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shortening the overall term of the loan.

Home Equity Loan

A loan under which a property owner uses his residence as collateral and can then draw funds up to a prearranged amount against the property. Also called a line of credit.

Loan-to-Value (LTV) Ratio

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Mortgage Insurance Premium (MIP)

An up-front premium charged at closing for all FHA loans.

Mortgage Loan Originator (MLO)

Anyone who, for compensation or expectation of compensation, takes a residential mortgage loan by phone or in person.

Open-Ended Loan

A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.

Primary Mortgage Market

The mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings and loan associations, and mutual savings banks.

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of foreclosure or deficiency.

Purchase Money Mortgage (PMM)

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

Real Estate Settlement Procedures Act (RESPA)

The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees.

Reverse Mortgage

A loan under which the homeowner receives monthly payments based on their accumulated equity rather than a lump sum. The loan must be repaid at a prearranged date or on the death of the owner or the sale of the property.

Secondary Mortgage Market

A market for the purchase and sale of existing mortgages, designed to provide greater liquidity for mortgages.

Secure and Fair Enforcement Mortgage Licensing Act of 2008 (SAFE Act)

Act requires that each individual state must license and register morthahe loan originators (MLOs).

Straight loan

A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment. Also called a term loan.

Trigger Terms

Specific credit terms that may not be advertised unless the advertisement includes other detailed information

TRID (TILA RESPA Integrated Disclosure Rule)

Rule that implements provisions of the Dodd-Frank Act intended to combine and clarify financing disclosures to customers.

Truth in Lending Act (TILA)

Federal legislation that allows the government to regulate lending practices of mortgage lenders. Often called Regulation Z.

VA Loan

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veteran Affairs to limit the lender’s possible loss.

Wraparound Loan

A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender.