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Session 5
Financing Fundamentals
| Question | Answer |
|---|---|
| Assignment | The transfer if a tenants right of possession or other interest in leased property to another person for the remainder of the lease term |
| Conforming Loan | A loan that meets the qualifying standards established by fannie mae or freddie mac and thus can be sold on the secondary market |
| Consumer Credit Transaction | A transaction in which the buyer is acquiring the property for personal or family purposes |
| Conventional Loan | A loan that is not guaranteed or insured by a government agency |
| Credit Score | A numerical value assigned to different aspects of a borrowers credit history used by lenders to gauge creditworthiness and assess credit risk |
| Discount points/Buydown | An added loan fee charged by a lender to increase the yield on a lower than market interest rate loan and make it competitive with other higher interest loans |
| Estoppel Certificate | A legal instrument used by a lender so that beyond a certain date the borrowers agrees that the loan balance is correct if no dispute is made, and thus there is no defense to challenge it |
| Fannie Mae | Federal National Mortgage Association |
| FHA-Insured Loan | A mortgage loan insured by the federal housing administration that protects the lender against losses from default |
| Freddie Mac | Federal Home Loan Mortgage Corp |
| Floating Rate | Any type of debt instrument, such as a mortgage, that does not have a fixed rate of interest over the life of the instrument. |
| Ginnie Mae (GNMA) | Government National Mortgage Association -Issues Certificates guaranteeing FHA and VA loans -Operates the special assistance aspects of federally assisted low income housing |
| Loan Assumption | The process of one borrower taking over another borrowers existing loan |
| Loan Servicing | The ongoing process of collecting payments, keeping records, and handling defaults for loans. |
| Nonconforming Loan | A loan that does not meet the qualifying standards set by fannie mae and freddie mac and thus, cannot be sold on the secondary market |
| Non-Consumer Credit Transaction | A transaction in which the buyer is acquiring the property for business purposes as opposed to personal or family purposes |
| Novation | The release of liability of the original party to an agreement, for example, a borrower on note, and the substitution of a subsequent borrower with the approval of the lender. |
| Origination Fee | A fee charged by a lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount. |
| Portfolio Lender | Financial institutions that make real estate loans that they keep and service in-house instead of selling them on the secondary markets |
| Preapproval | The process by which a lender determines that potential borrowers can be financed through the lender for a certain amount of money. |
| Prequalification | The process by which an agent or lender reviews potential borrowers to determine if they are likely to get approved for a loan, and for approximately what amount. |
| Primary Mortgage Market | Lenders who originate loans directly to borrowers |
| Private Mortgage Insurance (PMI) | Insurance offered by private companies to insure a lender against a borrowers default on a loan |
| Rate Lock | A guarantee that the lender will deliver the negotiated interest rate if a loan closes by a specified date. |
| Reduction Certificate | A document in which a lender verifies the balance and terms of a loan. Also called letter of assumption |
| Secondary Mortgage Market | Private investors and government agencies that buy and sell mortgages |
| Subprime Loan | A loan with a higher interest rate than a conventional loan, generally due to the creditworthiness of the borrower or the size of the loan amount |
| Tax Service Fee | A charge to hire a tax service company to inform a lender when property taxes are due and payable. |
| Tri-Merged Credit Report | A single report that consolidates data from each of the three major consumer credit reporting agencies |
| Underwriting Fee | A charge imposed to underwrite a new loan |
| Uniform Residential Loan Application (URLA) | A standardized form from fannie mae or freddie mac that lenders require potential borrowers to complete with pertinent information about the borrower and the property |
| VA-Guaranteed Loan | A guaranteed loan made to eligible veterans through the department of veteran affairs for the purchase or construction of a home |
| Warehousing | The process of gathering loans together for sale to investors in the secondary market |
| Adjustable Rate Loan (ARM) | A mortgage loan that has an interest rate on the note that periodically adjusts based on an index that reflects the cost to the lender |
| Amortized (Fully Amortized) | Payment of debt in regular, periodic installments of principal and interest. |
| Balloon Payment | The last payment is larger than the monthly payments. |
| Basis Point | 1/100 of one percent, used chiefly when quoting interest rates |
| Blanket Loan | A loan secured with more than one property when building a subdivision. |
| Budget Loan | A loan where Payments cover PITI (Principal, Interest, Taxes, Insurance) |
| Construction Loan (Intermin Loan) | A loan in which funds are advanced to the builder/borrower in installments as construction progresses. These are short term loans with interest only payments |
| Equity | Value of property- Outstanding mortgage |
| Gap Loan | A short term loan on existing property that is for sale to allow the owner to borrow funds for a down payment to buy another property. |
| Hypothecate | To pledge as security |
| Interest | A charge a borrower pays to a lender for use of lenders money |
| Leverage | An Increase in the rate of return on an investment through using borrowed money (Using other peoples money) |
| Negative Amortization | The monthly payments are less than the interest due. (A loan where your balance gets bigger over time) |
| Non-recourse Loan | A loan in which the borrower is not held personally liable for the debt |
| Open-End Loan | A loan that allows a borrower to borrow more funds with the same loan |
| Package Loan | A loan that includes both real property and items of personal property |
| Principal (Loan) | The amount of a debt excluding interest due |
| Purchase Money Loan | A loan to a buyer from the seller as a portion of, or for the entire amount of, the purchase price of a property. |
| Reverse Annuity Loan (RAM) | The lender makes monthly payments to the borrower, also called a reverse equity mortgage or reverse mortgage. This is an FHA insured loan for homeowners aged 62 and older. |
| Straight Loan | A loan where the borrower pays interest only payments during the term of the loan with principal due at maturity |
| Take Out Loan | Normal long term financing replacing and paying off a construction loan |
| Wraparound Loan | A second loan "Wrapped around" a first loan. |
| Yield | Return/ Profit |
| Promissory Note | A personal promise from a borrower to repay the debt to the lender. |
| Usury | Charging more than the rate set by law |
| Trust Deed (Mortgage) | Names the property as collateral for the debt. |
| Acceleration Clause | This allows the lender to declare the loan balance immediately due and payable if the borrower defaults |
| Underwriting | The process of evaluating and deciding whether to make a new loan |
| Novation | The process of the lender rewriting the terms of an existing loan, substituting the buyer as the debtor, and releasing the seller from liability |
| Jumbo Loan | A nonconforming loan that exceeds the maximum dollar limits set by fannie mae or freddie mac. |
Created by:
Baayangle
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