A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest. As time goes on, each successive payment allocates a larger portion to principal reduction and a smaller portion to interest payment until the outstanding balance is ultimately reduced to zero. If the loan has a fixed rate of interest, each payment is the same dollar amount throughout the course of the loan. If the loan has an adjustable rate of interest, each payment at each particular interest rate is the same dollar amount. For example, while the interest is 8.0%, all of the payments on a $100,000 loan for 30 years will be $733.77. If the interest rate changes to 9.0%, all of the payments will be $804.62 while the rate remains at the 9.0% rate.
There are several types of appraisals depending on the goal. Values needed for multi-unit and commercial real estate are primarily based on the net operating income (or the potential net operating income) of the property. The appraised value of a property is an estimate of the market value at a given point in time and is typically performed by a licensed, independent real estate appraiser. (See the definition of net operating income below).
The outstanding dollar amount owed on a loan. Also referred to as loan balance or mortgage balance.
An installment payment which is larger (most often much larger) than the other scheduled payments. It is usually the last payment. If a note is written for $50,000 at a fixed 9.0% rate of interest with payments based on an amortization schedule of 30 years and a balloon payment due in 5 years, the first 60 payments will each be $402.31 (the normal payment for a 30 year loan at 9.0% interest) and the last payment will be $47,940.15 which will be the outstanding balance remaining after the 60th payment.
The net operating income minus the total of all debt service payments. (See definition of "net operating income" below.)
The formal meeting where loan documents are signed and funds disbursed.
The expenses which borrowers incur to complete the loan transaction. These costs may include title searches, title insurance, closing fees, recording fees, processing fees and other charges.
DOTs are similar to mortgages in that they serve as security for a loan by encumbering real estate. However, a mortgage is between two parties (borrower and lender) and a deed of trust involves three parties (borrower, lender and trustee). The trustee holds the property in trust as security for the payment of the debt and can sell the property if the borrower defaults.
Failure to meet all of the commitments and obligations specified in the mortgage or deed of trust. Defaults usually give the lender the right to accelerate payments and start foreclosure.
An account from which funds can be disbursed only for specified reasons; i.e. the money is held in trust for a specific use. In lending, these accounts are most often used to hold and disburse real estate taxes and hazard insurance premiums which have been paid in advance (usually on a monthly basis) by the borrower.
An obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted.
That mortgage which is recorded at the earliest time. The time of recording is the sole criteria. Size of loan and type of mortgage are immaterial. When the first mortgage is paid off and released, the second mortgage (if any existed) becomes the first mortgage.
The process by which the mortgagor's (borrower's) rights to a property are terminated. While the general process is similar from state to state, the actual procedures tend to vary greatly.
A loan that is underwritten with the condition and value of the property as the primary criteria for approval. Secondary issues may include the credit of the borrower, the ability of the borrower to repay the loan and/or the ability of the borrower to manage the property or successfully complete a rehab and sell the property. Owner occupancy, debt ratios and other issues are seldom a factor. Appraisals rather than purchase prices are used to determine value. Cash out purchases are often allowed and are another key benefit. These loans are usually approved within days and are often funded in two weeks or less. Times as short as two or three days are not uncommon. The cost for the benefits of speed of funding and other advantages is typically a moderately high interest rate (usually low to mid teens) and high points (usually 5 to 10). (See definition of " underwriting" below.)
Insurance to provide compensation if the improvements are damaged or destroyed. It is almost always a requirement of loans.
The percentage of the loan amount charged for borrowing money; i.e., the cost of the money expressed as a percentage.
A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic's liens, mortgages and unpaid taxes.
The ratio of the size of the loan to the value of the property. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000 / $100,000).
The organized group of documents that contains all of the information required to obtain an underwriting decision of loan approval or loan denial. Depending on the type of loan and the particular lender, a package may contain some or all of the following as well as other documents: loan application, statement of use of funds, statement of net worth, P & L statements, tax returns, pay stubs, statements from various types of banking and investment accounts, property appraisal, letters of explanation, credit report, verification of employment, verification of housing payments, purchase agreement, etc. (See definition of "underwriting" below.)
A lien against real property given by a borrower to a lender as security for money borrowed.
The entity to whom the mortgage is given; i.e., the lender.
A loan which is secured by a mortgage lien filed against real property.
The entity who gives the mortgage; i.e., the borrower.
From income producing property, the gross income minus the total of all expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments.
A written promise to repay a certain sum of money on specified terms.
A fee paid to either a broker or a lender for originating a loan. It may be the only compensation for their work in arranging and/or processing the loan or it may be only a portion of the compensation. Not every loan has an origination fee.
An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers. The originator determines the type of loan a borrower probably qualifies for, helps complete an accurate application, gathers documents necessary to get an approval and acts as an intermediary between the borrower and the underwriter.
A fee charged for paying off a loan within a relatively short period of time after the loan has closed. This provision is currently found only in non-conforming products. The time period during which it applies is usually one to three years and the amount of the penalty is usually 1.0% - 3.0% of the original loan amount though other, more complicated formulas are sometimes used. These provisions are sometimes regulated by state law. If a $50,000, 15 year loan were paid off in six months on a loan that had a 1.0% prepayment penalty, the penalty would be $500 ($50,000 x 0.01).
The amount being borrowed.
The process of a borrower paying off one loan with the proceeds from another.
That mortgage which is recorded after one other mortgage has already been recorded (and has not yet been released). When the first mortgage is paid off and released, the second mortgage becomes the first mortgage.
A document which contains in an organized fashion all of the financial assets and liabilities of an individual or other entity.
An agreement to let an inferior lien (one filed later in time) take precedence (be considered as if it were in a superior position). It is not an uncommon for a lender considering a loan request for a large mortgage (particularly one that will refinance a first mortgage) to require that a second mortgage already in place remain, in effect, in second position through the use of a subordination agreement.
The length of time for which money can be borrowed.
The act of applying formal guidelines that provide qualitative and quantitative standards for determining whether or not a loan should be approved.
Return on investment (the rate at which an investment pays interest and/or dividends).
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