Financing Flashcards
(43 cards)
PITI
principal, interest, taxes,
and insurance
Lender Considerations
credit report,
credit score (FICO Score),
percentage of debt to income (DTI)
Equity
The difference between the amount owed on a property and its current market value
Mortgage Loans require 2 instruments:
- financing instrument
- security instrument.
Promissory Note
(Financing Instrument)
a contract with a lender that
sets out the terms under which a borrower promises to repay a debt
Negotiable Instrument (transferrable)
Interest
a charge for the use of money
Usury
charging an excessive rate of interest
Most home loans are exempt from usury laws
Discount Points
a percentage of a loan amount and are charged by a lender to increase the lender’s yield on its investment.
Pre-payment penalty
Charged when borrower pays loan off early
Hypothecation
A home mortgage loan is secured by the borrower’s real property
The borrower retains the right of possession and control of the property. The security agreement can be either a mortgage or deed of trust.
Mortgage
the mortgagor (owner) borrows money from the mortgagee (lender), and the
real estate purchased with the borrowed money is used as security for the debt.
Deed of Trust
transfers title from the trustor (property owner) to a trustee, who holds it on
behalf of a beneficiary (lender).
Defeasance Clause
When mortgage is paid in full, requires the lender to execute a
satisfaction (release or discharge) that is recorded to clear title.
If a borrower defaults:
lender can accelerate the due date of the remaining principal balance and all other payments
and costs.
Where is deed of trust recorded?
in the county in which property is located
The trustor transfers legal title to the trustee but:
retains equitable title and has the right to possession and use of the mortgaged property
Deed of Reconveyance
When the loan is paid in full, a defeasance clause requires the beneficiary to request the
trustee to execute and deliver to the trustor a deed of reconveyance (release deed) to return legal title to the trustor.
deed of trust with power of sale
If the borrower continues in default, a deed of trust with
power of sale allows the beneficiary (lender) to ask the trustee to conduct the trustee’s sale without court action.
Mortgage with power of sale
enables a sale without court action.
Escrow (Impound) Account
may be required to create a reserve fund to ensure that future tax, property insurance, and other payments are made.
National Flood Insurance Reform Act of 1994
imposes obligations on lenders and loan servicers to set aside escrow funds for flood insurance on new loans for property in flood-prone areas.
When property with an outstanding mortgage or deed of trust is conveyed, the new owner may take title in one of two ways, if allowed by the loan document:
. “Subject to” —the new owner makes payments on existing loans but is not personally
liable if the property is sold on default and proceeds of the sale do not satisfy debt. “Subject to” is no longer in use.
- Assuming the existing mortgage or deed of trust and agreeing to pay the debt—the new owner takes personal responsibility for existing loans and is subject to a deficiency judgment if the property is sold on default and proceeds of the sale do not satisfy the debt.
Alienation Clause (Due-on-sale Clause)
requires full payment on the
sale of the property and can prevent future purchasers of the property from assuming the loan.
Priority of mortgages and other liens is determined by
the order they were recorded
