Flashcards in Vocabulary Letter D Deck (22):
one who holds real property primarily for sale to customers, merchandise is inventory and gain on sale is treated as ordinary income.
Debt Coverage Ratio (DCR)
A ratio used in underwriting loans for income producing property which is created by dividing net operating income by total debt service. Ratios of at least 1.10 are generally required with ratios of 1.20 and higher considered the norm. (See definition of "underwriting" below.).
Debit Ratio (DR, D:I)
Also known as debt to income. The ratio of the total of minimum monthly debt payments to gross monthly income. If minimum monthly payments on a credit card, auto lease, and mortgage (PITI) were $30, $220 and $750 respectively and the gross monthly income was $3000, the debt ratio would be 33.33% ($1000 / $3000). Only debt obligations that will be in place after the loan has funded are considered. Payments for food, utilities, entertainment, medical bills, etc. are not included in the calculation. Contractual obligations for rent (e.g., a lease) would be included in the calculation. The housing ratio in this example would be 25.0% ($750 / $3000). The preferred candidate for conventional loans typically would have debt ratios of 28% for housing and 36% for the total with the maximum ratios allowed (on a case by case basis with compensating factors; i.e., some other strong positive to offset the negative of the higher debt ratio) being around 30% / 40% (housing / total). FHA and VA loans allow a total of approximately 41.0%. Non-conforming loans may allow total debt ratios as high as 55% or so. True "hard money" loans seldom consider debt ratios. (see definitions of "PITI", "Housing Ratio", "Non-conforming Loan" below).
an order issued by one in authority, a court order or decision.
written document, properly signed and delivered, that conveys title to real property.
Deed in Lieu of Foreclosure
the act of giving property back to the lender without foreclosure.
Deed of Trust (DOT)
DOT's 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.
see Conditions, Covenants, and Restrictions.
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.
clause in mortgage that gives the borrower the right to redeem the property after default by paying the full indebtedness and fees incurred.
a type of physical depreciation due to lack of normal upkeep.
payments to be made at some future date.
a court order stating that the borrower still owes money when the security for a loan does not entirely satisfy a defaulted debt.
the intensity of land use.
An analysis of soil to determine if the surface can support the foundation of a house.
when real property is sold at a gain and accelerated depreciation has been claimed, the owner may be required to pay tax at ordinary income rates to the extent of the excess accelerated depreciation.
One point equals one percent of the loan amount. Paying points has the effect of giving the lender a higher yield. Two points on a $100,000 mortgage would cost $2,000 ($100,000 x 0.02).
this fee covers the expenses associated with this process of preparing some of the legal documents that you will be signing at the time of closing, such as the mortgage, note, and truth-in-lending statement
The portion of the purchase price paid by a buyer to a seller from sources of funds outside of those provided by a lender.
a periodic advance of funds from a lender.
The act of carefully reviewing, checking and verifying all of the facts and issues before proceeding. In lending it is, among other things, verification of employment, income and savings; review of the appraisal; credit report; and status of the title.