Adjustable-Rate Mortgages or ARMs are a common and popular form of mortgages. Sometimes they are also referred to as variable-rate mortgages by some financial institutions due to their structure. ARMs and fixed-rate mortgages are the most popular forms of loans for potential real estate investors and home buyers.
An appraisal is an expert opinion provided on the value of a business, collectible such as baseball cards or antiques, and property. Authorized appraisers such as appraisers in the world of real estate must have recognition from a regulatory body that covers their industry of expertise. Appraisals are used to determine the value of an item or property for taxation, and insurance purposes as well as to discover its fair market value.
An appraisal contingency is an important clause in real estate contracts, especially for buyers. This allows buyers to back out of a deal if the property’s appraisal is below the purchase price listed in the contract. This helps protect buyers and lenders from unnecessary risk when purchasing a property.
Appraisals help you determine the market value of the property. Appraisal fees are paid to those looking and evaluating the homes you want to purchase. This estimate aligns with the loan needed to buy it as well.
Property sellers marking their property to be sold “as is” is becoming more popular in the current world of real estate. When a property is marketed to be sold “as is” it usually means that the seller is unwilling to make any repairs or renovations to the property.
Selling a property in “as is” condition is growing in popularity on many real estate listings due to the housing market. This is due to the housing market’s current strength and low inventory in current conditions. Buyers that are considering buying an “as is” property should conduct a full inspection of the condition of the property. Because “as is” condition tends to not usually be the best, and the buyer should keep in mind that potentially expensive repairs may be required.
A base rate is the lowest possible interest rate for loans and lending. These rates are unavailable to the public no matter how high an individual’s credit score is. The base rate is instead a rate at which different banks lend funds to each other. Individual clients tend to pay a few more percent on top of a base rate when applying for a personal loan or mortgage loan.
A biweekly mortgage is a type of mortgage loan that allows the borrower to make payments more often than a standard mortgage. As the name suggests, with a biweekly mortgage, the borrower makes payments once every two weeks as opposed to the usual once per month.
This form of mortgage is mostly seen in the United States. It is popular because a biweekly mortgage aligns with the payday schedule of most employees in the US.
Bridge loans are short-term loans commonly used in the world of real estate. It is typically used until a more permanent loan, such as a mortgage is obtained or until the requirements are complete. A bridge loan’s term tends to be very short in comparison to others, and usually is around 12 months. Fees associated with this type of loan tend to be higher than average.
A real estate broker is also commonly called a real estate agent, or realtor interchangeably. The subtle difference is that a broker has completed additional training and may work independently. A realtor, on the other hand, is usually part of a brokerage or works under a broker. Another slight difference is that a broker must ensure that a real estate transaction is lawful and all paperwork has been filled properly. Real estate brokers and agents are required to be licensed by the state and follow the National Association of Realtors ethics in the USA.
A buydown is a mortgage financing option that some borrowers use to lower interest rates. The lower rates can be for the first several years of the mortgage or its entirety.
Buydowns can sometimes be offered as a subsidy of sorts for a long-term mortgage by property developers and sellers. This will lower monthly payments on a property and allow more prospective buyers to qualify more easily for a mortgage. It can in certain circumstances help improve the speed of selling the property by making its price more attractive.
In the world of finance, collateral is a type of asset that a borrower pledges as part of a loan agreement. Should the borrower stop repaying and default on the loan, the collateral pledged can be seized by the lender as part of the agreement.
Construction loans are a specific type of short-term, higher-interest home loans. It is used specifically to help finance the development, expansion, or renovation of a residential property on a plot of land.
Credit history is a main component of an individual’s credit score. It is a record of an individual's ability to repay loans and debts that they have accumulated throughout the years. Generally, a few different sources such as a bank account, loans, and credit card companies are combined to create a credit report.
Credit risk is a form of financial risk in which there is a risk that a borrower will fail to make the required payments. The required payments can potentially refer to both owed principal and interest. Should the borrower be unwilling or unable to make repayments the loan is considered in default. Credit risk can take any form of loan or debt, including mortgages.
A credit score is a numeric representation of an individual’s trustworthiness to repay a loan. It is a 3 digit score ranging between 300 to 850 that determines an individual’s creditworthiness. Between 300-629 is considered bad, 630-689 is fair, 690-719 is good, and 720-850 is excellent.
Debt to income ratio, commonly referred to as DTI, is a ratio of the percentage of debt in comparison to the income a borrower has. To put it simply, a DTI shows how borrowers’ debt contrasts with their earnings. Debt to income ratio is considered an important factor in determining whether a loan will be approved. It is used to calculate whether a borrower can afford to repay a loan.
A deed is a legal document that confirms the transfer of ownership of an asset. It is a binding document in courts of law and is later filed in the public record of a local government. At the time of signing, a deed will need to be notarized and some states in the United States require witnesses. Deeds are commonly used today in car and property transactions.
A delinquent mortgage is when a borrower who has received a mortgage loan, fails to make repayments as agreed. This is when the payment is late or not made on the scheduled due date as agreed with one or more required payments. In certain cases of an overtly delinquent mortgage, lenders can begin foreclosure proceedings. This can cause the property in question to transfer ownership to the lender.
A direct lender is usually a financial institution, such as a bank or private credit entity which lends money directly to a borrower. In the world of loans and mortgages, lenders typically fall into 2 categories, brokers and direct lenders.
A down payment or deposit is an initial up-front partial payment that a buyer pays when making a large financed purchase. This is typically associated with things such as the purchase of a car or property. In regards to property, nearly every type of mortgage requires some form of down payment although its size may vary.
A due on sale clause is a certain clause that is sometimes used in the world of home loans and mortgages. The provision requires that the borrower repay the lender in its entirety if and when a property is sold. The lender may choose whether to exercise this option and there are times when the lender cannot legally make use of it. It is important to note that the due on sale clause cannot be invoked in cases of inheritance, divorce, or separation.
An earnest money deposit is sometimes called simply earnest money or a good faith deposit. It is a certain amount of money that a buyer will put down to demonstrate their intent in purchasing the property. In most cases, an earnest money deposit acts as a deposit on the property. It is either refunded to the buyer or more commonly goes towards closing costs or the buyers' down payment. Essentially the earnest money deposit may increase the chance of the buyer to close a property.
An escrow account is a 3rd party account that holds funds during a transaction. Typically the funds are held until all contractual obligations have been reached between the parties. Once approved, the escrow account releases funds that it has released from the buyer to the seller.
The fair market value sometimes referred to as FMV is the equilibrium price at which an asset would change hands between a buyer and seller. If the asset is too expensive, buyers may avoid it and it won’t be sold and if it is underpriced the seller wouldn't have a good incentive to sell.
A Federal Housing Administration commonly called an FHA loan, is a mortgage loan insured by the Federal Government. While the government insures these loans, they are underwritten and provided by third-party mortgage providers. FHA loans are popular with individuals with less than stellar credit, little savings, or first-time homebuyers. This is likely due to the looser financial requirements needed to qualify for an FHA loan.
A FICO score is a specific type of credit score that is calculated using a 3 digit score, usually between 300 to 850. While credit scores and FICO scores are essentially the same things, different credit reporting companies may weigh the various different factors differently. Both are measuring the borrowers' likelihood of repaying a loan based on their credit history.
As the name implies, fixed-rate mortgages are a form of home loan in which the rate is fixed for the entire duration. Essentially, this means that the interest rate on the mortgage will remain consistent throughout the lifetime of the loan. Some borrowers prefer fixed-rate mortgages as the monthly payment amount is predictable and the same every month. Fixed-rate mortgages and adjustable-rate mortgages are the most common forms of home loans.
Sometimes referred to as a variable, or an adjustable-rate is a form of interest rate that changes periodically. The interest rate may increase or decrease depending on market conditions. Generally, it is linked to a reference rate which is a benchmark of financial factors. This is opposed to a fixed interest rate which remains unchanged throughout the term.
A Form 1003 is a standard mortgage application form, which is sometimes also known as the Uniform Residential Loan Application. Nearly all mortgage lenders that offer financing in the United States require this form to be completed to consider an application. Others may make use of an alternative equivalent, called “Form 65”.
Freddie Mac is the commonly used name of the Federal Home Loan Mortgage Corporation or FHLMC. It is a government-sponsored public company headquartered in the state of Virginia in the US. It is important to note that Freddie Mac does not offer mortgages directly to consumers. Instead, they purchase and guarantee mortgages via lenders such as banks and mortgage providers in the secondary mortgage market.
Freddie Mac is often compared to the Federal National Mortgage Association (FNMA) commonly known as Fannie Mae. Both are government-sponsored, publicly traded companies aimed at raising homeownership and increasing the availability of affordable housing.
The Government National Mortgage Association commonly referred to as Ginnie Mae is a federal government corporation in the USA. Ginnie Mae helps guarantee timely payment of principal and interest payment of mortgage-backed securities to approved lenders. These mortgage-backed securities are packaged mortgage loans that are sold to investors.
Home equity is a simple concept in real estate. Essentially, it is the investment a property owner has in their property boiled down to a dollar equivalent. To understand the equity of a property, simply take the home’s fair market value and deduct any existing mortgage principal and interest payments and liens. After the deductions, you receive the home equity value.
A home equity line of credit, commonly known as HELOC is a specific type of home equity loan. It allows borrowers to take out an equity loan or receive a line of credit in exchange for equity in their home. The equity is calculated based on the remainder owed on the mortgage loan in comparison to the property’s current value. As such the property is used once again as collateral for the loan and a second lien is established.
A home equity loan is commonly referred to as a second mortgage or equity loan. It is a type of secondary home loan based on the equity of a property in addition to a primary mortgage. As the property is collateral for the loan, rates are typically low in comparison to other forms of loans. On the other hand, there are closing costs involved with home equity loans.
A home inspection is usually a part of a real estate transaction and is typically required by mortgage lenders. It is a detailed report on the condition of the home performed by a qualified inspector, regarding any issue that may influence its value. The inspection guarantees the property's safety and condition.
The inspection will check for insect damage such as termites, and water and fire damage. In addition to this, the inspector will assess a property’s HVAC systems, electrical work, water, sewage, and structural integrity.
Homeowner’s Association also known as an HOA, is a private association that looks after a community’s common interest. Typically condos, gated communities, and apartment complexes have a Homeowner’s Association managing the community. It is usually comprised and run by members of its community. Statistically, 1 out of 5 residential properties in the United States is run by an HOA in 2017 and have likely increased since.
Sometimes called home insurance or abbreviated as HOI is a specialized type of property insurance. This form of insurance protects your home and any possessions within it from damages and theft. Homeowners' insurance coverage is generally required by mortgage companies for the fair value of the home. Without homeowners insurance coverage a mortgage lender will not approve a mortgage loan from the property.
An iBuyer or instant buyer is a type of online real estate company or program. They allow users to sell properties almost instantly with a cash offer. The price of the property is determined by the company’s algorithms and technology. As such, a seller cannot really negotiate with an iBuyer. The entire sale process is carried out online and the buyer rarely if ever physically views the property.
iBuying saves the seller plenty of time as they do not need to hire a realtor, list the house, find a buyer, and go through the traditional property selling hoops. Instead of going through the average sale time of 60 days on the market, with an iBuyer a seller can receive funds in a matter of days at the most. In exchange for the quick service, iBuyers charge sellers a rather large fee of 5 to 9%.
Income property is a type of real estate property that has been purchased or built, in order to start generating a passive income. The income property can be a commercial or residential property. The income is typically generated in 2 different ways, the first being income by renting the property. The second is the appreciation of the property’s value in due time.
An interest-only mortgage is a form of mortgage that allows the borrower to only pay the interest every month for a set period. The principal loan amount will later be paid at the end of the term, usually in the form of a lump sum or occasionally in payments. Interest-only mortgages offer borrowers some of the lowest monthly payments seen in the world of mortgage lending.
An International investor is an investor who invests in assets or commodities beyond their national borders. This is commonly an investment in stocks, real estate, certain commodities such as oil, and bonds.
Many investors contrast their domestic investments with international investments. This is primarily done by many investors to diversify their investment portfolio, increase their returns and reduce risk. In addition to this, investors can benefit at times from currency exchange rates, different interest rates, and political changes.
Jumbo loans are a type of home loan or mortgage that exceeds the limitations listed by the Federal Housing Finance Agency. As of 2022 the limit for a conventional home loan is listed as $647,200 for most of the country. However, this may vary slightly depending on the state and county in which the property is based.
The London Inter-Bank Offered Rate commonly called Libor is an interest rate average or benchmark between leading London banks. It is a calculation of interest of what banks would charge each other for lending and borrowing. The rates are calculated for 5 different currencies and 7 different loan borrowing timeframes. This includes overnight loans to yearly loans. The Libor is published daily by Reuters and used by many different financial institutions. This can include credit card companies, banks, and mortgage loan providers.
A lien is a legal claim against a property or sometimes a vehicle that has been used as collateral during a loan. Liens are commonly established by creditors and courts of law.
Its purpose is to serve as a guarantee for financial obligations, such as the payment of taxes or repayment of a loan. Should the obligations not be fulfilled, the property or vehicle may be forfeit to the debtor and later resold.
A loan maturity date is the day on which a borrower’s last loan payment is due. The maturity date means that all previous principal and interest payments have been made. In the world of mortgages, it refers to the final day of a mortgage term. By the time of the maturity date or before it, a mortgage should either be renewed, refinanced, or fully paid. Typically mortgage lenders will notify a borrower shortly before the mortgage maturity date to offer refinancing or renewal.
A loan originator is sometimes also called a mortgage loan originator, or mortgage originator although they all complete the same function regardless of the name. A loan originator is typically a company or individual that guides a potential borrower throughout the application process to closing. Loan originators typically work for mortgage brokers or direct mortgage lenders. They guide a borrower throughout the entire loan process from start to finish.
Loan to value (LTV) ratio is a financial term commonly used by lenders especially in the world of real estate. It is an assessment of risk that mortgage providers and lenders examine when a borrower applies for a mortgage. It measures the difference between the loan amount and the market value of the property. LTV’s are also used not only when buying a new property but also when refinancing.
Mortgage default is a term the wide majority of borrowers and mortgage lenders never want to hear. It is when a borrower fails to make mortgage repayments for an extended period of time. This typically includes the principal mortgage balance and interest payments.
Mortgage points are sometimes simply referred to as points, or discount points. They are essentially a fee that a borrower pays to a mortgage lender, in exchange for a reduced interest rate. In essence, this means that a borrower can pay off some of the interest upfront in exchange for a lower interest rate. Each point typically equals 1% of the total mortgage amount. For example, let's say a borrower took a $250,000 mortgage loan, one point will be worth $2,500. Many lenders offer borrowers to purchase anywhere between fractions of a point to 3 points.
The final step in the mortgage process for a borrower is post closing. Once complete, the borrower has fulfilled all of the required obligations required to complete the transaction. Essentially, post closing is the collection and double checking of certain documentation that has been obtained during the process.
The documents required for post closing can include but are not limited to: deeds of trust, title policies, insurance policies, closing disclosures, and mortgage insurance certifications from the FHA.
Mortgage interest rates can change from time to time. To guarantee a certain interest rate, some borrowers make use of mortgage rate locks. A mortgage rate lock is an agreement between a borrower and a lender to pin down a certain rate. This helps ensure that the rate stays the same from the initial quote to the final payment despite fluctuations in the market.
Mortgage rates refers to the specific interest rate which was given to a mortgage or home loan. Typically mortgage rates are either fixed or adjustable. Typically this rate can vary sharply and is primarily influenced by a borrower's credit rating. Mortgage rates are also influenced by interest rate cycles.
Mortgage refinance is a way to take advantage of a property’s value. Essentially it means finalizing and completing a mortgage’s payments for a new mortgage with different terms. This can be done for a few different reasons, and can at times be very profitable for homeowners and real estate investors.
There can be many reasons to refinance a residential property. Some investors may be on the lookout for better rates or to change the length or terms of the current home loan. Others may want to use the funds to expand their real estate portfolio, or simply to enjoy some extra cash.
A multiple listing service commonly referred to as MLS, is a type of database created by a network of realtors cooperating. The database is consistently updated with new property listings available for sale. This allows collaboration between agents and connects property buyers and sellers.
A natural hazards disclosure report is a report that is required by the state of California. It informs consumers if a property is based in an area that contains a higher risk of disasters. This aims to protect a property and its owner from any event that affects the future use of the property. The report typically costs anywhere between $50 to $200 and tends to be covered by the seller.
In the world of real estate, buyers usually make a formal offer on a property they wish to buy. The offer may be the sellers' listed asking price for the property, or whatever their Realtor would suggest is the fair market value.
Typically the buyers’ realtor puts the buyers’ offer in writing and then forwards it to the seller’s agent. The seller can later accept the offer from the seller, in which case they will start closing the sale of the property. If the seller does not accept the offer, they can make a counter offer as part of the negotiations on the property’s price. This process could be an up and down negotiation between the buyers’ realtor and sellers’ realtor until a common ground is reached.
Per Diem Interest is a form of interest paid on a loan on a daily basis. Hence the name Per Diem which is Latin for per day. It is commonly used in mortgage loans at the time of closing or refinancing a property. Lenders typically require per diem interest for the short time period between the closing date and the start of the next month, when regular mortgage loan payments begin.
A preliminary report is a form of a report that checks the title of a property. Typically the seller provides this report to the buyer during the closing of a property sale. It provides all of the details regarding any property easements, existing liens, and the property’s ownership history.
Additionally, it will contain a detailed description of the property including its lot size, boundaries, and any restrictions regarding the use of the property.
A prepayment penalty is a certain type of penalty incurred on a borrower in certain cases where they repay a loan before the loan term ends. It incentives the borrower to pay off the loan over the full term, in order for the lender to earn interest on the loan. The penalty is typically a percentage of the loan amount such as 2% or a predetermined number of months’ worth of interest. Prepayment penalties are somewhat common in the world of home loans and mortgages.
Rate of returns are commonly referred to as RoR, or simply just returns. The RoR represents the net gain or loss of an investment after factoring in the original investment amount. It is very useful for making educated investment decisions.
Typically RoR’s are calculated as a yearly percentage although they can be adapted for any timeframe. When calculated yearly, a rate of return can be referred to as an annualized return.
Reamortization and amortization sound rather similar but refer to slightly different things.
Reamortization is sometimes called loan recasting depending on the lender and region. Essentially, reamortization refers to changing the terms of an existing loan, most commonly a mortgage loan.
There are 2 different primary types of rental property; commercial and residential property. Commercial property tends to be spaces for offices or trade. Residential rental properties are essentially homes, apartments, condos, and living spaces. In both cases, the owner of the property does not make personal use of the property but instead rents or leases the property to a tenet. In return, the owner receives payment for the property usually in the form of monthly rental fees.
Return on investment or ROI is sometimes called return on costs. It is a simple ratio between the investment and surrounding costs in comparison to the net income over time. Return on investment is commonly used to gauge the efficiency of any investment.
Return on investment is commonly used in many different areas but is most prominently mentioned in financial markets, real estate investments, and marketing campaigns.
When a return on investment is positive, it represents profits. Naturally, when the opposite occurs and a return on investment is negative, it represents net losses. It is also important to note that ROI is usually shown as a percentage and not a ratio. This is usually done for the ease of understanding it.
A reverse mortgage is a type of mortgage loan that is aimed at older homeowners, usually aged 62 and above. Like most mortgages it allows the borrower to receive funds based on the value and equity of the home or property in exchange for a lien. Unlike other forms of mortgages, monthly mortgage payments are not required as long as the owner continues to reside in the property. Instead, the loan must be repaid when the owner moves out, sells the property, or passes on.
A second mortgage is an additional home loan using the residential property as collateral. This is in addition to the home owner’s primary mortgage. Typically second mortgages have higher interest rates than a standard mortgage, although it is usually lower than a credit card, or a personal loan’s interest.
Securitization is a process where a financial institution issues a financial instrument by combining different financial assets into one asset. The financial institution later sells these combined, repackaged assets to an investor.
The exact definition of a single-family residence may vary depending on legal jurisdictions. Generally, it refers to a free-standing residential building as opposed to a multi-family residential dwelling, such as an apartment building. Depending on the jurisdiction, a townhouse may be considered a single-family residence. More commonly this refers to detached housing such as cottages, villas, bungalows, and mansions.
When a borrower applies for a mortgage loan, the borrower undergoes a credit score and history review by the lender. In cases in which the borrower receives a poor credit score, or has negative items on their credit report, the mortgage is considered subprime. Some lenders may use the term nonprime as opposed to subprime although it bears the same meaning.
Title insurance is a form of insurance that protects both buyers and lenders from surprises at the time of purchasing a property or afterward. This can include any pre-existing liens or unpaid dues such as property taxes, homeowners association fees, and conflicting wills.
Most forms of insurance protect its buyer from future events such as natural disasters. Title insurance, in contrast, protects a property buyer and lender from past events. This guarantees that the new buyer will not be subject to 3-rd party claims that might not initially show in a title search.
A trustee is a legal term for a person, firm, or company who holds property, authority, or a position of trust for a third party, who is referred to as a beneficiary. In many cases, a trustee is a legal professional such as a lawyer. Trustees can be nominated for many different reasons, such as in cases of bankruptcy, charities, trust funds, and retirement or pension plans.
An underwriter is an individual that provides underwriting services for a financial institution. Underwriters evaluate and assess an individual or party’s risk for a fee. This is typically in the form of a commission, spread, or premium. Underwriters may be seen across the wider world of finance, but are a bit more prevalent in the insurance and mortgage industries.
A vacation home is usually a second property or more that is owned by a real estate investor. As part of its definition, a vacation home is not its owner's primary residence. Instead, it is used for recreation purposes such as holidays, events, and vacations.
Windstorm insurance is a form of specialized property insurance that covers a home owner’s property from specific storm damage. This form of insurance covers the property, surrounding structures such as a detached garage, and personal belongings in case of damages. Windstorm insurance covers damages caused by hurricanes, tornados, hail, and other wind-induced gusty events.