[tab title=”Adjustable Rate Mortgage (ARM)”]
Adjustable rate mortgages change their interest rates at predetermined time intervals (6 month or 1 year is typical). This change in rate may or may not change the monthly payment, depending on what was agreed to prior to accepting signing up for the Mortgage. The interest rate is usually tied to the banks source of funds, often called the one year treasury index. The better mortgages have caps on how much the interest rate can go up in any one year and/or over its lifetime. These caps also apply to the payment. Monthly payments are calculated as if the loan were to last 30 years (amortization), doing so keeps the loan payments lower. Typically interest rates and monthly payments are lower than 30 year fixed rate mortgages for the first couple of years. If interest rates stay low, you can be a winner, if interest rates increase, your monthly payments can increase higher than a 30 year fixed rate mortgage.
[tab title=”Appraisal Date”]
In an Appraisal Report the date to which the value applies.
[tab title=”As Is Value”]
An estimate or opinion of property in its current state, which may be in disrepair or scheduled for improvement.
[tab title=”Balloon Mortgage or Balloon Payment”]
Mortgages (loans) that are calculated to be paid off over a long period of time (usually 30 years), however, at some point prior to payoff a large sum of money is due. The amount and time depend on what is negotiated between the parties. This Balloon Payment could pay off the entire mortgage or just a portion. There is no standard term or amount or time period.
[tab title=”30 due in 5 / 30 due in 7″]
These terms apply to variations on Balloon Mortgages. Some banks offer mortgages that are calculated to be paid off over 30 years but have a provision that requires the balance to be paid off after 5 or 7 years. Calculating a loan to be paid off over 30 years, lowers the monthly payment to a reasonable amount. However, Banks hate lending fixed rate money out for a 30 year time period, so they came up with a way to limit the time period, a mortgage called “30 due in 5.” This gives the bank the option of calling the entire balance due in 5 years or setting a new interest rate. These mortgages come with interest rates that are slightly below 30 year fixed. If interest rates are stable, these are ok or if you’re going to live in a home for less than 5 years, this type of mortgage might fit into your time schedule.
[tab title=”Bi-Weekly Mortgages”]
A mortgage the is calculated to be paid off over 15 or 30 years however, instead of making monthly payments, ½ of the monthly payment is made every other week. Over a one month period the same payment is made, its just made at two different times. By making Bi-Weekly payments the mortgage gets paid off sooner, thus saving interest. Several of the Banks set up automatic withdrawal from your checking account, so there is less hassle. Now a sneaky way to create your own Bi-Weekly Mortgage; Set up a standard 15 or 30 year mortgage that requires monthly payments, then simply make Bi-Weekly payments. Using this method you can make or not make the Bi-Weekly payment (as long as the full payment is made each month) at your option. I have never seen a bank that will not allow this, they might not like it because they have to process more payments and paperwork – but that’s their problem not yours.
[tab title=”Bridge Loans (Mortgages)”]
Simply stated, a mortgage placed against a home for a short period. From their creation everybody understands that this Mortgage is for a short time, usually due when a home is sold or somebody cashes in their stock options. Loans of this type offer a way for people to buy one home before selling their current home. The Bank understands that you are not able to make two monthly payments forever, but they make allowances for a short term to help people buy homes or when there is a job transfer involved.[/tab]
[tab title=”Capitalization Rate (or ‘cap rate’)”]
A measure of the ratio between the cash flow produced by an asset (usually real estate) and its capital cost (the original price paid to buy the asset) or alternatively its current market value.
[tab title=”Cash Equivalency Analysis”]
The procedure in which the sale prices of comparable properties sold with atypical financing are adjusted to reflect typical market terms.
[tab title=”Conforming Loans (Mortgages)”]
The largest lenders in the United States are Fannie Mae (FNMA) and Freddie Mac (FHLMaC). These two lenders supply money to local banks who in turn lend the money to people like you and me. Approximately 90% of all loans are purchased by, or created for, these two Mega Lenders. Because they are the biggest, they set the rules that every other bank and lender follow. If you, your house and the amount of money you want to borrow conforms to their standards, then the loan you get is called Conforming. Conforming loans have the best interest rates, terms and lowest costs. If your credit or house is unusual or you want to borrow more than $235,000 then you fall into a Non-Conforming category and are stuck with higher interest rates and different terms.
[tab title=”Conventional Mortgage”]
The requirements for Mortgage terms, costs and interest rates together with the types of homes a bank will lend money on are set by the private segment of the industry (local lenders, FNMA or FHLMaC) and do not involve the Government’s FHA or VA guidelines. Conventional Mortgages do not have a maximum dollar amount like Conforming Mortgages mentioned above.
[tab title=”Community Homebuyer Program”]
This is a FNMA loan program that offers 97% financing of single family, owner occupied homes, to borrowers who earn 115% or less of the area’s median income. Unlike normal financing, the borrower only needs to produce 3% of the sales price prior to closing. This program allows people with a minimal down payment to buy a home. Borrowers must complete a six hour seminar on home ownership in or der to qualify for the loan.
[tab title=”Cost Approach”]
Method of appraising property based on adding the Reproduction Cost of improvements, less depreciation, to the market value of the site.
[tab title=”Custom Construction Loans”]
Conforming Mortgages will not be granted to people with a home under construction (because they don’t conform to guidelines), therefore, a method of financing a home during the construction phase was created, Custom Construction Loans. These loans last approximately 18 months and carry interest rates higher than Conforming Mortgages, because of the higher risk. Good Custom Construction Loans roll over into Conforming Loans when the home is completed. Less desirable Construction Loans must be paid off at the end of construction. The less desirable versions require double the loan fees with no guarantee of obtaining a Conforming Loan.
The natural decline in property value due to market forces or depletion of resources.
[tab title=”Down payment”]
The difference between the loan amount and the purchase price of a home is the Down Payment. Depending on your credit and the type of home you are buying the Down Payment can range from 0 to 50%. The Bank sets the requirements depending on many factors. The typical minimum Down Payments are:
VA Loans, owner occupied – 0%
FHA Loans, owner occupied – 3%
Conventional, owner occupied homes – 5%
Non owner occupied homes – 20%
Once you own a home, your equity is the difference between the loan amount and the current value of the home. A ratio can be applied to the dollar amount of your equity, its called the LTV or Loan to Value Ratio.
[tab title=”Fair Market Value”]
The price at which two unrelated parties, under no duress, are willing to transact business.
[tab title=”Fee Simple”]
A complete, unencumbered ownership right in a piece of property.
The process of taking ownership away, from a homeowner who isn’t making monthly payments on time (defaulted on loan payments). The process varies from state to state but the end result is the same – if you don’t make the payments on time, you lose the property. Most banks will grant a 30-60 day grace period prior to starting the process. The entire process can take an additional 60days to one year.
[tab title=”FHA (Federal Housing Administration)”]
FHA is a department within the Government agency called HUD (Housing and Urban Development), whose main purpose is to promote ownership of inexpensive homes. They do this by setting up special loan programs for people who are buying homes with a sales price below the area average. FHA encourages the granting of loans, by local lenders, to people with lower incomes. They do this by guaranteeing that the local lender will be paid back if the borrower fails to make payments. FHA does not lend money, they guarantee the repayment to the bank if a borrower fails. Because the Government is involved they have restrictions on the type of home and borrowers income. The nice thing about FHA is it allows people the ability to qualify for a loan that normally wouldn’t be available to them.
[tab title=”FHA 203K”]
This is a loan that is specifically designed for homes that are in need of repair or improvement. If you are planning on buying or remodeling your current home this program will lend you the money necessary to buy the home then fix it up. There are all sorts of hoops that must be jumped through but on the whole, it’s a nice program.
[tab title=”Going Concern Value”]
The value of a company as an ongoing entity. This value differs from the value of a company’s assets if they were to be liquidated in that an ongoing operation has the ability to continue to earn profit, while a liquidated company does not.
A contract between a property owner and a tenant specifying the payment amount, terms and conditions, as well as the length of time the contract will be in force.[/tab]
[tab title=”Leased Fee Estate”]
An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others.
[tab title=”Leasehold Estate”]
A type of property ”ownership” where the buyer actually has a long-term lease on the property.
[tab title=”Loan Fees”]
Fees that a lender charges at the time of obtaining a mortgage. This fee is in addition to the yearly interest rate charged on the loan balance. Typical fees range between 1-3% for a normal loan, but I have heard of fees as high as 10% for borrowers with credit problems. These fees can change depending on the interest rate a lender charges, so you must add the fees together with the interest rate to find out the complete cost of a loan.
[tab title=”LTV (LOAN TO VALUE)”]
This is a ratio between the amount borrowed and the value of the home (often called the equity). When Banks lend money for a refinance on a home, they want to maintain a certain LTV.
Loan amount \ Homes value = LTV.
$90,000 loan divided by the homes value $100,000 = 90% LTV
When banks lend money on homes they set the LTV according to the borrower’s qualification and the type of home being purchased.
Typical LTV’s are:
90% for owner occupied
80% for non-owner occupied homes
50% for vacant land
[tab title=”Mortgage Insurance”]
This is going to sound silly so please bear with me. Mortgage Insurance is a policy that lenders require if a refinance loan has a LTV between 80% – 100%, OR if you are buying a home and are placing less than 20% down. In instances like this, lenders want protection if you should fail to make your monthly payments and they have to foreclose on the property. They want an insurance policy that will protect the Bank from loss associated with foreclosing on the property. Mortgage Insurance is not Life or Homeowners Insurance. Now the funny thing with this policy is, you the borrower have to pay for it, and if there is a loss it pays the bank not you for that loss.
[tab title=”Negative Amortization”]
A few of the ARM loans periodically adjust interest rates but do not adjust the monthly payment. If interest rates increase too much the fixed payment is not enough to pay off the mortgage. When this happens the mortgage balance can increase instead of decrease. Amortization is the paying down of a loan while Negative Amortization is the increasing of a loan amount.
[tab title=”Net Operating Income (NOI)”]
A company’s operating income after operating expenses are deducted, but before income taxes and interest are deducted. If this is a positive value, it is referred to as net operating income, while a negative value is called a net operating loss (NOL).
[tab title=”No Income Qualifier (NIQ)”]
Some lenders do not require written verification of income. The lender accepts the borrower’s statement of income. These loans are normally have a slightly higher interest rate and have a LTV of 80% or less.
[tab title=”Operating Expenses”]
Expenses associated with running a business but not considered directly applicable to the current line of goods and services being sold.
Points is another name for a percentage of interest. One point equals One percent of interest. So if a lender says that he will charge you 2 points for the loan, he is saying that you will be charged 2% up front for a loan fee.
[tab title=”Portfolio Loan”]
Most of the time loans obtained at the local neighborhood bank are sold to the Secondary Market. In these instances who you send your monthly payments to can change. However, when the neighborhood bank keeps possession of the loan and the monthly payments are made to that bank, the loan is called a Portfolio Loan.
[tab title=”Quick Qualifier”]
This is another name for a No Income Qualifier Loan. Some lenders do not require written verification of income. The lender accepts the borrower’s statement of income. These loans are normally have a slightly higher interest rate and have a LTV of 80% or less.
[tab title=”Sales Comparison Approach”]
An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently.
[tab title=”Stabilized Value”]
The value of a property after it reaches a normal Occupancy Rate and Operating Expenses.
[tab title=”Terminal Capitalization Rate”]
An overall capitalization rate used to forecast a reversionary value in a discounted cash flow analysis. It is calculated by dividing the projected NOI for the year of sale by the selected rate.
[tab title=”Unit of Comparison”]
A device used to compare the price paid for comparable properties of different sizes.
[tab title=”VA (Veterans Administration)”]
A government agency that helps veterans obtain loans at favorable terms. The operations are similar to the FHA but is limited to Veterans of the military service. The VA offers 0% down loans to any Veteran. The down side of these loans is that they cost more up front and they are picky about what type of home they will lend money on. If you are a Veteran then talk to your lender about the requirements. However, please note that there are loan limits and many sellers do not like making their home conform to the VA’s requirements.