Borrower (Mortgagor)
An individual who applies for + receives funds in the form of a loan & is obligated to repay the loan in full under the terms of the loan.
Title
Document that gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.
Individuals who have legal ownership in the property are considered “on title” and will sign the mortgage and other documentation.
Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the same property.
(Cheaper payments for the house - still same amount for instance)
Escrow Company
Licensed neutral third party that distributes legal documents/funds on behalf of a buyer and seller (they’re the middle man).
Are the authority to make sure the seller, lender and borrower all follow through on their agreed upon terms. Likewise, records are kept of what is going on in each party.
Escrow Agent
A person with fiduciary responsibility to the buyer/seller or borrower and lender - to ensure that the terms of the purchase/sale or loan are carried out.
Title Company
Makes sure that a piece of real estate is legitimate, then issues title insurance for that property that protects both the lender and the owner from lawsuits as a result of title disputes. Record anything against the property as well.
Main responsibilities:
- accurately record liens
- record lien holders + county
- records ownership to the property in the transaction
Title Insurance
Insurance that protects a lender against any title dispute that may arise over a particular property. It is required to close on your home.
You may also purchase owner’s title insurance which protects you as the homeowners.
Lender
Bank that is lending the money. A majority of the documents in loan signings are lender documents.
Deed of Trust & Rider
(A.k.a. “mortgage” in some states.)
5 main functions:
1. Records who actually owns the property (ex. Jane & Joe - husband/wife as joint tenants)
2. Records amount the borrower is borrowing from the bank (A.k.a. Lien amount)
3. Records who is lending the money (lien holder)
4. Records legal description of the property (how county recognizes the property via lot boundaries, lot location within county)
5. States rules/regulations in which property owner has to abide by.
Riders = Amendments to the deed of trust. Something lender wants to add to the deed (ex. VA rider for a VA loan or others like condo riders, adjustable rate riders, PUD riders)
Principal
The amount of debt, not counting interest, left on a loan.
Note
(Contract). The bank note is where the borrower agrees to the terms of the loan. (ex. the note specifies borrower is borrowing $300,000 at a 4% interest rate. and will have a certain fixed payment for 30 yrs).
Interest Rate
What borrower agrees to pay bank back on money that was borrowed.
>interest rates tired to risk (lower risk, lower interest
rate)
-interest rate you qualify for depends on credit score, LTV, term & whether or not you occupy the property.
Loan to Value
How much you owe vs. the value (appraised value or sale price, whichever is lower) of the home. The higher the loan value, the higher the perceived risk.
Example: house is worth 200k and you owe 100k, loan value is 50%.
Fix Rate Note
Interest rates will not change for the duration of the loan. Whether that means 10, 15, 20 or 30 yrs. This allows payments to stay the same for full amount of term.
The longer the term, the higher the interest rate. (Ex. interest rate on 15 yr loan might be 5% while a 30yr loan’s is 5.5%).
Adjustable Rate Mortgage Loan (ARM)
Interest rate changes, often after a set amount of years for fixed payments. Payment is low initially (bc its a 30yr payment for instance) but rate will change after ‘x’ years. Most common adjustable rate terms are 3, 5, 7, or 10 yrs. After that is up, the interest rate will change on a yearly basis until completely paid off. (called 5/1, 7/1, 10/1)
After term is up, the rate changes via an index (by lender) + margin, margin never changes but the index will go up/down with the Libor of treasury note.
Example: index 3%, margin 3% for that yr would be 6%.
Home Equity Line of Credit (HELOC)
Line of credit that to the equity of the house. Example: home is worth $500k and the first loan is $200k, which means $300k of equity. Bank may approve borrower for a line of credit for $100k.
HELOC works like a credit card. Make payments until fully paid off.
Reverse Mortgage
Enables senior homeowners (62+) to convert part of their equity in their homes into tax-free income w/out having to sell the home or take any new monthly mortgage payment.
Lender makes payments to you based off of the equity you have on the home.
Example: Home’s value is $500k, borrower still owes $100k, reverse mortgage literally pays out the equity you own on a monthly basis until a cap is reached.
Discount points/ Buy down
Points are an upfront fee paid to the lender at the time that you get your loan to lower the interest rate you were qualified for. (Buy down your interest rate).
Example: You qualify for a 5% rate on a 30 yr fixed. You pay bank $2,400 (or agreed upon price) to get 4.5%.
Default
Lenders only lend on the house if they have the right to take the house if the borrower fails to pay back the loan on terms that were agreed upon.
Banks usually give you 30 days past your due date before they consider you in default of your loan. (Default means borrower has not lived up to the agreed upon terms).
Foreclosure
If borrower hasn’t lived up to the terms of the loan, bank can foreclose the home. Meaning, taking the home from the borrower.
Most banks allow start of foreclosure after 3 consecutive missed payments.
Lien
(Derecho de retencion)
Lien: form of security interest granted over a property to secure payment of a debt.
-Anyone can put a lien on a home as long as you have the owner’s consent.
-In mortgages, bank puts lien against house (lien recorded = what they lent owner)
>Bank has the right to sell property to recoup w/e $
was lent (lien amount)
-1st lien (1st position) first to be paid off
>2nd lien means 2 homes, etc (2 loans)
Property Tax
Taxes due to the county the property resides in. Usually paid twice per year.
Impound Account/Escrow Account
- Account for taxes + insurance (hazard/fire insurance) that needs to be paid yearly (handled by lender + paid by them from this account when due)
- Savings account for taxes + insurance
Amortization
Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.
