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| MAIN SECTIONS DIRECTORY Can't find what you're looking for? Email us and we'll advise you on where to go on the site. Glossary of Real Estate Investing Terms
Abstract of Title - historical summary of all of the recorded instruments and proceedings that affect title to a property. Acceleration Clause - a loan provision giving the lender the right to declare the entire amount immediately due and payable upon violation of another specific loan provision, commonly referred to as the Due on Sale Clause. Accrued Interest - interest that has been earned but not paid. Acknowledgment - a declaration by a person who has signed a document that such signature is a voluntary act, made before a duly authorized person. Accumulated Depreciation - in accounting, the amount of depreciation expense that has been claimed to date. Acquisition Cost - the price and all fees required to obtain a property. Acquisition Loan - money borrowed for the purpose of purchasing a property. Addendum - something added as an attachment to a contract. Adjoining - contiguous, attached, sharing a common border. Adjustable Rate Mortgage (ARM) - a mortgage loan that allows the interest rate to be changed at specific intervals over the maturity of the loan, based on a monitored index. Adjusted Tax Basis - the original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures. Administrator - a person appointed by a court to administer the estate of a deceased person who left no will. Adverse Possession - a means of acquiring title to real estate where an occupant has been in actual, open, notorious, exclusive and continuous occupancy of property for the period required by state law. Affidavit - a written statement, sworn to or affirmed before an officer who is authorized to administer an oath or affirmation. Agency - the legal relationship between a principal and his agent arising from a contract in which the principal engages the agent to perform certain acts on behalf of the principal. Agreement for Deed - see Contract for Deed. Alienation - to convey or transfer title and possession of property. Amortized Loan - loan that is repaid in a series of installments each of which contains a portion that is applied to reduce the principal amount of the loan and a portion that is applied to pay interest with each successive payment allocates a larger portion to principal reduction and a smaller portion to interest payment until the outstanding balance is ultimately reduced to zero. Annual Cap - maximum amount the interest rate on an adjustable rate mortgage can be raised or lowered in the course of one twelve month period. Annual Percentage Rate (APR) - effective rate of interest rate for a loan per year including fees and points, disclosure of which is required by the Truth-in-Lending Law. Appraised Value - opinion or estimate of a value of a property, values are determined by one of three methods: comparable sales (residential), replacement cost (insurance), or income approach (commercial). Appreciation - an increase in the value of a property. Arrears - mortgage payment includes interest for prior month, or overdue payments in default. As-Is - without guarantees as to condition. Assessed Value - the value established for property tax purposes. Assignee - the person to whom an agreement or contract is sold or transferred. Assignment - the method by which a right or contract is transferred. Assignor - the person who assigns or transfers an agreement or contract to another. Assumable Mortgage - An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process and may or may not release the original mortgagor (borrower) from further liability. A written release from the mortgagee (lender) is required to relieve the original mortgagor of responsibility.
Backup Contract - a contract to buy real estate that becomes effective if a prior contract fails to be consummated. Balance - see Principal Balance. Balloon Payment - An installment payment which is larger (most often much larger) than the other scheduled payments. It is usually the last payment. If a note is written for $50,000 at a fixed 9.0% rate of interest with payments based on an amortization schedule of 30 years and a balloon payment due in 5 years, the first 60 payments will each be $402.31 (the normal payment for a 30 year loan at 9.0% interest) and the last payment will be $47,940.15 which will be the outstanding balance remaining after the 60th payment. Bankruptcy - the financial inability to pay one's debts when due causes the debtor to seek relief through court action. Bankruptcy Discharge - the release of a bankrupt party from the obligation to repay debts that were or might have been proved in a bankruptcy proceeding. Basis Point - one 100th of 1%. Beneficiary - the person who receives or is to receive the benefits resulting from certain acts. Bilateral Contract - a contract under which each party promises performance. Bill of Sale - a written instrument given to pass title of personal property. Blanket Mortgage - a single mortgage which attaches to more than one property. Board of Realtors - a local group of real estate licensees who are members of the state and national association of Realtors. Breach of Contract - a violation of the terms of a legal agreement, default. Bridge Loan - mortgage financing between the termination of one loan and the beginning of another loan. Broker - An individual who acts as an intermediary between two or more parties for the purpose of negotiating a transaction agreeable to all of the parties. In lending, the broker arranges and negotiates loan amounts, interest rates and loan terms between borrowers and lenders. Depending on the type of loan, the state wherein the transaction is occurring and contractual arrangements, the broker may represent the borrower, the lender or not have a fiduciary responsibility to either. (See definition of "fiduciary responsibility" below.). Building Permit - permission granted by a local government or agency to build a specific structure at a specific site. Buy Down - A payment of discounts points in exchange for a lower rate of interest. It has the effect of providing the lender with a greater yield today in exchange for a lower yield in the future. (See definition of "discount points" below.).
Cancellation Clause- a contract provision that gives the right to terminate the obligations upon the occurrence of specified conditions or events. Capitalization (Cap) Rate - rate of return used to derive the capital value of an income stream, divide annual income by net operating income. Carrying Charges - expenses necessary for holding property, such as taxes and interest on idle property or property under construction. Cash Flow - The net operating income minus the total of all debt service payments. (See definition of "net operating income" below.) Cash Out - Cash given to the borrower from the proceeds of a loan. While relatively common as part of a refinance, it is uncommon, but not impossible, as a benefit of a small percentage of non-conforming loans used for a purchase. Caveat Emptor - let the buyer beware. Certificate of Eligibility - issues by the Veterans Administration to those who qualify for a VA loan. Certificate of Insurance - a document issued by an insurance company to verify the coverage. Certificate of Occupancy (C.O.) - a document issued by a local government or agency permitting the structure to be occupied by members of the public. Certified Commercial Investment Member (CCIM) - a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors. Certified Residential Broker (CRB) - a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors. Certified Residential Specialist (CRS) - a designation awarded by the Realtors National Marketing Institute, which is affiliated with the National Association of Realtors. Chain of Title - a history of conveyances and encumbrances affecting a title from the time that the original patent was granted or as far back as records are available. Clear Title - a marketable title, one free of clouds and disputed interests. Closing - The formal meeting where loan documents are signed and funds disbursed. Note, however, that Federal law requires that funds not be disbursed for three business days on certain loans where personal residences serve as the security. (See definition of "recission" below.) Closing Costs - The expenses which borrowers incur to complete the loan transaction. These costs may include title searches, title insurance, closing fees, recording fees, processing fees and other charges. Closing Statement - an accounting of funds from a real estate transaction, also known as a HUD-1. Closing Date - the date on which the seller delivers the deed and the buyer pays for the property. Cloud on Title - an outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Collateral - property pledged as security for a debt. Combined Loan-to-Value (CLTV) - The total of all loans relative to the value of the property. If a property has a value of $100,000 and three loans totaling $125,000, the CLTV is 125% ($125,000 / $100,000). Commitment - The notification that a lender has approved a loan. Virtually all commitments are issued conditionally; that is, subject to some list of conditions that must be satisfied prior to funding actually taking place. Typical conditions include appraisals of a certain value, clean title, verification of representations by the borrower, etc. Comparable Sales - As part of the appraisal process, those relatively recently sold properties which will be compared to the subject property (the property being appraised) for the purpose of forming an opinion of value for the subject property. The facts and details of the comparable properties will be compared to those of the subject. In an urban setting, to be of credible assistance in this process, comparable sales must have the same use as the subject, have many similarities to the subject in terms of size of house, size of lot, construction, bedroom count, room count, floor plan, amenities, street traffic and be in the same neighborhood and have been sold in the recent past (preferably no more than six months) by way of an "arms length" transaction (i.e., not sold to a relative or friend and not sold due to a forced sale or distress sale) and be within one mile of the subject property. More liberal standards will apply for rural property and some suburban properties but the basic premise holds, the more similar the comparable sales are to the subject property, the more accurate the value assigned to the subject property will be. Lenders will often compensate for the less precise nature of rural appraised values by allowing only lower loan-to-value ratios than those in urban settings, usually 10% lower. (See definition of "loan-to-value" below.) Conditions, Covenants, and Restrictions (CCR's) - promises written into deeds and other instruments agreeing to performance or nonperformance of certain acts, or requiring or prohibiting certain uses of the property. Conforming Loan - A loan which has underwriting criteria consistent with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie Mac, FHA or VA. These are typically the lowest interest rate loans with very good terms. (See definitions of "Fannie Mae", "Freddie Mac", "FHA", "VA" and "underwriting" below.). Consideration - anything of value given to induce entering into a contract. Does not need to be CASH; can be services or rights, etc. Contiguous - actually touching, having a common boundary. Contract - an agreement between competent parties to do or not do certain things for consideration. Contract For Deed - a real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller until all or a specified part of the sale price has been paid, same as land contract. Contractor - one who contracts to provide specific goods or services. Conventional Loan - A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan. (See definition of "conforming loan" above.). Conversion - changing property to a different use or form of ownership. Convey - to deed or transfer title to another. Creative Financing - any financing arrangement other than a traditional mortgage from a third party lending institution. Credit Line - A loan that allows revolving use of the credit; that is, after funds have been borrowed and repaid they may be borrowed again without applying for a new loan. See HELOC. Typically, a credit limit is established and some or all of the available funds can be optionally disbursed at closing. Undisbursed funds are available for the borrowers use at any time. Payments are required only on the outstanding balance. They are similar in use to a credit card except that they typically use checks to access the funds. They are inexpensive, effective tools for investors. Dealer - one who buys and sells for one's own account, merchandise is inventory and gain on sale is treated as ordinary income. See IRS Dealer. Debt Ratio (DR, D:I) - Also known as debt to income.
Decree - an order issued by one in authority, a court order or decision. Deed - 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. Deed Restriction - see Conditions, Covenants, and Restrictions. Default - 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. Defeasance - clause in mortgage that gives the borrower the right to redeem the property after default by paying the full indebtedness and fees incurred. Deferred Maintenance - a type of physical depreciation due to lack of normal upkeep. Deferred Payments - payments to be made at some future date. Deficiency Judgment - a court order stating that the borrower still owes money when the security for a loan does not entirely satisfy a defaulted debt. Density - the intensity of land use. Depreciation Recapture - 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. Discount Points - 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). Down Payment - The portion of the purchase price paid by a buyer to a seller from sources of funds outside of those provided by a lender. Draw - a periodic advance of funds from a lender. (for Hard Money or Construction loans) Due Diligence - 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. Due-on-Sale - see Acceleration Clause, Sub2,
Earnest Money - a deposit made by a purchaser of real estate to show good faith. Easement - the right, privilege, or interest that one party has in the land of another. Easement by Necessity - the right of an owner to cross over another's property for a special necessary purpose. Easement by Prescription - continued use of another's property for a special purpose can convert to permanent use if certain conditions are met. Egress - a means of access or exit. Eminent Domain - the right of the government or a public utility to acquire property for necessary public use by condemnation, but the owner must be fairly compensated. Encroachment - a building, part of a building, or obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another. Encumbrance - any right to or interest in land that affects its value, including mortgage loans, unpaid taxes, easements, junior liens, or deed restrictions. Equitable Conversion - a legal doctrine in some states in which, under a contract of sale, buyers and sellers are treated as though the closing has taken place in that the seller in possession has an obligation to take care of the property. Equitable Interest - An ownership interest in a property that is demonstrated by actions such as the payment of the current mortgage, property taxes or property insurance rather than by legal ownership. Equitable Title - the interest held by one who has agreed to purchase, but has not yet closed the transaction. Equity - The value of the unencumbered interest in real estate as determined by subtracting the total of the unpaid mortgage balances plus the sum of any current liens against the property from the property's fair market value. Escheat - the reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs. Escrow - an agreement between two or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition. (Title Company) Escrow Account - An account from which funds can be disbursed only for specified reasons; i.e. the money is held in trust for a specific use. In lending, these accounts are most often used to hold and disburse real estate taxes and hazard insurance premiums which have been paid in advance (usually on a monthly basis) by the borrower. Estate - the degree, nature, and extent of interest that a person has in real property. Estate for Life - see Life Estate. Estate at Sufferance - the wrongful occupancy of property by a tenant after the lease has expired. Estate Tax - a tax on the value of property left by the deceased, subject to certain tax rules. Estoppel - a doctrine of law that stops one from later denying facts which that person once acknowledged were true and others accepted on good faith. Eviction - legal proceeding by a lessor (landlord) to recover possession of property. Exchange - under Section 1031 of the IRS Tax Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-free, subject to certain conditions. Exculpatory Clause - provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability. Facade - the outside front wall of a building. Face Value - the dollar amount, shown by words and/or numbers on a document. Fair Credit Reporting Act - a federal law that allows individuals to examine and correct information used by credit reporting services. Fannie Mae (FNMA) - Federal National Mortgage Association, a federally chartered corporation that purchases mortgages and packages them to sell as securities. Federal Fair Housing Law - a federal law that forbids discrimination on the bais of race, color, sex, religion, or national origin in the selling or renting of property. Federal Housing Administration (FHA) - an agency within HUD that administers many loan programs designed to make housing more available. Fee Simple - absolute ownership of real property. Fee Agreement - An agreement between a borrower and a broker which normally specifies the relationship between them and the amount of compensation to the broker. Fiduciary Responsibility - An obligation to act in the best interest of another party. This type of obligation typically exists when one person places special trust and confidence in another person and that responsibility is accepted. First Mortgage - That mortgage which is recorded at the earliest time. The time of recording is the sole criteria. Size of loan and type of mortgage are immaterial. When the first mortgage is paid off and released, the second mortgage (if any existed) becomes the first mortgage. Fixed Payment Mortage - a loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan. Fixed Rate Mortgage - A mortgage with an interest rate that remains the same through the life of the loan. Foreclosure - The process by which the mortgagor's (borrower's) rights to a property are terminated. While the general process is similar from state to state, the actual procedures tend to vary greatly. Freddie Mac (FHMLC) - Federal Home Loan Mortgage Corporation, a federally chartered corporation that purchases mortgages and packages them to sell as securities. FRBO - for rent by owner. FSBO - for sale by owner. Gable Roof - one with a triangle, with the ridge forming an angle at the top and each eave forming an angle at the bottom. Gain - an increase in money or property value. Garden Apartments - a housing complex whereby some or all tenants have access to a lawn area. General Contractor - one who constructs a building or other improvement for the owner or developer. General Lien - a lien that includes all of the property owned by the debtor, rather than a specific property. General Warranty Deed - a deed in which the grantor agrees to protect the grantee against any other claim to title of the property. Gentrification - the displacement of lower income residents by higher income residents in a neighborhood. Grantee - the party to whom title to real property is conveyed. Grantor - the party who gives the deed. Gross Monthly Income - Income before deductions for taxes, social security, saving plans, court ordered child support, etc. Gross Rent Multiplier - the sales price divided by the gross annual rental rate. Ground Lease - one that rents the land only. Hard Money Loan - HML - A loan that is underwritten with the condition and value of the property as the primary criteria for approval.
Hazard Insurance - Insurance to provide compensation if the improvements are damaged or destroyed. It is almost always a requirement of loans. Highest and Best Use - the use that is most likely to produce the greatest net return to the land and/or building over a given period. Holdover Tenant - a tenant who remains in possession of leased property after the expiration of the lease term. Home Equity Loan - HELOC - In the most literal sense, this expression applies to virtually all loans (first mortgages and second mortgages, fixed and adjustable interest rates, credit lines and fully amortizing loans, etc.) placed on an owner occupied property when the loan-to-value after the Home Equity Loan closes is no higher than 100%. That is, it is a loan secured by the available equity of an owner occupied residential property. Homeowner Association (HOA) - an organization of the homeowners in a particular subdivision, planned unit development, or condominium created to enforce deed restrictions and manage common elements of the development. Housing and Urban Development (HUD) - a federal government agency established to implement certain federal housing and community development programs. Housing Code - local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings. Hypothecate - to pledge something as security without having to give up possession of it. Impound Account - see Escrow Account. Indemnify - to protect another person against loss or damage. Improvements - additions to raw land such as buildings, streets, sewers, etc. that increase the value of the property. Initial Note Rate - The rate of interest that takes effect at the closing of a loan and which determines the monthly payment(s) for the early portion of the loan. The period of time during which this rate applies is often short and the rate may be lower than later rate. Index - The published cost of money that serves as the minimum basis for determining the interest rate for an adjustable rate mortgage. Among the commonly used indices are the Prime Rate (Prime), the London Interbank Offering Rate (LIBOR), the Cost of Funds (COF) and the 1 year Treasury Bill (1 year T).
Installment Contract - see Contract for Deed Installment Interest Rate - The percentage of the loan amount charged for borrowing money; i.e., the cost of the money expressed as a percentage. Interim Financing - a loan, including a construction loan, used when the property owner is unable or unwilliing to arrange permanent financing. Inter Vivos - during one's life. See Living Trust or Land Trust Intestate - having made no valid will. Joint and Several Liability - a creditor can demand full repayment from any and all of those who have borrowed, each borrower is liable for the full debt, not just the prorated share. Joint Tenancy - ownership of realty by two or more persons, each of whom has an undivided interest. Joint Venture - an agreement between two or more persons who invest in a single business or property. Judgment - a decree of a court stating that one individual is indebted to another and fixing the amount of the indebtedness. Judgment Creditor - one who has received a court decree or judgment for money due from a debtor. Judgment Lien - the claim upon the property of a debtor resulting from recording a judgment. Judicial Foreclosure - having a defaulted debtor's property sold where the court ratifies the price paid. Jumbo Loan - A loan larger than the maximum allowed by conforming loans. The threshold amount has traditionally been adjusted more or less on an annual basis and has been in the low $200,000's. Banks and mortgage brokers can quote the current threshold. They are typically available at interest rates slightly higher than those of conforming loans and typically require the same underwriting standards as conforming loans. (see definition of "conforming loan" above). Junior Mortgage - a mortgage whose claim against the property will be satisfied only after prior mortgages have been repaid. Kicker – a payment required by a Mortgage in addition to normal Principal and Interest. See Participation Loan. Kick-Out Clause – A provision in a Sales Contract that allows the seller to void the agreement if a better offer is received before the sale is closed. Land Contract - see Contract for Deed, Installment Sale Land Lease - see Ground Lease. Landlocked - condition of a lot that has no access to public thoroughfare except through an adjacent lot. Lease - a contract in which, for a rent payment, the one entitled to the possession of the real property (lessor) transfers those rights to another (lessee) for a specified period of time. Leasehold - the interest or estate on which a lessee (tenant) of real estate has a lease. Lease Option - a lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions. Lease Purchase - a lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions. Legal Description - legally acceptable identification of real estate by government survey, metes and bounds, or recorded plat. Lessee - a person to whom property is rented under a lease. Lessor - one who rents property to another under a lease. Let - to rent a property to a tenant. Letter of Intent - written expression of desire to enter into a contract without actually doing so. Lien - A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic's liens, mortgages and unpaid taxes. Life Estate - an interest in property that terminates upon the death of a specified person. Life Tenant - one who is allowed to use property for life or the lifetime of another designated person. Lifetime Cap - The highest amount over the initial interest rate that an adjustable mortgage can be raised. Lifetime caps are typically in the range of 5.0% - 7.0%. If the initial interest rate is 5.25% and the lifetime cap is 6.0%, the highest interest rate a borrower could pay during the course of the loan would be 11.25% (5.25% + 6.0%). Like-Kind Property - property having the same nature; See 1031 Exchange Limited Partnership - one in which there is at least one partner who is passive and limits liability to the amount invested and at least one partner whose liability extends beyond monetary investment. Liquidated Damages - an amount agreed upon in a contract that one party will pay the other in the event of a breach of contract. Liquidity - ease of converting assets to cash. Lis Pendens - Latin for "suit pending", recorded notice of the filing of a lawsuit, the outcome of which may affect title to real property. Listing - written agreement between a principal and an agent authorizing the agent to perform services for the principal involving the principal's property. Loan Application (1003) - A loan application that is required for conforming loans. It has become the standard application for most residential loans, even non-conforming loans. Loan-to-Value (LTV) - The ratio of the size of the loan to the value of the property. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000 / $100,000). Loan Package (Motgage) - The organized group of documents that contains all of the information required to obtain an underwriting decision of loan approval or loan denial. Depending on the type of loan and the particular lender, a package may contain some or all of the following as well as other documents:
Management Agreement - a contract between the owner of property and someone who agrees to manage it. Margin - A constant (fixed) amount over an index that determines a lender's yield on an adjustable rate loan. The interest rate of an adjustable rate loan is determined by adding a margin to an index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an "average" borrower), the interest rate would be 10.25% (8.25 + 2.0). (See definition of "index" above.). Marketable Title - a title free from defect. Master Lease - a controlling lease; See Sandwich Lease Option. Mechanic's Lien - a lien given by law upon a building or other improvement upon land as security for the payment of labor and materials furnished for improvement. Mortgage - A lien against real property given by a borrower to a lender as security for money borrowed. Mortgage Balance - see Principal Balance. Mortgagee - The entity to whom the mortgage is given; i.e., the lender. Mortgage Insurance Premium (MIP) - The payment made by a borrower of FHA insured mortgages to provide a reserve that protects lenders against losses from very high loan-to-value loans. Mortgage Loan - A loan which is secured by a mortgage lien filed against real property. Mortgage (Open-End) - A mortgage that allows additional money to be borrowed (up to the original loan amount) without refinancing the loan or paying additional financing charges. Mortgagor - The entity who gives the mortgage; i.e., the borrower. Net Operating Income (NOI) - From income producing property, the gross income minus the total of all expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments. No Income Verification Loan (NIV) - A type of loan generally limited to the self-employed that is underwritten based on the borrower's written representation of their annual income as stated on the loan application. No tax returns, operating statements or other verification of the income is required. Debt ratios are computed based on the stated income. The primary intent of these programs is to allow owners of small businesses to use their actual cash flows rather than the net incomes normally reported in tax filings. Higher interest rates on these products compensate lenders for their higher risks. (See definition of "debt ratio" above.) Non-conforming Loan - A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. I.e., the vast majority of loans. Non-Qualifying - buyer is not required to qualify through traditional bank financing requirements Note - A written promise to repay a certain sum of money on specified terms. Note Broker - An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note. Option To Purchase - the right to purchase or lease a property upon specified terms within a specified period of time Originator - An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers, the originator determines the type of loan a borrower probably qualifies for, helps complete an accurate application, gathers documents necessary to get an approval and acts as an intermediary between the borrower and the underwriter. Origination Fee - A fee paid to either a broker or a lender for originating a loan. It may be the only compensation for their work in arranging and/or processing the loan or it may be only a portion of the compensation. Not every loan has an origination fee. Owner Financing - See Seller Financing PITI - The shorthand way of stating the most usual elements of a residential mortgage payment which may consist not only of the Principal and Interest (PI) but the property taxes (T) and hazard insurance (I) as well. In the case where all four elements are part of the payment, the lender escrows the T and I and pays them on behalf of the borrower when they come due. Some loans are written such that the payment to the lender consists only of the P and I in which case the borrower pays the taxes and insurance directly. Portfolio Loan - A non- conforming loan that is held by the original lender rather than being sold on the secondary market. Prepayment Penalty - fee charged for paying off a loan within a relatively short period of time after the loan has closed, provision is currently found only in non-conforming products, time period during which it applies is usually one to three years Principal Balance - outstanding dollar amount owed on a loan exclusive of accrued interest Principal, Interest, Taxes, Insurance (PITI) - monthly payments required by an amortizing loan that includes escrow deposits for taxes and insurance in addition to the principal and interest Private Bankers - where Private Money Investors lend you the REI a new 80% LTV mortgage. Private Bankers act as a bank, and generally use retirement money from 401(k)s, IRAs, and RRSPs. Private Money - A term meaning the ability to have Private Investors fund your deal | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
