Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
Process through whi ch one purchases property wi thout payi ng the enti re purchase
pri ce i n cash. F i nanci ng usual l y i nvol ves a f i nanci al i nsti tuti on that l oans the
F i nanci ng
borrower the amount needed to buy the property, mi nus any down payment. Lenders
take ri sks when l endi ng money to f i nance real estate.
Loan secured by vol untary l i en on Real Property, where a property owner enters i nto
a contract to borrow money and vol untari l y agrees to exti ngui sh the ri ghts and hi s
M ortgage
real property i f he f ai l s to pay the debt accordi ng to the terms of the l oan
agreement.
Vol untary l i en on Real Property, si mi l ar to a mortgage. Under a deed of trust, a
property owner enters i nto a contract to borrow money and vol untari l y agrees to
D eed of trust
exti ngui sh the ri ghts i n hi s real property i f he f ai l s to pay the debt accordi ng to
the terms of the l oan agreement.
M ethod of sel l er f i nanci ng i n whi ch the buyer recei ves E qui tabl e T i tl e upon
cl osi ng, and the sel l er retai ns l egal ti tl e unti l the buyer compl etes al l
Land contract i nstal l ment payments. Unl ock a mortgage, the buyer who purchases the property
under a l and contract recei ves f ewer Protecti ons i n the event of a def aul t then
wi th a tradi ti onal mortgage.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
i ntermedi ary that obtai ns f unds f rom deposi t hers and l ens those f unds to
F i nanci al i nsti tuti ons borrowers i n order to return. Common f i nanci al i nsti tuti ons i ncl ude commerci al
Banks, Savi ngs and Loans, i nsurance compani es, and credi t
Central banki ng system run by the f ederal government, whi ch regul ates banks i n the
F ederal Reserve System US, control s the avai l abi l i ty of money and Credi t i n the US, and serves as a l ender-
of -l ast-resort to qual i f i ed Banks.
N etwork of di rect l enders, al so known as Pri me l enders or Ori gi nators, who make
mortgage l oans di rectl y to borrowers. Some pri mary l enders retai n the mortgages
Pri mary mortgage M arket
they ori gi nate, but most sel l l oans other i nvestors. By sel l i ng l oans, they l i qui date
thei r i nvestment and recei ve addi ti onal f unds to make more l oans.
N etwork of I nsti tuti ons that purchase and sel l exi sti ng mortgages. T wo di f f erent,
but compl ementi ng, f orces l ed to the creati on of the secondary M arket busi ness
enti ti es wi th cash reserves and real estate, and f i nanci al i nsti tuti ons i n the pri mary
Secondary mortgage M arket
M arket i n need of cash to ori gi nate l oans. Secondary M arket parti ci pants recei ve a
return on thei r i nvestments i n pri mary l oans, and pri mary parti ci pants recei ve cash f or
addi ti onal l oans.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
T o appl y f or most mortgage l oans, the borrower must compl ete a standard F ederal
F orm. T he borrower must provi de the f ol l owi ng i nf ormati on on empl oyment, sal ary
Loan appl i cati on procedures hi story, monthl y i ncome, assets, and l i abi l i ti es, authori z ati on f or the l ender to
veri f y al l i nf ormati on, and an af f i davi t stati ng whether he i ntends to l i ve i n the
property.
M oney or property pl edged to A l ender by a borrower as securi ty f or the payment of
debt. M ortgage l enders mi ni mi z e the ri sk of l oani ng money by requi ri ng borrowers
Col l ateral to pl edge col l ateral . Shoul d the buyer f ai l to pay the l oan, the l ender M ay
recoup the l oss by exerci si ng i ts ri ght to f orce the sal e of the pl edge to
col l ateral .
E ven wi th col l ateral , l enders take ri sks when they l oan money, there are l egal and
Qual i f yi ng borrowers and col l ateral Regul atory costs associ ated wi th the f or sal e, and i nherent uncertai nti es i n market
pri ces. H owever, l enders f urther mi ni mi z e ri sk by qual i f yi ng Borrowers.
Pre-qual i f i cati on I nf ormal esti mate of the amount that I borrower M ay af f ord to borrow.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
Pre-approval Li nder's condi ti onal commi tment to l end to a speci f i c borrower.
Rati o between a mortgage l oan amount i n the sal es pri ce of F i nance property or
apprai sed val ue of real estate, whi chever i s l ower. Lenders anal yz e LT V and
Loan-to-val ue rati o establ i sh maxi mum rati os i n order to reduce the ri sk that a borrower wi l l def aul t
on hi s l oan. T he hi gher the LT V, the l ess money down a purchaser pays because the
l ender i s l endi ng a greater amount of the purchase pri ce.
T he cost of borrowi ng money. A l ender charges a f ee to the borrower based on a
certai n percentage of the unpai d l oan bal ance f or the use of borrowed money. T he
I nterest
total amount of borrowed money i s cal l ed the pri nci pal . Si mpl e i nterest i s the
most common method of cal cul ati ng i nterest.
T he cost of credi t expressed as a yearl y percentage rate. T he APR of a mortgage
Annual percentage rate APR i ncl udes the i nterest rate, poi nts, mortgage broker f ees, and certai n other credi t
charges.
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
Process through whi ch one purchases property wi thout payi ng the enti re purchase
pri ce i n cash. F i nanci ng usual l y i nvol ves a f i nanci al i nsti tuti on that l oans the
F i nanci ng
borrower the amount needed to buy the property, mi nus any down payment. Lenders
take ri sks when l endi ng money to f i nance real estate.
Loan secured by vol untary l i en on Real Property, where a property owner enters i nto
a contract to borrow money and vol untari l y agrees to exti ngui sh the ri ghts and hi s
M ortgage
real property i f he f ai l s to pay the debt accordi ng to the terms of the l oan
agreement.
Vol untary l i en on Real Property, si mi l ar to a mortgage. Under a deed of trust, a
property owner enters i nto a contract to borrow money and vol untari l y agrees to
D eed of trust
exti ngui sh the ri ghts i n hi s real property i f he f ai l s to pay the debt accordi ng to
the terms of the l oan agreement.
M ethod of sel l er f i nanci ng i n whi ch the buyer recei ves E qui tabl e T i tl e upon
cl osi ng, and the sel l er retai ns l egal ti tl e unti l the buyer compl etes al l
Land contract i nstal l ment payments. Unl ock a mortgage, the buyer who purchases the property
under a l and contract recei ves f ewer Protecti ons i n the event of a def aul t then
wi th a tradi ti onal mortgage.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
i ntermedi ary that obtai ns f unds f rom deposi t hers and l ens those f unds to
F i nanci al i nsti tuti ons borrowers i n order to return. Common f i nanci al i nsti tuti ons i ncl ude commerci al
Banks, Savi ngs and Loans, i nsurance compani es, and credi t
Central banki ng system run by the f ederal government, whi ch regul ates banks i n the
F ederal Reserve System US, control s the avai l abi l i ty of money and Credi t i n the US, and serves as a l ender-
of -l ast-resort to qual i f i ed Banks.
N etwork of di rect l enders, al so known as Pri me l enders or Ori gi nators, who make
mortgage l oans di rectl y to borrowers. Some pri mary l enders retai n the mortgages
Pri mary mortgage M arket
they ori gi nate, but most sel l l oans other i nvestors. By sel l i ng l oans, they l i qui date
thei r i nvestment and recei ve addi ti onal f unds to make more l oans.
N etwork of I nsti tuti ons that purchase and sel l exi sti ng mortgages. T wo di f f erent,
but compl ementi ng, f orces l ed to the creati on of the secondary M arket busi ness
enti ti es wi th cash reserves and real estate, and f i nanci al i nsti tuti ons i n the pri mary
Secondary mortgage M arket
M arket i n need of cash to ori gi nate l oans. Secondary M arket parti ci pants recei ve a
return on thei r i nvestments i n pri mary l oans, and pri mary parti ci pants recei ve cash f or
addi ti onal l oans.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
T o appl y f or most mortgage l oans, the borrower must compl ete a standard F ederal
F orm. T he borrower must provi de the f ol l owi ng i nf ormati on on empl oyment, sal ary
Loan appl i cati on procedures hi story, monthl y i ncome, assets, and l i abi l i ti es, authori z ati on f or the l ender to
veri f y al l i nf ormati on, and an af f i davi t stati ng whether he i ntends to l i ve i n the
property.
M oney or property pl edged to A l ender by a borrower as securi ty f or the payment of
debt. M ortgage l enders mi ni mi z e the ri sk of l oani ng money by requi ri ng borrowers
Col l ateral to pl edge col l ateral . Shoul d the buyer f ai l to pay the l oan, the l ender M ay
recoup the l oss by exerci si ng i ts ri ght to f orce the sal e of the pl edge to
col l ateral .
E ven wi th col l ateral , l enders take ri sks when they l oan money, there are l egal and
Qual i f yi ng borrowers and col l ateral Regul atory costs associ ated wi th the f or sal e, and i nherent uncertai nti es i n market
pri ces. H owever, l enders f urther mi ni mi z e ri sk by qual i f yi ng Borrowers.
Pre-qual i f i cati on I nf ormal esti mate of the amount that I borrower M ay af f ord to borrow.
, Real Estate
Study this set o nline at: https://www.cram.co m/flashcards/real-estate--10 211449
Pre-approval Li nder's condi ti onal commi tment to l end to a speci f i c borrower.
Rati o between a mortgage l oan amount i n the sal es pri ce of F i nance property or
apprai sed val ue of real estate, whi chever i s l ower. Lenders anal yz e LT V and
Loan-to-val ue rati o establ i sh maxi mum rati os i n order to reduce the ri sk that a borrower wi l l def aul t
on hi s l oan. T he hi gher the LT V, the l ess money down a purchaser pays because the
l ender i s l endi ng a greater amount of the purchase pri ce.
T he cost of borrowi ng money. A l ender charges a f ee to the borrower based on a
certai n percentage of the unpai d l oan bal ance f or the use of borrowed money. T he
I nterest
total amount of borrowed money i s cal l ed the pri nci pal . Si mpl e i nterest i s the
most common method of cal cul ati ng i nterest.
T he cost of credi t expressed as a yearl y percentage rate. T he APR of a mortgage
Annual percentage rate APR i ncl udes the i nterest rate, poi nts, mortgage broker f ees, and certai n other credi t
charges.
