Real Estate Financing Tips – Important tips to keep in mind before you commit to a home mortgage

If you have a lot of consumer debt like credit cards or personal loans, you’ll want to try to eliminate or reduce this debt since it will affect your ability to qualify for a mortgage and make the estimated monthly payment.

If you have monthly obligations like car payments , credit card payments, personal loan payments, student loan payments, etc., be sure to take these into account when you’re determining your bottom-line affordability figure.

The lenders will be able to tell you only what you MIGHT be able to afford based on your salary and level of debt. You also have to feel VERY comfortable with the reality of the monthly payment on your house.

You have to be careful not to assume that you can cut back your expenses and stretch yourself into a house payment. You don’t want to be cutting into healthy eating habits by eating fast food or junk food for a house that you may not be well enough to live in for a long time.

Real Estate Financing – The Most Important Tips

Remember that buying a home may be the single biggest investment you’ll ever make. Invest carefully. Don’t get yourself into a situation where you cannot make the payments. I know it’s hard to see into the future but based on your present health and job situation make sure you can do it for a reasonable period of time. Enough time to build up equity so that if you do get sick or lose your job you can easily sell your house before you get into a foreclosure situation. Try to think ahead. Thinking positive is important but so is being realistic.

Real estate financing has its secrets and you will gradually learn them by continuing to research everything you can find online and offline. Ask questions of real estate agents, real estate brokers and lenders and any other real estate professionals you know. You can learn a lot in a short period of time. What seemed like mumbo jumbo when you start out will gradually make sense. Be informed. Don’t jump into anything blindly or without giving it serious thought. Get a lot of advice and think about what makes sense to you. Ask other homeowners how they are doing and what pitfalls to avoid. Read every real estate contract and loan or home mortgage contract thoroughly before you sign on the dotted line.

Real Estate Financing -Refinancing

One of the most common types of real estate financing is refinancing your home.

When to Refinance
Effective refinancing usually means lowering your current mortgage loan rate by at least one percent. You might also want to consider changing the length of your loan or receiving cash from the equity in your home.

Benefits of Refinancing
If you want to increase your monthly cash flow, refinancing to lower your monthly payment could help. Refinancing could also let you to shorten your loan term if you can qualify.

Using Home Equity
Many people borrow against the equity in their homes and use the newly acquired cash to make home improvements. Up to ninety percent of the appraised value of your home can be used to borrow against to make home improvements. The equity you can use is based on the value of the home and what you currently owe, subject to the applicable state laws. You can still refinance if you don’t have much equity; up to ninety percent loan-to-value (LTV) if you want to refinance your house for a new rate and term. A reappraisal of your property will probably be required.

Refinancing Costs
You ‘ll have closing costs associated with refinancing your loan, including points and processing fees. You may have the option of rolling these costs into the loan amount to reduce your cash out of pocket. Check with your loan officer or mortgage specialist.

Refinancing real estate may be the way to go. Make sure you understand fully what you’re getting into. Read the fine print and have every paragraph explained before you sign any contract. Get help also from a trusted family member; especially someone who is knowledgeable about real estate, refinancing or real estate loans or contracts. If you have any real estate professionals or real estate appraisers or real estate attorneys in your family or close circle of friends, ask them for advice and have them go over your contract before signing. Real estate financing is not hard to understand once you learn a few basics.

Real Estate Financing – Loan Programs

Real Estate Financing – Loan Tips

In your real estate financing if you make too many loan inquiries (with aps), it may look like you’re shopping for credit . This can be a red flag for many lenders. When you finally do select a good lender you may have to explain, possibly in writing, why there are other inquiries from lending institutions on your credit report.

Some lenders may impose limits on how much of your down payment can come from borrowing. And any money received from a lending institution will show up on your credit report and your payments will factor into your debt-to-income ratio.

Fixed-Rate Mortgages

A fixed-rate mortgage means the interest rate and principal payments remain the same for the life of the loan. The taxes may change.

The advantages include consistent principal and interest payments make this loan stable so your rate won’t change. No need to worry about market fluctuations. A good choice if you’re likely to stay in this house for many years.

Disadvantages include a possibly higher cost – these loans are usually priced higher than an adjustable-rate mortgage. Keep in mind most people move or refinance within seven years. If rates in the current market are high, then you’ll probably get a better price with an adjustable-rate loan.

30-year fixed-rate mortgages offer consistent monthly payments for all of the 30 years you have the mortgage. If the market is good, you can benefit from locking in a lower rate for the full term of the loan. The best choice if you’re looking for a long-term, stable loan – for instance, if you’re planning to stay in your house for a long time.

20-year fixed-rate mortgages allow you to make a consistent monthly payment throughout all of the 20 years you have the mortgage. The shorter term means you pay the loan off quicker and therefore pay less interest. You’ll build equity faster than you would with a 30 year loan. Know that the shorter term means higher payments, when compared to the 30-year fixed-rate mortgage.)

15-year fixed-rate mortgages mean consistent monthly payments for all 15 years that you have the mortgage. By building equity even more quickly than with a 30-year or 20-year loan, and paying less interest, you save money in the long run. It’s an ideal option if you can handle the higher payments and if you’d like to have the loan paid off in a shorter period of time, for example, if you plan to retire.

Adjustable-Rate Mortgages
An adjustable-rate mortgage (called ARM) means that the interest rate changes over the life of the loan, according to the terms specified ahead of time. With ARMs: The initial interest rate is usually lower than with a fixed-rate mortgage. The monthly repayment would also be lower. The interest rate may be adjusted (up or down) at predetermined times. The monthly payment will then increase or decrease.

Most ARM programs do offer “rate cap” protection, which limits the amount the rate can be increased, both each year and over the life of the loan. All ARMs are amortized over 30 years.

Advantages include: lower costs – ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If the interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate, or for those who are purchasing their first home and plan to be in the property for just three to five years. On average, most people move or refinance within seven years.

Disadvantages include the possibility of increasing monthly payments if interest rates should go up. Keep in mind that ARMs are best for homeowners who aren’t planning on staying with a property for a long period of time. If you are on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.

10/1 adjustable-rate mortgages provide a fixed initial rate of the loan for the first ten years of repayment. After ten years, the rate adjusts every year thereafter for the remaining life of the loan. The loan is amortized over 30 years, so you’ll have the stability of a 30 year mortgage at a lower price than a fixed-rate mortgage of the same term. But an ARM is not the best choice if you’re planning on owning the same property for more than ten years.

7/1 adjustable-rate mortgages offer an initial rate that’s fixed for the first seven years of repayment, then the rate adjusts every year thereafter for the remaining life of the loan.

5/1 adjustable-rate mortgages mean the initial rate remains fixed for the first five years of repayment, and then adjusts every year thereafter. Your rate and monthly payments may go up after just five years, so this choice is best if you’re expecting to sell or refinance the property within that period.

3/1 adjustable-rate mortgages provide three years at the initial fixed-rate, then the rate adjusts every year for the remaining life of the loan. Choose this if you expect to move or refinance in a short period of time. But a much shorter fixed-rate period means your interest rate -and therefore your monthly payments- may begin to fluctuate after the three years.

Real Estate Financing – How To Determine How Big of a Home Mortgage You Can Afford

One of the first steps before you start looking for your dream home is to ask yourself what you can afford to spend on a monthly house payment. Although you may come up with some better or creative financing, the following tips will be based on a 20 percent typical down payment.

Collect a few of the local home guides you see stacked up at the local grocery stores and look at a few ads in the real estate section of your Sunday newspaper for houses you might consider buying.

Look at the sales prices and remember these are asking or listed prices, not actual sale or sold prices. Multiply these prices by 0.80 to give yourself a ballpark figure on the mortgage debt amount of these homes. Remember this is assuming you are paying 20 percent down.

Calculate what the mortgage or loan payments for these houses would be. If you have access to personal finance software you can use it or an online mortgage calculator.

Then add what you would have to pay monthly toward property taxes, insurance and private mortgage insurance (PMI). Although you may not have to pay private mortgage insurance with a 20 percent down payment.

Add this to your monthly costs for utilities. If you’re renting now, then ask friends or family who are homeowners what they typically pay per month or ask you real estate agent or broker for typical amounts.

Next add in your monthly budget for home maintenance. You want to budget about one percent of the cost of the home for maintenance each year. For example if the house costs $200,000, budget $2000 annually or $166 per month.

Next add in your prorated monthly cost of any furnishings, landscaping Sydney and any nonessential improvements to the house.

Now compare this figure with your monthly NET income to estimate affordability. Multiply your monthly income by 0.40 (40 percent is commonly used). If this figure is equal to or greater than your estimated monthly cost figures, then the house may be well within your price range.

Real Estate Financing – How To Buy a Home When You Have Bad Credit

If you have poor or bad credit it will make buying a home more difficult but definitely not impossible. Many other home buyers have done it. there are a few options you can think about what it comes to real esate financing.

You can ask the seller to carry the loan. If the seller still owes money on the home you can check with your lender and see if you can get a wrap-around mortgage. The wraparound mortgage will allow you to pay the monthly payment on the existing mortgage and an additional payment to pay the difference– the balance. Make sure that a wraparound mortgage will not trigger a due-on-sale clause, which requires the loan be paid off if the home is sold – read the fine print on the contract for the home. Wraparound mortgages are not legal in all states so check this out your real estate laws first.

Consider a lease-option on the property. A lease-option on the real property will allow you to set a good purchase price now, then apply a portion of the rent each month toward your down payment. When the lease period ends, usually anywhere from 12- 36 months but most commonly 12 months, prices on homes should have increased and you’ll have accrued equity without actual ownership. At the end of the lease-option period if you don’t exercise the option- that means buy the property, then none of the monies that you have paid the seller will be returned to you.

You can ask the seller if he will let you increase the price you are willing to pay the seller and have him credit the money back to you to be used for your down payment or for your closing costs.

As a last resort you can try borrowing money from your friends, relatives a pension plan or retirement plan to use or the down payment or help with closing costs. be careful, know what you can pay it back within a reasonable period of time.

If you do borrow money for a down payment it must be disclosed to the lender or if any of your money for your down payment was a gift, provide proof for it.

If this type of real estate financing appeals to you then you have some good options if you have poor or bad credit and are turned down by the lending institutions.

Real Estate Financing – Home Mortgage – Home Loan Glossary

Like any other legal system, the real estate financing and mortgage business, mortgage loans and legal process sometimes uses confusing jargon. In the real estate list below are some terms explained in brief simple language.

Adjustable Rate Mortgage (ARM): Mortgage loans under which the interest rate is periodically adjusted to more closely coincide and agreed to at the inception of the loan.

Alternative Documentation: The use of pay stubs, W-2 forms, and bank statements in lieu of Verifications of Employment (VOE) and Verifications of Deposit (VOD) to qualify a borrower for a mortgage.

Amortization: The systematic and continuous payment of an obligation through installments until the debt has been paid in full.

Annual Percentage Rate (APR): A term used in the Truth-in-Lending Act to present the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of the mortgage loan as a yearly rate. It could be higher than the interest rate stated on the Note because it includes, in addition to the interest rate, loan discount points, miscellaneous fees and mortgage insurance.

Appraisal: A report made by a qualified person setting forth an opinion or estimate of property value. (Appraisal also refers to the process through which a conclusion on property value is derived.)

Appraisal Amount or Appraised Value: The fair market value of a home determined by independent appraisal. The appraisal uses local real estate market sales activity as a major basis for valuation.

Appreciation: An increase in the value of a property due to market conditions or other causes. The opposite term is depreciation.

Balloon Mortgage: A fixed-rate mortgage for a set number of years and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with borrowers expecting to sell or refinance their property within a definite period of time.

Bankruptcy: Legal relief from the payment of all debts after the surrender of all assets to a court-appointed trustee. Assets are distributed to creditors as full satisfaction of debts, with certain priorities and exemptions. A person, firm or corporation may declare bankruptcy under one of several chapters of the U. S. Bankruptcy Code: Chapter 7 covers liquidation of the debtor’s assets; Chapter 11 covers reorganization of bankrupt businesses; Chapter 13 covers payment of debts by individuals through a bankruptcy plan.

Cap: The limit placed on adjustments that can be made to the interest rate or payments such as the annual cap on an adjustable rate loan (ARM) or the cap on a rate over the life of the loan.

Cash-out Refinance: To refinance the mortgage on a property for more than the principal owed. This allows the borrower to get cash from the equity in their home. Loan products may vary on how much can be borrowed on a cash-out refinance.

Closing: Also known as settlement, the finalization of the process of purchasing or refinancing real estate. The closing includes the delivery of a Deed, the signing of Notes and the disbursement of funds.

Closing Costs: Costs that are due at closing, in addition to the purchase price of the property. These costs normally include, but are not limited to, origination fee, discount points, attorney’s fees, costs for title insurance, surveys, recording documents, and prepayment of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.

Closing Statement: An accounting of the debits and credits incurred at closing. All FHA, VA and Conventional financing loans use a Uniform Closing or Settlement Statement commonly referred to as the HUD-1.

CMT: The Constant Maturity Treasury (CMT) is published by the Federal Reserve Board based on the average yield of a variety of Treasury securities adjusted to a one-year maturity. The CMT is offered as an index for setting rates on adjustable rate mortgage programs.

Co-Borrower: A party who signs the mortgage note along with the primary borrower, and who also shares title to the subject real estate.

Collateral: Property pledged as security for a debt. For example, real estate that secures a mortgage. Collateral can be repossessed if the loan is not repaid.

Combined Loan To Value (CLTV): The mathematical relationship between the total of all loan amounts (first mortgage plus subordinate liens) and the value of the subject property.

Community Reinvestment Act (CRA): This act requires financial institutions to meet the credit needs of their community, including low and moderate-income sections of the local community. It also requires banks to make reports concerning their investment in the areas where they do business.

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas. All condominiums must meet certain investor requirements.

Conforming Loan: A loan with a mortgage amount that does not exceed that which is eligible for purchase by FNMA or FHLMC. All loans are considered either as conforming or non-conforming, also known as jumbo.

Conventional Loan: A mortgage loan not insured or guaranteed by the federal government.

Conversion Option: Options to convert an adjustable rate mortgage or balloon loan to a fixed rate mortgage under specified conditions.

Conveyance: The legal document that transfers ownership of unregistered land.

Co-Signer: A party who signs the mortgage note along with the borrower, but who does not own or have any interest in the title to the property.

Creditor: A person to whom debt is owed by another person who is the “debtor”.

Credit Rating: A rating given a person or company to establish credit-worthiness based upon present financial condition, experience and past credit history.

Credit Report: A document completed by a credit-reporting agency providing information about the buyer’s credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Deal Structure: An Underwriters review of certain aspects of a loan application that do not meet standard guidelines.

Debt to Income Ratio: Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts. The other debts may include but not limited to car payment, credit cards, alimony, child support, and personal loans. This ratio is commonly used to see if the borrower has the capacity to repay the debt.

Deed of Trust: A legal document that conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a Deed of Trust accomplishes essentially the same purpose as a Mortgage.

Default: Failure to comply with the terms of any agreement. In real estate, generally used in connection with a mortgage obligation to refer to the failure to comply with the terms of the Promissory Note. Most often this default is a failure to make payments, however, there are other means by which a borrower may default, such as the failure to pay real estate taxes.

Depreciation: A decline in the value of property. The opposite of appreciation.

Disbursements: All the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.

Discount Points: A percentage of the loan amount which is charged or credited by the lender upon making a mortgage loan. Loans that are made at the present market rate, with no points, are considered to be made at “par.” Because of the lender’s ability to charge or credit points on an individual loan, the lender is able to tailor a loan program and interest rate to fit the needs of each individual borrower. Discount points can be negotiated in the Purchase Contract to be paid by either the seller or the borrower.

Each point equals 1% of the mortgage loan. For example, a charge of 1 point on a $50,000 loan would result in a charge of $500; 1/2 point would be $250 ($50,000 x .50%).

Down Payment: The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Earnest Money: Deposit made by a purchaser of real estate as evidence of good faith.

Equal Credit Opportunity Act (ECOA): Also known as Regulation B. A federal law that prohibits a lender from discriminating in mortgage lending on the basis of race, color, religion, national origin, sex, marital status, age, income derived from public assistance programs, or previous exercise of Consumer Credit Protection Act rights.

Equity: The difference between the current market value of a property and the principal balance of all outstanding loans.

Escrow Account: An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance, and special assessments, and from which the lender disburses these sums as they become due.

Fair Credit Reporting Act: Regulated the collection and distribution of information by the consumer credit reporting industry. It also affects how financial institutions collect and convey credit information about loan applicants or borrowers.

Fair Housing Act: Prohibits the denial or variance of the terms of real estate related transactions based on race, color, religion, sex, national origin, disability, or familiar status of the credit applicant. Real estate related transactions include a mortgage, home improvement, or other loans secured by a dwelling.

Federal Home Loan Mortgage Corporation (FHLMC): Also known as Freddie Mac. A publicly owned corporation created by Congress to support the secondary mortgage market. It purchases and sells conventional residential mortgages as well as residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

Federal National Mortgage Association (FNMA): Also known as Fannie Mae. A privately owned corporation to support the secondary mortgage market. It adds liquidity to the mortgage market by investing in home loans through the country.

FICO Score: A credit score given to a person that establishes creditworthiness based on present financial condition, experience and past credit history.

Finance Charge: The cost of credit as a dollar amount (i.e. total amount of interest and specific other loan charges to be paid over the term of the loan and other loan charges to be paid by the borrower at closing). Loan charges include origination fees, discount points, mortgage insurance, and other applicable charges. If the seller pays any of these charges, they cannot be included in the finance charge.

Financial Statement: A summary of facts showing an individual’s or company’s financial condition. For individuals, it states their assets and liabilities as of a given date. For a company it should include a Profit and Loss Statement (P&L) for a certain period of time and balance sheet, stating assets and liabilities as of a given date.

First Mortgage: A real estate loan that creates a primary lien against real property.

First Rate Adjustment — First rate adjustment after: In association with an Adjustable Rate Mortgage loan, this is the number of months after which the loan has closed when the first interest rate adjustment will occur.

First Rate Adjustment — Maximum rate decrease: In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can decrease during the first adjustment period.

First Rate Adjustment — Maximum rate increase: In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can increase during the first adjustment period.

Fixed Rate Mortgage: The type of loan where the interest rate will not change for the entire term of the loan.

Floating: The term used when a purchaser elects not to lock-in an interest rate at the time of application.

Flood Insurance: Insurance that compensates for direct physical damages by or from flood to the insured property subject to the terms, provisions, conditions and losses not covered provision of the policy. It is required for mortgages on properties located in federally designated flood areas.

Freehold: The ownership of a property and the land.

Good Faith Estimate (GFE): An estimate of settlement charges paid by the borrower at closing. The Real Estate Settlement Procedures Act (RESPA) requires a Good Faith Estimate of settlement charges be provided to the borrower.

Gift Letter: A letter or affidavit that indicates that part of a borrower’s down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.

Gross Income: A person’s income before deduction for income taxation.

Hazard Insurance: Insurance against losses caused by perils which are commonly covered in policies described as a “Homeowner Policy”.

Home Maintenance: Costs associated with maintaining a home. This may include, but not limited to, general repairs, replacement or repair of furnace, air conditioning, roof, plumbing and electrical systems.

Home Mortgage Disclosure Act (HMDA): Also known as Regulation C. The purpose of HMDA is to provide disclosure of mortgage lending application activity (home purchase or improvement) to regulators and the public. Information is collected on each application, and is recorded on a log that is compiled to produce a report on application activity by geographic designation (census tract).

Homeowners Association (HOA): A non-profit corporation or association that manages common areas and services of a Condominium or Planned Unit Development (PUD).

Homeowners Insurance: Insurance that covers damage to the insureds’ residence and liability claims made against the insured subject to the policy terms, conditions, provisions, losses not insured provision and exclusions.

Housing Expense Ratio: Ratio used to determine the borrowers capacity to repay a home loan. The ratio compares monthly income to the house payment (Principal, Interest, Taxes and Insurance).

Index: In connection with ARM loans, the external measurement used by a Lender to determine future changes which are to occur to an adjustable loan program. These will typically be published rates that are independent of the Lender’s control, such as a Treasury Bill.

Initial Interest Rate: The beginning interest rate at the start of an adjustable rate mortgage (ARM). It may be lower than the fully indexed rate or “going market rate” and it will remain constant until it is adjusted up or down on the adjustment date.

Interest: The amount paid by a borrower to a lender for the use of the lender’s money for a certain period of time.

The amount paid by a bank on some deposit accounts.

Interest Income: The potential income from funds which would have been used for the down payment, closing costs, and any difference (increase) between monthly rental payment and monthly mortgage payment.

Interest Rate: The percentage of an amount of money that is paid for its use for a specific time; usually expressed as an annual percentage.

Judgment: Decree of a court declaring that one individual is indebted to another and fixing the amount of such indebtedness.

Jumbo Loan: A loan above the limit set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Also referred to as a non-conforming loan.

Land Registration: A legal document that records the ownership of a property and land. This is also known as a Title.

Late Charge: An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.

Leasehold: The ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.

Legal Charge: A legal document that records the data of the rightful owner of a property or land.

LIBOR: LIBOR is an abbreviation for the “London Interbank Offered Rate,” and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Interest only loans and other adjustable rate mortgage programs.

Lien: A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money and use your home as collateral for the loan.

Life of Loan — Maximum rate decrease: In association with an Adjustable Rate Mortgage loan, this is the most the interest can decrease over the life of the mortgage loan.

Life of Loan — Maximum rate increase: In association with an Adjustable Rate Mortgage loan, this is the most the interest can increase over the life of the mortgage loan.

Loan Application: A source of information on which the lender bases a decision to make or not make a loan; defines the terms of the loan contract, gives the names of the borrower(s), place of employment, salary, bank accounts, credit references, real estate owned, and describes the property to be mortgaged.

Loan Balance: The amount of remaining unpaid principal balance owed by the borrower.

Loan Term: Number of years a loan is amortized. Mortgage loan terms are generally 15, 20, or 30 years.

Loan-to-Value (LTV): The ratio of the total amount borrowed on a mortgage against a property, compared to the appraised value of the property. A LTV ratio of 90 means that the borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is the lesser of the purchase price or the appraised value. For refinances the value is determined by an appraisal.

Loan-to-Value Ratio: The ratio, expressed as a percentage, of the amount of the loan (numerator) to the value or selling price of real property (denominator). For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

Lock-In: A written agreement between the lender and borrower for a specified period of time in which the lender will hold a specific interest rate, origination and/or discount point(s).

Margin: Under the terms of an adjustable rate mortgage (ARM), the margin is a set adjustment to the index. The particular loan product determines the amount of the margin.

Median Income: The middle income level. Half of the incomes would be higher than the median income and half of the incomes would be below the median income. This is not to be confused with an average income.

Mortgage: The written instrument used to pledge a title to real estate as security for repayment of a Promissory Note.

Mortgage Deed: A legal document that stated that the lender has a legal charge over the property.

Mortgage Insurance: Insurance written in connection with a mortgage loan that indemnifies the lender in the event of borrower default. In connection with conventional loan transactions, this insurance is commonly referred to as Private Mortgage Insurance (PMI).

Mortgage Note: A written promise to pay a sum of money at a stated interest rate during a specified term. It is typically secured by a mortgage.

Mortgage Servicing: Controlling the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. The lender or a company acting for the lender, for a servicing fee, may do servicing. (Also called Loan Servicing.)

Mortgagee: The institution, group, or individual that lends money on the security of pledged real estate; the association, the lender.

Mortgagee Clause: This is the clause that is typically used for hazard insurance and flood insurance.

Mortgagor: The owner of real estate who pledges his property as security for the repayment of a debt; the borrower.

Net Income: The difference between effective gross income and expense including taxes and insurance. The term is qualified as net income before depreciation and debt.

Non-Conforming: A loan with a mortgage amount that exceeds that which is eligible for purchase by FNMA or FHLMC. All other loans above this amount are considered to be non-conforming or jumbo loans.

Non-Owner-Occupied Property: Property purchased by a borrower not for a primary residence but as an investment with the intent of generating rental income, tax benefits, and profitable resale.

Note: A written promise by one party to pay a specific sum of money to a second party under conditions agreed upon mutually. Also called “promissory note.”

Note Rate: The interest rate on the mortgage loan.

Origination Fee: A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.

Origination Process: Process in which a lender solicits business, gathers required information and commits to loan money, for the purchase of real estate.

Owner-Occupied Property: The borrower or a member of the immediate family lives in the property as a primary residence.

PITI: Term commonly used to refer to a mortgage loan payment. Acronym stands for Principal, Interest, Taxes, and Insurance.

PITI Ratio: Compares the amount of the monthly income to the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage. Lenders use it in deciding whether to give the borrower a loan. Also called “income-to-debt” ratio.

Planned Unit Development (PUD): A housing project that may consist of any combination of homes (one-family to four-family), condominiums, and various other styles. In a PUD, often the individual unit and the land upon which it sits are owned by the unit/homeowner; however, the homeowner’s association owns common facilities.

Pre-Approval: A process in which a customer provides appropriate information on income, debts and assets that will be used to make a credit only loan decision. The customer typically has not identified a property to be purchased, however, a specific sales price and loan amount are used to make a loan decision. (The sales price and loan amount are based on customer assumptions).

Pre-Qualification: A process designed to assist a customer in determining a maximum sales price, loan amount and PITI payment they are qualified for. A pre-qualification is not considered a loan approval. A customer would provide basic information (income, debts, assets) to be used to determine the maximum sales price, etc.

Prepaid Expenses or Prepaids: The term used to describe the funds the Lender requires to be deposited to establish the escrow account for taxes and insurance at the time of closing (also refers to Prepaid Interest).

Prepaid Interest: Interest that the borrower pays the lender before it becomes due.

Prepayment: A loan repayment made in advance of its contractual due date.

Prepayment Penalty: A penalty under a Note, Mortgage or Deed of Trust imposed when the loan is paid before its maturity date.

Principal and Interest: Two components of a monthly mortgage payment. Principal refers to the portion of the monthly payment that reduces the remaining balance for the mortgage. Interest is the fee charged for borrowing money.

Principal Balance: The outstanding balance of a mortgage, not counting interest.

Principal, Interest, Real Estate Tax, Insurance Payment: The total mortgage payment which includes principal, interest, taxes and insurance.

Private Mortgage Insurance (PMI): Insurance against a loss by a lender in the event of default by a borrower (mortgagor). A private insurance company issues this insurance. The premium is paid by the borrower and is included in the mortgage payment.

Processing: Gathering the loan application and all required supporting documents (including the property appraisal, credit report, credit history, and income and expenses) so that a lender can consider the borrower for a loan.

Promissory Note: A document in which the borrower promises to pay a stated amount on a specific date. The note normally states the name of the lender, the terms of payment and any interest rate.

Property Taxes: Taxes assessed on real estate. Property taxes are based on valuations by local and or state governments.

Purchase Agreement: A written agreement between a buyer and seller of real property, that states the price and terms of the sale.

Purchase Price: The total amount paid for a home.

Qualifying Income Ratios: Income analysis used by lenders in deciding whether to offer the borrower a loan. One type of analysis compares only the amount of the proposed monthly mortgage payment to the monthly income. Another compares the amount of the total monthly payments (for example car, credit card and proposed mortgage payments) to the monthly income.

Rate Index: An index used to adjust the interest rate of an adjustable mortgage loan.

Real Estate Appreciation Rate: Percentage increase in the value of real estate, expressed at an annual rate.

Real Estate Settlement Procedures Act (RESPA): A consumer protection law that requires, among other things, lenders to give borrowers advance notice of closing costs.

Realtor: A person licensed to negotiate and transact the sale of real estate on behalf of the property owner. A real estate broker or associate must hold active membership in a real estate board affiliated with the National Association of Realtors.

Recording Fee: The amount paid to the recorder’s office in order to make a document a matter of public record.

Regulation Z: Federal Reserve regulation issued under the Truth-in-Lending Act, which, among other things, requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the loan.

Rental Payment: A payment made to use another’s property. The amount of the rent is determined in a contract and is typically paid monthly.

Renters Insurance: Insurance against perils which are commonly covered in policies described as a “Renters Policy”.

Repayment: The payment of a mortgage loan over a period of time established when the loan is originated.

Rescind: To avoid or cancel in such a way as to treat the contract or other object of the rescission as if it never existed.

Sales Contract: A written agreement between parties stating all terms and conditions of a sale.

Savings Rate: The interest rate a person expects to earn on a savings account or investment account.

Sealing Fee: A fee made when the lender releases the legal charge over the property.

Seasoned mortgage: A mortgage which has been paid in a timely manner by the mortgagor for a period of typically no less than six months, and often for more than one year. The term is associated with the secondary market, where mortgages with similar characteristics are bought and sold in bulk.

Secondary Market: An informal market where existing mortgages are bought and sold. It is the traditional aftermarket for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages.

Seller Contribution: The seller may be paying some or all of the borrower’s cost. The amount of the contribution has limitations.

Selling Costs: The costs incurred in selling a home. This could include Realtor expenses and other miscellaneous expenses such as painting or minor repairs to prepare the home for sale.

Servicing: All the management and operational procedures that the mortgage company handles for the life of the loan, up through foreclosure if necessary, including: collecting the mortgage payments, ensuring that the taxes and insurance charges are paid promptly, and sending an annual report on the mortgage and escrow accounts.

Servicing Released: A stipulation in the agreement for the sale of mortgages in which the Lender is not responsible for servicing the loan.

Servicing Retained: A loan sale in which the original lender’s servicing department continues to service the loan after the sale to a secondary institution or investor.

Settlement Statement: Also referred to as a HUD-1 Settlement Statement. The complete breakdown of costs involved in the real estate transaction for both the seller and buyer.

Single-Family Attached Home: A single-family dwelling that is attached to other single-family dwellings.

Single-Family Detached Home: A freestanding dwelling for a single family.

Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any improvements.

Subordinate Financing: An additional lien against the real estate securing borrowers first mortgage. This lien takes second priority to the first mortgage.

Subsequent Rate Adjustment — Maximum rate decrease: In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can decrease when it is scheduled for reevaluation and possible adjustment.

Subsequent Rate Adjustment — Maximum rate increase: In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can increase when it is scheduled for reevaluation and possible adjustment.

Subsequent Rate Adjustment — Next ARM Adjustment Date: In association with an Adjustable Rate Mortgage loan, this is the date scheduled for the next possible payment adjustment.

Subsequent Rate Adjustment — Rate Change Frequency: In association with an Adjustable Rate Mortgage loan, this is the frequency in which possible adjustments may be made to the interest rate amount for Adjustable Rate Mortgages after the initial adjustment.

Tax Rates: Tax levied by the federal government and some states based on a person’s income. Federal income tax rates vary depending on a person’s adjusted gross income.
Tax Savings: The amount saved on taxes by itemizing deductions on income tax returns.

Title: The evidence to the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift or through the foreclosure of a mortgage.
Title Insurance Policy: A contract by which the insurer, usually a title company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects of title to real estate, which the insured has an interest as owner, mortgagee or otherwise.
(a) Owner’s Title Policy: Usually issued to the landowner himself. The owner’s title insurance policy is bought and paid for only once and then continues in force without any further payment. Owner’s Title Insurance policies are not assignable.
(b) Mortgagee’s Title Policy: Issued to the mortgagee and terminates when the mortgage debt is paid. In the event of foreclosure, or if the mortgagee acquires title from the mortgagor in lieu of foreclosure, the policy continues in force, giving continued protection against any defects of title which existed at, or prior to, the date of the policy.

Treasury Bills: Interest bearing U.S. Government obligations sold at a weekly sale. The change in interest rates paid on these obligations is frequently used as the Rate Index for Adjustable Mortgage Loans.

Truth in Lending (TIL): The name given to the federal statues and regulations (Regulation Z) which are designed primarily to insure that prospective Borrowers of credit received credit and cost information before concluding a loan transaction.

Underwriting (Mortgage Loans): The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

Verification of Deposit (VOD): Form used in mortgage lending to verify the deposits or assets of a prospective borrower when monthly statements are unavailable or unusable.

Verification of Employment (VOE): Form used in mortgage lending to verify the employment and income of a prospective borrower when pay stubs and W2 forms are unavailable or unusable.

Verification of Mortgage (VOM): Form used in mortgage lending to verify the existing mortgage balance, monthly payments and late payments, if any.

Verification of Rent: Form used in mortgage lending to verify monthly rents paid and late payments, if any.

Additional Real Estate Financing and Home Mortgage List of Terms

Like any other legal system, the mortgage business sometimes uses confusing jargon. Below are some terms explained in brief. If a term is not explained here it may be related to the legal mortgage rather than to the loan.

Advance: This is the money you have borrowed plus all the additional fees.

Base Rate In UK: This is the base interest rate set by the Bank of England. In the United States, this value is set by the Federal Reserve and is known as the Discount Rate.

Bridging Loan: This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.

Disbursements: These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.

Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty: This is the amount of money due if the mortgage is paid in full before the time finished.

Equity: This is the market value of the property minus all loans outstanding on it.

First time buyer: This is the term given to a person buying property for the first time.

Loan Origination Fee: A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.

Sealing Fee: This is a fee made when the lender releases the legal charge over the property.

Subject To Contract: This is an agreement between seller and buyer before the actual contract is made.

This real estate glossary list includes just some of the many real estate financing and home mortgage terms or home loan terms.

Real Estate Financing – Getting a Home Loan Checklist

When buying a home, getting a home loan is the most important step in the process. You’ll need to know the basics to get your real estate financing in place.

Real estate financing list and checklist for getting a home loan

First of all you’ll need to find a lender for your real estate financing and potential residential or home investment. You can do this by asking friends, family, co-workers, real estate agents, real estate brokers, real estate professionals and search the Internet for local lenders. Look in your neighborhood. Try to find a well-established institution. Be careful about working with mortgage brokers– they broker loans and work with several institutions. Some are not reliable and many go out of business when the market dwindles, although your underlying loans should be okay if it is with a reputable institution. Mortgage brokers may come in handy if you need to do some creative or difficult financing or shop for the best interest rate, etc.

Call several of the local lenders and try to get an idea of the interest rate they are offering right now– TODAY. This can change by tomorrow however.

Fill out a loan application.

Get an estimate of closing costs from the lender you’ve chosen. By law, the lender is required to provide his statement to you within three days of receiving your loan application. Make sure you know what type of loan program your lender has chosen for you. Get the rates, terms and any special information such as prepayment penalties, etc.

If you’re working with more than one lender compare the costs.

You can negotiate fees. Oftentimes you can negotiate the amount of the fees or loan points the lender charges you. (A point is one percent of the loan amount. Two points is two percent of the loan amount and so on.)

You can consider lowering your interest rate by paying more points. The more points you pay the lower the interest rate will be. Think this over carefully before you do this however. Get advice -it’s not the usual way to go.

Provide all the documentation that is required for the loan application as quickly as possible.

Pay any upfront fees required. For example, sometimes the lender will require the appraisal, credit report or processing fee be paid upfront – before the loan is processed.

Review any loan papers. About one week before closing on your property the loan papers will be ready for you to review. Make sure that the loan figures match the original quote you were given.

Have someone you know who is a real estate professional, real estate agent, real estate broker, real estate attorney or any other related real estate expert AND your CPA, go over the papers with you. Also it’s good to know what tax benefits you will have and what taxes you’ll have to pay at closing and going forward.

Sign your loan papers and deposit your down payment into your account about three or four days before closing on the property.

You’ll need to get a cashiers check for the down payment to the title company, escrow company or real estate attorney who is handling the closing on the property. Make sure to do this on a weekday when banks are open. You don’t want to lose it so try to time it so you can get the check and take it to the title company but make sure you have allowed enough time for the money to be in your account– transfers from other accounts can take 24 hours or more. Think ahead. The lending institution will send a check to the title company for the amount of the loan.

Now just sign off on all the contingencies – these are called ‘subject to’s’ – and wait for the transaction to close. Then receive a deed and the keys to the property. You are now done. Congratulations! Good work! Real estate financing is easy when you know how to do it! You now are an investor with a great residential investment.

Real Estate Financing – Best Resource

If you’re looking for the most up-to-date real estate financing information the best resource I know of is the Realty Bluebook. I’ve used it for years in my real estate business. All residential and commercial real estate agents and real estate brokers, investment advisors, investment counselors, financial planners, investors, loan officers, real estate attorneys, real estate appraisers, etc. use it. The general public usually isn’t aware of its existence. Your library may have a copy and you can buy it online.

It’s necessary to have a resource book like the Realty Bluebook because no one can possibly keep up to date on the latest finance information.

Real Estate Financing

The financing section has nearly 200 pages of the most complete current and easy-to understand detailed facts about: Fannie Mae, FHA, VA, conventional and seller financing, fixed rate loans, ARMs – adjustable rate mortgages, bi-weeklies, 15-year mortgages, reverse mortgages for senior citizens and much more.

Tools for Creative Seller Real Estate Financing

Effective tools for creative seller financing, including: wraparounds, lease options, buydowns, seller concessions, how to write second mortgages without running afoul of restrictions and much more.

Financial Tables

The section I use almost daily is the financial tables: monthly payments to amortize a $1,000 loan, annual percentage rates, bi-weekly, weekly and monthly payment schedules, net and gross selling prices, factors to compute interest portion of loan payments, remaining balance table, income conversion table, equity build-up table measurements and conversion tables.

More Financial Tables

Loan Payment Tables
APR Tables
Bi-Weekly Payment Tables
Constant Annual Percent Tables
Loan-to-Value Ratios
Net and Gross Selling Price
Factors to Compute Monthly Interest
Remaining Balance Tables
Balloon Payment Tables
Yield Tables
History of ARM Indexes Graph
GPM Highest Outstanding Balance
GPM Outstanding Balance Factors
FHA-GPM Tables
GEM Tables
FHA Loan-to-Value Table
Income Conversion Table
Future Values Compounded Annually
Future Values Compounded Monthly
Present Values
Compound Interest Comparison
Federal Discount Rate
Equity Build-up Tables
Depreciation Tables
Federal Income Tax Rates
Measurements
Square Footage Charts
Metric Measurements and Conversions
Directions for Use of Tables
Calculator Keystrokes for HP and Qualifier Plus™

Virtually everything you need or want to know about real estate financing – residential, investment and commercial financing, is in the Realty Bluebook.

Real Estate Financing a Home When You Have a Poor Credit Rating

Buying and Financing a Home When You Have a Poor Credit Rating

If you plan to buy invest in and finance a home when you have a low or poor credit rating or low FICO score, the first step is to determine why it’s low and if there is anything you can do about it. Hopefully you can improve your credit score and qualify for a residential low rate mortgage.

Have you had a history of paying your bills late or does your credit report have mistakes? Have you ever filed for and gone through a bankruptcy?

If you have errors on your credit reports, you can easily clean them up by asking the three main credit reporting bureaus, which are Equifax.com, Experian.com, and TransUnion.com to remove the mistakes or errors. If you know your identity has been stolen, you can file a police report and fill out an affidavit on the credit reporting bureaus’ websites to clean up your credit history. Once your credit history is cleaned up, your credit score will begin to rise.

If your problem is that you’ve been late in paying your bills, or there is other negative information on your credit history, the only thing that may help you is the passage of time. The good news is that time eventually will take care of it.

You can start the process of cleaning up your credit reports by checking out your credit reports and scores from each of the credit reporting bureaus. You can do this online by going to www.annualcreditreport.com.

After you learn your credit scores you will want to find out if it’s so low that it puts you in the subprime category. What this means is you’ll pay a higher interest rate plus higher fees to get your real estate loan. Be careful to find out if you may be forced to accept a prepayment penalty, which can be expensive if you decide to sell or refinance before the penalty period expires. Read the fine print carefully. Subprime relates to scores that are under 620 or so depending on the lender.

You may be able to get a subprime loan at a higher interest rate, but it would be much better to spend the next year cleaning up your credit history, and making all of your payments on time or a little early. After you start making payments on time and allow a few months to pass since your last piece of recorded negative information, your credit score will begin to rise.

At this point you’ll be eligible for a much larger selection of better loans and better residential loans or home loans at better interest rates from some of the nation’s top lenders.

Spend this next year while you’re cleaning up your credit, making plans for your real estate financing and real estate purchase. Check out a variety of neighborhoods and schools too if it applies. Know what kind of real estate you or you and your spouse or partner want; a house, townhouse, condominium or even a duplex that you would live in on one side and rent out the other. Try to put away some extra money so you’ll have enough cash for your down payment and inevitable moving expenses. Try to get an idea what your down payment and moving expenses will be.

It may sound like a year is a long time but you’ll need this time to reverse your credit history, find just the right neighborhood and schools, the right real estate, the right real estate financing and save enough for your down payment. Even though you’ll lose a year appreciation, you will save in the long run with the lower interest rates. If you need professional help regarding your current bills and planning for the future residential real estate financing and real estate home purchase you can talk to one of the credit counselors affiliated with the National Foundation for Consumer Credit.

Mortgage Quote

When you’re ready for real estate financing, you want to save money on your home mortgage and to get a free mortgage quote or home loan quote, you generally have to give some basic financial information. And if you’re looking for a home mortgage or refinancing, then Lending Tree below on this page is a good place to start. That’s because Lending Tree has many lenders in their network and can give you the best mortgage quote after searching through all of their lenders. It’s free of course too and only takes a few minutes or a few seconds in some cases.

Getting quotes online is the fastest way to get home loan or mortgage quotes. You can also call around to your local lenders and see what you an do by phone to save time but generally getting mortgage quotes online is the fastest and we all want to save as much time as possible.

You can get some mortgage quotes online first and then contact your local lenders to compare or you may have already done that. At any rate it’s a good idea to always compare your rates, fees, points and all other comparable information you can in order to get the best home loan or best mortgage quote. Mortgage brokers usually have higher fees because they’re acting as ‘middle men’ and take a fee for finding the best mortgage loans. In some cases they may not be finding you the best mortgages but may give you the lenders they have affiliated with. So be careful when working with mortgage brokers.

Go with lenders or mortage companies that have a recognizable name and a good reputation and you should get a good free home loan quote or mortgage quote and save money. Check out Lending Tree also.