Loans do make up large part of what we learn about real estate. I wrote a whole article about primary and secondary market loans, but in an effort to keep it brief, I may have skipped over some other key concepts in relation to real estate and loans.
Promissory Note: This is the most important document because it is the only thing that has any monetary value. Contains the amount borrowed, the interest rate, and how they are going to repay the loan. Could include an acceleration clause
Mortgage: Most widely used security device on a real estate loan, promises made by the borrower and gives lender options if the borrower defaults. When a note is sold the mortgage is transferred as a security deposit and provide collateral if it were to go into a fault
Trust Deed: The lender is the beneficiary and the borrower (trustor) conveys title to a neutral third party called the trustee and the trustee holds title to the property until the loan is paid
Security Deed: Financing Instrument used in lieu of a mortgage
FORECLOSURE
Judicial Foreclosure: The lender will have to sue the borrower and take them to court where the judge will issue a judgement
Non-Judicial Foreclosure: Lenders have the right to disclose if the lender declares the note at loans in default. Power of Sale Clause:The lender must advertise the property for four weeks prior to the foreclosure.
Equitable Redemption: Up until the day proceeding the sale of the home, the borrower has the ability to redeem the property
Statutory Redemption: You have a specific amount of time after the foreclosure you have the ability to buy your house even after it was sold (NOT available in Georgia)
Deficiency Judgement: A general lien and would open up real and personal property to be claimed if the lender needs money they were owed upon borrower default
Short Sale: The sales price is less than the remaining indebtedness
LOAN ASSUMPTION
Due on Sale/Alienation Clause: When the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender.
Subject to Sale: The buyer is not personally obligated to pay the debt in full.the buyer takes title to the real estate knowing that she must make payments on the existing loan. Upon default, the purchaser is not liable for the difference but the original seller might continue to be liable.
Transfer Fee: What a lender chargers to transfer loans from one person to another
ADDITIONAL LOAN TYPES
Adjusted Rate Mortgage: Begins at one rate of interest, then fluctuates up or down during the loan term, based on a specified economic indicator. Negative amortization can occur when the amount of the loan increases rather than decreases.
Agriculture Loan: Made by Farm Service Agency and is available to farmers and ranchers.
Blanket Loan: One loan is secured by several different piece fo property covers more than one parcel or lot.
Budget Mortgage: Known as a PITI (principal, interest, taxes, insurance) payment.
Buydown: a way to temporarily (or permanently) lower the interest rate on a mortgage or deed of trust loan.
Construction Loan: Short term loan and is used for building an average home. Consider the riskiest loan that a lender can make lender commits to the full amount of the loan but disburses the funds in payments during construction
Fully Amortized Loan: The lender credits each payment first to the interest due, then to the principal amount of the loan. The required payment stays the same, but more of each payment goes toward paying down the principal, thereby shortening the loan term.
Graduated Payment Mortgage: A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.
Growing-Equity Mortgage: Uses a fixed interest rate, but payments of principal are increased according to an index or schedule. The total payment thus increases, and the loan is paid off more quickly.
Home Equity: Allows you to use the equity in your home as security
Package Loan: Both real and personal property are used as security in the loan
Reverse Mortgage: allows a homeowner aged 62 or older to borrow money against the equity built up in the home. The borrowed money may be used for any purpose and the borrower decides if the funds will be paid out in a lump sum, fixed monthly payments, or another option.
Purchase Money Mortgage: THINK Owner Financing
Land Contract: Seller Financing and buyer has ONLY equitable title
Open-End Loan: Line of credit is given to the lender and when you pay it back it can borrower again | provides a security interest when a note is executed by the borrower to the lender, but also secures any future advances of funds made by the lender to the borrower
Sale - and - Leasback: Need money, so sell land and building and enter into a longest term leaseback from the investor that buys | not loans, are used to finance large commercial or industrial properties. The land and the building, usually used by the seller for business purposes, are sold to an investor.
Straight Loan: The borrower makes periodic payments of interest only, followed by the payment of the principal in full at the end of the term. Also known as a term loan or interest-only loan
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