Before we get started
Trick to Remember
Or or or is the GIVOR.
Ee ee ee is the gimee gimee gimee the property
Whose the bank?
Mortgagor – borrower
The Mortgagor is the GIVOR. of the payment.
The borrower; gives the mortgage to the lender in exchange for the loan
Mortgagee – lender
The lender; receives the mortgage payment from the borrower in exchange for the loan.
If the Mortgagee doesn’t give the payment, the Mortgagee says: gimee, gimee, gimee the propertee
- A two-party security instrument for a promissory note that pledges the property in the event of loan default and creates personal liability for the borrower.
- Automatically released when paid off. Mortgage foreclosure must be pursued through the courts.
- The promise to pay. A promissory note pledges the property in loan default and creates personal liability for the borrower.
- Terms of the note usually include Names of note holder and borrower, the total amount to be repaid, interest rate, payment intervals, and amounts.
- A note alone is unsecured (without collateral) unless accompanied by a security instrument, which is a deed of trust or mortgage in real estate.
NOT evidence of ownership (title)
You are automatically released when the mortgage is paid off.
- The seller loans the buyer the money to purchase the property.
- The seller gets a note instead of cash.
Deed of Trust
- A three-party security instrument for a promissory note conveys “naked title.” It gives the trustee a right and process to foreclose without resort to courts in the event of default.
- The three parties are the borrower (trustor), the trustee, and the lender (beneficiary of the trust).
- A 3-party security instrument for a promissory note that transfers title from the trustor (borrower) to a trustee (third party) to be held for the benefit of the beneficiary (lender). Must be released when the loan is paid off.
The borrower in a deed of trust.
The third party
A person who receives payment under a deed of trust or the person for whom a trust operates.
Release of a Deed of Trust
It is issued by the public trustee when shown a note signed by the lender “paid in full,” accompanied by the original or copy of the deed of trust and a “release of deed of trust” application signed by the lender.
Legal title only without the bundle of rights associated with ownership; Example: Title held by a trustee under a deed of trust.
Usual Elements of Deeds of Trust and Mortgages
- description of the indebtedness,
- maturity date,
- method of repayment of the principal amount,
- interest rate and
- time of payment, and
- conditions of default as to principal and interest.
Discount Point; 1% of the loan amount.
One percent of the loan amount.
They are often used for buy-downs, where they may be called Discount Points.
A percentage of the principal loan amount charged by the lender.
Each point is equal to 1% of the loan amount.
A fee paid by the borrower to lower the interest rate on a loan
Increases the lender yield
A financing technique used to reduce the monthly payments of a loan
AKA: Discount Points
An up-front lender charges to increase the yield or lower the interest rate on the loan. One discount point = 1% of the loan amount. Typically, it takes about 8 points to reduce the loan rate by 1 percent.
Increases the Lender’s Yield
Buying Down Interest
Paying discount points upfront (by either buyer or seller) to receive a lower interest rate. Usually, 1 point (1% of the loan amount) will decrease the interest rate 1/8 of 1 percent.
L.T.V. – Loan to Value
The relationship between the amount of the mortgage loan and the real estate value is pledged as collateral.
The amount of money borrowed compared to the value (or price) of the property.
The amount of a first mortgage divided by the lesser of (1) the appraised value of the property or (2) the purchase price of the property.
Problems with a High L.T.V. (Above 80%)
The loan could be denied
Lender could increase the cost of the loan to the borrower
Lender could require that the borrower pay for private mortgage insurance (PMI)
PMI – PRIVATE MORTGAGE INSURANCE
In the case of conventional loans, you will need to pay for Private Mortgage Insurance. Many lenders require it so that they are protected from huge losses in a borrower defaulting on a mortgage.
Insures the lender against the default of any amount of the mortgage above 80% L.T.V. PMI companies (such as Mortgage Guaranty Insurance Corp – M.G.I.C.) require the borrower to qualify separately from the lender before they are willing to insure the loan.
M.I.P. Mortgage Insurance Premium
To qualify for an FHA-approved loan, you will be required to pay a mortgage insurance premium. This insurance protects lenders from incurring a loss in case you are unable to make monthly payments.
Charged up-front and annually (in each monthly loan payment) to insure the lender against default on that portion of a loan above the borrower’s equity.
The charge for borrowing money
Annual Percentage Rate (A.P.R.)
How much a loan costs over the loan term expressed as a rate. The A.P.R. includes the interest rate, points, broker fees, and certain other credit charges a borrower must pay. This is not the interest rate that is used in setting your monthly payment.
The annual percentage rate is the cost of borrowing money from the lender, shown as a percentage of your mortgage amount. The APR includes the interest rate as well as all other fees that are paid over the life of the loan.
Rate that includes the principal plus all of the costs of obtaining the loan–closing costs, origination fee, and discount points, etc. Gives a higher interest rate than that calculated on the principal alone, and is required by T-I-L – Truth in Lending. Side-by-side APR’s allow true comparative loan shopping.
The due date of the loan. (30 years for most residential loans).
“Or More” Clause
A contract provision that allows prepayment without penalty.
By making prepayments on a home loan, you pay off your principal loan earlier than the amortization schedule and reduce the total amount you pay in interest towards the mortgage.
the amount set by the creditor as a penalty to the debtor for paying off the debt before it matures
Payment of a debt or obligation such as a judgment.
Alienation (Due-on-Sale) Clause
A loan provision makes the balance due and payable immediately upon a sale or transfer of ownership.
A provision in a note, mortgage, or deed of trust that makes the entire loan amount due immediately (accelerates all future payments to now) in the event of default.
- A provision in a deed of trust that allows a junior lienholder (e.g., 2nd deed of trust) to cure any higher priority lien(s);
- Essential to protect a junior lienholder from being wiped out
- By the foreclosure of the prior lien.
Partial Release Clause
- The partial release is a mortgage provision allowing some of the pledged collateral to be released from the mortgage contract if certain conditions are met.
- In other words, the partial release allows some of your collateral can be taken off the mortgage once a certain amount of the loan has been paid.
- The application process could require submitting a survey map to show which part of the property will be released and what will remain with the lender’s as the mortgage continues to be paid.
- Found in Blanket mortgages
Primary Mortgage market
It’s You going to your bank—first point of contact.
Secondary Mortgage market
Banks buying and selling loans to each other. In this market, formal appraisals are also done.
Lending process application through closing
A mortgage borrower is someone who takes out a home loan to purchase a property. When that person borrows the money, they are making a commitment to pay back that amount in full, on time, and with interest. THE MORTGAGOR
Your lender is the person or institution granting you a mortgage loan. Lenders loan you money to buy a home, with the understanding that you will make regular payments, with interest, to pay off the loan. THE MORTGAGEE
The loan officer works at the lending institution where you’ve applied for a mortgage at. They are responsible for matching a mortgage program to your needs and processing your loan application.
Getting pre-approved gives you more credibility as a buyer, since a lender has certified that you are likely to qualify for a mortgage loan based on a preliminary assessment.
To get the mortgage process underway, you have to fill out and submit a loan application to your lender. The application form and its supporting documents are used to determine your eligibility for the home mortgage.
Your loan is approved when the lenders officially grant you a mortgage, based on the information you proved in your loan application.
Your loan balance is the amount you still owe on the mortgage principal, the original sum you borrowed. A portion of your monthly payments goes towards paying off the balance.
Using a loan calculator, you can determine your monthly payments for a fixed-rate mortgage. Input your loan amount, interest, and term in the loan calculator to see how much you need to pay every month.
In order to be approved for a mortgage, all borrowers must meet certain guidelines. When it comes to FHA loans, the guidelines are a little more lenient and easier for first-time buyers to meet.
Credit reports are detailed accounts of a person’s credit history and payment habits. Lenders use this report to determine whether or not a borrower is liable to default on a home loan.
During the mortgage transaction process, you will be given disclosure documents that provide different details about the home loan agreement.
When buying a home, the mortgage closing on a home is the final step in the transaction between you and the seller. This settlement meeting is when the property title is handed over to the new homeowner, and funds are transferred to the seller in exchange.
A lot of work goes into processing a mortgage transaction. As the one borrowing money, you will be required to pay an origination fee to cover the costs of putting the mortgage in place.
Charged by the lender for initiating the loan processing. Typically, 1% of the loan amount.
Discount points are considered a form of prepaid interest on your home loan. These “points” are a percentage of your loan paid up front that consequently lowers the mortgage’s interest rate.
The down payment on your house is the amount you pay the lender upfront in order to secure the loan. The amount differs based on what you can afford, and the loan requirements that vary according to the lender.
Monthly payments are made to pay off a mortgage loan. The amount goes towards paying the principal balance and interest, and is determined according to the down payment, term, interest rate and cost of the property.
A trust account to reserve funds for a specific purpose–e.g., the lender will accrue funds to pay property taxes and homeowners insurance when they become due.
Principal, Interest, Taxes, and Insurance.
Second mortgages are loans taken out on the property already being used as collateral for a home loan. These loans can be in the form of a home equity loan or home equity line of credit.
Sum total of all loan fees charged by the lender.
Good Faith Estimate
The Good Faith Estimate is a document that offers potential homebuyers basic information about their home loan, with an estimate of the costs that go into acquiring one.
Your escrow account is set up by your lender in order to collect funds that go toward paying property taxes and home insurance.
An agreement between lenders where one changes position with another on who gets paid first.
The Housing and Community Development Act of 1992 requires Fannie Mae and Freddie Mac, to attempt to make housing more affordable.
Affordable housing goals are set, with both are required to have at least 30% of their mortgage purchases come from mortgages taken out by low- to moderate-income families and individuals.
GSE Government Sponsored Entity
Works with Larger National Banks
GSE Government Sponsored Entity
Works with Small Thrift Banks
FHA, VA, Rural Development. Farm Loans
Wholly owned by the U. S. Government
The Government National Mortgage Association (GNMA), or Ginnie Mae, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development (HUD).
It was founded in 1968 and works to expand affordable housing by guaranteeing housing loans (mortgages) thereby lowering financing costs such as interest rates for those loans.
It does that by guaranteeing to investors the on-time payment of mortgage-backed securities (MBS) even if the underlining mortgages go into default and the homes are foreclosed upon.
Ginnie Mae guarantees only securities backed by single-family and multifamily loans insured by government agencies, including the Federal Housing Authority, Department of Veterans Affairs, the Department of Housing and Urban Development’s Office of Public and Indian Housing, and the Department of Agriculture’s Rural Development. Ginnie Mae neither originates nor purchases mortgage loans nor buys, sells, or issues securities. The credit risk on the mortgage collateral underlying its mortgage-backed securities primarily resides with other ensuring government agencies.