Real Estate Chapter 9

  1. Appraise
    To give an estimate of the current market value.
  2. market value
    The price agreed upon by a willing buyer and seller.
  3. market approach
    An appraisal method in which valuation is based on sale prices of similar properties.
  4. sales comparison approach
    This method of valuation is most often used in single-family residential appraisals and is one of the oldest appraisal methods.
  5. Competitive market analysis
    An analysis used to estimate the sale price by adjusting the price paid for comparable properties.
  6. Cost approach
    A method of appraisal that values the cost of the land plus the current cost to construct the property less accrued depreciation.
  7. Income approach
    An appraisal method of valuation based on the property’s ability to generate income.
  8. Trainee Appraiser
    A trainee appraiser needs no experience but must be supervised by a certified residential real property appraiser or a certified general appraiser in good standing.
  9. Licensed residential appraiser
    This appraiser is qualified to appraise one- to four-unit noncomplex residential properties having a transaction value of up to $1,000,000 and complex one- to four-unit residential units if the value is at or below $250,000.
  10. Certified residential appraiser
    This appraiser can evaluate one to four residential units without regard to value or the complexity of the transaction.
  11. Certified general appraiser
    This appraiser may evaluate all types of real property (residential and commercial) regardless of value or complexity.
  12. Mortgage
    A real estate security instrument. Borrower retains title but gives a lien interest and note to the lender. Also known as hypothecation.
  13. Hypothecated
    To pledge (give as collateral) real property as security without giving up possession to guarantee the repayment of the loan.
  14. Mortgagor
    The owner-borrower in a mortgage agreement.
  15. Mortgagee
    The lender or creditor in a mortgage agreement.
  16. Mortgage banker
    A person who establishes a relationship with multiple lenders to offer different lending products to the mortgage banker’s customers. Individuals employed as a mortgage banker are also known as mortgage loan originators.
  17. Savings and Loan Association
    Savings and loan associations (also known as thrift institutions) are federally chartered institutions that function similarly to commercial banks and credit unions.
  18. Life insurance companies
    After receiving premiums from their policyholders, insurance companies often invest these proceeds in long-term commercial and industrial financing.
  19. Pension funds
    Like life insurance companies, pension funds have diversified their investment portfolios by investing in real estate projects. They will both make mortgage loans as well as own the real estate projects.
  20. Underwriting
    The lender’s process of evaluating the credit worthiness of the prospective borrower and the suitability of the collateral.
  21. Primary market
    Market where loans are originated, either through a broker or directly with the lender.
  22. Secondary market
    Market where investors (such as mutual funds or life insurance companies) purchase loans made by others.
  23. fannie Mae
    was originally a government agency but was converted to a private profit-making corporation. Its purpose is to sell commitments to lenders pledging to buy specific dollar amounts of mortgage loans within certain durations. Loans must be made in conformity with Fannie Mae’s loan approval criteria and using its approved forms.
  24. Freddie Mac
    issues its own securities against its own mortgage pools. Freddie Mac guarantees that principal and interest on the mortgages within its pools are repaid in full and on time, even if the underlying mortgages are in default.
  25. Lien theory
    A legal rule recognizing that the buyer holds title to the deed of the property but gives a security interest in the real property to a secured lender.
  26. Title theory
    A legal rule recognizing that the buyer transfers title to the real property lender during the term of the loan. Title is restored to the buyer-borrower when the obligation is paid in full.
  27. Promissory note
    An executed (signed) instrument acknowledging a debt and promising to pay a creditor.
  28. Debtor
    A person who executes (signs) a note or contract and is primarily liable for repayment.
  29. Payee
    A person who receives payment under a note or negotiable instrument (such as a check).
  30. Usury
    A rate of interest above the maximum permitted by state or federal law.
  31. Impound account
    An account kept by a lender on behalf of a borrower to pay for insurance and property taxes.
  32. First mortgage
    The mortgage that is recorded first in time.
  33. Second mortgage
    The mortgage recorded next in time after a first mortgage is recorded.
  34. Purchase money mortgage
    A mortgage financing the purchase of a one- to four-unit residential property.
  35. Conforming loan
    A loan that meets Fannie Mae and Freddie Mac purchase criteria in the secondary market.
  36. Nonconforming loan
    A loan that fails to meet Fannie Mae and Freddie Mac purchase criteria.
  37. Federal Housing Administration
    is a federal agency within the Department of Housing and Urban Development (HUD). The FHA is not a mortgage lender and does not make loans; instead, mortgage companies, savings banks, and commercial banks make the loans.
  38. Assumable loan
    A loan where a person takes over the loan obligation and agrees to perform those obligations.
  39. Mortgage insurance premium
    Because borrowers pose a higher risk and the FHA insures the loans, FHA loans often have higher fees. For example, FHA loans require an up-front insurance premium, and an annual mortgage insurance premium (MIP) is charged for a minimum of five years, regardless of the down payment amount.
  40. Conventional loan
    A loan made by an institutional lender that is neither guaranteed nor insured by the federal government.
  41. Institutional lender
    A lender that makes loans to borrowers from its own sources or those that it manages for others.
  42. Subprime loan
    is a loan made to a borrower who could not qualify for a loan from a conventional, FHA, or VA lender. Such borrowers typically have lower credit scores. Because their credit scores are less than ideal, they will pay higher interest rates and costs for a subprime loan.
  43. Predatory lending
    A term used to describe illegal and abusive lending practices (such as refinancing without any benefit to the borrower or making loans to borrowers who cannot repay the loan).
  44. Fixed-rate mortgage
    have a fixed interest rate for the life of the loan.
  45. Balloon payment
    A loan in which a balance remains due at the time of the loan’s maturity.
  46. Straight loans
    are mortgages in which the interest rate and the monthly payments may be adjusted periodically.
  47. Piggyback mortgage
    a borrower takes out two mortgages for the property at the same time.
  48. Reverse mortgage
    A type of mortgage for people aged 62 or older whereby the mortgagor borrows against his or her equity by receiving monthly payments.
  49. Home equity loan
    is a type of second mortgage in which the borrower is able to obtain a second mortgage on the property based on the property’s equity (by a down payment amount or appreciation in property value).
  50. Home equity line of credit
    A type of loan allowing the borrower to draw against a line of credit secured by the equity in the borrower’s property.
  51. Sale leaseback
    is a transaction in which a property owner sells the property to an investor, who then immediately leases the property back to the seller.
  52. Wraparound mortgage
    or subordinate loan, the seller keeps the existing mortgage on the property and extends to the buyer a junior mortgage that wraps around and exists in addition to a senior mortgage.
  53. Taking subject to the mortgage
    When a purchaser buys real estate aware of a mortgage and makes payments on the mortgage but does not agree to become personally liable to repay the mortgage debt.
  54. Assume an existing mortgage
    When a purchaser agrees to become personally liable for an existing mortgage obligation in a real estate purchase.
  55. Deed of trust
    A three-party instrument financing arrangement that involves a beneficiary, a trustor, and a trustee.
  56. Beneficiary
    The lender identified in a deed of trust.
  57. Trustor
    The property owner or party to a deed of trust.
  58. Trustee
    The party to a deed of trust who holds (equitable) title until the underlying obligation is paid in full. Responds to demands of the beneficiary regarding enforcement of the deed of trust.
  59. Truth-in-Lending Act
    Federal law requiring disclosures to consumers allowing consumers to compare loan terms and conditions by various lenders.
  60. Regulation Z,
    Federal Reserve regulations implementing the Truth-in-Lending Act.
  61. Organizational credit transactions
    Loans not made to natural persons, such as loans to corporations, partnerships, churches, unions, or fraternal organizations.
  62. TILA-RESPA Integrated Disclosure rule (TRID
    CFPB rule requiring specific loan disclosures to consumer borrowers
  63. Loan estimate
    Disclosures provided no later than three business days after consumer submits a loan application providing key features, costs, and risks of the mortgage for which they are applying.
  64. Loan commitment,
    A lender’s promise to make a loan upon the occurrence of certain conditions.
  65. Installment land sale contract
    the seller provides the financing to the buyer. The seller retains title to the property as security until the final payment is received
  66. Factors Influencing Valuation
    • Utility
    • Scarcity
    • Demand
    • transferability
Card Set
Real Estate Chapter 9
Midterm 2