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An upper and lower limit on the amount due each month
The main benefit of a payment cap is very low minimum payments in the first year, followed by moderate payment increases in subsequent years. One potential disadvantage of a payment cap is that interest accrues at the higher, fully indexed rate after the low initial rate expires.
See: Adjustable rate mortgage (ARM), Cap, Negative amortization
A long-term loan taken out upon completion of a new building
Permanent loans work together with construction loans. These loans usually last longer than 10 years.
See: Construction loan, Blanket mortgage
Anything that you own that is not permanently attached to land
Land and anything attached to it is real property as opposed to personal property. You can move personal property from one place to another.
Compare: Real property
Piggy back loan
A second loan on a home, usually up to 15% of the property’s purchase price
If you can make a 10% down payment on a home, one way to avoid paying for Mortgage Insurance (MI) is to get two loans. Here's how it works: you get a loan for 80% of a property's purchase price at a standard interest rate and then get a second, "piggy back" loan at 10% of the purchase price. This type of financing is commonly called 80-10-10. To figure out if getting a second loan makes sense for you, compare monthly costs with a piggy back loan versus MI.
See: Mortgage insurance (MI), Second mortgage
Planned Unit Development (PUD)
A housing project that has five or more individually owned homes and each owner shares ownership of the common areas
PUDs are common in suburban areas. You own your home and the land it’s on, and part of the common areas, such as the grounds and swimming pool. Similar to a condominium, an owner’s association monthly fee is required to maintain the common areas.
Compare: Condominium (Condo), Cooperative (Co-op)
One percent of the loan amount
Loan rate points can be either positive (discount points) or negative (rebate points). The more positive points you choose to pay up-front, the lower your interest rate may be. On the other hand, you can opt for a loan with a higher interest rate in exchange for a rebate, which will give you a credit towards paying some of your non-recurring closing costs, such as title insurance, appraisal and origination fee. It is not possible to get cash back from rebate points.
See: Discount point, Origination fee
A state’s right to control private activity, including land, for the good of society
State governments use police power to set up a variety of real estate laws, such as street zoning ordinances, which restrict, for example, cemeteries and slaughter houses to certain areas in a city, building and health codes, and rent control, which limits how much a landlord can raise the monthly rent.
See: Zoning ordinance
Compare: Eminent domain
A loan that a lender continues to service instead of selling it to the secondary market
Lenders generally pool and sell most loans to the secondary market in order to create money for more loans.
See: Jumbo loan
When the borrower gets approval on a loan prior to finding the property to purchase
Even without knowing what property you want, some lenders will give you a written preapproval on a loan. A preapproval lets you know exactly what you can afford, and shows the seller and realtor how serious you are about buying a home. To get a preapproval, you have to fill out a standard loan application called a 1003.
Preliminary title report
The results of the title search
Prior to closing you will receive a preliminary title report from a title company showing that the seller is the rightful owner of the property. The preliminary title report also lists any claims against the property for unpaid debts. Make sure you bring any claims that need to be cleared to the seller’s attention.
See: Title search, Title insurance, Cloud on title
Regular payments made on an insurance policy
Insurance companies usually charge an annual premium when you open a home owner's insurance policy. For example, if you live in an area that is prone to earthquakes or floods, your premium may be higher to offset the extra risk that an insurance company takes.
See: Home owner's insurance
Fees paid at closing to cover future costs such as property taxes, interest, mortgage insurance and hazard insurance
The lender also collects the interest you owe for the period between the closing date and the end of the month.
See: Impound account, Closing costs
A clause in a mortgage allowing for additional payments to be made without penalty
The more you pay each month the quicker your loan balance will decrease and the quicker you can pay off the loan. You’ll also cut down the interest that you need to pay. Prepayment is also called the "or more clause."
A fee charged by the lender if the loan is paid in full before it is due
Loans with a prepayment penalty may have a lower interest rate. The penalty may also apply if you pay more than 20% of your unpaid loan balance in any year during this time.
When a lender or broker figures out how much you qualify to borrow
Also, you'll get a rough idea of the price range that you can afford on a home.
The amount borrowed on a loan
You repay the principal plus the interest and fees over the life of the loan. As you continue to pay off your loan, more and more of your payment goes to the principal.
See: Amortization, Amortization schedule
How much the borrower has left to pay on the loan principal
The principal balance may seem to never go away at first. For the beginning years of a loan, most of your monthly payment goes towards the loan’s interest. The good news is that the more of the principal you pay, the more equity you have in your property. You can find your principal balance on your loan statement from your lender.
See: Principal, Amortization schedule, Equity
Principal, interest, taxes and insurance (PITI)
These are the four components of the monthly payment on a mortgage
With most mortgage plans, the lender collects your monthly mortgage payment, which covers the loan principal and interest, as well as one-twelfth of your property taxes and hazard insurance. The lender puts the taxes and insurance into a separate escrow account, and pays off these bills when they become due as a way to protect the loan.
Before you apply for a home loan, lenders use an estimate of your expected PITI to calculate your back ratio and front ratio. Lenders use these ratios as guidelines to find out if you qualify for a loan.
See: Back end ratio, Front ratio
A person who lends his or her own money to a home buyer
Ordinary people, similar to a bank, can lend money to home buyers as a way to invest in real estate. As a private lender, you can profit from offering a loan at a high interest rate. One way to find a borrower is to work with a mortgage broker who will do the leg work for you.
See: Non-institutional lender
A written promise to pay back a sum of money at a specific time
When you borrow money to buy a home, you must sign a promissory note, which outlines the loan's terms and sets the due date. The promissory note states that your monthly payment must be applied to both the loan's principal and interest. The promissory note enforces the document that secures the property as repayment for the loan, either called a deed of trust or mortgage depending on where your home is.
See: Mortgage, Deed of trust
A public sale of land or goods, where the highest bidder wins
If a lender forecloses on a property, it will most likely be put up for sale at a public auction.
See: Judicial foreclosure, Trustee's sale
Guidelines used by lenders to evaluate a home buyer’s borrowing potential
See: Bank end ratio, Front ratio, Loan-to-value ratio (LTV)
A document that can be used to transfer whatever interest a person has in property without any assurance as to the status of that interest
See: Cloud on title