Personal Finance Ch. 9

assessment ratio

(market value x assessment ratio) = is determined by states or local government

Title insurance

A CLOSING COST. Insureance that during the MORTGAGE term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy. During the first stages defines the boundaries of the property and makes sure property is free of claims (like unpaid real estate taxes).

Lease

A legal document that defines the conditions of a rental agreement. -If you have a high credit score you can negotiate a lower rent or reduced security deposit. -Oral leases are a thing but you need to give 30 day written notice is terminating the lease or raising rent.

Mobile Homes

A type of manufactured home, often <1,000 sq. ft. -Offer same features as a conventional house -Safety is debated and they tend to depreciate so financing is hard.

other finacing methods: Second mortgage

Also known home equity loan. Homeowner can borrow on the paid-up value of the property. So borrow a lump sum against the equity and repay it in monthly installments. You can deduct it on your federal income tax return.

Condominium

An individually owned housing unit in a building with several such units. Individual ownership does not include common areas such as hallways ect thus they are charged a maintenance fee. It is a legal form of home ownership

Escrow account

Money usually deposited with the lending financial institutions for the payment of property taxes and homeowner's insurance. This account protects the lender from financial loss due to unpaid real estate taxes or damage from fire or other hazards.

Points !!!! (mentioned like 2 times in reading)

Prepaid interest charges by the lending institutions for the mortgage. Each discount point is equal to 1 percent of the loan amount. You may need to choose between higher rate with no discount and a lower rate requiring points paid at closing! Lenders commonly will reduce the rate you pay in return for you paying "points" up front. You save a lot in the long run

Amortization

the reduction of a loan balance through payments made over a period of time.

Deed

a document that transfers ownership of property from one party to another.

Conventional mortgage

a fixed rate, fixed payment home loan with equal payments over 10 -30 yrs. Offers home buyers certainty about future loan payments. Allows for AMORTIZATION.

Coopertaive housing

a form of housing in which the units in a building are owned by a nonprofit organization.The residents do not own the units but can live there as long as they own stock in the cooperative associations. Different than condominiums where those ppl actually own their individual living units

Adjustable-rate mortgage (ARM)

a home loan with an interest rate that can change during the mortgage term due to change in market interest rates. Can also be called flexible-rate mortgage or variable rate mortgage.

Rate cap

a limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage. Basically restricts the amount by which the interest rate can increase or decrease during the ARM term. So the buyer is not paying something significantly higher.

Payment cap

a limit on the payment increases for an adjustable-rate mortgage. When payment amounts do not raise but interest rates do, the amount owed can increase in months in which the mortgage payment does not cover the interest owed. This loan balance is NEGATIVE AMORTIZATION so home equity in increasing instead of decreasing. So the borrower makes payments for longer that they thought.

other finacing methods: Reverse mortgage

a loan based on the equity in a home that provides elderly homeowners with tax-free income and is paid back WITH interest when the home is sold or the homeowner dies. For ppl that have high equity in their homes.

Mortgage

a long-term loan on a specific piece of property such as a home or other real estate. The home you buy can serve as collateral for the mortgage.

Earnest money

a portion of the purchase price deposited as evidenced of good faith to show that the purchase offer is serious. At the end of the closing the earnest money is applied toward the down payment.

Appraisal

an estimate of the current value of the property. Helps to determine the selling price. Not all home improvements increase value (ex hot tub/gym) while other improvements DO increase value (energy-efficient features, remodel kitchen, more rooms, fireplace ect) . NOT a detailed inspection just determines the fair market value of property.

other finacing methods: Buy-down

an interest rate subsidy from a home builder or a real estate developer that reduces the mortgage payments during the first few years of the loan. After the buy down the payment goes up to what it originally would be.

Closing costs

are the settlement costs. Fees and charges paid when a real estate transaction is completed. Happens at the closing when the buyer, seller, lender of funds meet to complete the transaction.

Mortgage brokers

can help home buyers obtain financing but will charge higher fees than a lending institution.

Warranty deed (not a key term)

certified by the seller that the title is good

Implied warranties

created by state laws to cover some problem areas in your home. Has limitations.

Manufactured homes

housing units that are fully or partially assembled in a factory and then moved to the living site. There are three types: manufactured homes, mobile homes, prefabricated homes (mass production keeps homes lower).

Interest-only mortgage (not a key term)

lower payments for the first few years of the loan. This is dangerous if the property declines. The payments will be higher later and will be based on the original loan since no principal has been paid.

other finacing methods: refinancing

obtain a new mortgage on a home at a lower rate. Is advantageous when you can get at least a 1% lower rate than your current rate. Better to get with larger mortgages

Zoning laws

restrictions on how the property in an area can be used. This is important because the the location of businesses and the anticipation construction of industrial buildings or a highway may influence the buying decisions. Living in a place with strong school gives advantages because helps maintain property values.

Discount points (not a key term)

should be viewed as a premium you pay for obtaining a lower mortgage rate.

Contingency clause (not a key term)

states that the agreement is binding only if a certain event occurs.