General Warranty Deed

For the property buyer, the general warranty deed is the most attractive because it provides the most protection. The general warranty deed extracts several covenants and guarantees from the grantor (seller) that the grantor's title to the property is valid, marketable and can be legally conveyed to the grantee (buyer). General warranty deeds normally contain at least five covenants, by which the grantor offers guarantees about the title 1. Covenant against encumbrances. The grantor provides...

Advantages of ARM Loans

Most residential loans in the past have been fixed-rate loans with short terms. Before the Great Depression of 1920s and 30s, many of these loans were balloon programs, often with high rates. This was necessary because the mechanism that ARM loan adjustments depend on, a reliable index, had not been widely available. The residential ARM loan was first introduced into the national market as the Variable Rate loan. This term still remains in use with credit cards and installment loans, but it has...

Term manner of payment

The last column indicates the payment terms of each credit account, as well as a number grade that identifies the payment habits of the applicant. The payment terms for current accounts are typically listed as the basic monthly amount required. revolving accounts will normally only indicate the minimum monthly payment required for the current balance. installment loans will list the monthly loan principal & interest payment. The number grade for the manner of payment indicates the...

Appurtenant Easements

As introduced above, appurtenant easements allow a property owner to use or limit the use of a portion of a neighboring owner's property. The common phrase associated with appurtenant easements is that they run with the land, which means that even if ownership changes, the easement continues. The appurtenant easement is, in fact, meant to benefit a parcel of property it only benefits the property owner indirectly. This section will review three areas of appurtenant easements 1. Elements of...

Accrued Depreciation Accumulated Depreciation

The total of depreciation that has been claimed on a property. Owners of investment real estate must claim depreciation deductions on their annual tax returns for the investment property. When the property is sold, the accrued depreciation deductions must be reclaimed and taxes must be paid on the accrued depreciation . For more information, see the depreciation entry or the Investment Property Tax Advantages Depreciation Deductions article in the Real Estate Investing section.

Qualifying Liabilities

Debts and liabilities tend to have the greatest impact on the applicant's income qualification. The Analyzing Employment & Income article discusses this facet of loan qualification. At the same time, the applicant's liabilities may also affect the applicant's credit report the Analyzing Credit Report article discusses this issue. The basic liability qualification requirement of conforming loan programs is that the applicant's income is strong enough to afford both the proposed mortgage and...

Carrying Costs

Speculators and real estate investors who purchase property with the primary goal of reselling for profit must be especially concerned with the project's carrying costs. Carrying costs refer to the net amount of expenditures that investors must outlay before the property is resold and profits are realized. The carrying cost usually excludes the purchase price and deducts operating income. Unfortunately, uninformed real estate investors often look at just the purchase and resell prices. On the...

Creating Ending Easements

The law provide for various ways to establish and end easement (both appurtenant and in gross) rights. When creating an easement, it is important for the easement granter to define the purpose. If no purpose is defined, this easement may actually be construed as a full transfer of property. There are eleven common ways to create an easement 1. Written agreement. This method uses a simple contract, signed by both parties to the easement agreement. Many party wall easements are created through an...

Date account was opened

This self-explanatory column indicates the date that the applicant opened his or her account with the creditor reference. This is a solid indicator of the seasoning (age) and applicability of the account. A number of young credit accounts is often an indication that the applicant is trying to build or rebuild his or her credit record. But lenders and creditors will insist on minimum track records. In fact, most creditors and lenders tend to discount credit accounts that are less than one year...

Hard Assets Net Worth

Hard assets are any possessions that are not cash or cannot be quickly converted into cash. This category includes cars, jewelry, electronics and real estate. Businesses are also often considered hard assets. For mortgage loan applications, hard assets do not need to be disclosed unless necessary to show positive net worth. This is especially the case with real estate or vehicles who have outstanding loans against them. Obviously, if the borrower has a mortgage loan reporting as a liability on...

Analyzing Credit Reports

Lenders and creditors analyze an applicant's credit history to forecast the likelihood that the prospective borrower will repay the requested loan amount. The theory is that credit histories demonstrate the consumer's ability to manage debt and that past history is a strong predictor of future performance. Lenders accomplish this by grading the applicant's credit history. A sample credit report is available for review and comparison. This article contains two parts 1. Structure of the credit...

Classification of Easements

Easements can be either positive or negative Negative. A negative easement prevents or limits the property owner's right to control or use his or her property with unlimited freedom. For example, two townhouses are built adjacent to each other, and Townhouse A builds a sundeck on her roof to enjoy the sun. She can try to get an easement against her neighbor in Townhouse B to prevent him from increasing his building height in any way that may significantly block her sunlight. Positive. A...

Conventional life estates

As soon as the person, on whose life the life estate is based, has died, the life estate ends. However, as explained below, that person doesn't have to be the life tenant. Ordinary life estates. When the life estate is based on the life of the owner of the life tenant, it is called an ordinary life estate. When the life tenant dies, the real property either reverts back to the grantor and heirs (reversionary interest) or to a third party (remainder interest). Pur autre vie. This French term...

Frequency and duration of late payments

This group of three columns itemizes the applicant's late payments according to severity. The entries in these columns record only late payments that were actually paid. The earlier past due amounts column indicates what is still owed. Any recorded late payment is detrimental to the applicant's credit grade. As can be expected, however, as payments become later and more delayed, more damage is inflicted on the applicant's credit. Although lenders and creditors have varying definitions of late...

Appraisal value

Most residential lenders require appraisal reports to be no more than three months old at the time of closing. Many will accept appraisals that are up to one year old however, the appraiser will have to issue a recertification letter that confirms the applicability of the report's value estimate. Often, however, it is in the borrower's best interest to obtain a new appraisal. The new appraisal could include value appreciation to provide a higher appraisal value. A higher value could lower the...

Real Estate Fraud

Mortgage Calculator & Amortization Table Consider prepayment options Caveat emptor, let the buyer beware. Because of the large amounts involved with real estate, however, courts and the government have offered buyers some measure of relief. In fact, the trend in the courts has been away from the caveat emptor approach. Property buyers have two lawsuit options if and when they feel they have been defrauded by the seller (or the seller's agent) Sue for damages. The buyer can keep the newly...

Net lease

Also called a net-net (NN or double-net) or net-net-net (NNN or triple-net) lease, the net lease is most commonly used for commercial and industrial properties. The key element with the net lease is that in addition to paying a base rent, the tenant must also pay a portion of the building's operating expenses, which may include maintenance, taxes and insurance. With multi-tenant facilities, the maintenance expenses are typically called CAM, or common area maintenance expenses. For a small strip...

Range Line

A real estate surveying term used with the rectangular survey system, range lines refer to identified lines running north-to-south across the nation, from which specific parcels of property are measured. Range lines are six miles apart, which create columns called ranges. Townships are created from the intersection of range lines and township lines. Range lines are normally used in conjunction with base lines, principal meridians, township lines, townships and sections. For more information,...

Alternative Option Jumbo Loans Without Jumbo Pricing

There are ways to minimize the higher interest rates of jumbo loans. Unfortunately, most lenders prefer to keep this a profitable secret. Obviously, the buyer can always make a larger down payment so that the loan amount finally required fits within the conforming limit. Depending on the sales price of the home, however, this can prove to be a very expensive approach. A more advantageous approach is to purchase the property with two mortgages a standard conforming first mortgage and a second...

Housing Expenses

The housing-related charges that the home owner must anticipate and pay. Total housing expenses normally include the principal and interest payments on the mortgage loan, plus any homeowner's insurance, mortgage insurance and property tax charges. See also PITI entry. For more information, see the Monthly Payments article in the Homebuyer Guide section. A measure of building permits issued for new housing construction. Economists and investors review the periodic publication of housing starts...

Open Listing

Also called a simple listing or general listing, non-exclusive agreement between the seller and real estate agent that requires the seller to pay commission only if the listing agent is able to bring the buyer to the seller. If the seller finds a buyer through another agent or with no help from the listing agent, the seller will NOT have to pay any commissions to the original listing agent. For more information, see the Selling Your Real Estate article in the Real Estate In-Depth section.

Gross Rent Multiplier GRM

The GRM is a factoring tool used by the property appraiser to assess the market value of a property, under the income valuation approach. The multiplier is a rate based on the sales price divided by the gross monthly rent of comparable properties. This multiplier is then applied to the market rent of the subject property to estimate the value of that property. For example, if an appraiser is analyzing a four-flat and discovers that similar four-flats in the area have market values that are 10.5...

Long Term Debt Liabilities

Liabilities that will take at least 10 months to repay. When qualifying an applicant's income, the lender will consider the total long-term debt payments as a ratio against the applicant's gross income. Installment loans normally have set monthly payments that are used for the income qualification ratios. Except for very low balances, most revolving accounts are qualified based on the minimum required monthly payment at the time of application. For more information, see the Analyzing...

Government Survey System

As with so many legal precepts, the government survey system was created by the U.S. in the wake of its triumph in the Revolutionary War. The newly independent United States found itself the owner of the area that now includes Ohio, Indiana, Michigan, Illinois and Wisconsin. The U.S. also found itself with serious debts incurred during the war. So, the new government decided to raise revenues by selling parts of its new northwest territories to settlers. But the government couldn't use the old...

Passive Income

Revenue or income from investments in which the individual investor does not actively or materially participate. Limited partnerships and real estate investments are considered passive. Passive income losses cannot be used against active income. Real estate losses are always considered passive income losses but they may be deducted against active income if the individual actively participated in at least the management decisions and personal active income is less than 150,000. Contrast this...

Structure of the Credit Report

Credit reports normally contain the following sections 1. Borrower background information The background information section occupies the upper portion of the front page of the credit report and usually contains the following data Subject identification. This section identifies the applicant's full name, home address and social security number. The credit report will also list other name arrangements and social security numbers used and previously recorded by the applicant. Marital information....

Analyzing Grading Credit History

Most conforming and many non-conforming lenders today do not perform the detailed analysis of the credit report that they did during the 1990s. Mortgage lenders are more frequently relying on the consumer credit scores, although some review of the credit details are still performed. The future trend, as the mortgage industry becomes even more automated, will be an even greater reliance on credit scores. Nevertheless, credit scores are derived from the applicant's recorded credit history. This...

Deed

Written instrument used to record or transfer property ownership. The deed transfers the property from the grantor to the grantee. The most common type of real estate deeds are the general warranty, special warranty, bargain amp sale, quitclaim and grant deeds. A variety of special purpose deeds used in many states include administrator's, executor's, sheriff's, guardian's, referee's, tax, trustee's, trust, release and gift deeds, as well as the deed in trust and deed in lieu of foreclosure ....

Employment Qualification

Nobody can truly foretell the continued stability of an applicant's qualifying income unless that income is in the form of a heavily secured trust account. As with credit qualification, mortgage lenders attempt to project future employment stability with current and past history. Conforming lenders typically require two full year's of stable employment, preferably in the same field and company. Non-conforming lenders will often accept significantly less, with some programs accepting borrowers...

Land Trusts

A popular instrument among individual real estate investors as well as homeowners is the land trust. Note that most, though not all, states recognize land trusts. Florida, Illinois, Indiana, North Dakota and Virginia all recognize land trusts. The fee simple defeasible estate can end and when it does the ownership interest in the property is transferred away from that defeasible estate owner. The fee simple defeasible estate will indicate to whom the property will then be transferred, based on...

Developer vs Contractor

An important clarification must be made between two seemingly similar situations that require two differing loan programs. A construction loan is required when the borrower's funds are needed for the actual building of the property. Large-scale developers usually do NOT require the buyer to obtain construction financing. Instead, most developers will require that the borrower be approved for a purchase mortgage loan. The actual construction of the property is funded with the developer's own...

Cash deposits toward purchase

With purchases, buyers are normally required to make a large deposit to secure the purchase contract. This deposit is usually called the earnest money deposit, and is held by the seller's agent. This deposit is credited toward the applicant's liquid asset requirements. Loan processors will normally require the following items to confirm that the funds used for the earnest money deposit are acceptable 1. A Verification of Earnest Money Deposit VEMD completed by the agent or Realtor currently...

Analyzing Appraisal Reports

Mortgage lenders have begun exploring methods for decreasing or eliminating the need for full appraisal reports. Automated systems are being developed to provide acceptable estimates of appraisal values, with a simple analysis of online records and no appraisal inspection and report. However, such programs are still in their infancy. Full appraisal reports are still the norm for mortgage loans. This article will review the following elements of the residential property appraisal Purpose of...

No Doc Loans

For borrowers who have money or equity but have problems documenting their income or source of their assets, the No Documentation or No Doc program is the ideal alternative. The No Doc loan is actually another variation of the no income verification NIV program, with a twist. The No Doc combines the NIV option with a no asset verification NAV option. This article provides an overview of the No Doc program, as well as a discussion of the practical applications and costs of the No Doc.

Living Testamentary Trust

A living trust, also called an inter vivos trust, is one that is created by the property owner, while he or she is still alive. In contrast, the testamentary trust is created after the property owner's death, usually through a will. A trust arrangement normally involves three parties, although not necessarily three separate persons 1. Trustor. The trustor is the person or entity that transfers any property into a trust arrangement. With real estate, this is usually the current owner. Note that...

Minimizing Closing Costs

With this firm understanding that the borrower is responsible for closing costs, the question becomes how to minimize these costs. For borrowers who have the money, it is highly recommended that they pay the closing costs. The options discussed later show you how to avoid paying for closing costs out-of-pocket, but you merely end up financing them and paying interest on them. However, there are steps you can take to minimize closing costs. First of all, remember that practically everything is...

Planned Unit Development PUD

A comprehensive land development plan, used primarily in the planning and construction of residential areas, that provides for shared properties or obligations. Townhouses or subdivisions in unincorporated areas may be developed as PUDs and have homeowners associations to maintain those responsibilities within the project confines, such as snow removal, road repair and greenbelt maintenance. For more information, see the PUDs and Townhouses article in the Real Estate In-Depth section.

Reproduction Cost Approach

A method used in appraising property value that seeks to duplicate the improvements as exactly as originally constructed. No depreciation adjustments for age or condition. The elements of the reproduction approach use one of the following methods to estimate unit costs square foot, cubic foot, unit in place, quantity survey and index. Compare with replacement cost approach. For more information, see the Analyzing Apraisal Reports article in the Loan Process section and the Hazard Insurance...

Avoiding them

A review of real estate capital gains taxation can qet complicated because of the many regulations and allowances provided by law. But a good working knowledge of these tax regulations and benefits can often mean the difference between profit and loss for many real estate investors. The stock market has introduced most Americans to the scourge of capital gain taxes. The problem many Americans especially Republicans have with capital gain taxes is that it smacks of unfair double taxation. For...

Recapturing Depreciation

The benefits of depreciation deductions are somewhat offset by the requirement that all deprecation claimed on the property must be recaptured and taxed when the property is sold. Nevertheless, the investor will still come out ahead. When the accrued depreciation is recaptured, it is taxed at 25 , slightly higher than standard capital gains . However, when you claim depreciation deduction, you potentially could use that to lower your taxable income. If you are in the 28 tax bracket, that's a...

Calculating Depreciation

First of all, depreciation is mandatory. You must accept and claim depreciation deductions if your property qualifies for depreciation . You cannot elect out of it. Consequently, real estate investors cannot file 1040EZ short forms. You may wonder why someone would forego depreciation deductions there are investors with sufficient deductions elsewhere and don't need any more deductions. Moreover, depreciation tends to be considered passive activity losses so they cannot be easily deducted...

Rectangular Survey System

Sometimes called the government survey or geodetic survey system, the rectangular survey system is one of the three most common methods for surveying property. The rectangular survey method is often used in combination with either the Metes amp Bounds or Plat of Survey methods. The rectangular survey describes property location as fractions of sections, which are part of townships, and provide distance measurements from principal meridians, base lines and range lines. Because of the curvature...

About the Good Faith Estimate GFE

The good faith estimate GFE is one of several government-required disclosures that you will receive at the time of or within three days after application. It is a legal requirement that all lenders must follow. The GFE provides the borrower with an honest approximation of the closing costs, down payment balances, prepaid expenses and all other charges that the borrower must address at the closing. The borrower should hold the lender to this estimate, with some obvious leeway. The lender must...

Contingent liabilities

Contingent liabilities are any debt obligations that may demand payment at a future date. The most common type of contingent liability is the co-signed loan, in which the applicant is normally not responsible for the monthly payments. However, if the primary borrower defaults, the co-signer will be held responsible for the loan and default. Another type of contingent liability is student loans, which do not require payment until six months after the borrower ceases his or her formal studies....

Marketable Title

The goal of most real estate transactions is to convey a marketable title in exchange for the purchase price. Sometimes called merchantable title, the marketable title is one that the seller or grantor truly owns it must also be free from any encumbrances and defects not permitted. The definition is simple enough, but the truth is that providing a marketable title is actually very challenging. To provide clear title, the seller's attorney or title company must examine the property's past and...

Voluntary Alienation

The three basic methods of voluntary alienation are through a will, gift or sale. For more information about the process of transferring property through a will, please see the Conveying Title Through Wills article. Conveying title to property through a gift or sale is normally accomplished with a deed. However, there are many kinds of deeds for more information about this lengthy topic, see the All About Deeds article. We hope that you've found our Mortgage and Real Estate Resource helpful and...

Interim financing

Short-term financing in anticipation of a long-term loan is often called interim financing. Many construction loans are actually interim loans. Construction loans are typically short-term financing that is paid off as soon as the building is completed. Another form of interim financing may involve obtaining a second mortgage on the applicant's current home in order to cash out sufficient funds for the down payment on another purchase. These interim financing arrangements are normally not...

Prepaid Expenses Not Included

In addition, the borrowers must be prepared for prepaid expenses at the closing. Prepaid expenses are regular parts of the projected monthly housing payment interest, insurance, taxes amp assessments that must be paid in advance. For example, the borrower may be required to establish an escrow account at the time of the closing. The borrower will normally have to escrow two or three months of insurance and real estate tax payments into the escrow account....

Construction vs Construction Permanent

The typical construction loan is normally an interim or short-term financing that provides the borrowers and their contractor with the funds to build a new home. They are short-term loans in that they must be paid off or refinanced immediately after the construction is completed. In some cases, the construction loan will only cover the actual construction of the structure, and not the purchase of the lot on which the structure house will be built. Construction loans are riskier for the lender....

Chain of title

True ownership is primarily supported by a good chain of title. The chain of title provides a list of all conveyances and other documents recorded against the property. The chain of title should indicate that all of the conveyances between buyers and sellers are legitimate and unbroken. For example, Fred sold to Gene, Gene sold to Harriet, Harriet sold to Indira, and Indira sold to Jesse. The chain should be uninterrupted. For example, the chain of title should not indicate that Quentin sold to...

Process

With a purchase option, the buyer pays the seller for an option to buy the property at a certain price within a certain amount of time. This option contract can be arranged to provide a variety of conditions, contingencies and exit strategies. The option contract approach offers key advantages to the buying investor Exercise purchase with refinance loan after 12 months Minimize risk exposure and expenses The basic terms of the contract is that the seller takes the option fee as income. The...

Loanto Value LTV Restrictions

The loan-to-value ratio for single-family construction loans varies from lender to lender. Some banks normally limited the entire construction-permanent loan to 80 of the appraised value of the completed property. Many lenders today, however, treat the construction-permanent LTV similarly to purchase programs, with total LTVs reaching 90 -95 . At 80 LTV, the need for private mortgage insurance PMI is obviously eliminated. In such cases, the purchase of the lot is considered the loan's down...

Eliminating Closing Costs With Seller Subsidy

A final method for lowering closing costs is to negotiate for the seller to pay them. Unfortunately, many home buyers, sellers and first-time real estate agents are also sometimes unaware of this option. Moreover, seller-paid closing costs are often tax-deductible for the buyer that's correct , while reducing the capital gains calculation for the seller. This is often called a seller subsidy or seller closing contribution. Either way, it's additional funds working in the buyer's favor. The...

Example Public Notice

Ellen decides to sell her ranch to Hector. After completing the transaction and conveying the deed, it is left to Hector to record the deed. Unfortunately, Hector fails to record it. A few years later, Ellen dies. Her heirs do not realize that Hector had already bought the property, and they decide to sell her ranch an unwitting Achilles decides to buy it from Ellen's heirs. Achilles promptly records his new deed. When Hector finds out about Achilles' purchase, he tries to assert his ownership...

No Income Verification Loans

One of the most common non-conforming loan programs is the No Income Verification NIV loan. A non-conforming loan refers to any loans that are sold to the secondary mortgage market, but NOT through Fannie Mae, Freddie Mac or Ginnie Mae. Non-conforming loans are sold through more expensive private conduits because they do not satisfy or conform to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae. The NIV program allows the borrower to qualify for mortgage financing,...

Lease Requirements and Elements

A lease agreement is both a contract and a real estate conveyance. Because it is a contract, the normal requirements of a contract apply. However, there are additional elements that apply particularly to leases. This discussion seeks to provide a detailed review of the lease agreement and its constituent parts Although you can jump directly to any of the above segments by simply clicking on the appropriate link, we recommend that you review this article in the arranged order. If you have not...

Staggered Disbursements

The loan funds are disbursed, or paid out, in stages. A typical construction loan structures four 4 disbursements, each of which will only come as certain stages are undertaken or completed. With most construction loans, the four disbursements are often divided as follows 2. Under roof and enclosed to weather An inspection by the lender's appraiser or construction administrator is normally performed prior to each draw request. These inspections are meant to ensure that all work required before...

The Recording Process

As mentioned above, recording is typically handled by the county government. The specific official responsible for this duty is usually called the recorder of deeds, registrar of deeds or county recorder. In some locales, this is may be an elected position. When a deed, mortgage, lease or other instrument is to be publicly recorded, these steps are usually followed Acknowledgment. Before filing an instrument, it must be properly signed by at least the grantor and acknowledged. The...

Hold Harmless Letter

Also called an indemnification affidavit, the hold harmless letter is a legal document in which one party assumes from another party all liability for a subject issue. The person or entity issuing the hold harmless letter assumes all obligations for liabilities that may arise from the specific issue. The person or entity receiving the hold harmless guarantee is theoretically freed from all obligations for liabilities arising from the specific issue. In the context of title company closings, a...

Elements of the Option Contract

Options typically contain the following elements Period. The purchase option gives the buyer a limited time period to exercise the option's purchase rights. The period is negotiable and can last from a few hours to a several years. Option fee. To obtain the option, the buyer usually pays a fee. If the buyer does not exercise the purchase option, the seller will keep that fee. The option fee is often applied toward the purchase price if the buyer does decide to exercise the purchase option....

Requirements for a Valid Deed

There are several requirements that must be met to make a deed completely valid. The most basic and overarching of these requirements is that the deed must meet all of the legal requirements of the state in which the subject property is located. If the deed is being used to convey title to property in Alaska, the deed must meet all of Alaska's legal requirements even if the transaction is being closed in an office in Miami. Although each state varies, all states have most of the following...