A government-sponsored housing finance organization that works in the primary market and offers a default insurance policy, among other housing programmes and initiatives.
A federal agency founded under the National Housing Act in 1934 to encourage improvements in housing standards and conditions, to provide an adequate home-financing system through the insurance of housing mortgages and credit, and to stabilize the mortgage market. The FHA was the government’s answer to a lack of quality housing, widespread foreclosures, and a devastated building sector during the Great Depression.
The FHA program’s significant accomplishments include the widespread acceptance of fully amortized loans, the standardization of appraisal processes, and improved developer planning and site use. FHA loans have traditionally played an essential role in house financing by combining high loan-to-value ratios with a low down payment requirement, and they are popular among borrowers with less-than-perfect credit. Until 2008, conventional mortgages with high loan-to-value ratios backed by private mortgage insurance competed heavily with FHA loans (such as MGIC). Loan amounts for FHA mortgages are limited.
The FHA, which is part of HUD, neither constructs nor lends directly. Rather, it covers real estate loans undertaken by recognized lending institutions, including condominiums. If the homeowner defaults on the mortgage, the lending institution suffers no significant losses because the FHA has insured the lender against such a risk. This is performed through the use of a cooperative mortgage insurance scheme.
The majority of popular FHA programmes demand the borrower to pay two mortgage insurance premiums (MIPs), one at closing and one monthly. Because the upfront MIP covers the life of the loan, if the loan is paid off early, a refund is possible, but it must be sought. However, the annual premium is no longer refundable. By 2010, FHA-insured loans accounted for more than 30% of all mortgages.
Defaulted loan insurance claims: The FHA changed its policy for paying its insurance in the case of a loan default in 1987. The “claims without conveyance” provision permits the mortgagee to file a claim for mortgage insurance benefits without transferring title to the FHA. In the event of foreclosure, the FHA establishes a “adjusted market value” for the property. When the lender obtains ownership of the property, it can only claim the difference between the FHA’s adjusted market value and the insured commitment amount. A separate rule mandates that the lender seek a deficiency judgment against the delinquent borrower.
Properties that the FHA takes ownership to in foreclosure proceedings often resell in one of two ways: (1) as is on a bid basis, or (2) at a market price determined by the FHA after the property has been restored. Due to an increase in foreclosures caused by economic downturns in various parts of the country, the FHA resorted to auction sales of some of its properties. A potential homebuyer may be prequalified for a loan at these auctions to help them bid successfully.
Rates of interest and loan amounts: Prior to 1 982, the HUD secretary determined the maximum permissible interest rate for an FHA-insured loan. Since 1922, the FHA has allowed rates to be set at any level the borrower and lender agreed upon. The practice of requiring a loan discount, on the other hand, remains a negotiable cost of borrowing money that can be paid for by either the buyer or the seller.
The maximum loan amount permitted on a single property is determined by the purchase price or the FHA-appraised value, whichever is less, and varies by region. The FHA accepts VA valuations but not traditional appraisals. FHA requires a contingency provision (usually in the form of an addendum) in the real estate sales contract stating that if the property appraises for less than the sales price, the seller agrees to refund the buyer’s good-faith deposit and cancel the contract if the buyer does not wish to complete the transaction.
The applicable loan-to-value ratio or maximum mortgage limit for that location cannot be exceeded by first or second mortgages. Monthly payments on the second mortgage must be made and must be within the mortgagor’s reasonable ability to pay. Furthermore, the second mortgage must allow for penalty-free prepayment and may not include a balloon payment before ten years. If no secondary financing is obtained, the borrower must be prepared to pay the difference in cash at closing.
Most programmes require the borrower to pay for all prepaid items at closing, which are typically the escrow obligations for property tax and hazard insurance. To compute the maximum loan amount, allowable closing charges may no longer be added to the sales price. The borrower must provide 3% of the sales price toward the down payment and closing fees, while the seller may contribute up to 6% of the sales price toward discount points, prepaids, and other permissible closing costs. Before the FHA will commit to guarantee the loan, the borrower must submit proof of the required money. There is no bar on placing secondary financing on the property after the FHA mortgage has been closed and FHA mortgage insurance has been granted to the lender.
Loan interest rates and discount points: An FHA loan applicant may pay a loan origination fee of up to 1% of the loan amount (or 212 percent for construction loans when the lender performs inspections and partial disbursements during building construction).
Programs: Title I FHA loans are available for house renovations, changes, and repairs. These are small-dollar loans with repayment terms of no more than 7 years and 32 days.
Title II FHA loans are available for house construction or purchase. They can also be used to refinance current mortgage debt. There are several Title II programmes, but the following are the most popular:
- Section 203(b): This is the most commonly used programme for owner-occupants purchasing or refinancing one- to four-family houses; the maximum loan-to-value ratio is 98.75 percent.
- Section 203(v)-Veteran: Qualified veterans may purchase one- to four-family houses as owner-occupants with a loan-to-value ratio of up to 97 percent due to a slightly smaller down payment (the “required investment”) than the conventional 203(b) loan requires.
- Section 203(k): A rehabilitation loan for the purchase, rehabilitation, and repair of single-family dwellings. By offering a single loan that covers both acquisition and repair costs, qualifying buyers can avoid the high interest rates and short amortization periods associated with rehab loans.
- Section 234: This programme, which is comparable to the standard 203(b) programme in most ways, covers condominiums that are being built or modified. 203(b) financing is used by buyers to purchase an existing condominium unit in an FHA-approved complex. To acquire an FHA loan in a condominium, the condominium itself must be FHA-approved.
- Section 245: A graduated-payment mortgage allows for reduced monthly payments in the early years of the loan, making it simpler for homebuyers to qualify. The borrower’s income is qualified based on the first year’s monthly payment amounts rather than payments on an amortized loan. The lower starting monthly payments climb sufficiently to allow a fixed percentage increase each year until the monthly payment reaches a level that fully amortizes the remaining loan total. Each year, the unpaid interest from the lower early monthly payments is added to the principal debt, resulting in “negative amortization.” The FHA offers five distinct payment plans, the most popular of which being Plan III.
- 25th section 1: Adjustable-rate loans (ARMS) are loans in which the interest rate is likely to fluctuate at some point in the future. FHA has two ARM programmes: regular one-year ARMs and hybrid adjustable-rate mortgages. The FHA adjustable mortgage has a lifetime cap of no more than 5% above the initial start rate, therefore the FHA ARM can take up to five years to reach its maximum rate.
Assumptions: Certain limits apply to FHA loans, such as a due-on-sale condition that precludes loan assumptions. The loan can be assumed using a simple assumption without notifying the FHA. The interest rate or underlying terms of the loan remain unchanged, and the original borrower is fully accountable for repayment in the case of a subsequent default. Furthermore, in the event of a delinquency or default, the original obligor can be reported to national credit bureaus as the delinquent party.
A formal assumption needs FHA approval of the new buyer, the loan to be current, the new buyer to meet FHA creditworthiness qualification standards, and the new buyer to consent to the loan assumption. If these conditions are met, the loan can be assumed with no change in interest rate or underlying conditions, and the original borrower (the seller) is free of further liability.
Depending on the date of the original loan application, the FHA has three different regulations for loan assumptions. The mortgagor can choose between a simple and formal assumption for loans issued before December 1, 1986. There is a restriction on early assumptions for loans originated between December 1, 1986, and December 15, 1989, beyond which time they can be freely assumed. The time limit for owner-occupants is 12 months; for investors, the assumption cannot be undertaken without approval during the first 24 months after the mortgage is executed. Loans can be assumed without prior approval after these time periods. The seller is automatically released from obligation if the loan is not in default after five years.
In all assumptions, the creditworthiness of the new buyer must be guaranteed prior to conveyance of title for loans originated on or after December 15, 1989. The due-on-sale restrictions apply to contracts for deed, lease options, and wraparound notes.
Commitments: A developer or builder may seek an FHA commitment to insure mortgages on a future project. In such circumstances, the FHA may provide a conditional commitment to insure that is contingent on the structures or homes being finished satisfactorily pursuant to FHA requirements as certified by FHA inspection. Some promises are contingent on the building being sold to a buyer acceptable to the FHA.
A division of the United States Department of Housing and Urban Development (HUD) that manages a variety of loan, loan guarantee, and loan insurance programmes. Its goal is to increase the number of homes available.
The Department of Housing and Urban Development’s (HUD) Mortgage Insurance Program (MIPP) is a federal programme that offers mortgage insurance for residential mortgages.
An independent federal organization established in 2008 to supervise, regulate, and oversee Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks.
A body established by the 12 regional Federal Home Loan Banks to oversee mortgage lending. It was succeeded in 2008 by the Federal Housing Finance Agency (FHFA).
A privately owned cooperative organization managed by the Farm Credit Administration that makes low-interest, long-term loans to farmers and livestock enterprises who are members of the Federal Land Bank Association.
A business that specialized in buying mortgage debts.
Fannie Mae’s original name.
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The Federal Reserve Act of 1913 established the nation’s central bank. Its goal is to help stabilize the economy through prudent management of the country’s money supply and credit. The system is run by a seven-member Board of Governors (chosen by the President) and twelve Federal Reserve District Banks, each of which has its own president. The system establishes policies and collaborates with privately owned commercial banks.
The Fed’s responsibilities, as revised in 2005, include the following:
- Influencing money and credit conditions in the economy
- Supervising and regulating banks and other important financial institutions
- Maintaining financial system stability
- Providing certain financial services to the US government, financial institutions, and overseeing the nation’s payment systems
To affect and stabilize the economy, the Fed employs four tools:
With the authority to create money, the Fed decides the pace of expansion in the nation’s money supply and strives to match the rise with the nation’s economic growth. A surplus of money causes inflation; a scarcity of money causes recession.
The Federal Reserve Board sets reserve requirements for all depository institutions that offer transaction (checking) accounts. Depository institutions are required to hold a certain percentage of their deposits in a noninterest-bearing reserve kept by the Fed. This reserve serves as a buffer and can be utilized by the Fed to make short-term loans to its members.
The Fed determines the “discount rate” of interest, which is the interest rate it charges its members for loans. The Fed only lends money to members in an emergency—that is, when members require cash. Because the funds cannot be used for working capital, changes in the discount rate act as a signal to the banking community rather than an indicator of the cost of funds.
Open market operations are permitted. This technique includes the transfer of cash into and out of commercial banks via the purchase and sale of government bonds. When the Fed purchases bonds, banks receive an influx of capital that they can use to create more loans and therefore stimulate the economy.
In addition to its vital role in economic stabilization, the Fed is in charge of overseeing the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the Community Reinvestment Act. The Fed’s authority to impose a 2% premium on loans to member banks that borrow frequently from it exemplifies how the agency might control lending practices.
Until 1968, the federal government charged a documented transfer tax on the transfer of title to real property, and payment was evidenced by red stamps affixed on the document. After the federal tax was repealed, numerous states enacted their own conveyance or transfer taxes.
It used to be the Office of Thrift Supervision’s job to oversee federally chartered savings and loan institutions, but today the Federal Reserve Board is in charge of overseeing these institutions, whether they are stock savings and loan institutions or mutual savings and loan institutions. The Federal Deposit Insurance Corporation insures deposits (FDIC).
Insurance for federal savings and loan organizations, analogous to the Federal Deposit Insurance Corporation (FDIC) purpose. In 1989, FIRREA disbanded the FSLIC and transferred its insolvent insurance fund to the newly formed Savings Association Insurance Fund (SAIF), which is now managed by the Federal Deposit Insurance Corporation (FDIC).
A government institution that guarantees savings and loan association deposits against principle loss.
If the federal estate tax is not paid, or if the taxpayer has broken federal income tax or payroll tax regulations, a lien is placed on the property.
Unless the federal government expressly consents in writing to the sale or gives written notice of the proposed sale, a junior federal tax lien is not divested by a nonjudicial foreclosure proceeding (under a power of sale) taken under state law, and thus the federal government has an opportunity to collect its lien from the proceeds of the sale. Because of this, most lawyers do a title search prior to beginning a nonjudicial foreclosure to ensure that no federal tax liens exist on the subject property.
The interest of purchasers and creditors who register their interest before notification of the federal tax lien is entered is normally subject to a federal tax lien. When it comes to tax liens, the same rules apply whether or not the state or county tax liens or special assessments have been registered prior to the federal tax lien being recorded.
It’s not uncommon for the federal government to assert its lien priority over previously recorded liens when the taxpayer becomes insolvent.
According to federal tax law, public indexing of federal tax liens at IRS offices in the area where the property is located is a condition of priority for federal tax liens. Personal property liens are listed in an index kept by the district office in where the taxpayer lives at the time the notice of lien is filed.
To discharge a federal tax lien against a cotenant in common, the real estate may be sold or partitioned, surprising the tenant in common. Buyers of time-sharing projects are likewise concerned about the risk of partition. A “family farm,” or certain real property used in a family business, is subject to a special tax lien for ten years or more under federal tax law if the estate chooses to lower the value of that property for estate taxes. If the property is sold during that period, the taxes “saved” as a result of that special valuation will be “recaptured.” (Also known as “recapture.”)
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In order to combat unfair and deceptive activities in interstate commerce, the Federal Trade Commission was established. An affirmative misstatement of fact-an outright deception-as well as any erroneous implication derived from such a statement are examples of deceptive practices. For example, developers may misrepresent their plans to resell land for the benefit of customers. In general, unfair practices encompass any behavior that violates public policy, is immoral, unethical, tyrannical, or unscrupulous, or causes harm to customers in any of these three ways. Using scare tactics or high-pressure gimmicks to get customers to buy are examples of unfair practices. The Fair Credit Reporting Act (FCRA), Truth in Lending Act (TILA), and the Home Mortgage Disclosure Act (HMDA) are all regulated by the Federal Trade Commission (FTC).
Fannie Mae, Ginnie Mae, Freddie Mac, and FAMC are all federal entities authorized to issue guarantees for mortgage-backed securities. Mortgage-backed securities buyers are given additional assurance that they will get their money back on schedule thanks to the guarantees. The breadth of jurisdiction to offer guarantees, the mortgages it can guarantee, and the markets it covers are different for each agency.
Any sale transaction in the primary or secondary mortgage market that ultimately involves a federal agency. FIRREA requires the employment of state-certified or state-licensed appraisers for certain loans in federally linked transactions.
An appraiser is a specialist who provides appraisal services for a fee, often producing an appraisal report for a piece of real estate. Valuation, review, or consulting are all examples of appraisal services.
The broadest legal recognition of a land interest. Absolute ownership subject to the constraints of police power, taxation, eminent domain, escheat, and private record prohibitions.
An encumbrance-free title to property is referred to as an encumbrance-free title.
The greatest amount of real estate one can own. A fee simple estate is the most comprehensive and unrestricted form of land ownership, with an unlimited duration, the freedom to transfer ownership, and the ability to pass it down through generations. “The fee” is a colloquial term for the plain title of a fee. As a result, all subsequent estates must be less than fee simple in order to be derived from the original one (such as life estates or leaseholds). Despite the fact that the land is held in fee, any constraints on its use and control do not stem from the estate’s nature, but rather from public or private regulations (zoning ordinances and building codes or restrictions and conditions). Involuntary (e.g., mortgage) or voluntary (e.g., tax lien) encumbrances may also be attached to the fee. The value of the fee interest is generally reduced by such encumbrances.
The most valuable real estate interest recognized by law. This expression conveys the sense that the interest is retained without any constraints or qualifications.
An estate in land that grants the owner entire legal rights, restricted only by governmental authority.
The largest possible stake in land can be found in the form of an heirloom estate.
Ownership that is conditional or triggered by an event.
A qualified fee estate that, depending on the nature of the qualifying, may be subject to a future or determinable condition. Some states may allow the introduction of fees under certain situations.
It is a fee simple title that can be forfeited if a specific condition is met; it is also known as “qualified fees” or “defeasible fees.” Two types of fee-defeatable estates exist: fee-simple estates that can be determined and fee-simple estates subject to a future condition. According to the concept fee simple determinable, a deed’s duration can be established by looking at its terms. In contrast, the longevity of an estate under a fee simple subject to a condition subsequent depends on the grantor’s discretionary decision to terminate the estate.
An estate in real estate that exists “so long as,” “during,” or “during the period’” that a specific prescribed use continues is known as a fee simple determinable. The grant of conveyance specifies this usage. For example, if a university is awarded land “so long as” it is used for educational purposes, the institution would be entitled to ownership of the land, as long as the land is used in accordance with its terms. Title would revert to the original grantor if he or she is still alive or to the heirs if he or she is deceased if the institution has stopped utilizing the land for educational purposes. When a fee simple determinable expires, so does the purpose for which it was established. The donor retains the option to revert following the gift of a fee simple determinable.
However, a fee simple subject to a condition following is an estate that is transferred “if” it is used for a certain purpose. If the original grantor or his heirs no longer need it, it reverts to them. There are certain differences between fee determinables and fee condition subsequents. In fee determinables, the words are of duration, whereas in the fee condition subsequent the terms are particular. Because of this, in the event that fee condition subsequent property is no longer being used as intended, the grantor (or heirs) must regain possession of it as soon as reasonably possible following a breach of that condition (i.e., the grantor must exercise his or her right of reentry). If you’re dealing with a fee simple defeasible estate, you should consult a lawyer.
Any type of real estate interest.
The absolute or conditional ownership of a property.
Similar to life estates and remainders, title passes to or reverts upon the occurrence of an event.
A charge that is only valid until the occurrence of a certain act or event.
A holdover from the feudal system that requires title to transmit to the land owner’s lineal descendants.
A freehold estate that has the potential to continue indefinitely, but must end when the first fee tail tenant’s lineal descendants are no longer alive. Estates in which blood relations are only entitled to inherit are known as “issue of the body” or “blood estates.” To create a fee tail estate in common law, the words “Harry Hopes and the heirs of his body” have to be used. The property is said to be “in entail.” Unlike fee simple estates, which can descend to both collateral and lineal heirs and have been eliminated in most states, this sort of estate can only pass to a single heir.
Instead of paying brokerage fees, you can use this service. Because the costs of real estate services are “unbundled,” the customer only has to pay for what he or she uses.
For many groups, including the Real Estate Institute of Australia, this is the highest level of membership.
Punishable by incarceration in a state or federal prison for a crime that is of a serious nature. Certain infractions of real estate legislation are considered felonies.
A bituminous tar derivative is applied to a tightly woven wool covering to keep plumbing pipe joints dry.
Underlayment paper used in the construction of roof shingles. This weighs between between 15 and 30 pounds.
There is a place for additional part to be introduced at any time.
Window design and placement in a structure.
Roof gutters are kept open by a system of tubes.
Land ownership dates back thousands of years. The government or king owned title to all lands under old English common law. As a tenant, the individual was only entitled to use and occupy the property at the behest of a landlord. The feudal system gave way to the allodial system of private property ownership in the seventh century.
Any piece of furniture that can be moved and is not permanently attached to the building’s construction.
REITs’ funds from operations are recurrent income from properties they own.
Federal Housing Administration-insured mortgages.
Government-sponsored mortgage insurance protects lenders from losses during foreclosure and transfer of ownership to the US Department of Housing and Urban Development (HUD). The mortgage holder pays the insurance premium.
To fix a bearing wall cutting, and to attach wall corners, splices, and bearer headers, the metal straps were utilised
The former name for IREF, the International Real Estate Federation, was the Federation Internationale de Biens Consuls Immobliers.
The Fair Isaac Company developed mathematical scores that are used by credit bureaus and lenders to assess the risk of lending money. FICO scores range from 450 to 850, and the lower the score, the more risky the credit card account. Equifax, TransUnion and Equifax all use the score in a different way because of the information they have on file. When a consumer’s FICO score changes, so does the amount and terms of a loan they are eligible for. Improved FICO scores can help consumers secure lower interest rates from banks and credit card companies. The Fair Credit Reporting Act governs FICO (FCRA).
Other than the business owner’s own name, a company name such as “XYZ Real Estate” or “Greenfields Realty” is acceptable. An alias is also known as a pseudonym. A majority of state licensing rules require such brokerage offices to be registered under the supervising broker’s name and the company’ fictional name, like “Elmo Schwartz, broker, also known as Bonanza Real Estate Brokers.” A false name certificate or a trade name registration is often required in most jurisdictions.
A fidelity bond, which is also known as a surety bond, is obtained by an employer to protect employees who are in charge of large sums of money or valuable assets. The bonding or insurance firm expects these bonded individuals to perform their obligations and responsibilities honestly and efficiently. Fidelity bonds are often needed by property managers and escrow businesses.
An employee’s bond insures against the loss of monies or assets.
One who has a high level of trust or confidence in another person.
Entrusting someone with the care of their money or property can be seen as an indication of trust and confidence. Attorneys and brokers (and their salespeople) owe fiduciary duties to their clients and principals, respectively, in the form of fiduciary relationships. The fiduciary is obligated to the client to the fullest extent of the law. Loyalty, obedience, and full transparency are all obligations owed to a principal by a fiduciary. The fiduciary is also required to exercise skill, care and diligence, and to account for all monies. Agents who violate their fiduciary responsibilities can be held liable for money damages, compelled to renounce any income, or forced to imprint a constructive trust on any concealed profits.
An agent’s intimate knowledge of a client’s personal and financial circumstances is commonplace when dealing with a brokerage firm’s brokers (principals). Even after the transaction has been completed and the fiduciary relationship has been dissolved, most states prohibit brokers from disclosing this information. The broker has a conflict of interest in that he has a duty to keep confidential the information he learns from the principal and a duty to provide all relevant information to the principal, which makes it difficult to represent both parties in a real estate transaction.
A person, firm, or organization that holds assets in trust for a beneficiary and is responsible for prudently investing the funds for the beneficiary’s benefit.
An agent’s particular duties and obligations to a principal, such as total loyalty, secrecy, obedience, disclosure, accounting, care, expertise, and due diligence.
Rather than relying on blueprints, these measurements are taken in the home itself.
Instead of using a blueprint, this method is utilised to physically measure the components of a house.
Place an original document in the records of the general public The vast majority of legal paperwork is digitally recorded (i.e., kept in the form of a literal copy produced by electrostatic process and microfilm). A copy of the original document is provided to the person whose name appears in large letters at the top left corner of the record after it has been recorded. Records related to registered property (Torrens system) are kept by the registrar of titles.
Real Estate Glossary F [Part 3]