Trust Deed Investing can provide an Extremely Safe investment with a high rate of return.

• Your Investment Is Secure
• No Minimum Investments
• Monthly Disbursements
• Flexible Loan Terms

Your Investment Is Secure: Your investment is secure with a 1st Trust Deed on real property with loan to value ratios not exceeding 65%. Loans close through a licensed escrow company with title insurance.

No Minimum Investments: David Herley Finance Home has no minimum loan amount guidelines. We fund loans of all sizes, allowing you to structure an investment that best meets your financial objectives.

Monthly Disbursements: Your interest payments are disbursed monthly by a third-party loan servicing company OR you can service the loan yourself. This creates a simple streamlined process of payment collection with no need for contact with the borrower.

Flexible Loan Terms: Our loans range from 3 months to 84 months in term and are generally structured as interest only.

David Herley Finance Home's private lending formula and philosophy is to originate well underwritten and well secured quality real estate loans while taking advantage of the flexibility afforded through private money lending. Our investment philosophy when evaluating and underwriting a potential loan opportunity takes the following questions into consideration:

"Can the client pay?"

"Will the client pay?"

"If the client doesn't pay, are we OK?"

1)"Can the client pay?" Does the borrower have the ability to make the monthly payments for the loan we are funding? What are the details regarding the borrower's income, job position, stability, overall financial standing, including: assets, liabilities, and net worth. To verify borrowers' capacity to pay, David Herley Finance Home requires that the borrowers state their income on the loan application. In many cases we include tax returns, bank statements and verification of cash deposits or other assets.

2) "Will the client pay?" Often times, borrowers show they have the ability to pay; however that doesn't always mean they will pay. The borrowers' character and desire to pay are based on their past performance in handling credit. David Herley Finance Home runs a complete credit report providing payment history on existing loans including the number of late payments and credit references to verify the borrowers' character and desire to pay.

3) "If the client doesn't pay, are we OK?" This is the MOST IMPORTANT criteria of our underwriting guideline! The collateral is the backbone and security of all of our loans. David Herley Finance Home is a direct equity lender. The market value of the property is critical in David Herley Finance Home's decision in making any given loan. Our policy is to lend only up to 60% Loan To Value (LTV), requiring at least 40% protective equity in the property. To verify the market value of a property, David Herley Finance Home requires an appraisal to be completed by an approved independent appraiser. We tailor each loan to meet our investors' criteria before we send the deal to be reviewed. After we do our due diligence, we present our investors with the details of the loan and an appraisal of the property. Even though we provide financing for every type of property in the market place, our investors have the option to choose what properties they would like to invest in so you will only see deals which meet your specific criteria. We only accept a small fraction of the deals that come to us so when the deal is presented to our investors it will carry with it the highest standards.

What is trust deed investing?

At the simplest level, trust deed investing is when an individual lends money to a borrower through the services of a broker. The source of this money can be from savings, credit lines, or retirement accounts. The broker finds the borrower who wants the loan, and the private party with the money provides the funding.

Why do people invest in trust deeds?

Trust deed investing is a great way to diversify an investment and/or retirement portfolio and can provide an extremely safe investment with a high rate of return.

Who is your typical trust deed investor?

David Herley Finance Home has tens of millions of dollars of trust deed investments working every day and every dollar of it comes from people, organizations and non-profits who have funds to invest and have taken the time to understand the benefits of being a private money lender. We have many trust deed investors and they fall into several categories. Below are just a few of the individuals and organizations we currently work with:

1. Retired individuals: This group of trust deed investors wants a high yield return and absolute safety.
2. Preparing for a comfortable retirement: This group of trust deed investors is conservative and is preparing for retirement
3. Busy professionals: Lawyers, doctors, dentists, bankers, wealth managers, city government employees and numerous other professionals who are busy earning high incomes.
4. Inherited wealth: This group consists of individuals who have inherited substantial sums of money.
5. Non-profits and endowments: In recent years, non-profits have seen declines in their endowment funds as well as the amount of giving to their organizations as the economy slowed. Many will be tempted to take extraordinary steps to make up for lost returns, which can be dangerous and risky. Trust deed investments provide a great option for non-profits.
6. Wealth managers: Individuals in charge of managing large sums of money for wealthy individuals come to us to further diversify their clients, investment portfolios through trust deed investments.

Can I invest using my 401k or my IRA account?

Yes. Several retirement accounts are eligible for trust deed investing. Some retirement accounts have restrictions so it will be important to check with the custodian or agent managing your funds.

What are the benefits?

• Interest Paid Monthly to Investors - Like clockwork!
• Great Investment for Retirement Accounts -IRAs, 401Ks, etc!
• 11%-16% Rate of Return on Your Investment - Beats what banks pay!
• Customized Lending - Underwriting criteria tailored to your comfort level!
• Loan-to-Value Never Exceeds 60% - at least 40% Gross Equity in the collateral!
• Over $273 Million in Loans Funded - We know how to do these loans!
• Short and Long Term Loans -6 month terms to 30 year terms!
• Highest Level of Compliance and Underwriting Standards - Everyone is Protected!

What makes these Investments Safe?

David Herley Finance Home's private lending formula and philosophy is to originate well underwritten and well secured quality real estate loans while taking advantage of the flexibility afforded through private money lending. Our investment philosophy when evaluating and underwriting a potential loan opportunity takes the following questions into consideration:

"Can the client pay?"

"Will the client pay?"

"If the client doesn't pay, are we OK?"

1) "Can the client pay?" Does the borrower have the ability to make the monthly payments for the loan we are funding? What are the details regarding the borrower's income, job position, stability, overall financial standing, including: assets, liabilities, and net worth. To verify borrowers' capacity to pay, David Herley Finance Home requires that the borrowers state their income on the loan application. In many cases we include tax returns, bank statements and verification of cash deposits or other assets.

2) "Will the client pay?" Often times, borrowers show they have the ability to pay; however that doesn't always mean they will pay. The borrowers' character and desire to pay are based on their past performance in handling credit. David Herley Finance Home runs a complete credit report providing payment history on existing loans including the number of late payments and credit references to verify the borrowers' character and desire to pay.

3) "If the client doesn't pay, are we OK?" This is the MOST IMPORTANT criteria of our underwriting guideline! The collateral is the backbone and security of all of our loans. David Herley Finance Home is a direct equity lender. The market value of the property is critical in David Herley Finance Home's decision in making any given loan. Our policy is to lend only up to 60% Loan To Value (LTV), requiring at least 40% protective equity in the property. To verify the market value of a property, David Herley Finance Home requires an appraisal to be completed by an approved independent appraiser. We tailor each loan to meet our investors' criteria before we send the deal to be reviewed. After we do our due diligence, we present our investors with the details of the loan and an appraisal of the property. Even though we provide financing for every type of property in the market place, our investors have the option to choose what properties they would like to invest in so you will only see deals which meet your specific criteria. We only accept a small fraction of the deals that come to us so when the deal is presented to our investors it will carry with it the highest standards.

Glossary of Real Estate and Mortgage Terms:

acceleration clause

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

adjustable-rate mortgage (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

adjustment date

The date the interest rate changes on an adjustable-rate mortgage.

amortization

The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

amortization schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

annual percentage rate (APR)

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.

application

The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.

appraisal

A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

appraised value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

appraiser

An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

appreciation

The increase in the value of a property due to changes in market conditions, inflation, or other causes.

assessed value

The valuation placed on property by a public tax assessor for purposes of taxation.

assessor

A public official who establishes the value of a property for taxation purposes.

asset

Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

assignment

When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

assumable mortgage

A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

balloon mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

balloon payment

The final lump sum payment that is due at the termination of a balloon mortgage.

bankruptcy

By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of unsecured debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

bridge loan

Short term loan, used to bridge the gap. For example a loan used to buy a property until a permanent loan can be secured.

cap

Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

cash-out refinance

When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance."

chain of title

An analysis of the transfers of title to a piece of property over the years.

clear title

A title that is free of liens or legal questions as to ownership of the property.

closing

This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

cloud on title

Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

co-borrower

An additional individual who is both obligated on the loan and is on title to the property.

collateral

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

community property

In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

comparable sales

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

condominium

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

construction loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

conventional mortgage

Refers to home loans other than government loans (VA and FHA).

convertible ARM

An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

credit history

A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

creditor

A person to whom money is owed.

credit report

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

deed

The legal document conveying title to a property. Example: Grant Deed, Warranty Deed, Quitclaim Deed.

deed-in-lieu

Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

deed of trust

Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.

default

Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

depreciation

A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.

down payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

due-on-sale provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

easement

A right of way giving persons other than the owner access to or over a property.

eminent domain

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

encroachment

An improvement that intrudes illegally on another's property.

encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

equity

A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

escrow account

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

eviction

The lawful expulsion of an occupant from real property.

exclusive listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

executor

A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

fair market value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA)

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, FrDavid Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.

Federal Housing Administration (FHA)

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

fee simple

The greatest possible interest a person can have in real estate.

fee simple estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

firm commitment

A lender's agreement to make a loan to a specific borrower on a specific property.

first mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

fixed-rate mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

flood insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Government National Mortgage Association (Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and FrDavid Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

grantee

The person to whom an interest in real property is conveyed.

grantor

The person conveying an interest in real property.

hazard insurance

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

home equity line of credit

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

home inspection

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

homeowners' association

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

homeowner's insurance

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

homeowner's warranty

A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

HUD-1 settlement statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."

joint tenancy

A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.

judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

judicial foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

jumbo loan

A loan that exceeds Fannie Mae's and FrDavid Mac's loan limits, currently at $417,000. Also called a nonconforming loan. FrDavid Mac and Fannie Mae loans are referred to as conforming loans.

late charge

The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.

lease

A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

leasehold estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

lease option

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.

legal description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

lender

A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."

liabilities

A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

liability insurance

Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

lien

A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

line of credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

liquid asset

A cash asset or an asset that is easily converted into cash.

loan

A sum of borrowed money (principal) that is generally repaid with interest.

loan officer

Also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

loan origination

How a lender refers to the process of obtaining new loans.

loan servicing

After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

loan-to-value (LTV)

The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

merged credit report

A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

modification

Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.

mortgage

A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use Trust Deeds.

mortgage broker

A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

mortgagee

The lender in a mortgage agreement.

mortgage insurance (MI)

Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

mortgage insurance premium (MIP)

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

mortgagor

The borrower in a mortgage agreement.

multi-dwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

negative amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

no cash-out refinance

A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."

no-cost loan

Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

note rate

The interest rate stated on a mortgage note.

notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

original principal balance

The total amount of principal owed on a mortgage before any payments are made.

origination fee

On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

partial payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

personal property

Any property that is not real property.

PITI

This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

planned unit development (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

point

A point is 1 percent of the amount of the mortgage.

power of attorney

A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

pre-approval

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification

prepayment

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

prepayment penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

pre-qualification

This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

prime rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

principal balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

principal, interest, taxes, and insurance (PITI)

The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

promissory note

A written promise to repay a specified amount over a specified period of time.

Planned Unit Development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

quitclaim deed

A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

real estate agent

A person licensed to negotiate and transact the sale of real estate.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers disclosures and notices of closing costs.

real property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

Realtor®

A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

recorder

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

recording

The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

refinance transaction

The process of paying off one loan with the proceeds from a new loan using the same property as security.

remaining balance

The amount of principal that has not yet been repaid. See principal balance.

right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

right of ingress or egress

The right to enter or leave designated premises.

right of survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

sale-leaseback

A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

second mortgage

A mortgage that has a lien position subordinate to the first mortgage.

secured loan

A loan that is backed by collateral.

security

The property that will be pledged as collateral for a loan.

seller carry-back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

servicer

An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

settlement statement

See HUD1 Settlement Statement

subdivision

A housing development that is created by dividing a tract of land into individual lots for sale or lease.

subordinate financing

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

survey

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

sweat equity

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

tenancy in common

As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

title company

A company that specializes in examining and insuring titles to real estate.

title insurance

Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

title search

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

transfer of ownership

Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

transfer tax

State or local tax payable when title passes from one owner to another.

Truth-in-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

trustee

A fiduciary who holds or controls property for the benefit of another.

VA mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.