Private lenders have their own language used in the mortgage approval process and if you’re new to real estate investing we’d like to take a moment to review some commonly used terms you might hear during the course of your loan approval.
Abstract: Also referred to as a property survey, this is a physical and literal description regarding property lines, easements and where the home sits upon the lot as well as any permanent structures such as sidewalks and fences.
Appraisal: Most people know what an appraisal is but maybe not so much how we review one. A traditional loan will require a report that supports the sales price of a property by comparing recent home sales in the area with the subject property. Yet when we review an appraisal on an application to buy and rehabilitate a property, we look at the future value of the property as if the repairs have already been made.
FICO: The FICO Company was originally called the Fair, Isaacs Corporation that developed the three digit algorithm used to calculate credit scores. Civic does not use FICO scores during the approval process.
Inspection: This is another process where the property is visited but not to be confused with an appraisal. An inspection makes a physical review of the property to see what repairs will be needed in order to bring the home into a condition where a traditional loan can be placed or to confirm the work needed to stabilize the property.
Private Funds: Money used to finance real estate that does not have to conform to any other third party standards or guidelines.
Servicing: This is the term that simply means where someone sends their mortgage payment each month. A servicer can be different than the entity that owns your mortgage. A servicer collects a fee each month on behalf of the owner of the mortgage and delivers the monthly payment to the mortgage holder.
Short Sale: A short sale occurs when the lender agrees to accept what is less than owed on the mortgage as “paid in full.” A short sale is sometimes needed when the amount owed exceeds the current property value of the home.
Title Report: When a lender issues a loan it also records a lien against the property, securing the note. But before that can happen, the lender needs to make sure there are no other previous liens on the property that would take priority over the lender’s filing. For example, if the current owner has federal tax liens filed against the property, those will have to be settled before a loan will be placed. Tax liens, and other so-called “superior” liens take priority over a mortgage loan.
Underwriting: The process where the lender determines a loan application meets its requirements and the loan can be funded.