The terms you should know. This is all pretty basic stuff, but it may be nice to go over this every now and again because when you are talking to people, you are going to want to be able to explain this.
So the first one is the interest or the interest rate, right. So, that’s pretty easy. All you’re going to do is you’re going to take the interest. This is how you calculate how much money you’re going to make it. So you have $100,000 loan, let’s say you charge a 10% interest. You take $100,000 times .10. $100,000 times .10 equals $10,000. That’s how much you make on a loan. So you take the loan amount, by the interest rate, put a point in front of it, point blah blah, .18, .15., .13, whatever you charge. Times that by the amount you lend and that’s how much you make a year.
Now if you want to figure out how much the payments are going to be, typically we charge a monthly payment on the interest accrued every month. So you take a $100,000 times 10% for example, $10,000 per year divided by 12 and your number is going to be 700-800 bucks a month, something like that. Now, that’s the interest rate, most of you will know that. Just remember interest rate, that’s how you do it. We typically charge 15%-18% but people charge everything all over the place.
So most of our points, most of our loans are 5-10 points, of which you will get 1-2 points is what we usually sugg est. The long-term for us is usually when the length of the loan is one year. Again, it can be anything.
The collateral is the piece of real estate that you’re using. So when somebody says, what’s my collateral? You say it’s a residential house, it’s á piece of land, its commercial land, it’s apartments, it could be anything. That’s your collateral.
The security instrument is what secures your loan. It’s actually very simple when you’re doing a loan. The two main document you’re going to have will be a trust deed or mortgage. They’re both the same thing, the trust deed and the mortgage are the same thing. That’s recorded against the property, right. So you take a house, you sign the trustee or mortgage, you record it against the property, and that is the instrument that gives you the ability to foreclose.
Now the promissory note is what spells out the terms of the loan. The promissory notes will have the interest rate, will have points on it sometimes, it will have the length of term, it will tell you when your payments are. That’s what the promissory note is. So remember this, the trust deed or the mortgage secures the property, and the promissory note is the terms of the loan.
Every time we actually lend on a piece of property, we get title insurance from a title company. Basically, that is a huge company that will give you a policy of title insurance saying yes, you own the property. Or it will say yes, you have a loan against the property. And in the event there is some kind of an issue that comes up where somebody didn’t record something, or something fouls up and someone says you don’t have a loan on the property, the title insurance company will actually pay you the money back that you lent on the property, because the title company foaled up. So again, trust deed or title insurance guarantees you are in first position, right.
Property insurance is justs the fire insurance. Everytime we do a loan, we make sure we have fire insurance against the property or some kind of casualty insurance. So that in the event the house burns down or whatever, you’re covered to pay your loan back. And again, we always get our name listed on the fire insurance policy.
Legal description of property, very important. Every property you see will have a legal description. It will either be metes and bounds which will say, it’s a 1000ft by 550ft by 1000ft by another 500ft back to the point of the beginning. That’s the legal description and it’s always referenced to something out on the land, tied to some kind of a marker. Or it could be a lot. So your house is lot three in some subdivision somewhere. That’s also a legal description. So that legal description actually identifies your property.
Tax ID Number
Now each legal description is tied to a tax ID number. So the county categorises all these legal descriptions. They give it a number and then the number identifies which property it is. So you want to tie these two together, tax ID is the number of the legal description of your property.
An appraisal is an evaluation of your property given by a licensed person that knows how to do appraisals.
A BPO is a broker price opinion, so a broker will go out for you, oftentimes for free, and will look at the property, give you an evaluation of what it is worth, that’s a broker price opinion. We get those all the time.
Each property will have a comparable. Well, not each one will. But when we’re trying to evaluate a property, we’re looking for other properties that are similar to this and we try to find out what it sold for. It just gives an idea what the properties were sold for. A comparable is another property similar to your property with the sales number of what it sold for.
Warranty Deed and Quitclaim Deeds
Warranty deeds and quitclaim deeds. Those are deeds that transfer ownership. So when you bought a property, you probably received a warranty deed or quitclaim deed. This is this is how you ended up getting your property, just a deed, like a car deed. But it’s different because they give you a deed and it’s recorded with the county and everyone knows that it’s yours. Two different deeds that do the same thing.
When you make a loan on a property and it is time to payoff a loan, there is a payoff letter that goes out. So just recognized this as a payoff, it’s self-explanatory.
As you know, in the event somebody doesn’t pay you back you have to be able to foreclose, take the property bag, and then you sell it. And again, trust deed or mortgage is what securitizes this so you can foreclose.
It’s important. We only do first mortgages, every now and again we will do a second but very rarely. So the position of your trust deed is important. And again, you may have a first, you may have a second, you may have a third, you may have whatever, you just want to make sure when you’re doing along the way that you’re in first position. There’s ways and places you can do seconds and thirds. But each one of these trust deed and mortgages can go in and out of whatever position you are. So the positioning of the trust deed mortgage is important.
These are just some short, quick, terms. Call me if you want to talk more about it. But listen to this a couple of times and it’ll help you when you talk to your to your borrowers. Thanks.
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