Real Estate National — Financing, Mortgages, and Property Valuation

MORTGAGOR vs MORTGAGEE: MORTGAGOR = the BORROWER — they 'give' (grant) the mortgage to the lender as security for the loan; the suffix '-or' is the one giving; MORTGAGEE = the LENDER — they 'receive' the mortgage; the suffix '-ee' is the one receiving; MEMORY AID: The borrOWER OWES; the mortgagOR gives (and owes); the mortgagEE receives (the bank); SIMILAR PAIRS: Lessor (landlord, gives the lease) / Lessee (tenant, receives); Grantor (gives the deed) / Grantee (receives); Optionor (gives the option) / Optionee (receives); Vendor (seller) / Vendee (buyer); the '-or gives, -ee receives' pattern applies throughout real estate; this terminology is fundamental and frequently tested on the national exam; in a mortgage transaction, the borrower (mortgagor) pledges the property as security to the lender (mortgagee).

THREE APPRAISAL APPROACHES: (1) SALES COMPARISON APPROACH (market data approach): Compares the subject to recently SOLD similar properties (comparables/'comps'), adjusting for differences (size, location, condition, features); the PRIMARY method for SINGLE-FAMILY RESIDENTIAL; (2) COST APPROACH: Value = land value + cost to rebuild the improvements (new) minus depreciation; best for NEW or SPECIAL-PURPOSE properties (schools, churches) with few comparables; (3) INCOME APPROACH: Value based on the income the property generates (used for INCOME-PRODUCING properties — apartments, commercial); uses capitalization (Value = Net Operating Income ÷ Cap Rate); for RESIDENTIAL homes, the sales comparison approach is most appropriate and most heavily weighted because there are usually ample comparable sales and homes are bought for use, not income; appraisers may use multiple approaches and reconcile them, but the sales comparison approach dominates for residential; this is core national exam valuation content.

AMORTIZATION: The process of gradually paying off a loan through scheduled regular payments that include both PRINCIPAL and INTEREST, structured so the loan balance reaches ZERO by the end of the term. FULLY AMORTIZED LOAN: Each payment covers all the interest due plus some principal; early payments are mostly interest, later payments mostly principal (the ratio shifts over time); the balance is fully paid at maturity; AMORTIZATION SCHEDULE: Shows each payment's split between principal and interest and the declining balance; CONTRAST: INTEREST-ONLY loan (payments cover only interest, principal due at end); BALLOON loan (smaller payments with a large lump sum due at the end — not fully amortized); NEGATIVE AMORTIZATION (payments don't cover interest, balance grows); EQUITY builds as principal is paid down and (potentially) the property appreciates; amortization is a fundamental financing concept on the national exam — understanding that early payments are interest-heavy and the loan self-liquidates over the term is key.

PRINCIPLE OF SUBSTITUTION: A rational buyer will pay no more for a property than the cost of acquiring an equally desirable SUBSTITUTE property. This principle underlies the SALES COMPARISON APPROACH (and influences all three approaches) — if a comparable home is available for less, the buyer won't pay more for the subject; OTHER VALUATION PRINCIPLES: CONTRIBUTION: The value of an improvement is measured by its contribution to the whole property's value, not its cost (a $50,000 pool may add only $20,000 to value); CONFORMITY: Maximum value occurs when properties are similar/conform to the neighborhood; ANTICIPATION: Value is based on expected future benefits (income, appreciation); SUPPLY AND DEMAND: Value rises when demand exceeds supply; HIGHEST AND BEST USE: The legally permitted, physically possible, financially feasible, and most profitable use; PROGRESSION/REGRESSION (a lesser property gains value near better ones / a better property loses value near lesser ones); the principle of substitution is foundational to appraisal and a key national exam concept — it establishes that comparable alternatives cap what a buyer will pay.

TRUTH IN LENDING ACT (TILA): A federal consumer protection law requiring lenders to DISCLOSE the true cost of credit so borrowers can make informed decisions and compare loans. KEY DISCLOSURE — APR (Annual Percentage Rate): Reflects the interest rate PLUS certain loan costs/fees (origination fees, points, mortgage insurance), expressed as a yearly rate; the APR is usually HIGHER than the note rate because it includes those costs; it lets borrowers compare the true cost of different loan offers on a standardized basis; OTHER TILA DISCLOSURES: Finance charge, amount financed, total of payments, payment schedule; REGULATION Z implements TILA; TRID (TILA-RESPA Integrated Disclosure): Combined TILA and RESPA disclosures into the Loan Estimate (given within 3 days of application) and Closing Disclosure (given at least 3 days before closing); RIGHT OF RESCISSION: For certain refinances of a primary residence, TILA gives a 3-day right to cancel; PURPOSE: Consumer protection through transparency; APR enables apples-to-apples loan comparison; understanding TILA, APR, and the related disclosures is important financing/consumer-protection knowledge tested on the national exam.