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Types of Mortgages (Non FHA, VA Loans) | Real Estate Exam - YouTube
Channel: The Real Estate Classroom
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hey everybody my name is paul bachewski
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and welcome to the real estate classroom
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youtube channel hey before we get
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started on today's video
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on non-va non-fha type
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loans do me a favor give this video a
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thumbs up hit that red subscribe button
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if you have questions or comments leave
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them down below in the comments section
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let's get to today's video
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[Music]
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so in today's video we're going to
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discuss types of mortgages that you have
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to know for your real estate exam
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that they tip they're they're not backed
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by the federal government
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and they don't kind of they don't fit
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into the criteria
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of typical residential conventional type
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loans
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but they are loans and they are valid
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and real in the real estate industry
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particularly in like the commercial
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industrial
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those types of arenas of real estate but
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we have to know what they are at least
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have a
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basics of what they are and there are
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six of them that we're going to talk
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about today
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i have them on your screen here we're
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going to discuss open-end mortgages
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blanket mortgages second mortgages term
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mortgages wrap around mortgages and what
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we call
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shared appreciation mortgage all right
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so let's take a look at the first one
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open end mortgages now open debt
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mortgages are commonly known as maybe
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you've heard of a
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home equity line of credit or we call a
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heloc
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it allows the mortgage or now here is a
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key real estate term actually there are
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two that you have to know we've
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discussed them in previous videos
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but it's the mortgagor the mortgagor is
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the borrower
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and then we have the mortgage e and the
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mortgage e
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is the lender two e's in mortgage e
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two e's and lender so what we see here
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is in your example let's say we have a
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property that's valued at 200 000
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and they have a first mortgage uh maybe
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it's an
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fha of you know a federal housing
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administration loan or
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a conventional loan it doesn't matter
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but it is for a hundred thousand dollars
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that's the balance of the first
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mortgage so the borrower goes out
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and they apply and get approved for a
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heloc
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and on your screen i put sixty thousand
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dollars available to borrow now
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typically what will happen is the lender
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will set a limit
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or what a loan to value ratio
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so maybe it's 25 of or 75 percent of the
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the home value is what they're willing
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to borrow so in our case
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uh 200 000 and there's a hundred
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thousand dollar loan balance
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and based on the ratios for that
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particular lender
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they're saying listen we're going to
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borrow up to 160 000
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of the home's value so you have 60
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000 from which you can draw on whenever
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you want
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and usually you don't pay any fee i mean
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there's no interest being paid until you
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actually borrow money against it and so
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you have sixty thousand dollars
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available to
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make home repairs or basically whatever
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you want
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that's called a home equity line of
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credit or what we call
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a heloc that is one type of an
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open end mortgage there are different
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types but we're not going to get into
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them here i just wanted to illustrate
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how an open end mortgage works
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now the second type of mortgage i want
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to talk about is what's called a blanket
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mortgage now a blanket more mortgage is
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essentially
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one loan that covers separate
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properties or several individually
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deeded properties and they're very
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common with developers of sub
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subdivisions so let me give you an
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example let's say that a developer goes
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out and they have 20 acres that they're
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going to develop
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they're going to have 50 lots with 50
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homes built on each one of those lots
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and they go out and get a million dollar
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loan now that million dollar loan is
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going to be placed against or liens are
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going to be
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placed against all 50 lots
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but what it does is this particular type
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of mortgage has in the mortgage
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language which creates what we call a
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partial
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release clause or sometimes just called
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a a release clause
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it can those two terms can be used
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interchangeably
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and it allows the developer as they
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sell off the individual lots
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that the lien against that lot is
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removed from
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the overall uh the overall first
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mortgage so it's just a way for them to
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loan money
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to a developer and then as the developer
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sells off those individual lots
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there's a partial release so that
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individual lock can be released that
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lien is
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removed against it uh from the first
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mortgage so
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that is one of the benefits of a blanket
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mortgage
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the third type of loan i want to talk
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about is a second mortgage or sometimes
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what we called a
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junior mortgage now this is a fixed
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dollar amount
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and the second mortgage is junior or
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what we call a lower priority to
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any existing mortgages that are
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currently levied against the property so
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on your screen i have an example the
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home is valued at two hundred thousand
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there is a first mortgage in the amount
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of a hundred and twenty thousand with
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a1 banks so when the buyers went and
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bought this property
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you know ten years ago five years ago or
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whatever the case may be they went to a1
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bank
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they borrowed whatever amount the
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balance now is a hundred and twenty
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thousand dollars
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okay so five years later they want to
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put windows and siding and all that so
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they
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they go and get a second mortgage from
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a2 bank
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for forty thousand dollars the key here
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is it's fixed unlike our open
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end mortgage where you know
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you have a a pool of money to borrow
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against
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this is just they're they're gonna you
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know it's one fixed amount hey the
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windows and doors and siding's going to
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cost 40 000
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and so they get a second mortgage all
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right
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the second mortgages are subordinate to
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senior liens so what i mean so here's
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how subordination
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works so as you can see on your screen
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the borrower went to a1 mortgage when
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they purchased the property on
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august 1st 2019 and got a hundred and
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twenty thousand dollar loan
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so a one mortgage is in first place
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meaning
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if the borrower defaults on their
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payments and they stop making payments
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then a1 mortgage has the first right to
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do the foreclosure
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they're in first place and the way that
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lean priorities work is it's first come
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first serve
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so a year and a month later the buyer
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decides that they want to
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put on new doors windows and siding and
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it's going to cost 40 000 so they go to
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a2 mortgage
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and finance the forty thousand dollars
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for the work to be done
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well a1 mortgage is in first place a two
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mortgage is in second place
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again so if the borrower defaults on
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making those payments
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then a1 mortgages and still first still
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has the first
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priority meaning they're the first one
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that has the right to foreclose
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so let's say a year after that the
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interest rates are stupid low and the
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borrower says well
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a1 mortgage my interest rate's at four
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percent currently
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i can go to a3 mortgage and get 2.75
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certainly they would want to do that so
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what has to happen
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for a3 mortgage to do the refinancing
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a two mortgage is gonna have to
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subordinate
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because think about it if a three
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mortgage simply pays off a one
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mortgage's hundred and twenty thousand
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dollar
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loan that means that a2 moves up into
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first place
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and if you're a first mortgage type
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company
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you don't want that in fact you won't
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allow that to happen so there's going to
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be a contingency
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so what the borrower is going to do the
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borrower is going to go to a2 mortgage
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and say listen i'm going to refinance my
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first
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mortgage but i need you to sign the
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subordination agreement
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and that means that a2 mortgage is
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voluntarily allowing
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a3 mortgage to jump into first lien
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priority
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you might be asking why would any bank
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do this well everybody knows the game in
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the industry
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there are certain companies that are
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only primary mortgages
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and there are some companies that are
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secondary mortgages and they know
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the drill they know the game it's very
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common it happens all the time
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and one of the reasons is is because
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eighth
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if you're if you're a a primary mortgage
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company
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you would not you if you're not in first
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lien priority you would not be able to
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portfolio
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that loan and sell it on the secondary
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mortgage market
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we discussed that in a previous video
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how the secondary mortgage market works
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so typically second mortgages are held
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in-house meaning whoever the the bank is
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that's
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issuing the loan for the second mortgage
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they keep that in-house they don't sell
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it off
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to it to the secondary mortgage market
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so
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that's why this is done all right the
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next type of loan i want to talk about
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is called
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term mortgages now they're not very
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common they're common in the builder
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community or at least they
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used to be they're not so much anymore
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but they still do exist
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and what it allows is for a builder to
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go out have a pool of money to draw
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from and but the repayment period is
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over a
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specific period of time and it's shorter
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in nature so
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so maybe a builder goes out and finances
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three hundred thousand dollars or five
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hundred thousand dollars
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and the term loan is to the term is to
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be paid back
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you know at the end of three four or
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five year period
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and i got an example on your screen
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there so they borrowed five hundred
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thousand there's going to be a hundred
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thousand dollar payment due after the
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first year
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another hundred thousand dollars due on
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the second year anniversary
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and then the balance is due on the third
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year anniversary
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that's not set in stone that process
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they may go out and just borrow the
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money and the
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one and only payment is due after three
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years or after four years i've seen some
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that are structured where
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every year there's just a it's a seven
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year term loan and every year
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only the interest is due and then on the
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seventh year
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the principal and interest is due all at
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the same time
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so uh the interest meaning the final
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year of interest
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how it's structured can change but the
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thing you need to know is term mortgages
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are are there for a specific period of
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time for repayment
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and and that's the basic thing that you
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need to know
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the next type of loan is called a wrap
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around mortgage this is where we have
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two or more
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mortgages consolidated into one payment
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so maybe there's three properties three
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different mortgages and we consolidate
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them into
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one payment now what's the difference
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between a wraparound mortgage
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and a blanket mortgage and that is with
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a wrap around mortgage there is no
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partial release clause or a release
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clause so
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they would not be able to sell off each
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property individually and get that
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lien that mortgage lien removed again
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against the property
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unlike a blanket mortgage where that is
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allowed there's
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a partial release clause in that
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mortgage
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you don't see that with wraparound
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mortgages wraparound mortgages are
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really not common anymore
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and if you do see them it's usually a
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very very highly qualified buyer with a
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lot of assets in a local bank
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and then the local bank is taking the
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risk and and that's why you really don't
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see them anymore because you can't sell
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them on the secondary mortgage market
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either
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so the local bank's gonna hold that loan
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in-house
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all right the sixth and final type of
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mortgage i want to talk about is what's
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called a shared appreciation mortgage or
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commonly known as a sam
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and what makes this very unique is the
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lender is going to
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benefit or profit from the future
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appreciation in value of this
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property and that future appreciation
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value is capped at 40 it can be lower
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than 40 percent
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but it cannot be more than 40 percent
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there is a max
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and we call that
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future appreciated percentage a
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contingent
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interest that is a key real estate term
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that you have to know
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so let me explain how this works let's
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say somebody borrows a million dollars
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from the bank and it's a sam mortgage
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well that property is going to
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appreciate in value
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so instead of interest being paid
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to the lender the lender is going to
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share in the profits
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and so that million dollar property that
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was mortgaged is going to
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increase in value we call that
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appreciation well at the end of a
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specified period of time
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typically 10 years then the loan
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the lender is going to get their million
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dollars back plus
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40 percent of the appreciated value
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so if it appreciated a million dollars
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so now the property is worth two million
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dollars
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that lender after a 10-year period is
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going to get their million dollars back
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plus 40 percent of the appreciated value
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which is another million dollars so
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they're gonna make
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four hundred thousand dollars on that
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property
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now that net appreciated percentage is
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paid when
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when and if the property is sold
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the loan is paid off or a 10-year period
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all right so typically these are for
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10-year periods however
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if let's say the property is refinanced
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after five years
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or the property is sold within that
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10-year period
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then again that net appreciated value up
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to the date of closing
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is going to be paid to the lender who
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loaned the original money
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these are not common at all in
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residential property it's
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mainly just limited to those bigger type
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properties like
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commercial type properties or
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developments of commercial
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now if you're going to continue to study
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for your real estate licensing exam you
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might want to check out this video
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it's going to dovetail into what we've
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been talking about here in this video
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and if you have not subscribed to the
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channel
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please do me a favor and subscribe click
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on the little circle to my left i would
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appreciate it and i will see you
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in the next video
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