A calculation of your total living expenses, including housing costs, divided by your income
Lenders use back ratios as a guideline to see if you can qualify for a loan. It's important to note that back ratios vary
from lender to lender and loan to loan.
To calculate your back ratio add up all of your monthly expenses, including student and car loans, credit card payments,
as well as the expected housing costs. Housing costs are broken down into four parts - the loan's principal, the loan's
interest, taxes and insurance. Then divide the total by your gross monthly salary.
Balloon mortgage
A loan with a fixed interest rate and monthly payment that becomes due in full, typically after 5 to 7 years.
A balloon mortgage has a lower interest rate than fixed rate mortgages, and can save you money at the beginning.
But, if you can't afford to pay off everything you owe when the balloon "bursts" and becomes due, you need to
refinance or sell, or risk foreclosure. For some balloon mortgages on an owner-occupied property, the lender may
let you extend the loan, without having to pay it in one lump sum. In exchange, you get a higher interest rate and
agree not to apply for a second mortgage. Home buyers typically choose this type of loan because they plan to sell
their home before the balloon pops. Compare:Fixed rate mortgage,
Adjustable rate mortgage
Balloon payment
The final lump-sum payment to pay off a balloon mortgage's balance.
The balance on a balloon mortgage is due in full typically between 5 to 7 years, after the day it starts.
This last payment is a large sum of money, and if you can not pay it off, you do have the option to sell or
refinance, even though interest rates might be high. If you do not take any of these options, you're risking foreclosure.
Some balloon mortgages do allow you to extend the loan in exchange for a higher rate.
Bankruptcy
When you hand over your assets to a federal court because you can't pay your debts, and are no longer held responsible
for paying off your creditors.
You can either enter bankruptcy voluntarily, or you can be forced to petition for bankruptcy after your creditors bring
you to court to try and collect on their money. In general, the three main types of bankruptcies are:
(1) Chapter 7, which wipes out most of your debt-taxes, alimony and student loans are often exceptions-and protects
you from your creditors
(2) Chapter 13, which lets you keep your assets if the court approves your plan to repay your creditors
(3) Chapter 11, typically for a company, which needs court approval on its plan to reorganize its finances and repay
creditors.
Bankruptcies stay on your credit report for 10 years and are automatically erased after this time.
Before-tax income
Your income earnings before federal and local taxes are taken out.
You can find your before-tax income on your paycheck. Before-tax income, which is also called gross income or pre-tax,
is used to calculate your tax bracket and other items that you have to report on your annual income tax forms.
Beneficiary
A lender who loans you money to buy a home.
A lender, usually a bank, is called a beneficiary in certain states. The beneficiary holds onto the deed of trust,
which acts as a guarantee that you will repay your loan. If you fail to pay your loan (default), the beneficiary
can give the trustee-the neutral third party who acts on behalf of the beneficiary-permission to foreclose on
your property. See:Deed of trust
Bill of sale
A bill of sale is used to swap ownership of things that are movable, such as a car or mobile home. A home is not
personal property since it is permanently attached to the land. A deed, such as a grant deed or warranty deed,
is the official document used to transfer ownership of a home. Compare:Deed of trust,
Grant deed
Biweekly payment mortgage
A loan that has a biweekly payment schedule. With biweekly payments, you end up paying the equivalent of 13 monthly
payments per year. That one extra payment allows you to pay off a loan faster and save money in interest-up to a few
thousand dollars. The downsides are that lenders or a third party collection agency charge a $300 to $500 fee to set up
the biweekly payment schedule. And, in some months, you end up paying 3 times a month-on the 1st, 15th and 29th.
You can achieve the same results yourself, simply by making extra monthly payments.
Blanket insurance policy
A single insurance policy that covers more than one piece of property.
Blanket mortgage
A loan covering more than one piece of property. Land developers commonly use blanket mortgages when they buy a plot of
land and divide it into many separate lots. They spread the mortgage across the entire property rather than over
each individual lot.
Bond
A note that a government or corporation gives an investor, which promises to repay the borrowed amount plus interest
on a specific date. Bonds help finance large, expensive projects, such as building new bridges or highways.
When you buy a bond, the seller agrees to repay the bond principal to you when it matures, and to make interest payments.
The longer the bond takes to mature, the higher the interest payments since there is more risk at stake.
If you are looking to raise money for a down payment, you might want to consider investing in short-term bonds since they
have a low risk factor.
Breach of contract
When someone breaks a part (or whole) of a written agreement. If a breach of contract happens, you can (1) negotiate to
find a solution that all parties agree upon (2) sue the person who broke the contract for money in damages, or (3) have
the court force the person to carry out the terms of the contract.
Bridge loan
An emergency loan for buyers who need money to close on a new home before they can sell their present home.
Banks offer bridge loans to help buyers out of this sticky situation. Bridge loans are short-term, usually up to 1 year,
with high interest rates that let you borrow against the old home. Once the sale on the old home is finished, you can pay
off the loan. It is difficult to qualify for bridge since you need enough income to cover the bridge loan and the mortgage
payments on the old and new homes. Bridge loans are also called interim financing, swing loans or turnarounds.
Building code
A set of government rules, which control the use, design, construction, and renovation of buildings.
Building codes are based on safety and health standards and lay down the law on everything from construction materials
to the number of emergency exits needed on every floor. Building codes vary from city to city and county to county, but
any remodeling on a house, such as adding a new bathroom will require a permit. The Building Department at your City Hall
is the best source of information if you have any specific questions on building codes.
Buydown
A type of financing where the buyer or seller pays extra points (often called discount points) in return for a lower
interest rate. The low-down on buydowns is that they are commonly used to make qualifying for a loan easier since they
lower a loan's interest rate. There are two types of buydowns:
(1) a permanent buydown that lets you pay extra points in order to get a low interest rate over the life of a loan.
(2) a temporary buydown is when you prepay interest in exchange for a lower rate on the first 2-3 years of a loan.
Often the builder, seller or lender, all who want to make the housing more attractive to buyers, will pay for the buydown.
Also, the lower starting rate makes it easier to qualify for the loan.
Buydown account
An account that holds the money needed to pay monthly payments on a temporary buydown mortgage.
In a temporary buydown mortgage, you pay some of the interest in advance in order to get a lower interest rate for the
first two or three years of your loan. This sum is placed into a buydown account and is used towards the monthly mortgage
payments.
BOOKMARK THIS PAGE
