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acceleration
clause
A clause in your mortgage which allows the lender to demand
payment of the outstanding loan balance for various reasons. The
most common reasons for accelerating a loan are if the borrower
defaults on the loan or transfers title to another individual
without informing the lender. |
adjustable-rate
mortgage (ARM)
A mortgage in which the interest changes periodically, according
to corresponding fluctuations in an index. All ARMs are tied to
indexes. |
adjustment
date
The date the
interest rate changes on an adjustable-rate mortgage |
amortization
The loan payment consists of a portion which will be applied to
pay the accruing interest on a loan, with the remainder being
applied to the principal. Over time, the interest portion
decreases as the loan balance decreases, and the amount applied to
principal increases so that the loan is paid off (amortized) in
the specified time. |
amortization
schedule
A table which shows how much of each payment will be applied
toward principal and how much toward interest over the life of the
loan. It also shows the gradual decrease of the loan balance until
it reaches zero. |
annual
percentage rate (APR)
This is not the note rate on your loan. It is a value created
according to a government formula intended to reflect the true
annual cost of borrowing, expressed as a percentage. It works sort
of like this, but not exactly, so only use this as a guideline:
deduct the closing costs from your loan amount, then using your
actual loan payment, calculate what the interest rate would be on
this amount instead of your actual loan amount. You will come up
with a number close to the APR. Because you are using the same
payment on a smaller amount, the APR is always higher than the
actual not rate on your loan. |
application
The form used to apply for a mortgage loan, containing information
about a borrower’s income, savings, assets, debts, and more. |
appraisal
A written justification of the price paid for a property,
primarily based on an analysis of comparable sales of similar
homes nearby. |
appraised
value
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
Since an appraisal is based primarily on comparable sales, and the
most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price. |
appraiser
An individual qualified by education, training, and experience to
estimate the value of real property and personal property.
Although some appraisers work directly for mortgage lenders, most
are independent. |
appreciation
The increase in the value of a property due to changes in market
conditions, inflation, or other causes. |
assessed
value
The valuation placed on property by a public tax assessor for
purposes of taxation. |
assessment
The placing of a value on property for the purpose of taxation. |
assessor
A public official who establishes the value of a property for
taxation purposes. |
asset
Items of value owned by an individual. Assets that can be quickly
converted into cash are considered "liquid assets."
These include bank accounts, stocks, bonds, mutual funds, and so
on. Other assets include real estate, personal property, and debts
owed to an individual by others. |
assignment
When ownership of your mortgage is transferred from one company or
individual to another, it is called an assignment. |
assumable
mortgage
A mortgage that can be assumed by the buyer when a home is sold.
Usually, the borrower must "qualify" in order to assume
the loan. |
assumption
The term applied when
a buyer assumes the seller’s mortgage. |
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balloon
mortgage
A mortgage loan that requires the remaining principal
balance be paid at a specific point in time. For example, a
loan may be amortized as if it would be paid over a thirty
year period, but requires that at the end of the tenth year
the entire remaining balance must be paid.
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balloon
payment
The final lump sum payment that is due at the termination of
a balloon mortgage. |
bankruptcy
By filing in federal bankruptcy court, an individual or
individuals can restructure or relieve themselves of debts
and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7
No Asset" bankruptcy which relieves the borrower of
most types of debts. A borrower cannot usually qualify for
an "A" paper loan for a period of two years after
the bankruptcy has been discharged and requires the
re-establishment of an ability to repay debt. |
bill
of sale
A written document that transfers title to personal
property. For example, when selling an automobile to acquire
funds which will be used as a source of down payment or for
closing costs, the lender will usually require the bill of
sale (in addition to other items) to help document this
source of funds. |
biweekly
mortgage
A mortgage in which you make payments every two weeks
instead of once a month. The basic result is that instead of
making twelve monthly payments during the year, you make
thirteen. The extra payment reduces the principal,
substantially reducing the time it takes to pay off a thirty
year mortgage. Note: there are independent
companies that encourage you to set up bi-weekly payment
schedules with them on your thirty year mortgage. They
charge a set-up fee and a transfer fee for every payment.
Your funds are deposited into a trust account from which
your monthly payment is then made, and the excess funds then
remain in the trust account until enough has accrued to make
the additional payment which will then be paid to reduce
your principle. You could save money by doing the same thing
yourself, plus you have to have faith that once you transfer
money to them that they will actually transfer your funds to
your lender. |
bond
market
Usually refers to the daily buying and selling of thirty
year treasury bonds. Lenders follow this market intensely
because as the yields of bonds go up and down, fixed rate
mortgages do approximately the same thing. The same factors
that affect the Treasury Bond market also affect mortgage
rates at the same time. That is why rates change daily, and
in a volatile market can and do change during the day as
well. |
bridge
loan
Not used much anymore, bridge loans are obtained by those
who have not yet sold their previous property, but must
close on a purchase property. The bridge loan becomes the
source of their funds for the down payment. One reason for
their fall from favor is that there are more and more second
mortgage lenders now that will lend at a high loan to value.
In addition, sellers often prefer to accept offers from
buyers who have already sold their property. |
broker
Broker has several meanings in different situations. Most
Realtors are "agents" who work under a
"broker." Some agents are brokers as well, either
working form themselves or under another broker. In the
mortgage industry, broker usually refers to a company or
individual that does not lend the money for the loans
themselves, but broker loans to larger lenders or investors.
(See the Home Loan Library that discusses the different
types of lenders). As a normal definition, a broker is
anyone who acts as an agent, bringing two parties together
for any type of transaction and earns a fee for doing so. |
buydown
Usually refers to a fixed rate mortgage where the interest
rate is "bought down" for a temporary period,
usually one to three years. After that time and for the
remainder of the term, the borrower’s payment is
calculated at the note rate. In order to buy down the
initial rate for the temporary payment, a lump sum is paid
and held in an account used to supplement the borrower’s
monthly payment. These funds usually come from the seller
(or some other source) as a financial incentive to induce
someone to buy their property. A "lender funded buydown"
is when the lender pays the initial lump sum. They can
accomplish this because the note rate on the loan (after the
buydown adjustments) will be higher than the current market
rate. One reason for doing this is because the borrower may
get to "qualify" at the start rate and can qualify
for a higher loan amount. Another reason is that a borrower
may expect his earnings to go up substantially in the near
future, but wants a lower payment right now. |
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call
option
Similar to the acceleration clause.
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cap
Adjustable Rate Mortgages have fluctuating interest rates,
but those fluctuations are usually limited to a certain
amount. Those limitations may apply to how much the loan may
adjust over a six month period, an annual period, and over
the life of the loan, and are referred to as
"caps." Some ARMs, although they may have a life
cap, allow the interest rate to fluctuate freely, but
require a certain minimum payment which can change once a
year. There is a limit on how much that payment can change
each year, and that limit is also referred to as a cap. |
cash-out
refinance
When a borrower refinances his mortgage at a higher amount
than the current loan balance with the intention of pulling
out money for personal use, it is referred to as a
"cash out refinance." |
certificate
of deposit
A time deposit held in a bank which pays a certain amount of
interest to the depositor. |
certificate
of deposit index
One of the indexes used for determining interest rate
changes on some adjustable rate mortgages. It is an average
of what banks are paying on certificates of deposit. |
Certificate
of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s
eligibility for a VA loan. |
Certificate
of Reasonable Value (CRV)
Once the appraisal has been performed on a property being
bought with a VA loan, the Veterans Administration issues a
CRV. |
chain
of title
An analysis of the transfers of title to a piece of property
over the years. |
clear
title
A title that is free of liens or legal questions as to
ownership of the property. |
closing
This has different meanings in different states. In some
states a real estate transaction is not consider
"closed" until the documents record at the local
recorders office. In others, the "closing" is a
meeting where all of the documents are signed and money
changes hands. |
closing
costs
Closing costs are separated into what are called
"non-recurring closing costs" and "pre-paid
items." Non-recurring closing costs are any items which
are paid just once as a result of buying the property or
obtaining a loan. "Pre-paids" are items which
recur over time, such as property taxes and homeowners
insurance. A lender makes an attempt to estimate the amount
of non-recurring closing costs and prepaid items on the Good
Faith Estimate which they must issue to the borrower within
three days of receiving a home loan application. |
closing
statement
See Settlement Statement. |
cloud
on title
Any conditions revealed by a title search that adversely
affect the title to real estate. Usually clouds on title
cannot be removed except by deed, release, or court action. |
co-borrower
An additional individual who is both obligated on the loan
and is on title to the property. |
collateral
In a home loan, the property is the collateral. The borrower
risks losing the property if the loan is not repaid
according to the terms of the mortgage or deed of trust. |
collection
When a borrower falls behind, the lender contacts them in an
effort to bring the loan current. The loan goes to
"collection." As part of the collection effort,
the lender must mail and record certain documents in case
they are eventually required to foreclose on the property. |
commission
Most salespeople earn commissions for the work that they do
and there are many sales professionals involved in each
transaction, including Realtors, loan officers, title
representatives, attorneys, escrow representative, and
representatives for pest companies, home warranty companies,
home inspection companies, insurance agents, and more. The
commissions are paid out of the charges paid by the seller
or buyer in the purchase transaction. Realtors generally
earn the largest commissions, followed by lenders, then the
others |
common
area assessments
In some areas they are called Homeowners Association Fees.
They are charges paid to the Homeowners Association by the
owners of the individual units in a condominium or planned
unit development (PUD) and are generally used to maintain
the property and common areas. |
common
areas
Those portions of a building, land, and amenities owned (or
managed) by a planned unit development (PUD) or condominium
project's homeowners' association (or a cooperative
project's cooperative corporation) that are used by all of
the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming
pools, tennis courts, and other recreational facilities, as
well as common corridors of buildings, parking areas, means
of ingress and egress, etc. |
common
law
An unwritten body of law based on general custom in England
and used to an extent in some states. |
community
property
In some states, especially the southwest, property acquired
by a married couple during their marriage is considered to
be owned jointly, except under special circumstances. This
is an outgrowth of the Spanish and Mexican heritage of the
area. |
comparable
sales
Recent sales of similar properties in nearby areas and used
to help determine the market value of a property. Also
referred to as "comps." |
condominium
A type of ownership in real property where all of the owners
own the property, common areas and buildings together, with
the exception of the interior of the unit to which they have
title. Often mistakenly referred to as a type of
construction or development, it actually refers to the type
of ownership. |
condominium
conversion
Changing the ownership of an existing building (usually a
rental project) to the condominium form of ownership. |
condominium
hotel
A condominium project that has rental or registration desks,
short-term occupancy, food and telephone services, and daily
cleaning services and that is operated as a commercial hotel
even though the units are individually owned. These are
often found in resort areas like Hawaii. |
construction
loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder at
periodic intervals as the work progresses. |
contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a
contingency that specifies that the contract is not binding
until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector. |
contract
An oral or written agreement to do or not to do a certain
thing. |
conventional
mortgage
Refers to home loans other than government loans (VA and
FHA). |
convertible
ARM
An adjustable-rate mortgage that allows the borrower to
change the ARM to a fixed-rate mortgage within a specific
time. |
cooperative
(co-op)
A type of multiple ownership in which the residents of a
multiunit housing complex own shares in the cooperative
corporation that owns the property, giving each resident the
right to occupy a specific apartment or unit. |
cost
of funds index (COFI)
One of the indexes that is used to determine interest rate
changes for certain adjustable-rate mortgages. It represents
the weighted-average cost of savings, borrowings, and
advances of the financial institutions such as banks and
savings & loans, in the 11th District of the Federal
Home Loan Bank. |
credit
An agreement in which a borrower receives something of value
in exchange for a promise to repay the lender at a later
date. |
credit
history
A record of an individual's repayment of debt. Credit
histories are reviewed my mortgage lenders as one of the
underwriting criteria in determining credit risk. |
creditor
A person to whom money is owed. |
credit
report
A report of an individual's credit history prepared by a
credit bureau and used by a lender in determining a loan
applicant's creditworthiness. |
credit
repository
An organization that gathers, records, updates, and stores
financial and public records information about the payment
records of individuals who are being considered for credit. |
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debt
An amount owed to another.
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deed
The legal document conveying title to a property. |
deed-in-lieu
Short for "deed in lieu of foreclosure," this
conveys title to the lender when the borrower is in default
and wants to avoid foreclosure. The lender may or may not
cease foreclosure activities if a borrower asks to provide a
deed-in-lieu. Regardless of whether the lender accepts the
deed-in-lieu, the avoidance and non-repayment of debt will
most likely show on a credit history. What a deed-in-lieu
may prevent is having the documents preparatory to a
foreclosure being recorded and become a matter of public
record. |
deed
of trust
Some states, like California, do not record mortgages.
Instead, they record a deed of trust which is essentially
the same thing. |
default
Failure to make the mortgage payment within a specified
period of time. For first mortgages or first trust deeds, if
a payment has still not been made within 30 days of the due
date, the loan is considered to be in default. |
delinquency
Failure to make mortgage payments when mortgage payments are
due. For most mortgages, payments are due on the first day
of the month. Even though they may not charge a "late
fee" for a number of days, the payment is still
considered to be late and the loan delinquent. When a loan
payment is more than 30 days late, most lenders report the
late payment to one or more credit bureaus. |
deposit
A sum of money given in advance of a larger amount being
expected in the future. Often called in real estate as an
"earnest money deposit." |
depreciation
A decline in the value of property; the opposite of
appreciation. Depreciation is also an accounting term which
shows the declining monetary value of an asset and is used
as an expense to reduce taxable income. Since this is not a
true expense where money is actually paid, lenders will add
back depreciation expense for self-employed borrowers and
count it as income. |
discount
points
In the mortgage industry, this term is usually used in only
in reference to government loans, meaning FHA and VA loans.
Discount points refer to any "points" paid in
addition to the one percent loan origination fee. A
"point" is one percent of the loan amount. |
down
payment
The part of the purchase price of a property that the buyer
pays in cash and does not finance with a mortgage. |
due-on-sale
provision
A provision in a mortgage that allows the lender to demand
repayment in full if the borrower sells the property that
serves as security for the mortgage. |
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earnest
money deposit
A deposit made by the potential home buyer to show that he
or she is serious about buying the house.
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easement
A right of way giving persons other than the owner access to
or over a property. |
effective
age
An appraiser’s estimate of the physical condition of a
building. The actual age of a building may be shorter or
longer than its effective age. |
eminent
domain
The right of a government to take private property for
public use upon payment of its fair market value. Eminent
domain is the basis for condemnation proceedings. |
encroachment
An improvement that intrudes illegally on another’s
property. |
encumbrance
Anything that affects or limits the fee simple title to a
property, such as mortgages, leases, easements, or
restrictions. |
Equal
Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to
make credit equally available without discrimination based
on race, color, religion, national origin, age, sex, marital
status, or receipt of income from public assistance
programs. |
equity
A homeowner's financial interest in a property. Equity is
the difference between the fair market value of the property
and the amount still owed on its mortgage and other liens. |
escrow
An item of value, money, or documents deposited with a third
party to be delivered upon the fulfillment of a condition.
For example, the earnest money deposit is put into escrow
until delivered to the seller when the transaction is
closed. |
escrow
account
Once you close your purchase transaction, you may have an
escrow account or impound account with your lender. This
means the amount you pay each month includes an amount above
what would be required if you were only paying your
principal and interest. The extra money is held in your
impound account (escrow account) for the payment of items
like property taxes and homeowner’s insurance when they
come due. The lender pays them with your money instead of
you paying them yourself. |
escrow
analysis
Once each year your lender will perform an "escrow
analysis" to make sure they are collecting the correct
amount of money for the anticipated expenditures. |
escrow
disbursements
The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses
as they become due. |
estate
The ownership interest of an individual in real property.
The sum total of all the real property and personal property
owned by an individual at time of death. |
eviction
The lawful expulsion of an occupant from real property. |
examination
of title
The report on the title of a property from the public
records or an abstract of the title. |
exclusive
listing
A written contract that gives a licensed real estate agent
the exclusive right to sell a property for a specified time. |
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Fair
Credit Reporting Act
A consumer protection law that regulates the disclosure of
consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting mistakes
on one's credit record.
|
fair
market value
The highest price that a buyer, willing but not compelled to
buy, would pay, and the lowest a seller, willing but not
compelled to sell, would accept. |
Fannie
Mae (FNMA)
The Federal National Mortgage Association, which is a
congressionally chartered, shareholder-owned company that is
the nation's largest supplier of home mortgage funds. For a
discussion of the roles of Fannie Mae, Freddie Mac (FHLMC),
and Ginnie Mae (GNMA), see the Library. |
Fannie
Mae's Community Home Buyer's Program
An income-based community lending model, under which
mortgage insurers and Fannie Mae offer flexible underwriting
guidelines to increase a low- or moderate-income family's
buying power and to decrease the total amount of cash needed
to purchase a home. Borrowers who participate in this model
are required to attend pre-purchase home-buyer education
sessions. |
Federal
Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban
Development (HUD). Its main activity is the insuring of
residential mortgage loans made by private lenders. The FHA
sets standards for construction and underwriting but does
not lend money or plan or construct housing. |
fee
simple
The greatest possible interest a person can have in real
estate. |
fee
simple estate
An unconditional, unlimited estate of inheritance that
represents the greatest estate and most extensive interest
in land that can be enjoyed. It is of perpetual duration.
When the real estate is in a condominium project, the unit
owner is the exclusive owner only of the air space within
his or her portion of the building (the unit) and is an
owner in common with respect to the land and other common
portions of the property. |
FHA
mortgage
A mortgage that is insured by the Federal Housing
Administration (FHA). Along with VA loans, an FHA loan will
often be referred to as a government loan. |
firm
commitment
A lender’s agreement to make a loan to a specific borrower
on a specific property. |
first
mortgage
The mortgage that is in first place among any loans recorded
against a property. Usually refers to the date in which
loans are recorded, but there are exceptions. |
fixed-rate
mortgage
A mortgage in which the interest rate does not change during
the entire term of the loan. |
fixture
Personal property that becomes real property when attached
in a permanent manner to real estate. |
flood
insurance
Insurance that compensates for physical property damage
resulting from flooding. It is required for properties
located in federally designated flood areas. |
foreclosure
The legal process by which a borrower in default under a
mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale
being applied to the mortgage debt. |
401(k)/403(b)
An employer-sponsored investment plan that allows
individuals to set aside tax-deferred income for retirement
or emergency purposes. 401(k) plans are provided by
employers that are private corporations. 403(b) plans are
provided by employers that are not for profit organizations. |
401(k)/403(b)
loan
Some administrators of 401(k)/403(b) plans allow for loans
against the monies you have accumulated in these plans.
Loans against 401K plans are an acceptable source of down
payment for most types of loans. |
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government
loan (mortgage)
A mortgage that is insured by the Federal Housing
Administration (FHA) or guaranteed by the Department of
Veterans Affairs (VA) or the Rural Housing Service (RHS).
Mortgages that are not government loans are classified as
conventional loans.
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Government
National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of
Housing and Urban Development (HUD). Created by Congress on
September 1, 1968, GNMA performs the same role as Fannie Mae
and Freddie Mac in providing funds to lenders for making
home loans. The difference is that Ginnie Mae provides funds
for government loans (FHA and VA) |
grantee
The person to whom an interest in real property is conveyed. |
grantor
The person conveying an interest in real property. |
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hazard
insurance
Insurance coverage that in the event of physical damage
to a property from fire, wind, vandalism, or other hazards.
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Home
Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what
makes this type of mortgage unique is that instead of making
payments to a lender, the lender makes payments to you. It
enables older home owners to convert the equity they have in
their homes into cash, usually in the form of monthly
payments. Unlike traditional home equity loans, a borrower
does not qualify on the basis of income but on the value of
his or her home. In addition, the loan does not have to be
repaid until the borrower no longer occupies the property. |
home
equity line of credit
A mortgage loan, usually in second position, that allows
the borrower to obtain cash drawn against the equity of his
home, up to a predetermined amount. |
home
inspection
A thorough inspection by a professional that evaluates
the structural and mechanical condition of a property. A
satisfactory home inspection is often included as a
contingency by the purchaser. |
homeowners'
association
A nonprofit association that manages the common areas of
a planned unit development (PUD) or condominium project. In
a condominium project, it has no ownership interest in the
common elements. In a PUD project, it holds title to the
common elements. |
homeowner's
insurance
An insurance policy that combines personal liability
insurance and hazard insurance coverage for a dwelling and
its contents. |
homeowner's
warranty
A type of insurance often purchased by homebuyers that
will cover repairs to certain items, such as heating or air
conditioning, should they break down within the coverage
period. The buyer often requests the seller to pay for this
coverage as a condition of the sale, but either party can
pay. |
HUD
median income
Median family income for a particular county or
metropolitan statistical area (MSA), as estimated by the
Department of Housing and Urban Development (HUD). |
HUD-1
settlement statement
A document that provides an itemized listing of the
funds that were paid at closing. Items that appear on the
statement include real estate commissions, loan fees,
points, and initial escrow (impound) amounts. Each type of
expense goes on a specific numbered line on the sheet. The
totals at the bottom of the HUD-1 statement define the
seller's net proceeds and the buyer's net payment at
closing. It is called a HUD1 because the form is printed by
the Department of Housing and Urban Development (HUD). The
HUD1 statement is also known as the "closing
statement" or "settlement sheet." |
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joint
tenancy
A form of ownership or taking title to property which
means each party owns the whole property and that ownership
is not separate. In the event of the death of one party, the
survivor owns the property in its entirety. |
judgment
A decision made by a court of law. In judgments that
require the repayment of a debt, the court may place a lien
against the debtor's real property as collateral for the
judgment's creditor. Alternative spelling is "judgment." |
judicial
foreclosure
A type of foreclosure proceeding used in some states
that is handled as a civil lawsuit and conducted entirely
under the auspices of a court. Other states use non-judicial
foreclosure. |
jumbo
loan
A loan that exceeds Fannie Mae’s and Freddie Mac’s
loan limits, currently at $227,150. Also called a
nonconforming loan. Freddie Mac and Fannie Mae loans are
referred to as conforming loans. |
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lease
A written agreement between the property owner and a
tenant that stipulates the payment and conditions under
which the tenant may possess the real estate for a specified
period of time. |
leasehold
estate
A way of holding title to a property wherein the
mortgagor does not actually own the property but rather has
a recorded long-term lease on it. |
lease
option
An alternative financing option that allows home buyers
to lease a home with an option to buy. Each month's rent
payment may consist of not only the rent, but an additional
amount which can be applied toward the down payment on an
already specified price. |
legal
description
A property description, recognized by law, that is
sufficient to locate and identify the property without oral
testimony. |
lender
A term which can refer to the institution making the
loan or to the individual representing the firm. For
example, loan officers are often referred to as
"lenders." |
liabilities
A person's financial obligations. Liabilities include
long-term and short-term debt, as well as any other amounts
that are owed to others. |
liability
insurance
Insurance coverage that offers protection against claims
alleging that a property owner's negligence or inappropriate
action resulted in bodily injury or property damage to
another party. It is usually part of a homeowner’s
insurance policy. |
lien
A legal claim against a property that must be paid off
when the property is sold. A mortgage or first trust deed is
considered a lien. |
life
cap
For an adjustable-rate mortgage (ARM), a limit on the
amount that the enterest rate can increase or decrease over
the life of the mortgage. |
line
of credit
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a
certain time to a specified borrower. |
liquid
asset
A cash asset or an asset that is easily converted into
cash. |
loan
A sum of borrowed money (principal) that is generally
repaid with interest. |
loan
officer
Also referred to by a variety of other terms, such as
lender, loan representative, loan "rep," account
executive, and others. The loan officer serves several
functions and has various responsibilities: they solicit
loans, they are the representative of the lending
institution, and they represent the borrower to the lending
institution. |
loan
origination
How a lender refers to the process of obtaining new
loans. |
loan
servicing
After you obtain a loan, the company you make the
payments to is "servicing" your loan. They process
payments, send statements, manage the escrow/impound
account, provide collection efforts on delinquent loans,
ensure that insurance and property taxes are made on the
property, handle pay-offs and assumptions, and provide a
variety of other services. |
loan-to-value
(LTV)
The percentage relationship between the amount of the
loan and the appraised value or sales price (whichever is
lower). |
lock-in
An agreement in which the lender guarantees a specified
interest rate for a certain amount of time at a certain
cost. |
lock-in
period
The time period during which the lender has guaranteed
an interest rate to a borrower. |
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margin
The difference between the interest rate and the index
on an adjustable rate mortgage. The margin remains stable
over the life of the loan. It is the index which moves up
and down. |
maturity
The date on which the principal balance of a loan, bond,
or other financial instrument becomes due and payable. |
merged
credit report
A credit report which reports the raw data pulled from
two or more of the major credit repositories. Contrast with
a Residential Mortgage Credit Report (RMCR) or a standard
factual credit report. |
modification
Occasionally, a lender will agree to modify the terms of
your mortgage without requiring you t refinance. If any
changes are made, it is called a modification. |
mortgage
A legal document that pledges a property to the lender
as security for payment of a debt. Instead of mortgages,
some states use First Trust Deeds. |
mortgage
banker
For a more complete discussion of mortgage banker, see
"Types of Lenders." A mortgage banker is generally
assumed to originate and fund their own loans, which are
then sold on the secondary market, usually to Fannie Mae,
Freddie Mac, or Ginnie Mae. However, firms rather loosely
apply this term to themselves, whether they are true
mortgage bankers or simply mortgage brokers or
correspondents. |
mortgage
broker
A mortgage company that originates loans, then places
those loans with a variety of other lending institutions
with whom they usually have pre-established relationships. |
mortgagee
The lender in a mortgage agreement. |
mortgage
insurance (MI)
Insurance that covers the lender against some of the
losses incurred as a result of a default on a home loan.
Often mistakenly referred to as PMI, which is actually the
name of one of the larger mortgage insurers. Mortgage
insurance is usually required in one form or another on all
loans that have a loan-to-value higher than eighty percent.
Mortgages above 80% LTV that call themselves "No
MI" are usually a made at a higher interest rate.
Instead of the borrower paying the mortgage insurance
premiums directly, they pay a higher interest rate to the
lender, which then pays the mortgage insurance themselves.
Also, FHA loans and certain first-time homebuyer programs
require mortgage insurance regardless of the loan-to-value. |
mortgage
insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance,
either to a government agency such as the Federal Housing
Administration (FHA) or to a private mortgage insurance (MI)
company. |
mortgage
life and disability insurance
A type of term life insurance often bought by borrowers.
The amount of coverage decreases as the principal balance
declines. Some policies also cover the borrower in the event
of disability. In the event that the borrower dies while the
policy is in force, the debt is automatically satisfied by
insurance proceeds. In the case of disability insurance, the
insurance will make the mortgage payment for a specified
amount of time during the disability. Be careful to read the
terms of coverage, however, because often the coverage does
not start immediately upon the disability, but after a
specified period, sometime forty-five days. |
mortgagor
The borrower in a mortgage agreement. |
multidwelling
units
Properties that provide separate housing units for more
than one family, although they secure only a single
mortgage. |
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negative
amortization
Some adjustable rate mortgages allow the interest rate
to fluctuate independently of a required minimum payment. If
a borrower makes the minimum payment it may not cover all of
the interest that would normally be due at the current
interest rate. In essence, the borrower is deferring the
interest payment, which is why this is called "deferred
interest." The deferred interest is added to the
balance of the loan and the loan balance grows larger
instead of smaller, which is called negative amortization.
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cash-out refinance
A refinance transaction which is not intended to put
cash in the hand of the borrower. Instead, the new balance
is caculated to cover the balance due on the current loan
and any costs associated with obtaining the new mortgage.
Often referred to as a "rate and term refinance." |
no-cost
loan
Many lenders offer loans that you can obtain at "no
cost." You should inquire whether this means there are
no "lender" costs associated with the loan, or if
it also covers the other costs you would normally have in a
purchase or refinance transactions, such as title insurance,
escrow fees, settlement fees, appraisal, recording fees,
notary fees, and others. These are fees and costs which may
be associated with buying a home or obtaining a loan, but
not charged directly by the lender. Keep in mind that, like
a "no-point" loan, the interest rate will be
higher than if you obtain a loan that has costs associated
with it. |
note
A legal document that obligates a borrower to repay a
mortgage loan at a stated interest rate during a specified
period of time. |
note
rate
The interest rate stated on a mortgage note. |
no-cost
loan
Almost all lenders offer loans at "no points."
You will find the interest rate on a "no points"
loan is approximately a quarter percent higher than on a
loan where you pay one point. |
notice
of default
A formal written notice to a borrower that a default has
occurred and that legal action may be taken. |
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original
principal balance
The total amount of principal owed on a
mortgage before any payments are made.
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origination
fee
On a government loan the loan origination fee
is one percent of the loan amount, but additional points may
be charged which are called "discount points." One
point equals one percent of the loan amount. On a
conventional loan, the loan origination fee refers to the
total number of points a borrower pays. |
owner
financing
A property purchase transaction in which the
property seller provides all or part of the financing. |
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partial
payment
A payment that is not sufficient to cover the
scheduled monthly payment on a mortgage loan. Normally, a
lender will not accept a partial payment, but in times of
hardship you can make this request of the loan servicing
collection department.
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payment
change date
The date when a new monthly payment amount
takes effect on an adjustable-rate mortgage (ARM) or a
graduated-payment mortgage (GPM). Generally, the payment
change date occurs in the month immediately after the
interest rate adjustment date. |
periodic
payment cap
For an
adjustable-rate mortgage where the interest rate and the
minimum payment amount fluctuate independently of one
another, this is a limit on the amount that payments can
increase or decrease during any one adjustment period. |
periodic
rate cap
For an
adjustable-rate mortgage, a limit on the amount that the
interest rate can increase or decrease during any one
adjustment period, regardless of how high or low the index
might be. |
personal
property
Any property that is not real property. |
PITI
This stands for principal, interest, taxes and
insurance. If you have an "impounded" loan, then
your monthly payment to the lender includes all of these and
probably includes mortgage insurance as well. If you do not
have an impounded account, then the lender still calculates
this amount and uses it as part of determining your
debt-to-income ratio. |
PITI
reserves
A cash amount that a borrower must have on hand
after making a down payment and paying all closing costs for
the purchase of a home. The principal, interest, taxes, and
insurance (PITI) reserves must equal the amount that the
borrower would have to pay for PITI for a predefined number
of months. |
planned
unit development (PUD)
A type of
ownership where individuals actually own the building or
unit they live in, but common areas are owned jointly with
the other members of the development or association.
Contrast with condominium, where an individual actually owns
the airspace of his unit, but the buildings and common areas
are owned jointly with the others in the development or
association. |
point
A point is 1
percent of the amount of the mortgage. |
power
of attorney
A legal document that authorizes another person
to act on one’s behalf. A power of attorney can grant
complete authority or can be limited to certain acts and/or
certain periods of time. |
pre-approval
A loosely
used term which is generally taken to mean that a borrower
has completed a loan application and provided debt, income,
and savings documentation which an underwriter has reviewed
and approved. A pre-approval is usually done at a certain
loan amount and making assumptions about what the interest
rate will actually be at the time the loan is actually made,
as well as estimates for the amount that will be paid for
property taxes, insurance and others. A pre-approval applies
only to the borrower. Once a property is chosen, it must
also meet the underwriting guidelines of
the lender. Contrast with pre-qualification. |
prepayment
Any amount
paid to reduce the principal balance of a loan before the
due date. Payment in full on a mortgage that may result from
a sale of the property, the owner's decision to pay off the
loan in full, or a foreclosure. In each case, prepayment
means payment occurs before the loan has been fully
amortized. |
prepayment
penalty
A fee that
may be charged to a borrower who pays off a loan before it
is due. |
pre-qualification
This usually refers to the loan officer’s
written opinion of the ability of a borrower to qualify for
a home loan, after the loan officer has made inquiries about
debt, income, and savings. The information provided to the
loan officer may have been presented verbally or in the form
of documentation, and the loan officer may or may not have
reviewed a credit report on the borrower. |
prime
rate
The interest rate that banks charge to their
preferred customers. Changes in the prime rate are widely
publicized in the news media and are used as the indexes in
some adjustable rate mortgages, especially home equity lines
of credit. Changes in the prime rate do not directly affect
other types of mortgages, but the same factors that
influence the prime rate also affect the interest rates of
mortgage loans. |
principal
The amount
borrowed or remaining unpaid. The part of the monthly
payment that reduces the remaining balance of a mortgage. |
principal
balance
The
outstanding balance of principal on a mortgage. The
principal balance does not include interest or any other
charges. See remaining balance. |
principal,
interest, taxes, and insurance (PITI)
The four
components of a monthly mortgage payment on impounded loans.
Principal refers to the part of the monthly payment that
reduces the remaining balance of the mortgage. Interest is
the fee charged for borrowing money. Taxes and insurance
refer to the amounts that are paid into an escrow account
each month for property taxes and mortgage and hazard
insurance. |
private
mortgage insurance (PMI)
Mortgage
insurance that is provided by a private mortgage insurance
company to protect lenders against loss if a borrower
defaults. Most lenders generally require MI for a loan with
a loan-to-value (LTV) percentage in excess of 80 percent. |
promissory
note
A written
promise to repay a specified amount over a specified period
of time. |
public
auction
A meeting in an announced public location to
sell property to repay a mortgage that is in default. |
Planned
Unit Development (PUD)
A project or subdivision that includes common
property that is owned and maintained by a homeowners'
association for the benefit and use of the individual PUD
unit owners. |
purchase
agreement
A written contract signed by the buyer and
seller stating the terms and conditions under which a
property will be sold. |
purchase
money transaction
The
acquisition of property through the payment of money or its
equivalent. |
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qualifying
ratios
Calculations that are used in determining whether a
borrower can qualify for a mortgage. There are two ratios.
The "top" or "front" ratio is a
calculation of the borrower’s monthly housing costs
(principle, taxes, insurance, mortgage insurance,
homeowner’s association fees) as a percentage of monthly
income. The "back" or "bottom" ratio
includes housing costs as will as all other monthly debt.
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quitclaim
deed
A deed that transfers without warranty whatever interest
or title a grantor may have at the time the conveyance is
made. |
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rate
lock
A commitment issued by a lender to a borrower or other
mortgage originator guaranteeing a specified interest rate
for a specified period of time at a specific cost.
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real
estate agent
A person licensed to negotiate and transact the sale of
real estate. |
Real
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give
borrowers advance notice of closing costs. |
real
property
Land and appurtenances, including anything of a
permanent nature such as structures, trees, minerals, and
the interest, benefits, and inherent rights thereof. |
Realtor®
A real estate agent, broker or an associate who holds
active membership in a local real estate board that is
affiliated with the National Association of Realtors. |
recorder
The public official who keeps records of transactions
that affect real property in the area. Sometimes known as a
"Registrar of Deeds" or "County Clerk." |
recording
The noting in the registrar’s office of the details of
a properly executed legal document, such as a deed, a
mortgage note, a satisfaction of mortgage, or an extension
of mortgage, thereby making it a part of the public record. |
refinance
transaction
The process of paying off one loan with the proceeds
from a new loan using the same property as security. |
remaining
balance
The amount of principal that has not yet been repaid.
See principal balance. |
remaining
term
The original amortization term minus the number of
payments that have been applied. |
rent
loss insurance
Insurance that protects a landlord against loss of rent
or rental value due to fire or other casualty that renders
the leased premises unavailable for use and as a result of
which the tenant is excused from paying rent. |
repayment
plan
An arrangement made to repay delinquent installments or
advances. |
replacement
reserve fund
A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly
that which has a short life expectancy, such as carpeting,
furniture, etc. |
revolving
debt
A credit arrangement, such as a credit card, that allows
a customer to borrow against a preapproved line of credit
when purchasing goods and services. The borrower is billed
for the amount that is actually borrowed plus any interest
due. |
right
of first refusal
A provision in an agreement that requires the owner of a
property to give another party the first opportunity to
purchase or lease the property before he or she offers it
for sale or lease to others. |
right
of ingress or egress
The right to enter or leave designated premises. |
right
of survivorship
In joint tenancy, the right of survivors to acquire the
interest of a deceased joint tenant. |
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sale-leaseback
A technique in which a seller deeds property to a buyer
for a consideration, and the buyer simultaneously leases the
property back to the seller.
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second
mortgage
A mortgage that has a lien position subordinate to the
first mortgage. |
secondary
market
The buying and selling of existing mortgages, usually as
part of a "pool" of mortgages. |
secured
loan
A loan that is backed by collateral. |
security
The property that will be pledged as collateral for a
loan. |
seller
carry-back
An agreement in which the owner of a property provides
financing, often in combination with an assumable mortgage. |
servicer
An organization that collects principal and interest
payments from borrowers and manages borrowers’ escrow
accounts. The servicer often services mortgages that have
been purchased by an investor in the secondary mortgage
market. |
servicing
The collection of mortgage payments from borrowers and
related responsibilities of a loan servicer. |
settlement
statement
See HUD1 Settlement Statement |
subdivision
A housing development that is created by dividing a
tract of land into individual lots for sale or lease. |
subordinate
financing
Any mortgage or other lien that has a priority that is
lower than that of the first mortgage. |
survey
A drawing or map showing the precise legal boundaries of
a property, the location of improvements, easements, rights
of way, encroachments, and other physical features. |
sweat
equity
Contribution to the construction or rehabilitation of a
property in the form of labor or services rather than cash. |
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tenancy
in common
As opposed to joint tenancy, when there are two or more
individuals on title to a piece of property, this type of
ownership does not pass ownership to the others in the event
of death.
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third-party
origination
A process by which a lender uses another party to
completely or partially originate, process, underwrite,
close, fund, or package the mortgages it plans to deliver to
the secondary mortgage market. |
title
A legal document evidencing a person's right to or
ownership of a property. |
title
company
A company that specializes in examining and insuring
titles to real estate. |
title
insurance
Insurance that protects the lender (lender's policy) or
the buyer (owner's policy) against loss arising from
disputes over ownership of a property. |
title
search
A check of the title records to ensure that the seller
is the legal owner of the property and that there are no
liens or other claims outstanding. |
transfer
of ownership
Any means by which the ownership of a property changes
hands. Lenders consider all of the following situations to
be a transfer of ownership: the purchase of a property
"subject to" the mortgage, the assumption of the
mortgage debt by the property purchaser, and any exchange of
possession of the property under a land sales contract or
any other land trust device. |
transfer
tax
State or local tax payable when title passes from one
owner to another. |
Treasury
index
An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It is
based on the results of auctions that the U.S. Treasury
holds for its Treasury bills and securities or is derived
from the U.S. Treasury's daily yield curve, which is based
on the closing market bid yields on actively traded Treasury
securities in the over-the-counter market. |
Truth-in-Lending
A federal law that requires lenders to fully disclose,
in writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other
charges. |
two-step
mortgage
An adjustable-rate mortgage (ARM) that has one interest
rate for the first five or seven years of its mortgage term
and a different interest rate for the remainder of the
amortization term. |
two-
to four-family property
A property that consists of a structure that provides
living space (dwelling units) for two to four families,
although ownership of the structure is evidenced by a single
deed. |
trustee
A fiduciary who holds or controls property for the
benefit of another. |
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VA
mortgage
A mortgage that is guaranteed by the Department of
Veterans Affairs (VA).
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vested
Having the right to use a portion of a fund such as an
individual retirement fund. For example, individuals who are
100 percent vested can withdraw all of the funds that are
set aside for them in a retirement fund. However, taxes may
be due on any funds that are actually withdrawn. |
Veterans
Administration (VA)
An agency of the federal government that guarantees
residential mortgages made to eligible veterans of the
military services. The guarantee protects the lender against
loss and thus encourages lenders to make mortgages to
veterans. |
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