Real Estate Glossary
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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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A
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 youractual 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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B
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.
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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C
call option
Similar to the acceleration clause.
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
IAn 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
IAn 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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D
debt
An amount owed to another.
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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E
earnest money deposit
A deposit made by the potential home buyer to show that he or
she is serious about buying the house.
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.
executor
A person named in a will to administer an estate. The court will
appoint an administrator if no executor is named. "Executrix" is
the feminine form.
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F
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.
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G
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.
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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H
hazard insurance
Insurance coverage that in the event of physical damage to a
property from fire, wind, vandalism, or other hazards.
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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I
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J
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.[Top]
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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K
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L
late charge
The penalty a borrower must pay when a payment is made a stated
number of days. On a first trust deed or mortgage, this is usually
fifteen days.
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. [Top]
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.[Top]
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.
no 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.
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.
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 (MI)
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. [Top]
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.
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.
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.
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.
[Top]
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).
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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