Glossary of Terms |
A
Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment
of the entire principal balance if a monthly payment is missed.
Acceptance
An offeree's consent to enter into a contract and be bound by the terms of the
offer.
Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order
to reduce the remaining balance on the loan.
Adjusted Basis
The original cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
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
Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate
mortgage (ARM).
Administrator
A person appointed by a probate court to administer the estate of a person who
died intestate.
Affordability Analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability
analysis takes into consideration your income, liabilities, and available funds,
along with the type of mortgage you plan to use, the area where you want to
purchase a home, and the closing costs that you might expect to pay.
Amenity
A feature of the home or property that serves as a benefit to the buyer but
that is not necessary to its use; may be natural (such as location, woods, water)
or man-made (such as a swimming pool or garden).
Amortization
The gradual repayment of a mortgage loan by installments.
Amortization Term
The amount of time required to amortize the mortgage loan. The amortization
term is expressed as a number of months. For example, for a 30-year fixed-rate
mortgage, the amortization term is 360 months.
Amortize
To repay a mortgage with regular payments that cover both principal and interest.
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.
Annual Mortgagor Statement
A report sent to the mortgagor each year. The report shows how much was paid
in taxes and interest during the year, as well as the remaining mortgage loan
balance at the end of the year.
Annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar
basis.
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property.
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
An increase in the value of a property due to changes in market conditions or
other causes. The opposite of depreciation.
Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.
Assessment
The process of placing a value on property for the strict purpose of taxation.
May also refer to a levy against property for a special purpose, such as a sewer
assessment.
Assessment Rolls
The public record of taxable property.
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.
Assumption
The transfer of the seller's existing mortgage to the buyer. See assumable mortgage.
Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility
for the mortgage from the seller. The loan does not need to be paid in full
by the original borrower upon sale or transfer of the property.
Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting
from the assumption of an existing mortgage.
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.
Attorney-In-Fact
One who holds a power of attorney from another to execute documents on behalf
of the grantor of the power.
Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a
specific date.
Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
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
Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved
from the payment of all debts after the surrender of all assets to a court-appointed
trustee.
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.
Before-Tax Income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed
of trust.
Bequeath
To transfer personal property through a will.
Betterment
An improvement that increases property value as distinguished from repairs or
replacements that simply maintain value.
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.
Binder
A preliminary agreement, secured by the payment of an earnest money deposit,
under which a buyer offers to purchase real estate.
Blanket Insurance Policy
A single policy that covers more than one piece of property (or more than one
person).
Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share
loans on individual units within the project.
Bona Fide
In good faith, without fraud.
Bond
An interest-bearing certificate of debt with a maturity date. An obligation
of a government or business corporation. A real estate bond is a written obligation
usually secured by a mortgage or a deed of trust.
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
Breach
A violation of any legal obligation.
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
Budget
A detailed plan of income and expenses expected over a certain period of time.
A budget can provide guidelines for managing future investments and expenses.
Budget Category
A category of income or expense data that you can use in a budget. You can also
define your own budget categories and add them to some or all of the budgets
you create. "Rent" is an example of an expense category. "Salary"
is a typical income category.
Building Code
Local regulations that control design, construction, and materials used in construction.
Building codes are based on safety and health standards.
Buydown Account
An account in which funds are held so that they can be applied as part of the
monthly mortgage payment as each payment comes due during the period that an
interest rate buydown plan is in effect.
Call Option
A provision in the mortgage that gives the mortgagee the right to call the mortgage
due and payable at the end of a specified period for whatever reason.
Capital
(1) Money used to create income, either as an investment in a business or an
income property. (2) The money or property comprising the wealth owned or used
by a person or business enterprise. (3) The accumulated wealth of a person or
business. (4) The net worth of a business represented by the amount by which
its assets exceed liabilities.
Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to
add to its value.
Capital Improvement
Any structure or component erected as a permanent improvement to real property
that adds to its value and useful life.
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
A refinance transaction in which the amount of money received from the new loan
exceeds the total of the money needed to repay the existing first mortgage,
closing costs, points, and the amount required to satisfy any outstanding subordinate
mortgage liens. In other words, a refinance transaction in which the borrower
receives additional cash that can be used for any purpose.
Cash Reserves
A cash amount sometimes required to be held in reserve in addition to the down
payment and closing costs; the amount is determined by the lender.
Certificate Of Deposit
A document written by a bank or other financial institution that is evidence
of a deposit, with the issuer's promise to return the deposit plus earnings
at a specified interest rate within a specified time period.
Certificate Of Deposit Index
An index that is used to determine interest rate changes for certain ARM plans.
It represents the weekly average of secondary market interest rates on six-month
negotiable certificates of deposit. See adjustable-rate mortgage (ARM).
Certificate Of Eligibility
A document issued by the Veterans Administration that certifies a veteran's
eligibility for a VA loan.(top)
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
The history of all of the documents that transfer title to a parcel of real
property, starting with the earliest existing document and ending with the most
recent.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate
mortgage (ARM).
Chattel
Another name for personal property.
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 Cost Item
A fee or amount that a home buyer must pay at closing for a single service,
tax, or product. Closing costs are made up of individual closing cost items
such as origination fees and attorney's fees. Many closing cost items are included
as numbered items on the HUD-1 statement.
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.
CMA
CMA, or Competitive Market Analysis, is a comparison of homes similar to a seller's
home in terms of size, style, features, and location that have sold recently
or are on the market. A CMA is prepared by a real estate agent to help set a
home's listing price.
Co-Borrower
An additional individual who is both obligated on the loan and is on title to
the property.
Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance
depends on the relationship between the amount of the policy and a specified
percentage of the actual value of the property insured at the time of the loss.
Coinsurance Clause
A provision in a hazard insurance policy that states the amount of coverage
that must be maintained -- as a percentage of the total value of the property
-- for the insured to collect the full amount of a loss.
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.(top)
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money
to a home buyer. Also known as a "loan commitment."
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 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 Law
An unwritten body of law based on general custom in England and used to an extent
in the United States.
Community Home Improvement Mortgage Loan®
An alternative financing option that allows low- and moderate-income home buyers
to obtain 95 percent financing for the purchase and improvement of a home in
need of modest repairs. The repair work can account for as much as 30 percent
of the appraised value.
Community Land Trust Mortgage Loan
An alternative financing option that enables low- and moderate-income home buyers
to purchase housing that has been improved by a nonprofit Community Land Trust
and to lease the land on which the property stands.
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.
Community Seconds®
An alternative financing option for low- and moderate-income households under
which an investor purchases a first mortgage that has a subsidized second mortgage
behind it. The second mortgage may be issued by a state, county, or local housing
agency, foundation, or nonprofit organization. Payment on the second mortgage
is often deferred and carries a very low interest rate (or no interest rate
at all). Part of the debt may be forgiven incrementally for each year the buyer
remains in the home.
Comparables
An abbreviation for "comparable properties"; used for comparative
purposes in the appraisal process. Comparables are properties like the property
under consideration; they have reasonably the same size, location, and amenities
and have recently been sold. Comparables help the appraiser determine the approximate
fair market value of the subject property.
Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid
interest.
Condemnation
The determination that a building is not fit for use or is dangerous and must
be destroyed; the taking of private property for a public purpose through an
exercise of the right of eminent domain.
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.
Consumer Reporting Agency (Or Bureau)
An organization that prepares reports that are used by lenders to determine
a potential borrower's credit history. The agency obtains data for these reports
from a credit repository as well as from other sources.
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.
Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower
to change the ARM to a fixed-rate mortgage at specified timeframes after loan
origination.
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.
Cooperative Corporation
A business trust entity that holds title to a cooperative project and grants
occupancy rights to particular apartments or units to shareholders through proprietary
leases or similar arrangements.
Cooperative Mortgages
Mortgages related to a cooperative project. This usually refers to the multifamily
mortgage covering the entire project but occasionally describes the share loans
on the individual units.
Cooperative Project
A residential or mixed-use building wherein a corporation or trust holds title
to the property and sells shares of stock representing the value of a single
apartment unit to individuals who, in turn, receive a proprietary lease as evidence
of title.
Corporate Relocation
Arrangements under which an employer moves an employee to another area as part
of the employer's normal course of business or under which it transfers a substantial
part or all of its operations and employees to another area because it is relocating
its headquarters or expanding its office capacity.
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.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if
violated, can result in foreclosure.
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 Life Insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage
debt if the mortgagor dies while the policy is in force.
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. See merged credit
report.
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.
Debt
An amount owed to another.
Debt-To-Income Ratio
A comparison of gross income to housing and non-housing expenses. With the FHA,
the-monthly mortgage payment should be no more than 29% of monthly gross income
(before taxes) and the mortgage payment combined with non-housing debts should
not exceed 41% of income.
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.
Department Of Veterans Affairs (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.
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.
Deposit
A sum of money given to bind the sale of real estate, or a sum of money given
to ensure payment or an advance of funds in the processing of a loan. See earnest
money deposit.
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.
Dower
The rights of a widow in the property of her husband at his death.
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.
Due-On-Transfer Provision
This terminology is usually used for second mortgages. See due-on-sale provision.
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.
Effective Gross Income
Normal annual income including overtime that is regular or guaranteed. The income
may be from more than one source. Salary is generally the principal source,
but other income may qualify if it is significant and stable.
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.
Employer-Assisted Housing
A special Fannie Mae housing initiative that offers several different ways for
employers to work with local lenders to develop plans to assist their employees
in purchasing homes.
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.
Endorser
A person who signs ownership interest over to another party. Contrast with co-maker.
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 deposit by a borrower
with the lender of funds to pay taxes and insurance premiums when they become
due, or the deposit of funds or documents with an attorney or escrow agent to
be disbursed upon the closing of a sale of real estate.
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
Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly
deposits will provide sufficient funds to pay taxes, insurance, and other bills
when due.
Escrow Collections
Funds collected by the servicer and set aside in an escrow account to pay the
borrower's property taxes, mortgage insurance, and hazard insurance.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due
Escrow Payment
The portion of a mortgagor's monthly payment that is held by the servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due. Known as "impounds" or "reserves"
in some states.
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, but reserving the owner's right to
sell the property alone without the payment of a commission.
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.
Fair Housing Act
A law that prohibits discrimination in all facets of the home buying process
on the basis of race, color, national origin, religion, sex, familial status,
or disability.
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 Programsm
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.
Fannie 97®
A financing option for a fixed-rate mortgage that offers home buyers a 3 percent
down payment loan with either a 25- or 30-year term. The mortgage features a
loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership
opportunities for people with modest incomes. Borrowers must take a pre-purchase
home-buyer education session to qualify for a Fannie 97 mortgage.
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.
Finder's Fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for
a prospective borrower.
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.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment includes payment
of both principal and interest.
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 mrotgage debt.
Forfeiture
The loss of money, property, rights, or privileges due to a breach of legal
obligation.
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient
to amortize the remaining balance, at the interest accrual rate, over the amortization
term.
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.
Good Faith Estimate
an estimate of all closing fees including pre-paid and escrow items as well
as lender charges; must be given to the borrower within three days after submission
of a loan application.
Government 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).
Contrast with conventional mortgage.
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)
Graduated Payment Mortgage
A mortgage initially offering low monthly payments that increase at fixed intervals
and at a predetermined rate.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Ground Rent
The amount of money that is paid for the use of land when title to a property
is held as a leasehold estate rather than as a fee simple estate.
Group Home
A single-family residential structure designed or adapted for occupancy by unrelated
developmentally disabled persons. The structure provides long-term housing and
support services that are residential in nature.
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established
period of time, with the increased amount of the monthly payment applied directly
toward reducing the remaining balance of the mortgage.
Guarantee Mortgage
A mortgage that is guaranteed by a third party.
Guaranteed Loan
Also known as a government mortgage.
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 that evaluates the structural and mechanical condition
of a property. A satisfactory home inspection is often included as a contingency
by the purchaser. Contrast with appraisal.
Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance
coverage for a dwelling and its contents.
HomeKeeperSM
Fannie Mae's adjustable-rate conventional reverse mortgage, which allows older
homeowners to borrow against the value of their homes and receive the proceeds
according to the payment option they select. The amount available is based on
the number of borrowers and their ages and the adjusted property value. Anyone
62 years or older who either owns his or her own home free and clear or has
very low mortgage debt is eligible.
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 Warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a
specific period of time. It is provided by the builder or property seller as
a condition of the sale.
Homestyle® Mortgage Loan
A mortgage that enables eligible borrowers to obtain financing to remodel, repair,
and upgrade their existing homes or homes that they are purchasing. The financing
takes the form of a conventional second mortgage or a Federal Housing Administration
(FHA) Section 203(k) first mortgage.
Housing Expense Ratio
The percentage of gross monthly income that goes toward paying housing expenses.
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."
HVAC
Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
Income Property
Real estate developed or improved to produce income.
Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM).
The index is generally a published number or percentage, such as the average
interest rate or yield on Treasury bills. A margin is added to the index to
determine the interest rate that will be charged on the ARM.. This interest
rate is subject to any caps that are associated with the mortgage.
In-File Credit Report
An objective account, normally computer-generated, of credit and legal information
obtained from a credit repository.
Inflation
An increase in the amount of money or credit available in relation to the amount
of goods or services available, which causes an increase in the general price
level of goods and services. Over time, inflation reduces the purchasing power
of a dollar, making it worth less.
Initial Interest Rate
The original interest rate of the mortgage at the time of closing. This rate
changes for an adjustable-rate mortgage (ARM). Sometimes known as "start
rate" or "teaser."
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Installment Loan
Borrowed money that is repaid in equal payments, known as installments. A furniture
loan is often paid for as an installment loan.
Insurable Title
A property title that a title insurance company agrees to insure against defects
and disputes.
Insurance
A contract that provides compensation for specific losses in exchange for a
periodic payment. An individual contract is known as an insurance policy, and
the periodic payment is known as an insurance premium.
Insurance Binder
A document that states that insurance is temporarily in effect. Because the
coverage will expire by a specified date, a permanent policy must be obtained
before the expiration date.
Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or
by private mortgage insurance (MI). If the borrower defaults on the loan, the
insurer must pay the lender the lesser of the loss incurred or the insured amount.
Interest
The fee charged for borrowing money.
Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases,
it is also the rate used to calculate the monthly payments, although it is not
used for an adjustable-rate mortgage (ARM) with payment change limitations.
Interest Rate
The rate of interest in effect for the monthly payment due.
Interest Rate Buydown Plan
An arrangement wherein the property seller (or any other party) deposits money
to an account so that it can be released each month to reduce the mortgagor's
monthly payments during the early years of a mortgage. During the specified
period, the mortgagor's effective interest rate is "bought down" below
the actual interest rate.
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note.
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note.
Investment Property
A property that is not occupied by the owner.
IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions
to a personal retirement fund. Individuals can place IRA funds in bank accounts
or in other forms of investment such as stocks, bonds, or mutual funds.
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.
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
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.
Late Charge
The penalty a borrower must pay when a payment is made a stated number of days
(usually 15) after the due date.
Lease
A written agreement between the property owner and a tenant that stipulates
the conditions under which the tenant may possess the real estate for a specified
period of time and rent.
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-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers
to lease a home from a nonprofit organization with an option to buy. Each month's
rent payment consists of principal, interest, taxes and insurance (PITI) payments
on the first mortgage plus an extra amount that is earmarked for deposit to
a savings account in which money for a downpayment will accumulate.
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.
Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can
increase or decrease over the life of the mortgage. See cap.
Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest
rate can increase or decrease over the life of the loan. See cap.
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. See home
equity line of credit.
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 Commitment
See commitment letter.
Loan Origination
The process by which a mortgage lender brings into existence a mortgage secured
by real property.
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) Percentage
The relationship between the principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property. For example, a $100,000
home with an $80,000 mortgage has a LTV percentage of 80 percent.
Lock Box
A key storage system placed on a home entrance that is accessible only by active,
licensed real estate agents who must abide by a strict set of guidelines when
showing a seller's home.
Lock-In
A written agreement in which the lender guarantees a specified interest rate
if a mortgage goes to closing within a set period of time. The lock-in also
usually specifies the number of points to be paid at closing.
Lock-In Period
The time period during which the lender has guaranteed an interest rate to a
borrower. See lock-in.
Loss Mitigation
a process to avoid foreclosure; the lender tries to help a borrower who has
been unable to make loan payments and is in danger of defaulting on his or her
loan.
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.
Master Association
A homeowners' association in a large condominium or planned unit development
(PUD) project that is made up of representatives from associations covering
specific areas within the project. In effect, it is a "second-level"
association that handles matters affecting the entire development, while the
"first-level" associations handle matters affecting their particular
portions of the project.
Maturity
The date on which the principal balance of a loan, bond, or other financial
instrument becomes due and payable.
Maximum Financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV)
percentage allowed for a specific product. Thus, maximum financing on a fixed-rate
mortgage would be 90 percent or higher, because 95 percent is the maximum allowable
LTV percentage for that product.
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.
Multiple Listing Service (MLS)
The Board of Realtors generates this database that includes all 'for sale' properties
in a given geographical area. The service also lists properties for lease, but
does not include homes put up for sale by the actual owner.
Modification
The act of changing any of the terms of the mortgage.
Money Market Account
A savings account that provides bank depositors with many of the advantages
of a money market fund. Certain regulatory restrictions apply to the withdrawal
of funds from a money market account.
Money Market Fund
A mutual fund that allows individuals to participate in managed investments
in short-term debt securities, such as certificates of deposit and Treasury
bills.
Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and
interest. When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction.
Monthly Payment Mortgage
A mortgage that requires payments to reduce the debt once a month.
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.
Mortgagee
The lender in a mortgage agreement.
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
Mortgage Life Insurance
A type of term life insurance often bought by mortgagors. The amount of coverage
decreases as the principal balance declines. In the event that the borrower
dies while the policy is in force, the debt is automatically satisfied by insurance
proceeds.
Mortgagor
The borrower 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.
Multidwelling Units
Properties that provide separate housing units for more than one family, although
they secure only a single mortgage.
Multifamily Mortgage
A residential mortgage on a dwelling that is designed to house more than four
families, such as a high-rise apartment complex.
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.
Net Cash Flow
The income that remains for an investment property after the monthly operating
income is reduced by the monthly housing expense, which includes principal,
interest, taxes, and insurance (PITI) for the mortgage, homeowners' association
dues, leasehold payments, and subordinate financing payments.
Net Worth
The value of all of a person's assets, including cash, minus all liabilities.
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.
Nonliquid Asset
An asset that cannot easily be converted into cash.
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.
Notice Of Default
A formal written notice to a borrower that a default has occurred and that legal
action may be taken.
Offer
indication by a potential buyer of a willingness to purchase a home at a specific
price; generally put forth in writing.
Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.
Origination Fee
A fee paid to a lender for processing a loan application. The origination fee
is stated in the form of points. One point is 1 percent of the mortgage amount.
Owner Financing
A property purchase transaction in which the property seller provides all or
part of the financing.
Partial Claim
a loss mitigation option offered by the FHA that allows a borrower, with help
from a lender, to get an interest-free loan from HUD to bring their mortgage
payments up to date.
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.
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
Price Trend Analysis
A tool developed and used exclusively by Weichert, Realtors to help set a home's
listing price by projecting local trends. Used in conjunction with a CMA, or
Competitive Market Analysis. Because home values appreciate over time, a Price
Trend Analysis maximizes listing prices.
Point
A one-time charge by the lender for originating a loan. A point is 1 percent
of the amount of the mortgage.
Prearranged Refinancing Agreement
A formal or informal arrangement between a lender and a borrower wherein the
lender agrees to offer special terms (such as a reduction in the costs) for
a future refinancing of a mortgage being originated as an inducement for the
borrower to enter into the original mortgage transaction.
Preforeclosure Sale
A procedure in which the investor allows a mortgagor to avoid foreclosure by
selling the property for less than the amount that is owed to the investor.
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.
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.
PUD - Planned Unit Development
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 And Sale 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.
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.
Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor
may have at the time the conveyance is made.
Radon
A radioactive gas found in some homes that in sufficient concentrations can
cause health problems.
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.
Rate-Improvement Mortgage
A fixed-rate mortgage that includes a provision that gives the borrower a one-time
option to reduce the interest rate (without refinancing) during the early years
of the mortgage term.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf
of the property owner.
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 broker or an associate who holds active membership in a local
real estate board that is affiliated with the NATIONAL ASSOCIATION OF REALTORS®.
Recission
The cancellation or annulment of a transaction or contract by the operation
of a law or by mutual consent. Borrowers usually have the option to cancel a
refinance transaction within three business days after it has closed.
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.
Rehabilitation Mortgage
A mortgage created to cover the costs of repairing, improving, and sometimes
acquiring an existing property.
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.
Rent With Option To Buy
See lease-purchase mortgage loan.
Repayment Plan
An arrangement made to repay delinquent installments or advances. Lenders' formal
repayment plans are called "relief provisions."
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.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which operates principally under
the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing
Act of 1949. This agency provides financing to farmers and other qualified borrowers
buying property in rural areas who are unable to obtain loans elsewhere. Funds
are borrowed from the U.S. Treasury.
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 Mortgage Market
The buying and selling of existing 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
Settlement
See closing.
Special Deposit Account
An account that is established for rehabilitation mortgages to hold the funds
needed for the rehabilitation work so they can be disbursed from time to time
as particular portions of the work are completed.
Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining
balance of a mortgage in substantially equal installments over the remaining
term of the mortgage at the current interest rate.
Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified
schedule (i.e., seven years), resulting in increased payments as well. At the
end of the specified period, the rate and payments will remain constant for
the remainder of the loan.
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.
Subsidized Second Mortgage
An alternative financing option known as the Community Seconds® mortgage
for low- and moderate-income households. An investor purchases a first mortgage
that has a subsidized second mortgage behind it. The second mortgage may be
issued by a state, county, or local housing agency, foundation, or nonprofit
corporation. Payment on the second mortgage is often deferred and carries a
very low interest rate (or no interest rate). Part of the debt may be forgiven
incrementally for each year the buyer remains in the home.
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.
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.
Tenancy By The Entirety
A type of joint tenancy of property that provides right of survivorship and
is available only to a husband and wife. Contrast with tenancy in common.
Tenant-Stockholder
The obligee for a cooperative share loan, who is both a stockholder in a cooperative
corporation and a tenant of the unit under a proprietary lease or occupancy
agreement.
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.
Total Expense Ratio
Total obligations as a percentage of gross monthly income. The total expense
ratio includes monthly housing expenses plus other monthly debts.
Trade Equity
Equity that results from a property purchaser giving his or her existing property
(or an asset other than real estate) as trade as all or part of the down payment
for the property that is being purchased.
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. In cases in which
an inter vivos revocable trust is the borrower, lenders also consider any transfer
of a beneficial interest in the trust to be a transfer of ownership.
Transfer Tax
State or local tax payable when title passes from one owner to another.
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. .
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. See adjustable-rate
mortgage (ARM).
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.
Underwriting
The process of evaluating a loan application to determine the risk involved
for the lender. Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
Unsecured Loan
A loan that is not backed by collateral.
VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also
known as a government mortgage.
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.
What-If Analysis
An affordability analysis that is based on a what-if scenario. A what-if analysis
is useful if you do not have complete data or if you want to explore the effect
of various changes to your income, liabilities, or available funds or to the
qualifying ratios or down payment expenses that are used in the analysis.
What-If Scenario
A change in the amounts that is used as the basis of an affordability analysis.
A what-if scenario can include changes to monthly income, debts, or down payment
funds or to the qualifying ratios or down payment expenses that are used in
the analysis. You can use a what-if scenario to explore different ways to improve
your ability to afford a house.
Wraparound Mortgage
A mortgage that includes the remaining balance on an existing first mortgage
plus an additional amount requested by the mortgagor. Full payments on both
mortgages are made to the wraparound mortgagee, who then forwards the payments
on the first mortgage to the first mortgagee.
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