|
|
|
| GLOSSARY
& DEFINITIONS
A to G
- acceleration clause
A clause in your mortgage which allows the lender to demand payment of the outstanding
loan balance for various reasons. The most common reasons for accelerating a loan are if
the borrower defaults on the loan or transfers title to another individual without
informing the lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding
fluctuations in an index. All ARMs are tied to indexes.
adjustment date
The date the interest rate changes on an adjustable-rate mortgage
amortization
The loan payment consists of a portion which will be applied to pay the accruing interest
on a loan, with the remainder being applied to the principal. Over time, the interest
portion decreases as the loan balance decreases, and the amount applied to principal
increases so that the loan is paid off (amortized) in the specified time.
amortization
schedule
A table which shows how much of each payment will be applied toward principal and how much
toward interest over the life of the loan. It also shows the gradual decrease of the loan
balance until it reaches zero.
annual
percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a government
formula intended to reflect the true annual cost of borrowing, expressed as a percentage.
It works sort of like this, but not exactly, so only use this as a guideline: deduct the
closing costs from your loan amount, then using your actual loan payment, calculate what
the interest rate would be on this amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you are using the same payment on a
smaller amount, the APR is always higher than the actual not rate on your loan.
application
The form used to apply for a mortgage loan, containing information about a borrower’s
income, savings, assets, debts, and more.
appraisal
A written justification of the price paid for a property, primarily based on an analysis
of comparable sales of similar homes nearby.
appraised value
An opinion of a property`s fair market value, based on an appraiser`s knowledge,
experience, and analysis of the property. Since an appraisal is based primarily on
comparable sales, and the most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price.
appraiser
An individual qualified by education, training, and experience to estimate the value of
real property and personal property. Although some appraisers work directly for mortgage
lenders, most are independent.
appreciation
The increase in the value of a property due to changes in market conditions, inflation, or
other causes.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.
assessment
The placing of a value on property for the purpose of taxation.
assessor
A public official who establishes the value of a property for taxation purposes.
asset
Items of value owned by an individual. Assets that can be quickly converted into cash are
considered "liquid assets." These include bank accounts, stocks, bonds, mutual
funds, and so on. Other assets include real estate, personal property, and debts owed to
an individual by others.
assignment
When ownership of your mortgage is transferred from one company or individual to another,
it is called an assignment.
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower
must "qualify" in order to assume the loan.
assumption
The term applied when a buyer assumes the seller’s mortgage.
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.
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.
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.
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.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes procedures for correcting mistakes on
one`s credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the
lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered,
shareholder-owned company that is the nation`s largest supplier of home mortgage funds.
For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA),
see the Library.
Fannie Mae`s Community Home Buyer`s
Program
An income-based community lending model, under which mortgage insurers and Fannie Mae
offer flexible underwriting guidelines to increase a low- or moderate-income family`s
buying power and to decrease the total amount of cash needed to purchase a home. Borrowers
who participate in this model are required to attend pre-purchase home-buyer education
sessions.
Federal
Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity
is the insuring of residential mortgage loans made by private lenders. The FHA sets
standards for construction and underwriting but does not lend money or plan or construct
housing.
fee simple
The greatest possible interest a person can have in real estate.
fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and
most extensive interest in land that can be enjoyed. It is of perpetual duration. When the
real estate is in a condominium project, the unit owner is the exclusive owner only of the
air space within his or her portion of the building (the unit) and is an owner in common
with respect to the land and other common portions of the property.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA
loans, an FHA loan will often be referred to as a government loan.
firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.
first mortgage
The mortgage that is in first place among any loans recorded against a property. Usually
refers to the date in which loans are recorded, but there are exceptions.
fixed-rate mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.
fixture
Personal property that becomes real property when attached in a permanent manner to real
estate.
flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or
her interest in the mortgaged property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale being applied to the mortgage
debt.
401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred
income for retirement or emergency purposes. 401(k) plans are provided by employers that
are private corporations. 403(b) plans are provided by employers that are not for profit
organizations.
401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have
accumulated in these plans. Loans against 401K plans are an acceptable source of down
payment for most types of loans.
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. |
|
H to N
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."
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.
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. 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.
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.
margin
The difference between the interest rate and the index on an adjustable rate mortgage.
The margin remains stable over the life of the loan. It is the index which moves up and
down.
maturity
The date on which the principal balance of a loan, bond, or other financial instrument
becomes due and payable.
merged credit report
A credit report which reports the raw data pulled from two or more of the major credit
repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard
factual credit report.
modification
Occasionally, a lender will agree to modify the terms of your mortgage without
requiring you t refinance. If any changes are made, it is called a modification.
mortgage
A legal document that pledges a property to the lender as security for payment of a
debt. Instead of mortgages, some states use First Trust Deeds.
mortgage banker
For a more complete discussion of mortgage banker, see "Types of Lenders." A
mortgage banker is generally assumed to originate and fund their own loans, which are then
sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However,
firms rather loosely apply this term to themselves, whether they are true mortgage bankers
or simply mortgage brokers or correspondents.
mortgage broker
A mortgage company that originates loans, then places those loans with a variety of
other lending institutions with whom they usually have pre-established relationships.
mortgagee
The lender in a mortgage agreement.
mortgage
insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a
default on a home loan. Often mistakenly referred to as PMI, which is actually the name of
one of the larger mortgage insurers. Mortgage insurance is usually required in one form or
another on all loans that have a loan-to-value higher than eighty percent. Mortgages above
80% LTV that call themselves "No MI" are usually a made at a higher interest
rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a
higher interest rate to the lender, which then pays the mortgage insurance themselves.
Also, FHA loans and certain first-time homebuyer programs require mortgage insurance
regardless of the loan-to-value.
mortgage
insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency
such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI)
company.
mortgage life and disability insurance
A type of term life insurance often bought by borrowers. The amount of coverage
decreases as the principal balance declines. Some policies also cover the borrower in the
event of disability. In the event that the borrower dies while the policy is in force, the
debt is automatically satisfied by insurance proceeds. In the case of disability
insurance, the insurance will make the mortgage payment for a specified amount of time
during the disability. Be careful to read the terms of coverage, however, because often
the coverage does not start immediately upon the disability, but after a specified period,
sometime forty-five days.
mortgagor
The borrower in a mortgage agreement.
multidwelling units
Properties that provide separate housing units for more than one family, although they
secure only a single mortgage.
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. |
|
O to Z
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.
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.
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.
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.
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.
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.
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.
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.
|
|
|
