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Abstract (Of Title)
A summary of the public
records relating to the title to a particular piece of land. An attorney or
title insurance company reviews an abstract of title to determine whether
there are any title defects which must be cleared before a buyer can purchase
clear, marketable, and insurable title.
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.
Adjustable Rate
Mortgage
A mortgage in which the
interest rate is adjusted periodically according to the movement in a
pre-selected index.
Adjustment date
The date on which the
interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Interval
For an adjustable rate
mortgage, the time between changes in the interest rate charged. The most
common adjustment intervals are one, three or five years.
Adjustment period
The period that elapses
between the adjustment dates for an adjustable-rate mortgage (ARM).
Agreement of
Sale
Known by various names,
such as contract of purchase, purchase agreement, or sales agreement
according to location or jurisdiction. A contract in which a seller agrees to
sell and a buyer agrees to buy, under certain specific terms and conditions
spelled out in writing and signed by both parties.
Amortization
A payment plan, which
enables the borrower to reduce his debt gradually through monthly payments of
principal.
Amortization schedule
A timetable for payment
of a mortgage loan. An amortization schedule shows the amount of each payment
applied to interest and principal and shows the remaining balance after each
payment is made.
Amortization term
The amount of time
required to amortize the mortgage loan. The amortization term is expressed as
a number of months.
Amortize
Reduce a debt by regular
payments of both principal and interest.
Amortization Schedule
A timetable for payment
of a mortgage showing the amount of each payment applied to interest and
principal and the remaining balance.
Annual Percentage Rate
(APR)
The total yearly cost of
a mortgage stated as a percentage of the loan amount: includes the base
interest rate, primary mortgage insurance, and loan origination fee (points)
Annuity
An amount paid yearly or
at other regular intervals, often on a guaranteed dollar basis.
Application
A form used to apply for
a mortgage loan and to record pertinent information concerning a prospective
mortgagor and the proposed security.
Application Fee
The fee charged by the
lender to the borrower for applying for a loan.
Appraised value
An opinion of a
property's fair market value, based on an appraiser's knowledge, experience,
and analysis of the property.
Appraiser
A person qualified by
education, training, and experience to estimate the value of real property
and personal property.
Appraisal
A professional opinion of
the market value of a property.
Appreciation
An increase in the value
of a house due to changes in market conditions or other causes.
Assessed Value
The valuation placed upon
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.
Assessor
A public official who
establishes the value of a property for taxation purposes.
Asset
Anything of monetary
value that is owned by a person. Assets include real property, personal
property, and enforceable claims against others (including bank accounts,
stocks, mutual funds, and so on).
Assumable Loan
These loans may be passed
on from a seller of a home to the buyer. The buyer "assumes" all
outstanding payments.
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.
Assumption of Mortgage
An obligation undertaken
by the purchaser of property to be personally liable for payment of an
existing mortgage. In an assumption, the purchaser is substituted for the
original mortgagor in the mortgage instrument and the original mortgagor is
to be released from further liability in the assumption, the mortgagee's
consent is usually required.
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Balance sheet
A financial statement that
shows assets, liabilities, and net worth as of a specific date.
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
A proceeding in a federal
court in which a debtor who owes more than his or her assets can relieve the
debts by transferring his or her assets to a trustee.
Beneficiary
The person designated to
receive the income from a trust, estate, or a deed of trust.
Bill of sale
A written document that
transfers title to personal property.
Binder or "Offer
to Purchase"
A preliminary agreement,
secured by the payment of earnest money, between a buyer and seller as an
offer to purchase real estate. A binder secures the right to purchase real
estate upon agreed terms for a limited period of time. If the buyer changes
his mind or is unable to purchase, the earnest money is forfeited unless the
binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)
Blanket insurance
policy
A single policy that
covers more than one piece of property (or more than one person).
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.
Borrower
One who receives funds
with the expressed or implied intention of repaying the loan in full.
Bridge loan
A form of second trust
that is collateralized by the borrower's present home (which is usually for
sale) in a manner that allows the proceeds to be used for closing on a new
house before the present home is sold.
Broker
An individual in the
business of assisting in arranging funding or negotiating contracts for a
client but who does not loan the money himself. Brokers usually charge a fee
or receive a commission for their services.
Building code
Local regulations that
control design, construction, and materials used in construction. Building
codes are based on safety and health standards.
Building Line or
Setback
Distances from the ends
and/or sides of the lot beyond which construction may not extend. The
building line may be established by a filed plat of subdivision, by
restrictive covenants in deeds or leases, by building codes, or by zoning
ordinances.
Buy down
Money advanced by an
individual (seller, builder, etc.) to reduce monthly payments for a home
mortgage either during the entire term or for an initial period of years.
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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 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
A provision of an ARM
limiting how much the interest rate or mortgage payments may increase.
Cash Out
A loan transaction in
which the borrower receives funds at the time of closing.
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.
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 Eligibility A document
issued by the federal government certifying a veteran’s eligibility for a
Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value
(CRV) A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
Certificate of Title
A certificate issued by a
title company or a written opinion rendered by an attorney that the seller
has good marketable and insurable title to the property, which he is offering
for sale. A certificate of title offers no protection against any hidden
defects in the title, which an examination of the records could not reveal.
The issuer of a certificate of title is liable only for damages due to
negligence. The protection offered a homeowner under a certificate of title
is not as great as that offered in a title insurance policy.
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.
Claim
An amount requested of an
insurer, by a policyholder or a claimant, for an insured loss.
Clear title
A title that is free of
liens or legal questions as to ownership of the property
Closing
The occasion where a sale
is finalized; the buyer signs the mortgage, and closing costs are paid. Also
called "settlement."
Closing Costs
Expenses (over and above
the price of the property) incurred by buyers and sellers in transferring
ownership of a property. Also called "settlement costs."
Closing cost item
A fee or amount that a
homebuyer must pay at closing for a single service, tax, or product.
Closing
Day
The day on which the
formalities of a real estate sale are concluded. The certificate of title,
abstract, and deed are generally prepared for the closing by an attorney and
this cost charged to the buyer. The buyer signs the mortgage, and closing
costs are paid. The final closing merely confirms the original agreement
reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or
encumbrance, which adversely affects the marketability of title.
Co-Borrower
An additional borrower on
a loan. A co-borrower's obligation on a loan are the same as all other
borrowers.
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
An asset (such as a car
or a home) that guarantees the repayment of a loan. The borrower risks losing
the asset if the loan is not repaid according to the terms of the loan
contract.
Collection
The efforts used to bring
a delinquent mortgage current and to file the necessary notices to proceed
with foreclosure when necessary.
Co-maker
A person who signs a
promissory note along with the borrower. A co-maker's signature guarantees
that the loan will be repaid, because the borrower and the co-maker are
equally responsible for the repayment.
Commission
Money paid to a real
estate agent or broker by the seller as compensation for finding a buyer and
completing the sale.
Commitment Letter
A formal offer by a
lender stating the terms under which it agrees to loan money to a homebuyer.
Common area
assessments
Levies against individual
unit owners in a condominium or planned unit development (PUD) project for
additional capital to defray homeowners' association costs and expenses and
to repair, replace, maintain, improve, or operate the common areas of the
project.
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 the United States.
Community property
In some western and
southwestern states, a form of ownership under which property acquired during
a marriage is presumed to be owned jointly unless acquired as separate
property of either spouse.
Comparables
A abbreviation for
comparable properties used for comparative purposes in the appraisal process;
facilities of reasonably the same size and location with similar amenities;
properties which have been recently sold, which have characteristics similar
to property under consideration, thereby indicating 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 taking of private
property for public use by a government unit, against the will of the owner,
but with payment of just compensation under the government's power of eminent
domain. Condemnation may also be a determination by a governmental agency
that a particular building is unsafe or unfit for use.
Condominium
Individual ownership of a
dwelling unit and an individual interest in the common areas and facilities,
which serve the multi-unit project.
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.
Construction Loan
A short-term loan for
funding the cost of construction. The lender advances funds to the builder 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.
Contract
An oral or written
agreement to do or not to do a certain thing.
Contractor
In the construction
industry, a contractor is one who contracts to erect buildings or portions of
them. There are also contractors for each phase of construction: heating,
electrical, plumbing, air conditioning, road building, bridge and dam
erection, and others.
Conventional Mortgage
Any mortgage that is not
insured or guaranteed by the federal government.
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 time.
Convertible Arm
An adjustable-rate
mortgage that can be converted to a fixed-rate mortgage under specified
conditions.
Coverage
The amount of protection,
usually expressed in a percentage of the total claim amount, an insured
receives under a certificate.
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 Housing
An apartment building or
a group of dwellings owned by a corporation, the stockholders of which are
the residents of the dwellings. It is operated for their benefit by their
elected board of directors. In a cooperative, the corporation or association
owns title to the real estate. A resident purchases stock in the corporation,
which entitles him to occupy a unit in the building or property owned by the
cooperative. While the resident does not own his unit, he has an absolute
right to occupy his unit for as long as he owns the stock.
Cooperative mortgages
Mortgages related to a
cooperative project.
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)
An index that is used to
determine interest rate changes for certain adjustable-rate mortgage (ARM)
plans. It represents the weighted-average cost of savings, borrowings, and
advances of the 11th District members of the Federal Home Loan Bank of
San Francisco.
Covenant
A clause in a mortgage
that obligates or restricts the borrower and that, if violated, can result in
foreclosure.
Commitment
A written letter of
agreement detailing the terms and conditions by which the lender will lend
and the borrower will borrow funds to finance a home.
Credit history
A record of an
individual's open and fully repaid debts. A credit history helps a lender to
determine whether a potential borrower has a history of repaying debts in a
timely manner.
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.
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.
Cure
A loan that is removed
from a delinquency status with no loss to the insurer.
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Deed-in-lieu
A deed given by a
mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also
called a "voluntary conveyance."
Deed of Trust
Like a mortgage, a
security instrument whereby real property is given as security for a debt.
However, in a deed of trust there are three parties to the instrument: the
borrower, the trustee, and the lender, (or beneficiary). In such a
transaction, the borrower transfers the legal title for the property to the
trustee who holds the property in trust as security for the payment of the
debt to the lender or beneficiary. If the borrower pays the debt as agreed,
the deed of trust becomes void. If, however, he defaults in the payment of
the debt, the trustee may sell the property at a public sale, under the terms
of the deed of trust. In most jurisdictions where the deed of trust is in
force, the borrower is subject to having his property sold without benefit of
legal proceedings. A few States have begun in recent years to treat the deed
of trust like a mortgage.
Default
Failure to make mortgage
payments on a timely basis or to comply with other conditions of a mortgage.
Deficiency Judgment
A court order to pay the
balance owed on a loan if the proceeds from the sale of the security are
insufficient to pay off the loan. Deficiency judgments are not allowed in all
states.
Delinquency
A loan in which a payment
is overdue but not yet in default.
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.
Depreciation
A decline in the value of
property; the opposite of "appreciation."
Discount Points
See Points.
Documentary Stamps
A State tax, in the forms
of stamps, required on deeds and mortgages when real estate title passes from
one owner to another. The amount of stamps required varies with each State.
Dower
The rights of a widow in
the property of her husband at his death.
Down Payment
The part of the purchase
price, which 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.
Due-on-transfer
provision
This terminology is
usually used for second mortgages.
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Earnest Money
The deposit money given
to the seller or his agent by the potential buyer upon the signing of the
agreement of sale to show that he is serious about buying the house. If the
sale goes through, the earnest money is applied against the down payment. If
the sale does not go through, the earnest money will be forfeited or lost
unless the binder or offer to purchase expressly provides that it is
refundable.
Easement Rights
A right-of-way granted to
a person or company authorizing access to or over the owner's land. An
electric company obtaining a right-of-way across private property is a common
example.
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 obstruction, building,
or part of a building that intrudes beyond a legal boundary onto neighboring
private or public land, or a building extending beyond the building line.
Encumbrance
A legal right or interest
in land that affects a good or clear title, and diminishes the land's value.
It can take numerous forms, such as zoning ordinances, easement rights,
claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or
restrictive covenants. An encumbrance does not legally prevent transfer of
the property to another. A title search is all that is usually done to reveal
the existence of such encumbrances, and it is up to the buyer to determine
whether he wants to purchase with the encumbrance, or what can be done to
remove it.
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
The difference between
the market value of a property and the homeowner's outstanding mortgage
balance.
Equity Loan
A loan based on the
borrower's equity in his or her home. Prior to closing; also, an account held
by the lender into which a homeowner pays money for taxes and insurance.
Escrow account
The account in which a
mortgage servicer holds the borrower’s escrow payments prior to paying
property expenses.
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.
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
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Fair Credit Reporting
Act
A consumer protection law
that regulates the disclosure of consumer credit reports by consumer/credit
reporting agencies and establishes procedures for correcting mistakes on
one's credit record.
Fair-market-value
The highest price that a
buyer, willing but not compelled to buy would pay, and the lowest a seller,
willing but not compelled to sell, would accept.
FDIC
(Federal Deposit
Insurance Corporation). Provides insurance of accounts for institutions whose
deposits were formerly covered by the Federal Savings & Loan Insurance
Corporation. (FSLIC).
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
(Federal Housing
Administration). A division of the Department of Housing and Urban
Development. The FHA's main activity is the insuring of residential mortgage
loans made by private lenders. It sets standards for construction and
underwriting. FHA neither lends money, nor plans, nor constructs housing.
FHA Loan
Government loans are
loans that are guaranteed or purchased by government organizations. Two of
the most popular Government Loans are the Federal Housing Administration
(FHA) and the Department of Veterans Affairs (VA).
FHFB
(Federal Housing Finance
Board). It oversees the credit functions of the twelve regional Federal Home
Loan Banks.
FHLBB
(Federal Home Loan Bank
Board). A regulatory and supervisory agency for federally charted savings
institutions, which oversees the operations of the FSLIC and FHLMC. This
agency was abolished by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. (See FIRREA.)
FHLMC
(Federal Home Loan
Mortgage Corporation, Freddie Mac). A private corporation authorized by
Congress, which became an independent, stockholder-owned government
corporation with the passage of FIRREA. FHLMC promotes the flow of funds into
the housing markets by purchasing conventional mortgages in the secondary
market and selling securities backed by those mortgages in the capital
market.
Finance Charge
The total dollar amount
your loan will cost you. It includes all interest payments for the life of
the loan, any interest paid at closing, your origination fee and any other
charges paid to the lender and/or broker. Appraisal, credit report and title
search fees are not included in the finance charge calculation.
Finder's fee
A fee or commission paid
to a mortgage broker for finding a mortgage loan for a prospective borrower.
FIRRA
(Financial Institutions
Reform, Recovery and Enforcement Act of 1989). An act signed into law in
August 1989, by President Bush that restructured the thrift regulatory an
insurance system.
Firm commitment
A lender’s agreement to
make a loan to a specific borrower on a specific property.
First Mortgage
The mortgage that has
first claim in the event of default.
Fixed installment
The monthly payment due
on a mortgage loan.
Fixed-Rate Mortgage
(FRM) A mortgage in which
the interest rate does not change during the entire term of the loan.
FNMA
(Federal National
Mortgage Association, Fannie Mae). A government-sponsored corporation, owned
solely by private investors, created to provide support to the secondary
market for FHA and VA mortgages and conventional mortgages.
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.
Forfeiture
The loss of money,
property, rights, or privileges due to a breach of legal obligation.
Foreclosure
The process by which a
mortgage property may be sold when a mortgage is in default.
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.
Full Recasting
Setting the P&I
payments to the level that will fully amortize the loan's outstanding balance
over the remaining term using the fully indexed accrual rate at the recasting
point.
Fully Indexed Accrual
Rate
The interest (accrual)
rate resulting from the index at closing (or at another point in the loan)
plus the lender's full spread, rounded as prescribed in the loan documents
(often to the nearest 1/8th of 1%).
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General Warranty Deed
A deed which conveys not
only all the grantor's interests in and title to the property to the grantee,
but also warrants that if the title is defective or has a "cloud"
on it (such as mortgage claims, tax liens, title claims, judgments, or
mechanic's liens against it) the grantee may hold the grantor liable.
Good Faith Estimate
An estimate of charges,
which a borrower is likely to incur in connection with a loan closing.
Graduated Payment
Mortgage
(GPM) A mortgage where
the payments are scheduled to increase, usually annually, for a set number of
years, and then level off. GPM can be used with either a fixed or adjustable
interest rate, and usually has a 30-year term.
Grantee
That party in the deed
who is the buyer or recipient.
Grantor
That party in the deed
who is the seller or giver.
Gross Monthly Income
The total amount the
borrower earns per month, not counting any taxes or expenses. Often used in
calculations to determine whether a borrower qualifies for a particular loan.
Growing Equity
Mortgage
(GEM) A fixed rate,
graduated payment mortgage with small initial payments that increase each
year so that the loan pays off in a shortened term, usually 15 years.
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Hazard Insurance
Insurance to protect the
homeowner and the lender against physical damage to a property from fire,
wind, vandalism, or other hazards.
Homeowner's Insurance
An insurance policy that
combines liability coverage and hazard insurance.
Homeowner's Warranty
A type of insurance that
covers repairs to specified parts of a house for a specific period of time.
Housing Ratio
The ratio of the monthly
housing payment to total gross monthly income. Also called Payment-to-Income
Ratio or Front-End Ratio.
HUD
(Department of Housing
and Urban Development). A cabinet department responsible for the
implementation and administration of government housing and urban development
programs.
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Income property
Real estate developed or
improved to produce income.
Index
(Also called "Rate
Index"). A regularly published rate, independent of the lending institution
that measures the prevailing cost of funds, and is used periodically with the
margin to set AML accrual rates.
Initial Borrower
Interest Rate
The rate on which the
borrower's first payment is calculated.
Initial Borrower
Payment Rate
The annual interest rate
used to calculate the borrower's initial cash payment.
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.
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 percentage of an
amount of money, which is paid for its use for a specified time.
Interest Rate Cap
A provision of an ARM
limiting how much interest rates may increase per adjustment period.
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.
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- J -
Joint tenancy
A form of co-ownership
that gives each tenant equal interest and equal rights in the property,
including the right of survivorship.
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.
Jumbo Loans
Jumbo, or non-conforming,
is a term used to describe a loan that does not conform to Fannie Mae or
Freddie Mac guidelines.
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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.
Legal description
A property description,
recognized by law that is sufficient to locate and identify the property
without oral testimony.
Lender
An institution that makes
loans to borrowers on real estate.
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.
Lien
A legal claim against a
property that must be paid when the property is sold.
Lifetime Cap
A provision of an ARM
that limits the total increase in interest rates over the life of the loan.
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.
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 Commitment
Formal offer by a lender
stating the terms under which it agrees to loan money to a homebuyer.
Loan origination
The process by which a
mortgage lender brings into existence a mortgage secured by real property.
Loan Servicing
The collection of
mortgage payments from borrowers and related responsibilities of a loan
servicer.
Loan -To-Value
(LTV). The loan-to-value
ratio (LTV) is the original loan amount divided by the lower of the sales
price or the appraised value.
Lock
The period, expressed in
days, during which a lender will guarantee a rate.
Lock-in period
The time period during
which the lender has guaranteed an interest rate to a borrower.
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- M -
Marketable Title
A title that is free and
clear of objectionable liens, clouds, or other title defects. A title which
enables an owner to sell his property freely to others and which others will
accept without objection.
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.
Merged credit report
A credit report that
contains information from three credit repositories. When the report is
created, the information is compared for duplicate entries. Any duplicates
are combined to provide a summary of your credit.
Margin
(Also called
"Spread"). The amount the lender adds to the index to determine the
Fully Indexed Accrual Rate.
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 Housing
Expense
Total principal,
interest, taxes, and insurance paid by the borrower on a monthly basis. Used
with gross income to determine affordability.
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 a payment of a debt.
Mortgage Banker
A company that originates
mortgages exclusively for resale in the secondary market.
Mortgage Broker
A company that for a fee
matches borrowers with lenders.
Mortgagee
The lender in a mortgage
agreement.
Mortgage Commitment
A written notice from the
bank or other lending institution saying it will advance mortgage funds in a
specified amount to enable a buyer to purchase a house.
Mortgage Insurance
Premium
The payment made by a
borrower to the lender for transmittal to HUD to help defray the cost of the
FHA mortgage insurance program and to provide a reserve fund to protect
lenders against loss in insured mortgage transactions. In FHA insured
mortgages this represents an annual rate of one-half of one percent paid by
the mortgagor on a monthly basis.
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.
Mortgage Note
A written agreement to
repay a loan. The agreement is secured by a mortgage, serves as proof of
indebtedness, and states the manner in which it shall be paid. The note
states the actual amount of the debt that the mortgage secures and renders
the mortgagor personally responsible for repayment.
Mortgagor
The borrower in a
mortgage agreement.
Multi-dwelling 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.
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- N -
Negative Amortization
(Also called
"Deferred Interest"). A gradual increase in mortgage debt that
occurs when the monthly payment is not large enough to cover the entire
principal and interest due. The amount of the shortfall is added to the
remaining balance to create "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 Effective Income
Gross income less federal
income tax.
Net Worth
The value of all assets,
including cash, less total liabilities.
No cash-out refinance
A refinance transaction
in which the new mortgage amount is limited to the sum of the remaining
balance of the existing first mortgage, closing costs (including prepaid
items), points, the amount required to satisfy any mortgage liens that are
more than one year old (if the borrower chooses to satisfy them), and other
funds for the borrower's use (as long as the amount does not exceed 1 percent
of the principal amount of the new mortgage).
Non-liquid 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.
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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.
OTC
(The Office of Thrift
Supervision). Charters federal thrifts, serves as the primary federal
examiner and regulator of federal and state-chartered savings associations,
and administers laws governing savings and loan holding companies.
Owner financing
A property purchase
transaction in which the property seller provides all or part of the
financing.
Owner Occupied
"Owner
Occupied" means the property is the owner's primary residence.
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Payment Adjustment
Period
The length of time
(typically a year) between changes to the borrower's P&I (Principal &
Interest) payment.
Payment Buy down
Payment buy downs occur
when a third party, typically a builder, pays part of the initial P&I
payments for a year or two, so that the borrower has smaller payments and can
qualify for the loan.
Payment Cap
A limit on the amount the
payment can be changed at the end of each Payment Adjustment Period.
Payment Discount
In a payment discount,
the lender reduces the first year's interest rate to make the mortgagor more
attractive to borrowers.
Periodic payment cap
A limit on the amount
that payments can increase or decrease during any one-adjustment period.
Periodic rate cap
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
Principal, Interest,
Taxes and Insurance are components of a mortgage payment.
Plat
A map or chart of a lot,
subdivision or community drawn by a surveyor showing boundary lines,
buildings, improvements on the land, and easements.
Points
A one-time charge by the
lender to increase the yield of the loan; 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.
Prepayment
Payment of mortgage loan,
or part of it, before due date.
Pre-qualification
The process of
determining how much money a prospective homebuyer will be eligible to borrow
before application.
Prime rate
The interest rates that
banks charge to their preferred customers.
Principal
The amount borrowed or
remaining unpaid, also, that part of the monthly payment that reduces the
outstanding balance of a mortgage.
Private Mortgage
Insurance
Insurance provided by
nongovernmental insurers that protect lenders against loss if a borrower
defaults.
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
See Agreement of
Sale.
Purchase money
transaction
The acquisition of
property through the payment of money or its equivalent.
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Qualifying Ratios
Guidelines applied by
lenders to determine how large a loan to grant a homebuyer.
Quitclaim Deed
A deed, which transfers
whatever interest, the maker of the deed may have in the particular parcel of
land. A quitclaim deed is often given to clear the title when the grantor's
interest in a property is questionable. By accepting such a deed the buyer
assumes all the risks. Such a deed makes no warranties as to the title, but
simply transfers to the buyer whatever interest the grantor has. (See Deed.)
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Radon
A radioactive gas found
in some homes that in sufficient concentrations could cause health problems.
Rate Caps
(Also called
"Interest Rate Caps"). A limit on the amount of which the interest
rate charged to the borrower can be changed.
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.
Real Estate Broker
A middleman or agent who
buys and sells real estate for a company, firm, or individual on a commission
basis. The broker does not have title to the property, but generally
represents the owner.
Real Estate Owned
(REO). A term frequently
used by lending institution as applied to ownership of real property acquired
for investment or as a result of foreclosure.
RESPA
(Real Estate Settlement
Procedures Act). A Federal law that requires lenders to provide home mortgage
borrowers with information about known or estimated settlement 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.
Rescission
The cancellation or
annulment of a transaction or contract by the operation of a law or by mutual
consent.
Recorder
The public official who keeps
records of transactions that affects real property in the area.
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. Refinancing
The process of the same
mortgagor paying off one loan with the proceeds from another loan.
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.
Remaining term
The original amortization
term minus the number of payments that have been applied.
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.
Restrictive Covenants
Private restrictions
limiting the use of real property. Restrictive covenants are created by deed
and may "run with the land," binding all subsequent purchasers of
the land, or may be "personal" and binding only between the
original seller and buyer. The determination whether a covenant runs with the
land or is personal is governed by the language of the covenant, the intent
of the parties, and the law in the State where the land is situated.
Restrictive covenants that run with the land are encumbrances and may affect
the value and marketability of title. Restrictive covenants may limit the
density of buildings per acre, regulate size, style or price range of
buildings to be erected, or prevent particular businesses from operating or
minority groups from owning or occupying homes in a given area. (This latter
discriminatory covenant is unconstitutional and has been declared
unenforceable by the U.S. Supreme Court.)
Revolving liability
A credit arrangement,
such as a credit card, that allows a customer to borrow against a
pre-approved 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.
RTC
(Resolution Trust
Corporation). Formed to resolve thrift failures over the next three years and
dispose of their assets and liabilities.
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Sales Agreement
See Agreement of sale.
Second Mortgage
A mortgage that has
rights that are subordinate to the rights of the first mortgage holders.
Secondary Mortgage
Market
The buying and selling of
existing mortgages.
Seller-Provided Funds
(Also called "Seller
Contributions"). Seller-provided funds include all transaction cost paid
by the seller except the real estate agent's (or brokers) fee.
Servicer
The party who has entered
into an agreement with the insured to service a loan.
Settlement Costs
See Closing Costs.
Single Premium
A premium, which provides
coverage for more than a year. empty)
Special
Assessments
A special tax imposed on
property, individual lots or all property in the immediate area, for road
construction, sidewalks, sewers, streetlights, etc.
Special Lien
A lien that binds a
specified piece of property, unlike a general lien, which is levied against
all one's assets. It creates a right to retain something of value belonging
to another person as compensation for labor, material, or money expended in
that person's behalf. In some localities it is called "particular"
lien or "specific" lien. (See Lien.)
Special Warranty Deed
A deed in which the
grantor conveys title to the grantee and agrees to protect the grantee
against title defects or claims asserted by the grantor and those persons
whose right to assert a claim against the title arose during the period the
grantor held title to the property. In a special warranty deed the grantor
guarantees to the grantee that he has done nothing during the time he held
title to the property which has, or which might in the future, impair the grantee's
title.
Survey
A map or plat made by a
licensed surveyor showing the results of measuring the land with its
elevations, improvements, boundaries, and its relationship to surrounding
tracts of land. A survey is often required by the lender to assure him that a
building is actually sited on the land according to its legal description.
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Tax
As applied to real
estate, an enforced charge imposed on persons, property or income, to be used
to support the State. The governing body in turn utilizes the funds in the
best interest of the general public.
Tax Lien
A claim against real
estate for the amount of its unpaid taxes.
Teaser Rate
Similar to a Payment Discount,
but implies either an unusually large initial rate discount or an attempt by
the lender to lure an otherwise unqualified borrower into the mortgage.
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.
Tenancy in common
A type of joint tenancy
in a property without right of survivorship. Contrast with tenancy by the
entirety and with joint tenancy.
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
As generally used, the
rights of ownership and possession of particular property. In real estate
usage, title may refer to the instruments or documents by which a right of
ownership is established (title documents), or it may refer to the ownership
interest one has in the real estate.
Title Company
A company that
specializes in examining and insuring titles to real estate.
Title Insurance
Protects lenders or
homeowners against loss of their interest in property due to legal defects in
title. Title insurance may be issued to a "mortgagee's title
policy." Insurance benefits will be paid only to the "named
insured" in the title policy, so it is important that an owner purchase
an "owner's title policy", if he desires the protection of title
insurance.
Title Search or
Examination
A check of the title
records, generally at the local courthouse, to make sure the buyer is
purchasing a house from the legal owner and there are no liens, overdue
special assessments, or other claims or outstanding restrictive covenants
filed in the record, which would adversely affect the marketability or value
of title.
Total Debt Ratio
Monthly debt and housing
payments divided by gross monthly income. Also known as Back-End Ratio.
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.
Treasury index
An index that is used to
determine interest rate changes for certain adjustable-rate mortgage (ARM)
plans.
Trustee
A party who is given
legal responsibility to hold property in the best interest of or "for
the benefit of" another. The trustee is one placed in a position of
responsibility for another, a responsibility enforceable in a court of law.
Truth-In-Lending
(TIL). A federal law that
requires lenders to fully disclose, in writing, the terms and conditions of a
mortgage, including the APR and other charges.
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.
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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.
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Government Loans FHA /
VA
Government loans are
loans that are guaranteed or purchased by government organizations. Two of
the most popular Government Loans are the Federal Housing Administration
(FHA) and the Department of Veterans Affairs (VA).
Vested
Having the right to use a
portion of a fund such as an individual retirement fund.
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.
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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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Zoning Ordinances
The acts of an authorized
local government establishing building codes, and setting for.
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