| - A - |
| Acceleration clause |
The clause in a mortgage or trust deed that stipulates
the entire debt is due immediately if the mortgagee defaults under the terms
of the contract. |
| Acquisition cost |
Under an FHA loan, the purchase price or appraised value
of the property plus the estimated closing costs. |
| Adjustable Rate Mortgage (ARM) |
A mortgage in which the interest rate is adjusted periodically
based on an index. Also called a variable rate mortgage. |
| Adjusted book basis |
The purchase price of a property plus any capital improvements
less accrued depreciation, if any, to the date of the sale. |
| Adjustment Date |
The date the interest rate changes on an ARM (adjustable
rate mortgage). |
| 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. |
| Amenity |
a feature of the home or property that serves as a benefit
to the buyer but that is not necessary to its use; may be natural (like
location, Woods, water) or man-made (like a swimming pool or garden). |
| Amortization |
The process of retiring a loan balance through regular
installment payments of principal and interest. Payments are based on a
schedule that will bring the loan balance to zero at the end of the loan.
While the payment is the same for each period, the amount allocated to principal
and interest changes, with more interest paid earlier in the loan period.
|
| Amortization Schedule |
A schedule of payments for a loan, showing the amount of
principal and interest allocated to each payment. |
| Annual Percentage Rate (APR) |
APR shows the total cost of a loan, expressed as an annual
interest rate. The calculation of APR includes the interest rate for the
loan, plus any points and other fees associated with the loan. Because these
fees are included, APR is useful for comparing loans from different lenders
to determine the best value. |
| Annuity |
A series of payments over a period of years. |
| Application |
A form completed by borrowers as the first step in becoming
approved for a loan. Borrowers provide information regarding their income,
assets, and debts so that the lender can assess their eligibility for a
loan. |
| Application Fee |
Some lenders charge borrowers a fee for processing a loan
application, which may later be applied to the borrowers closing costs.
This fee is paid at the time the application is submitted, however, payment
of an application fee does not ensure that the loan will be approved. |
| Appraisal |
The assessment of property's fair market value conducted
by a licensed appraiser. The appraiser reviews recent sales of similar properties,
inspects the property itself and confirms that the property description
is accurate (such as number of bedrooms and location). The appraiser provides
a written Appraisal Report, so the lender can ensure that the mortgage amount
is appropriate for the value of the property. |
| Appraiser |
A qualified individual who uses his or her experience and
knowledge to prepare Appraisal report. Appraisers are generally licensed.
|
| Appreciation |
An increases in the value of a property due to rising prices
changes in the local market |
| ARM |
See Adjustable Rate Mortgage |
| Assessment |
Refers to the determination a property's value for tax
purposes. An assessment is not the same as appraisal. |
| Assessor |
A government official who is responsible for determining
the value of a property for the purpose of taxation. |
| Asset |
An item of value owned by a person or business, such as
stocks and bonds, vehicles or artwork. Liquid assets are those items that
can be easily sold for cash, or liquidated. |
| Assumable Mortgage |
A loan that may be transferred from one borrower to another.
A seller with an assumable loan may transfer that loan to the buyer, who
"assumes" responsibility for all outstanding payments. Once a
loan is assumed by the buyer, the seller is no longer responsible for repaying
it. There may be a fee or credit approval required for the transfer of an
assumable mortgage. |
 |
| - B - |
| Balloon Mortgage |
a mortgage that typically offers low rates for an initial
period of time (usually 5, 7, or 10) years; after that time period elapses,
the balance is due or is refinanced by the borrower. |
| Balloon Payment |
A large, lump sum payment required at the end of a loan
period in order to pay off the balance of the loan. |
| Bankruptcy |
A legal proceeding in which a person who is unable to repay
their debts relieves themselves of responsibility for those debts. In bankruptcy,
a person's assets are turned over to a trustee for liquidation to pay off
outstanding balances. Not all debts are cancelled by bankruptcy. Once an
individual has been through the bankruptcy process, they are not must re-establish
their credit. |
| Bill of Sale |
A written document that transfers a title to personal property.
|
| Biweekly Mortgage |
A mortgage loan with payments that are made every two weeks,
instead of monthly. A bi-weekly mortgage can be paid off faster than a loan
with monthly mortgage payments, because the borrower pays the equivalent
of thirteen payments each year rather than twelve. |
| Blanket Mortgage |
A mortgage secured by the pledging of more than one property
or collateral. |
| Bridge Loan |
A loan used to bridge the gap between two mortgages. If
a buyer has not sold their previous home, they make take out a short term
bridge loan in order to close on the new home. When the first home is sold,
the proceeds are used to pay off the bridge loan, which is replaced with
a new mortgage. |
| Buydown |
A mortgage subsidy made to the buyer on behalf of the seller
in order to reduce the loan rate for a set period of time, usually from
one to five years. This lower rate reduces the mortgage payment so the buyer
can qualify more easily for the mortgage. The amount of the buydown funds
an escrow account that subsidizes the loan during the first years. The mortgage
payments increase once the buydown expires. |
|
| - C - |
| Cap |
A limit on how much a monthly payment or interest rate
can increase or decrease in a given time period. For adjustable rate loans,
caps are usually quoted as two numbers, like 2/6. The first number indicates
how many percentage points a loan may change at each adjustment period.
The second number is the total change in interest rate allowed over the
life of the loan. Loans with an initial fixed period, like a 5/1 or 3/1
ARM, have caps quoted with 3 numbers. For example, 3/2/6 which would mean
that the first adjustment may be as much as 3%, subsequent adjustments are
capped at 2% each, and the lifetime cap is 6%. |
| Carryback Loan |
A loan in which a seller agrees to finance a buyer in order
to complete a property sale, also known as owner financing. |
| Cash reserves |
A cash amount the lender may require the borrower to have
on hand in addition to the down payment and closing costs. The amount is
determined by the lender. |
| Cash-out Refinance |
A refinance transaction that is intended to put cash in
the hand of the borrower, by borrowing more than the balance of the existing
mortgage. |
| Certificate of Eligibility |
A veteran's evidence of entitlement for a VA-guaranteed
loan. |
| Certificate of Reasonable Value (CRV)
|
An appraisal that has been performed on a property that
is being paid for with a VA loan. After the property has been appraised,
the Veterans Administration issues a CRV. |
| Certificate of title |
A document provided by a qualified source, such as a title
company, that shows the property legally belongs to the current owner. |
| Clear Title |
A title that is free of liens or any legal claims on the
ownership of the property. Before title to a property can be transferred
at closing, it needs to be clear and free of all liens or other claims.
|
| Closing |
Completion of final arrangements to transfer title of property
from the seller to the buyer, as well as allocate any charges and credits
for items like taxes, association dues, and processing fees between the
buy and seller. At closing, the borrower takes on the loan obligation and
receives title to the property. |
| Closing costs |
Customary costs above and beyond the sale price of the
property that must be paid to cover the transfer of ownership at closing.
Costs incurred may include a loan origination fee, discount points, appraisal
fee, title search, title insurance, survey, taxes, deed recording fee, and
credit report charges. These costs vary by geographic location and are detailed
to the borrower in a Good Faith Estimate prior to closing. |
| Cloud |
An outstanding claim or encumbrance that, if valid, would
affect or impair the owner's property title and potentially delay the sale
of the property until clear title is established. |
| Collateral |
An asset pledged as a security for a loan. For a mortgage
loan, the property itself is considered collateral that can be revoked through
foreclosure if loan is not repaid according to the terms of the mortgage
or deed of trust. |
| Commission |
An amount, usually a percentage of the property sales price
that is collected by a real estate professional as a fee for negotiating
the transaction. |
| 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. |
| Condominium |
A form of ownership in which individuals purchase and own
a unit of housing in a multi-unit complex. The owners share financial responsibility
for common areas such as parking lots, tennis court and swimming pools.
These costs are usually covered by an annual or monthly maintenance fee,
as well as periodic assessments for major expenses. |
| Conforming Loan |
A loan for which the amount borrowed does not exceed the
amount that can be insured by Fannie Mae or Freddie Mac. The maximum limit
for a conforming loan changes each year. Loans which exceed the limits for
a conforming loan are Jumbo Loan. |
| Construction Loan |
A short term loan funding the cost of construction on a
new property or a renovation. The lender advances funds as the work progresses,
based on completion of specific milestones. Once the construction is complete,
the loan is refinanced as a mortgage. |
| Conventional Mortgage |
A loan from a bank or finance company that is not guaranteed
or insured by the U.S. government. A mortgage loan that is obtained without
any additional guarantees for repayment, such as FHA insurance, VA guarantees,
or private insurance. This is usually given at an 80% loan-to-value ratio.
|
| Conversion |
The right of a borrower to convert an adjustable or balloon
loan into a fixed loan. |
| Cooperative (Co-op) |
Residents purchase stock in a cooperative corporation that
owns a structure; each stockholder is then entitled to live in a specific
unit of the structure and is responsible for paying a portion of the loan.
|
| Credit History |
History of an individual's debt payment; lenders use this
information to gauge a potential borrower's ability to repay a loan. |
| Credit Loan |
A credit loan is a mortgage that is issued on only the
financial strength of a borrower, without great regard for collateral. |
| Credit Rating |
Borrowers are rated by lenders according to the borrower's
credit-worthiness or risk profile. Credit ratings are expressed as letter
grades such as A-, B, or C+. These ratings are based on various factors
such as a borrower's payment history, foreclosures, bankruptcies and charge-offs.
There is no exact science to rating a borrower's credit, and different lenders
may assign different grades to the same borrower. |
| Credit Report |
A report from one of three major credit bureaus (Equifax,
Experian and Trans Union) on the credit standing of a prospective borrower.
The credit report lists past and present debts and the timeliness of their
repayment. Information regarding late payments, defaults, or bankruptcies
will also appear here. |
| Credit Score |
A number based on your credit score that lenders use as
a guideline to determine your creditworthiness. Also know as a FICO score
(for Fair Isaac Corporation, which is the most common scoring system), a
credit score can range from 300 - 850. Scores above 700 are considered good
credit, and those below 600 indicate a greater level or risk. |
|
| - D - |
| Debt to Income Ratio (DTI)
|
A comparison of monthly gross income to monthly housing
and non-housing expenses. Typically, a monthly mortgage payment should be
no more than 29% of monthly pre-tax income and total debts (including the
mortgage) should not exceed 41% of income. |
| Deed |
The document that transfers ownership of a property from
the seller to the buyer. |
| Deed of Trust |
Synonymous with mortgage, this is the "security instrument"
which gives the lender a claim against the property if the borrower fails
to live up to the terms of the mortgage note. A deed of trust or mortgage
is obtained, depending on the state in which the borrower will reside. |
| Deed-in-Lieu |
To avoid foreclosure, a deed is given to the lender to
fulfill the obligation to repay the mortgage. This process helps avoid the
costs, time, and effort associated with foreclosure by giving the property
to the lender. |
| Default |
The violation of a loan agreement, such as through failure
of a borrower to make payments on a loan. |
| Delinquency |
Failure of a borrower to make payments of principal, interest,
taxes, or insurance on time under a loan agreement. |
| Department of Veterans Affairs (VA) |
A federal agency which guarantees loans made to veterans;
similar to mortgage insurance, a loan guarantee protects lenders against
loss that may result from a borrower default. |
| Depreciation |
A decline in the value of a property. |
| Discount Point |
Normally paid at closing and generally calculated to be
equivalent to 1% (or one point) of the total loan amount, discount points
are paid to reduce the interest rate on a loan. |
|
| - E - |
| Earnest Money Deposit
|
A lump sum given in advance as security for a future transaction.
An earnest money deposit given at the time an offer of purchase is made
for a property. The deposit becomes part of the down payment if the offer
is accepted, is returned if the offer is rejected, or is forfeited if the
buyer pulls out of the deal. |
| Easement |
A right to access a property for a specific use. Common
easement are for utilities and similar required access. |
| Eminent Domain |
The government right to take private property for public
use depending on the payment of its fair market value. |
| Encumbrance |
Any lien against a property or any restriction it its use,
such as an easement; a right or interest in a property held by one who is
not the legal owner. |
| Equal Credit Opportunity Act (ECOA) |
The Equal Credit Opportunity Act (ECOA) ensures that all
consumers are given an equal chance to obtain credit, regardless of sex,
marital status, race, national origin, or religion. Anyone involved in granting
credit, such as real estate brokers who arrange financing, is covered by
the law. http://www.ftc.gov/bcp/conline/pubs/credit/ecoa.htm
|
| Equity |
The difference between the current market value of a property
and the principal balance of all outstanding loans. |
| Escalator Clause |
A clause in a loan providing for increases in payments
or interest based on pre-determined schedules or on a specific economic
index, such as the consumer price index. |
| Escrow |
A third party agent that receives, holds, and/or disburses
certain funds or documents upon the performance of certain conditions. For
example, an earnest money deposit is put into escrow until the transaction
is closed. |
| Escrow Account |
A separate account into which the lender puts a portion
of each monthly mortgage payment to pay items like property taxes and homeowner's
insurance when they are due. The borrower's monthly payment includes an
additional amount each month to cover these items. Also known as an Impound Account. |
| Escrow Analysis |
An analysis performed by a lender each year to escrow accountholders
to ensure that the correct amount of money is being collected to cover anticipated
payments. |
| Escrow Fee |
These costs cover the preparation and transmission of all
home purchased-related documents and funds. Escrow fees range from several
hundred to over a thousand dollars, based on the purchase price of your
home. Not all states require funds to be put into escrow accounts for closing.
|
| Estate |
The ownership interest an individual holds in real property.
This is also the sum total of all the real property and personal property
owned by an individual at time of death. |
| Eviction |
The legal removal of real property occupants for unlawful
actions carried out by those occupants. |
|
| - F - |
| Fair Credit Reporting Act
|
A law that protects consumer that regulates the reporting
of consumer credit by agencies and establishes procedures for correcting
errors on an individual record. |
| Fair Housing Act |
A law that prohibits discrimination in all facets of the
home buying process on the basis of race, color, national origin, religion,
sex, familial status, or disability. |
| Fair Market Value |
The price that a willing buyer and seller will agree on
for the sale of a property. |
| Fannie Mae (FNMA) |
The Federal National Mortgage Association is a congressionally
chartered, shareholder-owned company. FNMA purchases residential mortgages
and converts them into securities for sale to investors. This organization
is the nation's largest supplier of home mortgage funds. Link to the Fannie
Mae web site. |
| Farmers Home Administration (FmHA) |
Provides financing to farmers and other qualified borrowers
who are unable to obtain loans elsewhere. |
| Federal Home Loan Mortgage Corporation (FHLMC)
|
See Freddie Mac. |
| Federal Housing Administration (FHA)
|
A division of the Department of Housing and Urban Development.
The FHA was established in 1934 to advance homeownership opportunities for
all Americans. FHA provides mortgage insurance to lenders to cover most
losses that may occur when a borrower defaults, encouraging lenders to make
loans to borrowers who might not qualify for conventional mortgages. FHA
also sets the standard for underwriting mortgages. Link to the FHA web
site. |
| Federal National Mortgage Association (FNMA)
|
See Fannie Mae. |
| Fee Simple |
The best title that one can obtain; unqualified and conveys
the highest bundle of rights. |
| Fees |
Up-front costs associated with a loan. |
| FHA |
See Federal Housing Administration |
| FHA Loan |
A government-backed mortgage loan supported by the FHA
and the Department of Housing and Urban Development (HUD). |
| FHA Mortgage Insurance |
Requires a small fee (up to 3 percent of the loan amount)
paid at closing or a portion of this fee added to each monthly payment of
an FHA loan to insure the loan with FHA. |
| Finance Charge |
The total dollar amount credit 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. |
| Financing Concessions |
Funds originating from an interested party to the transaction
used to reduce the mortgage interest rate, subsidize the borrower's monthly
payment, contribute to the financing charges (such as discount points, loan
fees, commitment and/or origination fees), and pay borrower expenses (such
as application fees, homeowner association fees, appraisal fees, transfer
taxes, tax stamps, attorney fees, surveys, closing costs, and title insurance).
|
| Firm Commitment |
A lender's agreement to provide a loan to a specific borrower
on a specific property. |
| First Mortgage |
A mortgage that has priority over other mortgages. |
| Fixed Rate Mortgage |
A mortgage with a set interest rate which does not change
over the life of the loan. Typically, fixed rate loans are available with
terms ranging from 10 to 40 years, with the moth common being 15 year mortgage
and 30 year mortgages. With a fixed rate loan, principal and interest payments
stay the same for the duration of the loan term. |
| Float |
Between the time of application and closing, a borrower
may choose to bet on interest rates decreasing by electing to float. Floating
is essentially choosing not to lock the interest rate. Since it is the borrower's
responsibility to lock his or her rate before (or at) closing, choosing
to float is considered risky and may result in a higher interest rate. Request
information from your lender regarding lock procedures. |
| Float Period |
The float period refers to the time between when you accept
a loan and when you lock-in your rate. During this time the interest rate
and points on your loan will fluctuate with the market until you lock. |
| Flood insurance |
Insurance that protects homeowners against losses from
a flood. If a home is located in a flood plain, the lender will require
flood insurance before approving a loan. |
| Forbearance |
The postponement for a limited time of a portion or all
the payments on a loan when a borrower is delinquent. |
| Foreclosure |
A legal procedure in which real estate is sold by the lender
to pay a defaulting borrower's debt |
| Form 1003 |
See Uniform Residential Loan Application .
|
| Freddie Mac |
The Federal Home Loan Mortgage Corporation (FHLM) is a
federally-chartered corporation that purchases residential mortgages, securitizes
them, and sells them to investors. This provides lenders with funds for
new homebuyers. Link to the Freddie
Mac web site. |
|
| - G - |
| Ginnie Mae |
The Government National Mortgage Association (GNMA); a
government-owned corporation overseen by the U.S. Department of Housing
and Urban Development. Ginnie Mae pools FHA-insured and VA-guaranteed loans
to back securities for private investment. Like Fannie Mae and Freddie Mac,
the investment income provides funding that may then be lent to eligible
borrowers by lenders. Link to the Ginnie
Mae web site. |
| Good Faith Estimate |
An estimate of all closing fees including pre-paid and
escrow items as well as lender charges. A Good Faith Estimate must be given
to the borrower within three days after submission of a loan application.
|
| Government Loan |
A type of mortgage insured by the FHA (Federal Housing
Authority), VA (Veteran's Administration), or RHS (Rural Housing Authority).
|
| Government National Mortgage Association
|
See Ginnie Mae. |
| Grace Period |
A time allowed, usually 15 days, for making late payments
without a penalty. |
| Grantee |
The person to whom an interest in real property is conveyed.
|
| Grantor |
The person conveying an interest in real property. |
|
| - H - |
| Hazard Insurance |
A form of insurance in which the insurance company protects
the insured from certain losses, such as fire, vandalism, storms and certain
other natural causes. |
| Home Equity Line of Credit (HELOC) |
A type of second mortgage that allows a borrower to draw
cash as needed against their home equity, up to a certain amount. |
| Home Equity Loan |
A second mortgage loan used to borrow against equity in
a home. |
| Home Inspection |
A thorough assessment by a professional regarding the structural
and mechanical condition of a property. The potential homebuyer uses the
inspection to learn of any repairs that may be needed prior to closing.
|
| Home Warranty |
Offers protection for mechanical systems and attached appliances
against unexpected repairs not covered by homeowner's insurance. Coverage
extends over a specific time period and does not cover the home's structure.
|
| Homeowner's Insurance |
An insurance policy that combines protection against damage
to a dwelling and its contents with protection against claims of negligence
or inappropriate action that result in someone's injury or property damage.
|
| 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 |
The Department of Housing and Urban Development regulates
Fannie Mae and Ginny Mae. HUD works to create a decent home and suitable
living environment for all Americans by addressing housing needs, improving
and developing American communities, and enforcing fair housing laws. |
| HUD-1 |
This form is required by Federal law and is prepared by
the closing agent Also known as the "settlement statement," it
itemizes all closing costs; must be given to the borrower at or before closing.
|
| HVAC |
Heating, Ventilation and Air Conditioning; a home's heating
and cooling system. |
| Hybrid Financing |
The joining together of two forms of finance, such as combining
a convertible loan with a participation loan, under which the lender has
the right at loan maturity to convert the debt to a 50 percent ownership
in the property. |
|
| - I - |
| Impound Account |
A separate account into which the lender puts a portion
of each monthly mortgage payment to pay items like property taxes and homeowner's
insurance when they are due. The borrower's monthly payment includes an
additional amount each month to cover these items. Also known as an Escrow Account. |
| Index |
A published interest rate against which lenders measure
the difference between the current interest rate on an adjustable rate mortgage
and that earned by other investments (such as U.S. Treasury Security yields,
or the monthly average Costs-of-Funds), which is then used to adjust the
interest rate on an adjustable mortgage up or down. |
| Inflation |
The number of dollars in circulation exceeds the amount
of goods and services available for purchase; inflation results in a decrease
in the dollar's value. |
| Insurance |
Protection against a specific loss over a period of time
that is secured by the payment of a regularly scheduled premium. |
| Interest |
Money paid for the use of money, usually expressed as an
annual percentage. Also, a right, share, or title in property. |
| Interest Only |
A term loan arrangement in which the borrower makes payments
of interest, but not principal. |
| Interest Rate |
The percentage of an amount of money that's paid for its
use over a specified time period. |
|
| - J - |
| Judgment |
A legal decision. When requiring debt repayment, a judgment
may include a property lien that secures the creditor's claim by providing
a collateral source. |
| Judicial Foreclosure |
A court procedure used by lenders to secure clear title
to a property under a defaulted real estate loan. |
| Jumbo Loan |
A loan for an amount greater than the conventional loan
limit. This amount changes every year. For 2006, limits are:
- One-unit properties: $417,000
- Two-unit properties: $533,850
- Three-unit properties: $645,300
- Four-unit properties: $801,950
For properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands,
the loan limits are 50 percent higher. These limits are set by the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Jumbo loans usually carry a higher interest rate than conventional loans.
|
|
| - L - |
| Lease Option |
A rental agreement indicating a tenant's option to purchase
a property. A portion of the monthly payments can be applied towards a down
payment on an already established purchase price. |
| Lease Purchase |
Same as Lease Option |
| Leasehold Estate |
An estate for a fixed length of time, established when
a landlord gives up possession of real estate to a tenant, giving the tenant
an equitable interest in the property, as defined by lease terms. |
| Lender |
The bank, mortgage company, or mortgage broker offering
the loan. Many institutions only "originate" loans and then resell
the obligation to third parties. |
| Leverage |
Using someone else's money for the purchase of property.
|
| Liability Insurance |
Insurance that protects property owners against claims
that allege negligence or inappropriate action that resulted in bodily injury
or property damage to another party. |
| LIBOR |
The London Interbank Offered Rate Index (LIBOR) is an average
of the interest rates that major international banks charge each other to
borrow U.S. dollars in the London money market. Like the U.S. treasury the
CD indexes, LIBOR tends to move and adjust quite rapidly to changes in interest
rates. |
| Lien |
A legal claim by one party against the property of another
as security for a debt. Must be paid off when property is sold. A mortgage
or a first trust deed is a lien. |
| Life of Loan Cap |
The maximum interest rate that can be charged during the
life of the loan. Also called Lifetime Cap. This value is often expressed
as an increment above the initial loan rate. For example, an adjustable
rate loan with an initial rate of 7.25% and a 6% lifetime cap will never
adjust above a rate of 13.25% (7.25+6.0). |
| Loan |
The principal or amount of total borrowed money that is
repaid with interest. |
| Loan Fraud |
The illegal practice of purposely giving incorrect information
on a loan application in order to better qualify for a loan. Conviction
may result in civil liability or criminal penalties. |
| Loan Officer |
An intermediary between lending institutions and borrowers,
loan officers solicit loans, represent creditors to borrowers, and represent
borrowers to creditors. |
| Loan Origination |
What the process of obtaining new loans is called. |
| Loan Servicing |
A service performed by a lender to protect a mortgage investment,
including collecting monthly payments from borrowers and dealing with delinquencies.
|
| Loan-to-value (LTV) ratio |
A percentage calculated by dividing the amount borrowed
by the price or appraised value of the home. For purchases, the value of
the property is assumed to be the purchase price, for refinances the value
is determined by an appraisal. An LTV ratio of 90 means that a borrower
is borrowing 90% of the value of the property and paying 10% as a down payment.
|
| Lock |
The Lock can be either the period, expressed in days, during
which a lender will guarantee a rate or the act of committing to a mortgage
rate. Some lenders will lock rates at the time of application while others
will allow the borrower to lock the rate later. Sometimes a payment is required
by the lender to lock the rate or extend the lock period. |
| Lock-in Clause |
Clause in a loan agreement that states that the borrower
cannot repay a loan prior to a specified date. |
|
| - M - |
| Margin |
An amount the lender adds to an index to determine the
interest rate on an adjustable rate mortgage. |
| Maturity |
The final "Due Date" of a loan, or that date
it is to be paid in full. |
| Modification |
Any change to the original terms of a mortgage. |
| Mortgage |
This is the "security instrument" which gives
the lender a claim against the property if the borrower fails to live up
to the terms of the mortgage. The term is also used to describe the loan
itself. Some states use the term Deed of Trust to refer to mortgage loans.
|
| Mortgage Banker |
A company that originates loans and resells them to secondary
mortgage lenders like Fannie Mae or Freddie Mac. |
| Mortgage 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. |
| Mortgage Broker |
A firm that originates and processes loans for a number
of lenders. |
| Mortgage Constant |
The factor used for rapid computation of the annual payment
needed to amortize a loan. |
| Mortgage Insurance |
Insurance that covers the lender against losses incurred
as a result of a default on a home loan. This is usually required on all
loans that have a loan-to-value higher than 80%. FHA loans and some first-time
homebuyer programs require mortgage insurance regardless of the loan-to-value.
|
| Mortgage Insurance Premium (MIP) |
A monthly payment usually part of the mortgage payment
paid by a borrower for mortgage insurance. |
| Mortgage Modification |
A loss mitigation option that allows a borrower to refinance
and/or extend the term of the mortgage loan and thus reduce the monthly
payments. |
| Mortgagee |
The lender in a mortgage agreement. |
| Mortgagor |
The borrower in a mortgage agreement. |
| Multi-Dwelling Units |
Properties that provide separate housing units for more
than one family, although only a single mortgage is secured. |
|
| - N - |
| Negative Amortization
|
Essentially occurs when a borrower makes a minimum payment
that may not cover the interest that is due. Loan balance then increases
as a result. |
| Net Effective Income |
Gross income less federal income tax. |
| No-Cost Loan |
A no-cost loan can either be 1) a loan that has no "lender
costs" associated with it or, 2) a loan that also covers purchases
or refinancing costs, which may be incurred in buying a home, obtaining
and/or refinancing a loan, but are not directly charged by the lender. The
interest rate on this type of loan is higher |
| Note |
A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period of time. |
|
| - O - |
| Offer |
Indication by a potential buyer of a willingness to purchase
a home at a specific price; generally put forth in writing. |
| Origination |
The process of preparing, submitting, and evaluating a
loan application; generally includes a credit check, verification of employment,
and a property appraisal. |
| Origination fee |
The charge for originating a loan, generally calculated
in the form of points paid at closing. This fee is imposed by a lender to
cover certain processing expenses in connection with making a real estate
loan. |
| Owner Financing |
A property purchase that is partly or wholly financed by
the seller. |
| Owner's Title Policy |
A policy protecting the buyer for the amount of the purchase
price in the event of a future title dispute. |
|
| - P - |
| Package Mortgage |
A mortgage that /includes equipment and appliances located
on the premises in addition to the real property itself. |
| Partial Claim |
A loss mitigation option offered by the FHA that allows
a borrower, with help from a lender, to get an interest-free loan from HUD
to bring their mortgage payments up to date. |
| Partial Entitlement |
Under VA loans, the amount of guarantee still available
to an eligible veteran who has used his previous entitlement. |
| Partial Payment |
A payment that is less than the monthly payment. |
| Participation Financing |
A loan in which more than one mortgagee or more than one
mortgagor harbors an interest. It can also be a loan in which the mortgagee
receives partial ownership of the property being financed. |
| Payment Change Date |
The date when a new monthly payment amount takes effect
on an adjustable rate mortgage (ARM). The payment change date occurs the
month immediately after the interest rate adjustment date. |
| Periodic Payment Cap |
The limit on the amount that payments can increase or decrease
during any one adjustment period for an adjustable-rate mortgage (ARM) where
the interest rate and principal fluctuate independently of one another.
|
| Periodic Rate Cap |
The limit on the amount that payments can increase or decrease
during any one adjustment period in an ARM (adjustable rate mortgage), regardless
of how high or low the index fluctuates. |
| PITI |
Principal, Interest, Taxes, and Insurance used for calculating
the mortgage costs for the debt-to-income ratio. If the loan has an impound
or escrow account, a portion of the payment each month is placed in this
account to cover these items when they are due. |
| 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 PITI (principal, interest, taxes, and insurance) must equal the amount
that the borrower would have to pay for PITI for a determined number of
months. |
| Planned Unit Development (PUD) |
A type of ownership where individuals own the building
or unit they reside in, but shared areas are owned jointly with the other
members of the development or established association. |
| PMI |
See Private Mortgage Insurance. |
| Points |
One percent of the loan amount. Points are used as a measure
of fees associated with a loan, such as Discount Points and Origination
Points. Discount points are paid to reduce the interest rate of a loan,
with origination points are simply a fee to the lender for originating the
loan. |
| Pre-Approval |
A term used to mean that a borrower has completed a loan
application and provided debt, income, and savings information that has
been reviewed and pre-approved by an underwriter. |
| Pre-Foreclosure Sale |
A procedure in which the borrower is allowed to sell his
or her property to avoid foreclosure, fully satisfying the borrower's debt.
|
| Premium |
An amount paid on by a policyholder for insurance coverage.
|
| Pre-Paids |
Expenses such as taxes, insurance, and assessments, which
are paid in advance of their due date, and on a prorated basis at closing.
|
| Prepayment |
Payment of the mortgage loan before the scheduled due date.
In cases where the loan is paid in full before maturity, it may be subject
to a prepayment penalty. |
| Prepayment Penalty |
A fee lenders may charge borrowers if they wish to repay
part or all of their loan in advance of the regular payment schedule. |
| Pre-Qualify |
An informal determination of the maximum amount an individual
is eligible to borrow. |
| Prime Rate |
Interest charged by financial institutions to top-rate
borrowers. |
| Principal |
The total amount borrowed, less any payments, not including
interest. |
| Private Mortgage Insurance (PMI) |
A mortgage insurance program for qualified borrowers with
down payments of less than 20% of a purchase price. PMI is typically charged
to the borrower when the Loan-to-Value Ratio is greater than 80%. |
| Promissory Note |
A written promise to repay a specified amount over a specified
period of time. |
| Prorations |
The allocation of charges and credits to the appropriate
parties at a real estate sale and/or loan closing at a real-estate sale
and/or loan closing. |
| 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 Mortgage |
Mortgage given by a borrower to the seller as part of the
purchase price of the property. |
|
| - Q - |
| Quitclaim Deed |
A deed that transfers, without warranty, whatever interest
or title a grantor may have at the time the conveyance is made. |
|
| - R - |
| Real Estate Agent |
A person licensed to negotiate and transact the sale of
real estate. |
| Real Estate Settlement Procedures Act (RESPA)
|
An act requiring the revelation of all costs involved in
a real estate closing to all participants. |
| Real Estate Settlement Procedures Act (RESPA) |
A law protecting consumers from abuses during the residential
real estate purchase and loan process. The law requires lenders to disclose
all settlement costs, practices, and relationships. |
| Realtor |
A real estate agent, broker, or associate that holds an
active membership in a local real estate board that is affiliated with the
National Association of Realtors. |
| Recast |
To redesign an existing loan balance into a new loan for
the same period or longer, to reduce payments and help a distressed borrower.
|
| Reconciliation |
Determining the final estimate of value by weighing the
results of the various approaches in an appraisal. |
| Reconveyance Clause |
The clause in a trust deed that gives the title back to
the borrower when the loan is paid in full. |
| Recording |
The formal filing of documents affecting a property's title.
|
| Refinancing |
Paying off one loan by obtaining another; refinancing is
generally done to secure better loan terms (like a lower interest rate).
|
| Refinancing |
The process of paying off one loan with the proceeds from
a new loan, using the same property as security. |
| Regulation Z |
The Federal Reserve Board regulation to enforce the Truth
in Lending Act. Regulation Z requires lenders to reveal the actual costs
of borrowing. http://www.fdic.gov/regulations/laws/rules/6500-1400.html
|
| Rehabilitation Mortgage |
A mortgage that covers the costs of rehabilitating (repairing
or Improving) a property; some rehabilitation mortgages like the FHA's 203(k)
allow a borrower to roll the costs of rehabilitation and home purchase into
one mortgage loan. |
| Rent-Loss Insurance |
Insurance that protects a landlord against loss of rent
or rental value due to fire or other casualty, resulting in the tenant being
excused from paying rent. |
| Repayment Plan |
An agreement between a lender and a delinquent borrower
regarding mortgage payments, in which the borrower agrees to make additional
payments to pay down past due amounts while still making scheduled payments.
|
| RESPA |
See Real Estate Settlement Procedures Act. |
| Restrictions |
Rules imposed on the use of real estate in an effort to
preserve property values. |
| Revolving Debt |
A credit arrangement that allows a customer to borrow against
a pre-approved line of credit used to purchase goods and services. The borrower
is responsible for the actual amount borrowed plus any interest due. |
| Right of First Refusal |
A provision that states that a property to be first offered
to a specific person before it can be offered for sale or lease to other
parties. |
| Rollover Loan |
A loan that /includes a call date earlier than its normal
amortization period. |
| Rule of 78s |
An alternative to simple interest calculation, Rule of
78 allocates a proportionate amount of interest to each loan payment. In
cases where the loan is paid in full before its maturity, the amount of
interest paid can be greater than that of a simple interest loan. |
|
| - S - |
| Sale-Buyback |
A financing arrangement in which an investor buys property
from a developer and immediately sells it back under a long-term sales agreement,
wherein the investor retains legal title. |
| Sale-Leaseback |
A financing arrangement where an investor purchases real
estate, then leases the property back to the seller. |
| Second Mortgage |
A mortgage that has a lien position subordinate to the
first mortgage. |
| Secondary Mortgage Market |
A market where mortgage originators may sell them, freeing
up funds for continued lending and distributes mortgage funds nationally
from money-rich to money poor areas. |
| Secured Loan |
A loan that is backed by collateral. |
| Security |
Something given, deposited, or pledged to make secure the
fulfillment of an obligation, usually the repayment of a debt. |
| 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 |
Another term for closing |
| Special Forbearance |
A loss mitigation option where the lender arranges a revised
repayment plan for the borrower that may include a temporary reduction or
suspension of monthly loan payments. |
| Stop Date |
Date on a term loan when the balloon payment is due. |
| Subordinate |
To place in a rank of lesser importance or to make one
claim secondary to another. |
| Subordinate Financing |
Any mortgage or other lien that has a priority lower than
that of the first mortgage, or senior loan. See second mortgage. |
| Survey |
A drawing or map the shows the precise legal boundaries
of a property, the location of improvements, easements, rights of way, encroachments,
and other physical features. |
| Sweat Equity |
Increase in property value due to improvement by owners.
|
|
| - T - |
| Takeout Mortgage |
A permanent mortgage, obtained by pre-arrangement between
a builder and a financial institution, to repay the interim mortgagee at
the completion of construction. |
| Tax Lien |
A claim against real estate for the amount of its unpaid
taxes. |
| 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 showing a person's right to or ownership
of a property. |
| Title 1 |
An FHA-insured loan that allows a borrower to make non-luxury
improvements (like renovations or repairs) to their home; Title I loans
less than $7,500 don't require a property lien. |
| Title Company |
A company that specializes in examining and insuring titles
to real estate. |
| Title insurance |
Insurance that protects the lender against any claims that
arise from arguments about ownership of the property. Title insurance is
also available for homebuyers as an Owner's Title Insurance policy. The
cost of title insurance is usually a set value per thousand of dollars of
the total loan amount. |
| Title Search |
A check of public records to be sure that the seller is
the legal owner of the property, and that there are no liens or other claims
outstanding. |
| Total Debt Ratio |
Monthly debt and housing payments divided by gross monthly
income. Also known as Back-End Ratio. |
| Transfer of Ownership |
The means by which the ownership of a property changes
hands. Examples of such include the purchase of a property "subject
to" the mortgage, the assumption of the mortgage debt by the property
purchases, 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 the title passes from one
owner to another. |
| Truth in Lending Act |
A federal law obligating a lender to give full written
disclosure of all fees, terms, and conditions associated with a loan. The
Truth In Lending Act was originally enacted by Congress in 1968 as a part
of the Consumer Protection Act. See Regulation
Z. |
| Truth-in-Lending Statement (TIL) |
This form is required by law. You will be given an initial
TIL shortly after completing the loan application. If there are no changes
you may not receive another one at closing. However, if there are significant
changes, you must receive a corrected TIL no later than settlement. |
| Two-Step Mortgage |
A loan where the interest rate is fixed for a period years
and then is adjusted one time for the balance of the loan period. |
|
| - U - |
| Underwriting |
The process of analyzing a loan application to determine
the amount of risk involved in making the loan; it includes a review of
the potential borrower's credit history and a judgment of the property value.
|
| Uniform Residential Loan Application
|
Also known as Form 1003, this is the standard mortgage
application. The lender uses this form to record relevant financial information
about an applicant who applies for a conventional one- to four-family mortgage.
Download a copy of Form 1003. |
|
| - V - |
| VA Loan |
A government-backed mortgage loan supported by the US Veterans
Administration. |
|
| - Z - |
| Zero Percent Financing
|
A loan with no interest in the contract. |
| Zoning |
The right of a community, under its police power, to dictate
the use of property within its boundaries. |
