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Abstract
of Title
A written history of ownership to a specific area of land. An abstract of
title covers the period from the original source of title to the present
time and summarizes all subsequent documents that have been recorded
against that area.
ACH (Automatic Clearing House)
Electronic Drafting system that debits an authorized bank account and
electronically transfers funds scheduled for remittance.
Acquisition Costs
Costs of acquiring property other than purchase price, for example,
attorney fees, title insurance, lender's fees.
Addendum
An agreement or list that is added to a contract, agreement, or other
document such as a letter of intent. FHA and VA require that an addendum
be added to or incorporated in a sales contract, if it is written prior to
the appraisal.
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 (ARM)
A mortgage in which the interest rate is adjusted periodically according
to a pre-selected index.
Adjusted Gross Income
A person's total income, as reported on his or her IRS 1040 tax return
form, after allowable contributions, deductions and expenses (alimony).
Adjustment Period
The period that elapses between the adjustment dates for an adjustable
rate mortgage (ARM).
Agricultural Property
Unimproved property available for farming activities.
Alimony
Periodic payments made under a divorce decree or a written separation
agreement toward the support of a former spouse.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors, and
attorneys specializing in real property law. The association speaks for
the title insurance and abstracting industry and establishes standard
procedures and title policy forms.
Amortization
Payment of a debt in regular, periodic installments of principal and
interest as opposed to interest only payments.
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)
A term used in the Truth-in-Lending Act to represent the percentage
relationship of the total finance charge to the amount of the loan. The
APR reflects the cost of your mortgage loan as a yearly rate. It will be
higher than the interest rate stated on the note because it includes, in
addition to the interest rate, loan discount points, fees and mortgage
insurance.
Applicant
A prospective borrower who has completed an application. An application is
series of steps, usually including the completion of documents, a lender
requires of those seeking a loan.
Application
A printed form used by a mortgage lender to record necessary information
concerning a prospective mortgage.
Application Fee
A sum of money paid towards estimated initial mortgage processing expenses
such as appraisal and credit report.
Appraisal
A report made by a qualified person setting forth an opinion or estimate
of property value. The term also refers to the process by which this
estimate is obtained.
Appraised Value
An opinion of value reached by an appraiser based upon knowledge,
experience, and a study of pertinent data.
Appraiser
A person qualified by education, training and experience to estimate the
value of real and personal property.
Appreciation
An increase in the value of property due to either a positive improvement
of the area or the elimination of negative factors. Commonly, and
incorrectly, used to describe an increase in value through inflation.
Arm's-Length Transaction
Legal slang meaning that there existed no special relationship between the
parties involved in any matter which would taint the result.
As Separate Property
Ownership in real property which is to be specifically excluded from
community property.
Assessed Valuation
The value that a taxing authority places on real or personal property for
the purpose of taxation.
Assessment
A charge against a property for purpose of taxation. This may take the
form of a levy for a special purpose or a tax in which the property owner
pays a share of the cost of community improvements according to the
valuation of his or her property.
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).
Assignment
The transfer of a mortgage from one person to another.
Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is
sold.
Assumption
The transfer of the seller's existing mortgage to the buyer.
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.
Balloon
Mortgage
A mortgage that has level monthly payments that will fully amortize it
over a stated term, but which provides for a lump-sum payment to be due at
the end of an earlier specified term.
Balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
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 discharge personal liability for his or her debts. This
affects the borrower's personal liability for a mortgage debt but not the
lien of the mortgage.
Basis point
A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.
Before-tax income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.
Biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
Blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
Borrower
A person (also known as mortgagor) who receives funds in the form of a
loan with an obligation to repay principal with interest.
Break-Even Point
The point at which total income is equal to total expenses.
Bridge Financing
A loan spanning the gap between the termination of one loan (generally
short-term) and the start of another (generally permanent long-term) loan.
Also referred to as gap financing.
Bridge Loan
A form of second deed of trust or mortgage 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.
Buydown
Money advanced by an individual (builder, seller, etc.) to reduce the
monthly payments for a home mortgage either during the entire term or for
an initial period of years.
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.
Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
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).
Cash
Currency, checks and other negotiable instruments acceptable for direct
deposit by a bank.
Cash to Close
Liquid assets that are readily available to be used to pay the closing
costs involved in a closing of a mortgage transaction.
Cash Reserve
A requirement by some lenders that buyers have sufficient cash remaining
after closing to make the first mortgage payment.
Cash Out Refinancing
When the principal amount of a new mortgage involved in refinancing is
greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
Clear title
A title that is free of liens or legal questions as to ownership of the property.
Closing
The consummation of a real estate transaction. The closing includes the
delivery of a deed, financial adjustments, the signing of notes, and the
disbursement of funds necessary to complete the sale and loan transaction.
Closing Costs
Money paid by the borrower in connection with the closing of a mortgage
loan. This generally involves an origination fee, discount points,
appraisal, credit report, title insurance, attorney's fees, survey, and
pre-paid items such as tax and insurance escrow payments.
Closing Statement
A form used at closing that gives an account of the funds received and
paid at the closing, including the escrow deposits for taxes, hazard
insurance, and mortgage insurance.
Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan
and whose name(s) appears on documents with equal legal obligations.
Collateral
Property pledged as security for a debt, such as the real estate pledged
as security for a mortgage.
Collection
The servicing procedure followed to bring a delinquent mortgage current
and to file the required notices to bring foreclosure when necessary.
Commitment (Loan)
A binding pledge made by the lender to the borrower to make a loan,
usually at a stated interest rate within a given period of time for a
given purpose, subject to the compliance of the borrower to stated
conditions.
Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise
to lend money at a specified rate and within a given time period.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan
money to a homebuyer.
Compensating
Factors
Positive characteristics of a borrower's credit, employment or savings
history which may be used to offset high debt-to-income ratios in the
underwriting process.
Co-mortgager
A second borrower who signs a mortgage loan with a mortgagor. The
co-mortgagor's income, assets and debts are combined with the mortgagor's
for underwriting and ratio analysis purposes. The co-mortgagor's name must
appear on the FHA Certificate of Commitment and the mortgage or deed of
trust. For full guarantee under the VA's program, the co-mortgagor must be
either a spouse or another eligible veteran.
Comparable Properties
Properties used for comparative purposes in the appraisal process that
have been recently sold and have characteristics similar to property being
appraised, thereby indicating the approximate fair market value of the
subject property.
Concession
A discount or other inducement given by a landlord or seller to a
prospective tenant or buyer to induce them to sign a lease or purchase
property.
Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the
Federal National Mortgage Association (FNMA) or the Federal Home Loan
Mortgage Corporation (FHLMC). These agencies generally purchase first
mortgages up to loan amounts mandated by Congressional directive.
Contingency
A condition that must be met before a contract is legally binding.
Conventional Mortgage
A mortgage not obtained under a government insured program (such as FHA or
VA).
Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage
under specified conditions.
Cooperative
A building of two or more dwelling units that is owned by a cooperative
corporation made up of people in the building. The right to occupy a unit
is obtained by buying shares of stock in the corporation and signing an
occupancy agreement known as a proprietary lease.
Covenant
A clause in a contract that obligates or restricts the parties and which,
if violated, can result in legal action.
Credit Report
A report detailing an individual's credit history.
Debt
An amount owed to another.
Deed
The legal document conveying title to a real property.
Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
ue-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.
Deed of Trust
An instrument used in many states in place of a mortgage. Property is
transferred to a trustee by the borrower (trustor), in favor of the lender
(beneficiary) and reconveyed upon payment in full.
Default
The failure to perform an obligation as agreed in a contract.
Delinquency
A loan payment that is overdue but within the period allowed before actual
default is declared.
DeMinimus
PUD
A Planned Unit Development (PUD) in which the common property has less
than a 2% influence upon the value of the premises. The 2% rule of thumb
is calculated by dividing the dollar amount of amenities by the total
number of units.
Department of Housing and Urban Development (HUD)
A governmental entity responsible for the implementation and
administration of housing and urban development programs. HUD was
established by the Housing and Urban Development Act of 1965 to supersede
the Housing and Home Finance Agency.
Department of Veterans Affairs (VA)
A cabinet-level agency of the federal government. The Servicemen's
Readjustment Act of 1944 authorized the agency to administer a variety of
benefit programs designed to facilitate the adjustment of returning
veterans to civilian life. Among the benefit programs is the VA Home Loan
Guaranty program, which encourages mortgage lenders to offer long-term, no
down payment financing to eligible veterans by partially guaranteeing the
lender against loss upon foreclosure.
Deposit
A sum of money given to bind a sale of real estate. Also known as earnest
money.
Depreciation
A loss of value in real property brought about by age, physical
deterioration, functional or economic obsolescence.
Disclosure
Information relevant to specific transactions that is required by law.
Discount
Point
A point paid to the lender to permanently buy down the or lower an
interest rate. It is usually a percentage of the loan amount.
Discounted Loan
When the note rate on a loan is less than the market rate, it is a
discounted loan. However, the lender requires additional points to raise
the yield on the loan to the market rate.
Down
Payment
Money paid to make up the difference between the purchase price and the
mortgage amount.
Earnest
Money
A portion of the down payment delivered with a purchase offer by the
purchaser of real estate. Delivered to the seller, or an escrow agency, by
the purchaser with the purchase offer as evidence of good faith. Also
known as a deposit.
Easement
A right of way giving persons other than the property owner access to or
over a property.
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.
Effective Interest Rate
The actual rate of return or yield to an investor. The actual rate of
interest paid by a borrower.
Encroachment
An improvement that illegally violates another's property or right to use
that property.
Encumbrance
Anything that affects or limits the fee simple title to property, such as
mortgages, liens, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally
available without discrimination based on race, color, religion, national
origin, sex, age, marital status, receipt of income from public assistance
programs or past exercising of rights under the Consumer Credit Protection
Act.
Equity
The ownership interest; i.e. portion of a property's value over and above
the liens against it.
Equity Loan
A loan based on the borrower's equity in his or her home.
Escrow
An item of value, money or documents, deposited with a third party, to be
delivered upon the fulfillment of a condition. For example, the deposit by
a borrower with the lender of funds to pay taxes and insurance premiums
when they become due, or the deposit of funds or documents with an
attorney or escrow agent to be disbursed upon the closing of a sale of
real estate. In some parts of the country, escrows of taxes and insurance
premiums are called impounds or reserves.
Escrow Account
The segregated trust account in which escrow funds are held.
Escrow Agent
The person or organization having a fiduciary responsibility to both the
buyer and seller (or lender and borrower) to see that the terms of the
purchase/sale (or loan) are carried out. Also called escrow company or
escrow depository.
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 Payment
That portion of a mortgagor's monthly payments held by a lender or
servicer to pay taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Also called impounds or
reserves in some states.
Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
Examination of title
The report on the title of a property from the public records or an abstract of the title.
Fair
Credit Reporting Act (FCRA)
This law requires consumer reporting agencies to exercise fairness,
confidentiality and accuracy in preparing and disclosing credit
information.
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.
Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)
A quasi-governmental agency that purchases conventional mortgages in the
secondary mortgage market from insured depository institutions and
HUD-approved mortgage bankers. It sells participation sales certificates
secured by pools of conventional mortgage loans, their principal, and
interest guaranteed by the federal government through the FHLMC. It also
sells Government National Mortgage Association bonds to raise funds to
finance the purchase of mortgages. Popularly know as Freddie Mac.
Federal National Mortgage Association - FNMA (FANNIE MAE)
A taxpaying corporation created by Congress to support the secondary
mortgage market. It purchases and sells residential mortgages insured by
the Federal Housing Administration (FHA) or guaranteed by the Veterans
Administration (VA) as well as conventional home mortgages.
Fee Simple
The greatest possible interest a person can have in real estate, including
the right to dispose of the property or pass it on to one's heirs.
Finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
First adjustment
When you can expect the first rate adjustment in your ARM loan.
First Mortgage
A real estate loan that has priority over any subsequently recorded
mortgages.
Fixed Interest Rate
An interest rate which does not change during the loan term.
Fixed-rate Mortgage (FRM)
A mortgage in which the interest rate and payments remain the same for the
life of the loan.
Flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is
sold to pay the defaulting borrower's debt.
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.
Gift
Letter
A written explanation signed by the individual giving the gift stating,
"This is a bona fide gift and there is no obligation expressed or
implied to repay this sum at any time."
Ginnie Mae
Created in 1968 by an amendment to Title III of the National Housing Act
(12 USC 1716 et seq.), this federal government corporation is a
constituent part of the Department of Housing and Urban Development. Among
other governmental functions, it guarantees securities backed by mortgages
that are insured or guaranteed by other government agencies. Also called
Government National Mortgage Association (GNME).
Good
Faith Estimate (GFE)
A document which tells borrowers the approximate costs they will pay at or
before settlement, based on common practice in the locality. Under
requirements of the Real Estate Settlement Procedures Act (RESPA), the
mortgage banker or mortgage broker, if any, must deliver or mail the GFE
to the applicant.
Gross Income
Total income produced by a property before any expenses are deducted.
Gross Monthly Income
Total monthly income earned before tax and other deductions.
Hazard
Insurance
A contract whereby an insurer, for a premium, undertakes to compensate the
insured for loss on a specific property due to certain hazards (i.e.
fire).
High-Ratio Loan
Mortgage loans in excess of 80 percent of the loan amount divided by the
lower of the sales price or appraised value.
Home
Equity Line of Credit
A form of revolving credit in which your home serves as collateral.
Home Equity Loan
A revolving line of credit or loan based on the equity in the mortgagor's
house. The property is the security for the loan, which is usable for any
purpose.
Homeowners' Association Dues
The fees imposed by a condominium or homeowners' association for
maintenance of common areas.
Home Mortgage Disclosure Act (HMDA)
Federal legislation which requires certain types of lenders to compile and
disclose data on where their mortgage and home improvement loans are being
made.
Homeowner's Insurance
An insurance policy that combines liability coverage and hazard insurance.
Homeowner's Policy
A multiple peril insurance policy available to owners of private dwellings
which covers the dwelling and its contents, as well as personal liability.
Housing Expense Ratio
The relationship of a borrower's monthly payment obligation on housing (PITI
and other applicable housing expenses) divided by gross monthly income,
expressed as a percentage. Also called the top ratio.
Housing ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.
HUD
The U.S. Department of Housing and Urban Development.
Income/Expense
Ratio
A qualifying ratio used in underwriting a residential mortgage loan which
computes the percentage of monthly income required.
Index
A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or
the 11th District COFI. Lenders use indexes to establish interest rates
charged on mortgages or to compare investment returns. On ARMs, a
predetermined margin is added to the index to compute the interest rate
adjustment.
In File Credit Report
Unverified credit report which may contain unchecked, duplicated, or
overlapping data. It is often used for a quick look at a prospective
borrower's credit history.
Installment
The periodic payment that a borrower agrees to pay a mortgage lender.
Insured Loans
A loan insured by HUD-FHA or a private mortgage insurance company.
Interest
Consideration in the form of money paid for the use of money. Also a
right, share or title in property.
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. See also Lifetime cap.
Interest Rate Floor
On a floating rate instrument, the lowest the interest rate may go.
Investment Property
Real estate owned with the intent of supplementing income and not intended
for owner occupancy.
Impound Account
An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender's investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges.
Interest-only loan option
Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.
Joint
Tenancy
An undivided interest in property, taken by two or more joint tenants.
Upon the death of a joint tenant, the interest passes to the surviving
joint tenants, rather than to the heirs of the deceased.
Jumbo mortgage
The current loan limit for a conforming loan is $333,700. Loan amounts of $333,701 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.
Judgment
Final determination by a court of the rights and claims of the parties to
an action.
Land
Acquisition Loan
A loan made for the purpose of purchasing land only, not improvements on
or to the land. Also called an acquisition loan.
Late Charge
The penalty a borrower must pay when a payment is made after the due date.
Lender
The bank, mortgage company, or mortgage broker offering the loan.
Lender Paid Mortgage Insurance (LPMI)
Insurance in which the cost of the mortgage insurance is included in the
interest rate. Although the interest rate is slightly higher with LPMI,
this option usually results in a lower monthly payment and a larger tax
deduction.
LIBOR
LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.
Lien
A legal claim or attachment against property as security for payment of an
obligation.
Lifetime Cap
A provision of an ARM that limits the total increase in interest rates
over the life of the loan.
Limited Partnership
A form of business ownership that consists of one or more general partners
who are fully liable, and one or more limited partners who are liable only
for the amount of their investment.
Line of Credit
An agreement by a commercial bank or other financial institution to extend
an open-ended line of credit up to a certain amount for a certain time to
a specific borrower. (See also home
equity line of credit.)
Liquidity
The ability to readily convert assets or investments to cash.
Loan-To-Value Ratio
The ratio between the amount of a given mortgage loan and the lower of
sales price of appraised value.
Lock-in Period
The number of days during which a lender guarantees a borrower a specific
interest rate and terms on a mortgage.
London Interbank Offered Rate (LIBOR)
The rate at which banks in the foreign market lend dollars to one another.
LIBOR varies by deposit maturity. A common interest rate index; one of the
most valid barometers of the international cost of money.
Loss Payable Clause
An insurance policy provision for payment of a claim to someone other than
the insured, who holds an insurable interest in the insured property.
Manufactured
Home
Factory-built or prefabricated housing, including mobile homes.
Margin
The set percentage the lender adds to the index rate to determine the
interest rate of an ARM.
Market Value
The most probable price which a ready, willing and able buyer would pay
and a willing seller will accept, both being fully informed under no
pressure to act. The market value may be different from the price a
property can actually be sold for at a given time (market price).
Maturity
The termination or due date, on which final payment on a loan must be paid
in full.
Mobile Home
A factory-assembled residence consisting of one or more modules, in which
a chassis and wheels are an integral part of the structure, and can be
readied for occupancy without removing the chassis and/or wheels.
Modular House
A factory-assembled residence built in units or sections, transported to a
permanent site and erected on a foundation. Excludes mobile homes.
Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance)
paid each month on a mortgage loan.
Mortgage
The conveyance of an interest in real property given as security for the
payment of a loan.
Mortgage Broker
A company that for a fee matches borrowers with lenders.
Mortgage Commitment
An agreement between lender and borrower detailing the terms of a mortgage
loan such as interest rate, loan type, term and amount.
Mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.
Mortgagee
The lender on a mortgage transaction.
Mortgage Insurance
See private mortgage insurance.
Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance
-either to the FHA or to a private mortgage insurer.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a
specified term. The note contains a complete description of the conditions
under which the loan is to be repaid and when it is due.
Mortgagor
The borrower in a mortgage transaction who pledges property as security
for a debt.
Negative
Amortization
A loan payment schedule in which the outstanding principal balance goes
up, rather than down, because the payments do not cover the full amount of
interest due. The unpaid interest is added to the principal.
Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either
FNMA or FHLMC because of various reasons, including loan amount, loan
characteristics or underwriting guidelines.
Note
A general term for any kind of paper or document signed by a borrower that
is an acknowledgment of the debt, and is, by inference, a promise to pay.
When the note is secured by a mortgage, it is called a mortgage note and
the mortgagee is named as the payee.
Occupancy
The use of a property as a full-time residence, either by the title holder
(owner-occupancy) or by another party through a formal agreement (rental).
Origination
Securing a completed mortgage application from a commercial or residential
borrower.
Origination Fee
The amount charged for services performed by the company handling the
initial application and processing of the loan.
Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
Payoff
Figures
The unpaid principal balance and escrow amounts to be used for payment in
full of the mortgage or for closing sale of the property.
Percentage Point
One percent of the loan or a measure of the interest rate.
Periodic cap
The maximum rate increase for a specific period for a specific loan (ARM) only.
PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.
Planned Unit Developoment (PUD)
A comprehensive development plan for a large land area. A PUD usually
includes residences, roads, schools, recreational facilities, commercial,
office and industrial areas. Also, a subdivision having lots of areas
owned in common and reserved for the use of some or all of the owners of
the separately owned lots. See also DeMinimus
PUD
Plans And Specifications
Architectural and engineering drawings and specifications for construction
of a building or project. They include a description of materials to be
used and the manner in which they are to be applied.
Points
A one-time charge by the lender to increase the yield of the loan; a point
is 1% of the amount of the mortgage.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Preliminary Title Report
The results of a title search by a title company prior to issuing a title
binder or commitment to insure clear title.
Prepaids
Closing costs related to the mortgage loan which are collected at loan
closing - including per diem pre-paid interest and initial deposits of
monthly escrows of taxes and insurance.
Prepayment Penalty
A fee charged to a borrower who pays off a loan before it is due.
Prequalification
The process of determining how much money a prospective home buyer will be
eligible to borrow before a loan is applied for.
Primary Residence
A residence which the borrower intends to occupy as the principal
residence.
Principal
The amount borrowed or remaining unpaid; also, that part of the monthly
payment that reduces the outstanding balance of a mortgage.
Principal Balance
The remaining balance due on a debt, exclusive of accrued interest.
Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender
against loss resulting from a mortgage default.
Processing
The preparation of a mortgage loan application and supporting
documentation for consideration by a lender or insurer.
Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting forth
the price and terms of the sale. Also known as a sales contract.
Qualifying
Ratios
Guidelines applied by lenders to determine how large a loan to grant a
home buyer.
Quitclaim Deed
A deed relinquishing all interest, title, or claim an owner has in a
property. A quitclaim deed implies no warranty.
Rate
The annual rate of interest on a loan, expressed as a percentage of 100.
Rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Rate Lock Option
An agreement guaranteeing an individual a specified interest rate on a
loan provided the loan is closed within a set period of time.
Real Assets
Real estate or real property owned by an individual or business.
Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home mortgage borrowers with
information on known or estimated settlement costs. It also establishes
guidelines for escrow account balances.
Real Property
Land and that which is affixed to it.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same
property as security.
Satisfaction
of Mortgage
The recordable instrument issued by the lender verifying full payment of a
mortgage debt.
Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower
intends to occupy for a portion of each year. Must be suitable for
year-round occupancy.
Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with
the primary mortgage market where mortgages are originated.
Second Mortgage
A mortgage that has rights that are subordinate to the rights of the first
mortgage holder.
Security
In lending, the collateral given, deposited, or pledged to secure the
payment of a debt.
Security Instrument
Mortgage or deed of trust evidencing the pledge of real estate as
collateral for the loan.
Security Interest
The interest of a creditor in the security collateralizing an investment.
Section 203(k) Loan Program
HUD's primary program for the rehabilitation and repair of single-family
properties. A 203 (k) loan is a first mortgage that covers the costs of
rehabilitation and purchase or refinance of an eligible property. The
goals of the Section 203(k) loan program are community and neighborhood
revitalization and expanded opportunities for homeownership for low-and
moderate-income families.
Seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Seller Contributions
Payment by the seller or any other interested party of some or all of the
purchaser's usual closing costs. Investors and insurers sometimes limit
the amount of seller contribution and require lenders to adjust the
property's value if contributions exceed limitations. Undisclosed seller
contributions (such as decorating allowances, appliances, or payment of
moving expenses) are made to borrowers outside of closing and are also
subject to investor and insurer restrictions.
Servicing Released
A stipulation in the agreement for the sale of mortgages in which the
seller is not responsible for loan administration.
Settlement
See Closing.
Settlement Costs
Money paid by borrowers and sellers to effect the closing of a mortgage
loan, including payments for title insurance, survey, attorney fees, and
such prepaid items as taxes and insurance escrow.
Settlement Sheet
The computation of costs payable at closing which determines the seller's
net proceeds and the buyer's net payment.
Settlement Services
Services provided by the lender at the closing of a loan.
Site Value
The value of land without improvements, as if vacant.
Stated/documented income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.
Subdivision
Improved or unimproved land divided into a number of parcels for sale,
lease, financing, or development.
Subordinate
To make subject or junior to. For example, a loan on vacant land is made
subject to a subsequent construction loan.
Survey
The measurement and description of land by a registered surveyor.
Tax
Lien
A claim against property for unpaid taxes.
Tenancy
The use of real estate under any kind of right of title.
Tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.
Term
The time limit within which a loan must be repaid.
Title
The legal evidence of ownership rights to real property.
Title
(Insurance) Company
A company that confirms the legal owner of a property, as well as insures
a home owner and lender against a loss that could result from a title
dispute.
Title Insurance
An insurance policy that protects a lender and/or homebuyer (only if
homebuyer purchases a separate policy, called owner's coverage) against
any loss resulting from a title error or dispute.
Title Insurance Policy
A contract in which an insurer, usually a title insurance company, agrees
to pay the insured party a specific amount for any loss caused by defects
of title on real estate in which the insured has an interest as purchaser,
mortgagee, or otherwise.
Title Search
An examination of public records to disclose the past and current facts
regarding the ownership of a given piece of real estate.
Torrens Certificate
A certificate issued by a public authority called a registrar of titles,
establishing title of an indicated owner. Used when title to property is
registered under the Torrens system of land registration.
Total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Transfer Tax
State or local tax payable when the title passes from one owner to
another.
Trust Deed
The instrument given by a borrower (trustor) to a trustee vesting title to
a property in the trustee to ensure the borrower's fulfillment of an
obligation. A mortgage.
Truth-in-Lending Act
A Federal law requiring full disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the lending
terms and financial institutions.
Underwriting
Analysis of risk and setting of an appropriate rate and terms for a
mortgage on a given property for given borrowers.
URLA
Uniform residential loan application.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
Wholesale
Origination
A loan origination strategy by which loans are purchased from mortgage
brokers, mortgage bankers, or other loan originators (banks, thrifts etc.)
The loans may be purchased prior to closing, at closing or after the loans
are closed depending on the arrangement between the originator and the
wholesale lender. Wholesale origination enables a lender to acquire
mortgage servicing rights without incurring the fixed costs associated
with a retail origination strategy.
Yield
to Maturity
The lender's percentage of annual return on actual funds loaned, assuming
that the loan will be paid in full at maturity.
Zero
Point Option
An option which allows the borrower to opt to pay a slightly higher loan
interest rate in lieu of paying the loan origination points generally
charged for the particular loan product.
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