Mortgage Glossary
Click the letter that matches the first letter of the term you want to look up.
A
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Acceptance
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| A buyer's or seller's agreement to enter into a contract and be bound by the
terms of the offer. |
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Account Termination Fee
|
| A fee that is often charged if you pay in full and terminate your
home equity line of credit during the first five years. Payment down
to a zero balance does not count as termination. See also definition of
Prepayment Penalty. |
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Additional Principal Payment
|
| A payment made by a borrower of more than the scheduled principal amount
due, in order to reduce the outstanding balance on the loan, to save on interest
over the life of the loan and/or pay off the loan early. |
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Adjustable Rate Mortgage (ARM)
|
| A home loan that permits the lender to adjust its interest rate periodically
during the life of the loan on the basis of changes in a specified financial
index. |
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Adjustment Date
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| The date on which the interest rate changes for an adjustable-rate mortgage
(ARM). |
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Adjustment Period
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| The period that elapses between the adjustment dates for an adjustable rate
mortgage (ARM), typically 6 months or 1 year. |
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Affordability Analysis
(Pre-Qualification)
|
| A preliminary analysis of a borrower's ability to afford the purchase of a
home. An affordability analysis takes into consideration factors such as income,
liabilities, and available funds, along with the type of home loan, the likely
taxes and insurance for the home, and the estimated closing costs. |
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Amenity
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| A feature of real property that enhances its attractiveness and increases
the occupant's or user's satisfaction, although the feature is not essential to
the property's use. Natural amenities include a pleasant or desirable location
near water, scenic views, etc. Man-made amenities include swimming pools, tennis
courts, community buildings, and other recreational facilities. |
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Amortization
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| The gradual repayment of a home loan by periodic installments. |
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Amortization Schedule
|
| A timetable for payment of a home loan. An amortization schedule shows the
amount of each payment applied to interest and principal and the remaining
balance after each payment is made. |
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Amortization Term (Period)
|
| The amount of time it takes to pay off the loan. The amortization term is
expressed as a number of months. For example, for a 30 year fixed rate loan, the
amortization term is 360 months. |
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Amortize
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| To repay a loan with regular payments that cover both principal and
interest. |
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Annual Maintenance Fee
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| An amount that is charged each year for having a line of credit. It is charged regardless of whether or not the credit
line is used. For some programs and in some states, an annual fee is not
charged. |
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Annual Percentage Rate (APR)
|
| The effective cost of a home loan stated as a yearly rate taking into
account such items as interest, mortgage insurance, most closing costs, discount
points and loan origination fees. Disclosure of APR is required by the
Truth-In-Lending Law. |
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Application (or 1003)
|
| A form to be completed by a home loan applicant with the lender's assistance
to provide pertinent information about a prospective borrower's employment,
income, assets, debts and other financial information, about the purpose of the
home loan, and about the property securing the home loan. Lenders also sometimes
call it a 1003-the form number of Fannie Mae's standard application form. |
|
Application Fee
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| A fee usually paid at the time an application is given to a lender for
helping to complete and review an application. Some lenders collect fees for a
property appraisal and a credit report, instead of an application fee, at the
time of application. |
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Appraisal
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| A written analysis or opinion of the estimated value of a property prepared
by a qualified appraiser. Contrast with home inspection. |
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Appraised Value
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| The dollar figure for a property's estimated fair market value, based on an
appraiser's knowledge, experience, and analysis of the property and comparable
properties near by. |
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Appraiser
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| A person qualified by education, training, and experience to estimate the
value of real property. |
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Appreciation
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| An increase in the value of a property due to changes in market conditions
or other causes. Inflation, increased demand, home improvement, and sweat equity
are all causes of appreciation. The opposite of depreciation. |
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Assessed Value
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| The value used to determine property taxes, based on a public tax assessor's
opinion. Contrast with appraised value. |
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Assessment
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| The amount of tax due to local government. May also refer to the amount due
to local government or to common owners of a property (e.g., a homeowner's
association) for a special payment to cover expenses for improvements or
maintenance, such as new sewers or roads. |
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Assessment Rolls
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| A public record of the assessed value of property in the taxing
jurisdiction. |
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Assessor
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| A public official who establishes the value of a property for taxation
purposes. |
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Asset
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| 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). |
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Assignment
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| The method of transferring a right or contract, such as the terms of a loan,
from one person to another. |
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Assumable Loan
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| A home loan that allows a new purchaser of the home to take over ("assume")
the loan obligations of the seller when a home is sold. |
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Assumption
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| The buyer's acceptance of liability for the seller's existing home loan. See
Assumable Loan. |
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Assumption Clause
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| A provision in an assumable loan that allows a buyer to assume
responsibility for the home loan from the seller. The loan does not need to be
paid in full by the original borrower (seller) upon sale or transfer of the
property. |
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Assumption Fee
|
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The fee paid to a lender (usually by the buyer) for the lender's agreement
to start collecting payment from the buyer instead of the original borrower
(seller). Top
B
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Balance Sheet
|
| A financial statement that shows an individual's assets, liabilities, and
net worth as of a specific date. |
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Balloon Loan
|
| A loan that has level monthly payments that will amortize it over a stated
term (e.g., 30 years) but that requires a lump sum payment of the entire
principal balance at the end of a shorter term (e.g., 10 years). |
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Balloon Payment
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| The final lump sum payment that is made at the end of the shorter term for a
balloon loan and pays the loan in full. |
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Bankrupt
|
| A person, firm, or corporation that is financially unable to pay debts when
due. The debtor seeks relief through a court proceeding to work out a payment
schedule or erase debts. In some cases, the debtor must surrender control of all
assets to a court-appointed trustee. |
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Bankruptcy
|
| A proceeding in a federal court in which a debtor who is financially unable
to pay debts when due seeks relief to work out a payment schedule or erase
debts. |
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Bill of Sale
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| A written document that transfers title to personal property from seller to
buyer. |
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Bi-weekly Payment Loan
|
| A loan 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 loan, and they are
usually drafted from the borrower's bank account. The result for the borrower is
faster amortization leading to substantial interest savings from faster
principal reduction. |
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Bond
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| An interest-bearing certificate of debt with a maturity date. A real estate
bond is a written obligation usually secured by a mortgage or a deed of trust. |
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Breach
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| A violation of terms of any legal obligation. |
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Break Even Point
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| Point at which total income equals total expenses. |
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Bridge Loan
|
| A type of mortgage financing between the termination of one loan and the
start of another loan. For example, a mortgage secured by the borrower's present
home (which is usually up for sale) in a manner that allows the proceeds to be
used for closing on a new house before the present home is sold. Also known as a
"swing loan." |
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Broker
|
| A person who is normally licensed by the state and who, for a commission or
a fee, assists in negotiating a real estate transaction or negotiating the terms
of a home loan. See Mortgage Broker. |
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Budget
|
| A detailed plan of income and expenses expected over a certain period of
time. A budget can provide guidelines for managing future investments and
expenses. |
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Building Code
|
| Local regulations that specify minimum structural requirements for design
of, construction of, and materials used in a home or office building. Building
codes are based on safety and health standards. |
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Buydown Account
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| An account in which funds are held so that they can be applied as part of
the monthly loan payment as each payment comes due during the period that an
interest rate buydown plan is in effect. For example, if a seller agrees to help
reduce a buyer's monthly payment during the first year of a loan, the seller may
put money in a buydown account which is then paid to the lender each month to
reduce the buyer's monthly payment. This is more commonly done through a buydown
paid directly to the lender at closing. |
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Buydown
|
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A temporary buydown gives a borrower a reduced monthly payment during the
first few years of a home loan and is typically paid for in an initial lump sum
made by the seller, lender, or borrower. A permanent buydown is paid the same
way but reduces the interest rate over the entire life of a home loan.
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C
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Call Option
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| A provision in a loan that gives the lender the right to accelerate the
debt, and require for full payment of the loan immediately, at the end of a
specified period or for specified reason. |
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Cap
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| A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or loan payments may increase or decrease. In upward rate markets,
it protects the borrower from large increases in the interest rate or monthly
payment. See Lifetime Payment Cap, Lifetime Rate Cap, Periodic Payment Cap, and
Periodic Rate Cap. |
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Capital
|
| (1) Money used to create income, either as an investment in a business or an
income property. (2) The money or property comprising the wealth owned or used
by a person or business enterprise. (3) The accumulated wealth of a person or
business. (4) The net worth of a business represented by the amount by which its
assets exceed liabilities. |
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Capital Expenditure
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| The cost of an improvement made to extend the useful life of a property or
to add to its value, such as adding a room. The cost of repairing a property is
not a capital expenditure. Capital expenditures are appreciated over their
useful life; repairs are subtracted from income for the current year. |
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Capital Improvement
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| Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life. See Capital Expenditure. |
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Cash Available for Closing
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| Borrower funds available to cover down payment and closing costs. If lending
guidelines require the borrower to have cash reserves at the time the loan
closes or that the down payment come from certain sources, borrower's cash
available for closing does not include cash reserves or money from other
sources. |
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Cash-out Refinance
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| A refinance transaction in which the new loan amount exceeds the total of
the principal balance of the existing first mortgage and any secondary mortgages
or liens, together with closing costs and points for the new loan. This excess
is usually given to the borrower in cash and can often be used for debt
consolidation, home improvement, or any other purpose. The borrower effectively
borrows against the home equity. |
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Ceiling
|
| The maximum interest rate that can accrue on a variable rate loan or
adjustable rate mortgage (ARM). See Lifetime Rate Cap. |
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Certificate of Eligibility
|
| A document issued by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs (VA) loan. |
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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 loan, based on an
approved appraisal. |
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Certificate of Title
|
| A statement provided by an abstract company, title company, or attorney
stating who holds title to real estate based on the public record. |
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Chain of Title
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| The history of all of the documents affecting title to a parcel of real
property, starting with the earliest existing document and ending with the most
recent. |
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Clear Title
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| A title that is marketable and is free of liens or disputed legal questions
as to ownership of the property. |
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Closing
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| A meeting at which all documents are signed and all expenses are paid to
transfer ownership of property. Also called "settlement." |
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Closing Cost Item
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| A fee or amount that a home buyer must pay at closing for a particular
service, tax, or product. Closing costs are made up of individual closing cost
items such as origination fees and attorney's fees. Many closing cost items are
included as numbered items on the HUD-1 settlement statement. |
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Closing Costs
|
| Various expenses (over and above the price of the property) incurred by
buyers and sellers in transferring ownership of a property. Closing costs
normally include items such as broker's commissions, discount points,
origination fees, attorney's fees, taxes, title insurance premiums, escrow agent
fees, and charges for obtaining appraisals, inspections and surveys. Closing
costs will vary according to the area of the country. Lenders or real estate
professionals often provide estimates of closing costs to prospective homebuyers
even before the HUD-1 settlement statement is delivered. |
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Closing Statement
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| An accounting of funds given to both buyer and seller before real estate is
sold. See HUD-1 Settlement Statement. |
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Cloud on Title
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| An outstanding claim or lien, revealed by a title search, that adversely
affects the owner's title to real estate. Usually, clouds on title cannot be
removed except by a quitclaim deed, release, or court action. |
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Co-Signer
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| A person who signs a promissory note along with the borrower. A co-maker's
signature helps to assure that the loan will be repaid. The borrower and the
co-maker are jointly responsible for the repayment of the loan. |
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Coinsurance
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| 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. |
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Coinsurance Clause
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| A provision in a hazard insurance policy stating the minimum amount of
coverage that must be maintained - as a percentage of the total value of the
property - in order for the insured to collect the full amount of a loss. |
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Collateral
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| An asset (such as a car or a home) that is pledged as security for 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 or promissory note. |
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Collection
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| The efforts used to bring a delinquent loan current and, if necessary, to
file legal papers and notices to proceed with foreclosure. |
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Combined Loan to Value (CLTV)
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| The ratio of the total amount borrowed on all mortgages against a property
compared to the appraised value of the property. For example, if you have an
$80,000 1st mortgage and a $10,000 2nd mortgage on a home with an appraised
value of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 = 90%). |
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Commission
|
| The fee charged by a broker or agent for negotiating a real estate or loan
transaction. A commission is generally a percentage of the price of the property
or loan (such as 3%, 5%, or 6%). |
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Commitment Letter
|
| A formal notification from a lender stating that the borrower's loan has
been conditionally approved and specifying the terms under which lender agrees
make the loan. Also known as a "loan commitment." |
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Common Area Assessments
|
| Payments required of 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. |
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Common Areas
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| 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. |
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Community Property
|
| In some Western and Southwestern states, the law specifies that property
acquired during a marriage is presumed to be owned jointly by the husband and
wife unless acquired as separate property of one spouse or the other. |
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Community SecondsŪ
|
| An alternative financing option for low- and moderate-income households
under which an investor purchases a first mortgage that has a subsidized second
mortgage behind it. The second mortgage may be issued by a state, county, or
local housing agency, foundation, or nonprofit organization. Payment on the
second mortgage is often deferred and carries a very low interest rate (or no
interest rate at all). Part or all of the second mortgage debt may be forgiven
depending on how long the buyer remains in the home. |
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Comparables (Comps)
|
| An abbreviation for "comparable properties"; used for comparative purposes
in the appraisal process. Comparables are properties like the property under
consideration; they have reasonably the same size, location, and amenities and
have recently been sold. Comparables help the appraiser determine the
approximate fair market value of the subject property. |
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Compound Interest
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| Interest paid on the principal balance and on the accrued and unpaid
interest. |
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Condemnation
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| (1) Declaration that a building is unfit for use or is dangerous and must be
destroyed; (2) taking of private property for a public use (such as a park,
street or school) through an exercise of the right of eminent domain. |
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Condominium
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| A real estate project in which each unit owner has title to a unit in a
multi-unit building, an undivided interest in the common areas of the project,
and sometimes the exclusive use of certain limited common areas. |
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Condominium Conversion
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| Changing the ownership of an existing building (usually a rental project) to
the condominium form of ownership. |
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Condominium Hotel (Condotel)
|
| 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. |
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Conforming Loan
|
| A home loan with a maximum loan amount of $300,700 that is eligible for
purchase by FNMA and FHLMC. |
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Construction Loan
|
| A short-term, interim loan for financing the cost of home construction. The
lender makes payments to the builder at periodic intervals as the work
progresses. |
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Consumer Reporting Agency (or
Bureau)
|
| An organization that prepares reports that lenders use to determine a
potential borrower's credit history. The agency obtains data for these reports
from a credit repository as well as from creditors such as mortgage lenders,
credit card companies, department stores, etc. |
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Contingency
|
| A condition that must be met before a contract is legally binding. For
example, home purchasers often include a contingency that specifies that the
contract is not binding until the purchaser obtains a satisfactory home
inspection report from a qualified home inspector. |
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Contract
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| An oral or written agreement to do or not do something. |
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Conventional Loan
|
| A home loan that is not insured or guaranteed by the federal government.
Contrast with government loan. Can be for conforming or non-conforming loan
amounts. |
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Convertibility Clause
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| A provision in some adjustable rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed rate loan at specified times during the
life of the loan. |
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Convertible ARM
|
| An adjustable rate mortgage (ARM) that can be converted to a fixed rate loan
under specified conditions. |
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Cooperative (Co-op)
|
| A type of multiple ownership in which the residents of a multi-unit housing
complex own shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit. |
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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. |
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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. See Adjustable-Rate Mortgage (ARM). |
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Covenant
|
| A promise in a mortgage or deed that requires or prevents certain uses of
the property that, if violated, may result in loss or foreclosure of the
property. |
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Credit
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| An agreement in which a borrower receives money or something of value in
exchange for a promise to repay the lender on specified terms at a later time. |
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Credit History
|
| An evaluation of an individual's capacity and history of debt repayment. A
credit history helps a lender to determine whether a potential borrower is
likely to repay a loan in a timely manner. |
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Credit Life Insurance
|
| A type of insurance that pays off a loan if one of the borrowers dies while
the policy is in force. |
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Credit Limit
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| The maximum amount that can be borrowed under the home equity line of
credit. |
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Creditor
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| A person to whom money is owed. |
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Credit Rating
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| An expression of creditworthiness based upon present financial condition and
past credit history. |
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Credit Report
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| A report of an individual's credit history prepared by a credit bureau and
used by a lender in determining a loan applicant's creditworthiness. See Merged
Credit Report. |
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Credit Repository (Credit Bureau)
|
| 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. |
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Credit Scoring
|
| Credit scores are numerical values that rank individuals according to their
credit history at a given point in time. Your score is based on your past
payment history, the amount of credit you have outstanding, the amount of credit
you have available, and other factors. According to Fannie Mae--one of the major
investors in home loans, credit scores have proven to be very good predictors of
whether a borrower will repay his or her loan. |
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Cumulative Interest
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| Total Interest Accrued. |
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Curtailment
|
|
A payment that reduces the principal balance of a loan.
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D
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Debt
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| An amount owed to another. See Installment Loan and Revolving Liability. |
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Deed
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| The legal document conveying title to a property. |
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Deed-In-Lieu
|
| A deed given by a borrower to the lender to satisfy a debt and avoid
foreclosure. Also called a "voluntary conveyance." |
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Deed of Trust
|
| The document used in some states instead of a mortgage; title is vested in a
trustee to secure repayment of the loan. |
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Default
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| Failure to make loan payments on a timely basis or to comply with other
requirements of a mortgage. |
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Delinquency
|
| Failure to make mortgage payments when due. |
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Deposit
|
| A sum of money given to bind the sale of real estate, or a sum of money
given to ensure payment or an advance of funds in the processing of a loan. See
Earnest Money Deposit. |
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Depreciation
|
| A decline in the value of property because of physical or economic changes
such as wear and tear; the opposite of appreciation. |
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Discount Points
|
| Amounts paid to the lender at origination to lower the rate on the face of
the note. See Point. |
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Down Payment
|
| The part of the purchase price of a property that the buyer pays in cash and
does not finance with a home loan. |
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Draw Period
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| The time period in which the borrower may access and use a line of
credit. |
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Due-on-Sale Provision
|
| A provision in a mortgage home loan that allows the lender to demand
repayment in full if the borrower sells the property that serves as security for
the loan. |
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Due-on-Transfer Provision
|
|
This terminology is usually used for second mortgages. See Due-on-Sale
provision.
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E
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Earnest Money Deposit (Earnest
Money)
|
| A deposit made by the potential home buyer to show that he or she is serious
about buying the house. |
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Easement
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| A right of way giving to persons other than the owner to access to or over a
property. |
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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. |
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Eminent Domain
|
| The right of a government to take private property for public use upon
payment of fair compensation to the owner. Eminent domain is the basis for
condemnation proceedings. |
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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. |
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Encroachment
|
| An improvement that physically intrudes or trespasses on another's property. |
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Encumbrance
|
| Anything that affects or limits the fee simple title to a property, such as
mortgages, leases, easements, deeds, or restrictions. |
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Endorser
|
| A person who signs a check or promissory note over to another party.
Contrast with co-signer. |
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Equal Credit Opportunity Act
(ECOA)
|
| A federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from public
assistance programs. |
|
Equity
|
| A homeowner's financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed on any
home loans or liens against the property. |
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Escrow
|
| An item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the deposit by a
borrower with the lender of funds to pay taxes and insurance premiums when they
become due, or the deposit of funds or documents with an attorney or escrow
agent to be disbursed upon the closing of a sale of real estate. |
|
Escrow (or Impound) Account
|
| The account in which a loan servicer holds the borrower's escrow payments
prior to paying property expenses, such as property taxes or homeowners
insurance. |
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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. |
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Escrow Collections
|
| Funds collected by the loan servicer and set aside in an escrow account to
pay borrower expenses such as property taxes, mortgage insurance, and hazard
homeowners insurance. |
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Escrow Disbursements
|
| The use of escrow funds to pay real estate taxes, homeowners insurance,
mortgage insurance, and other property expenses as they become due. |
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Escrow Payment
|
| The portion of a borrower's monthly payment that is held by the loan
servicer to pay for taxes, hazard homeowners insurance, mortgage insurance,
lease payments, and other items as they become due. Known as "impounds" or
"reserves" in some states. |
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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
|
| A legal proceeding by a landlord to recover possession of real property from
the tenant. |
|
Examination of Title
|
| The report on the title of a property from the public records or an abstract
of the title. |
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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.
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F
|
Fair Credit Reporting Act
|
| A consumer protection law that regulates the disclosure and use of consumer
credit information, establishes rules for credit reporting to consumer credit
reporting agencies, and establishes procedures for a consumer to view his or her
credit report and correct mistakes on it. |
|
Fair Market Value
|
| The price that a buyer, willing but not compelled to buy, and a seller,
willing but not compelled to sell, would agree on. |
|
Fannie Mae (Federal National Mortgage Association
FNMA)
|
| A New York Stock Exchange company and the largest non-bank financial
services company in the world. It operates pursuant to a federal charter and is
the nation's largest source of financing for home mortgages. It adds liquidity
to the mortgage market by investing in home loans through the country. |
|
Federal Housing Administration
(FHA)
|
| An agency of the U.S. Department of Housing and Urban Development (HUD). Its
main activity is the insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and loan underwriting but does
not lend money or plan or construct housing. |
|
Fee Simple
|
| 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 Coinsured Home Loan
|
| A loan (under FHA Section 244) for which the Federal Housing Administration
(FHA) and the originating lender share the risk of loss in the event of the
borrower's default. |
|
FHA Home Loan
|
| A mortgage home loan that is insured by the Federal Housing Administration
(FHA). Also known as a government loan. |
|
Firm Commitment
|
| A lender's agreement to make a loan to a specific borrower on a specific
property. |
|
First Mortgage (also referred to as a Home
Loan)
|
| A home loan that is the primary lien against a property. |
|
Fixed Installment
|
| The monthly payment due on a mortgage loan. The fixed installment includes
payment of both principal and interest. |
|
Fixed Period ARM
|
| Provides a fixed rate for 3, 5, 7 or 10 years then adjusts annually based on
a financial index for the remaining loan term. |
|
Fixed Rate Loan
|
| A mortgage in which the interest rate does not change during the entire term
of the loan. |
|
Fixture
|
| Personal property that becomes real property when attached in a permanent
manner to real estate (such as a lighting fixture or an in-ground spa). |
|
Flood Insurance
|
| Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated flood
areas. |
|
Foreclosure
|
| The legal process by which a borrower's interest in mortgaged property is
taken because of a default on the loan. This usually involves a forced sale of
the property at public auction with the proceeds of the sale being applied to
the mortgage debt. |
|
Forfeiture
|
| The loss of money, property, rights, or privileges due to a breach of legal
obligation. |
|
401(k)/403(b)
|
| An employer-sponsored investment plan that allows individuals to set aside
tax-deferred income for retirement or emergency purposes. 401(k) plans are
provided by employers that are private corporations. 403(b) plans are provided
by employers that are not-for-profit organizations. |
|
401(k)/403(b) loan
|
| Some administrators of 401(k)/403(b) plans allow for loans against the
monies accumulated in these plans - monies must be repaid to avoid serious
penalty charges. |
|
Freddie Mac (Federal Home Loan Mortgage
Corporation)
|
|
A federal agency within the Department of Housing and Urban Development
(HUD), which insures residential mortgage loans made by private lenders and sets
standards for underwriting mortgage loans.
Top
|
G
|
Government Loan
|
| A loan that is insured by the Federal Housing Administration (FHA) or
guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing
Service (RHS). Contrast with conventional loan. |
|
Government National Mortgage Association (GNMA or
Ginnie Mae)
|
| A government-owned corporation within the U.S. Department of Housing and
Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed
responsibility for the special assistance loan programs formerly administered by
Fannie Mae. |
|
Grantee
|
| The person to whom an interest in real property is conveyed (e.g. the
buyer). |
|
Grantor
|
| The person who conveys an interest in real property (e.g. the
seller). |
|
Gross Monthly Income
|
| Normal monthly income includes overtime that is regular or guaranteed. The
before taxes 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. |
|
Ground Rent
|
| The amount of money that is paid for the use of land when title to a
property is held as a leasehold estate rather than as a fee simple estate. |
|
Group Home
|
|
A single-family residential structure designed or adapted for occupancy by
unrelated developmentally disabled persons. The structure provides long-term
housing and support services that are residential in nature.
Top
|
H
|
Homeowner's Insurance (Hazard Insurance)
|
| Insurance coverage that compensates for physical damage to a property from
fire, wind, vandalism, or other hazards. The policy typically combines personal
liability insurance and property hazard insurance coverage for a dwelling and
its contents. |
|
Home Equity Line of Credit
(HELOC)
|
| A mortgage loan, which is usually in a subordinate position, that allows the
borrower to obtain multiple advances of the loan proceeds at his or her own
discretion, up to an amount that represents a specified percentage of the
borrower's equity in a property. |
|
Home Inspection
|
| A thorough inspection that evaluates the structural and mechanical condition
of a property. A satisfactory home inspection is often included as a contingency
by the purchaser. Contrast with appraisal. |
|
Homeowners' Association
|
| A nonprofit association that manages the common areas of a planned unit
development (PUD) or condominium project. In a condominium project, it has no
ownership interest in the common elements. In a PUD project, it holds title to
the common elements. See also Master Association. |
|
Homeowner's Insurance
|
| Insurance coverage that compensates for physical damage to a property from
fire, wind, vandalism, or other hazards. The policy typically combines personal
liability insurance and property hazard insurance coverage for a dwelling and
its contents. |
|
Homeowner's Warranty (HOW)
|
| A type of insurance that covers repairs to specified parts of a house for a
specific period of time. It may be provided by the builder or property seller as
a condition of the sale but homeowners can also purchase it. |
|
Housing Expense Ratio
|
| The percentage of gross monthly income that goes toward paying housing
expenses. |
|
HUD Median Income
|
| Median family income for a particular county or metropolitan statistical
area (MSA), as estimated by the Department of Housing and Urban Development
(HUD). |
|
HUD-1 settlement statement
|
|
A document that provides an itemized listing of the funds that are payable
at closing. Items that appear on the statement include real estate commissions,
loan fees, points, and initial escrow amounts. Each item on the statement is
represented by a separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's net proceeds and
the buyer's net payment at closing. The blank form for the statement is
published by the Department of Housing and Urban Development (HUD). The HUD-1
statement is also known as the "closing statement" or "settlement sheet."
Top
|
I
|
Income Property
|
| Real estate developed or improved to produce income. |
|
Index
|
| A number used to compute the interest rate for an adjustable-rate mortgage
(ARM). The index is generally a published number or percentage, such as the
average interest rate or yield on Treasury bills. A margin is added to the index
to determine the interest rate that will be charged on the ARM. Some lenders
provide caps that limit how much the interest rate or loan payments may increase
or decrease. |
|
In-File Credit Report
|
| An objective account, normally computer-generated, of credit and other
financial information obtained from a credit reporting agencies. |
|
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 Draw Amount
|
| The amount of the home equity line of credit that the borrower is requesting
at closing (up to, but never exceeding, the credit line amount). |
|
Initial Interest Rate
|
| The starting interest rate for an adjustable-rate mortgage (ARM) loan or
variable-rate home equity line of credit. At the end of the effective period for
the initial rate, the interest rate adjusts periodically during the life of the
loan based on changes in a specified financial index. Sometimes known as "start
rate," "intro rate" or "teaser rate." |
|
Introductory Rate
|
| The starting rate for a home equity loan or line of credit, usually a
discounted rate, for a short period of time. See Initial Interest
rate. |
|
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 (PMI). 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. |
|
Interest Payment
|
| The portion of a monthly payment that goes to interest based on the
amortization schedule. |
|
Interest Rate
|
| The percentage rate of return charged for use of a sum of money. This
percentage rate is specified in the mortgage note. See Note Rate. |
|
Interest Rate Buydown Plan
|
| A temporary buydown gives a borrower a reduced monthly payment during the
first few years of a home loan and is typically paid for in an initial lump sum
made by the seller, lender, or borrower. A permanent buydown is paid the same
way but reduces the interest rate over the entire life of a home loan. |
|
Investment Property
|
|
A property that is not occupied by the owner and is generally rented to a
tenant to produce income.
Top
|
J
|
Joint Tenancy
|
| A form of co-ownership that gives each tenant equal undivided interest and
rights in the property, including the right of survivorship. Contrast with
tenancy in common, tenancy by the entirety. |
|
Judgment
|
| A decree by a court of law that one person, a debtor, is indebted to
another, a creditor, in a specified amount. The court may place a lien against
the debtor's real property as collateral for payment of the judgment to the
creditor. |
|
Judgment Lien
|
| A lien on the property of a debtor resulting from a judgment. |
|
Judicial Foreclosure
|
| A type of foreclosure proceeding used in some states that is handled as a
civil lawsuit where the court confirms the sales price for the property and the
distribution of the sale proceeds. |
|
Jumbo Loan
|
|
A loan that exceeds Fannie Mae's legislated mortgage amount limits of
$322,700. Also called a nonconforming loan.
Top
|
L
|
Late Charge
|
| The penalty a borrower must pay when a payment is made a stated number of
days (usually 10-15) after the due date. |
|
Lease
|
| A written agreement between the property owner and a tenant that stipulates
the conditions under which the tenant may use the real estate for a specified
period of time and the amount of rent to be paid. |
|
Leasehold Estate
|
| A tenant's interest in or right to hold possession of a property. |
|
Legal Description
|
| A property description, recognized by law, using a government rectangular
survey, metes and bounds, or a plat map to sufficiently locate and identify a
property. |
|
Lender's Fees
|
| Fees paid to the lender to cover costs associated with processing,
underwriting and closing of the loan. |
|
Liabilities
|
| A person's debts or financial obligations. Liabilities include long-term and
short-term debt, as well as potential losses from legal claims. |
|
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. See also Homeowners Insurance. |
|
Lien
|
| A legal claim against a property that must be paid off when the property is
sold. A lien is created when you borrow money to purchase or refinance a home
loan or and with obtain a home equity loan. |
|
Lifetime Rate Cap
|
| For an adjustable-rate mortgage (ARM), a limit on the amount that the
interest rate can increase or decrease over the life of the loan. See Cap. |
|
Line/Loan Amount
|
| The entire HELOC or Fixed Rate Second mortgage loan amount. |
|
Line of Credit
|
| An agreement by a lender to extend credit up to a certain amount for a
certain time without the need for the borrower to file another application. See
Home Equity Line of Credit. |
|
Liquid Asset
|
| A cash asset or an asset that is easily converted into cash. |
|
Loan Amount
|
| A sum of borrowed money (principal) that is generally repaid over time with
interest. |
|
Loan Commitment
|
| A lender's agreement to advance money on specified terms after specified
conditions are met. See Commitment Letter. |
|
Loan Origination
|
| The process by which a mortgage lender makes a home loan and records a
mortgage against the borrower's real property as security for repayment of the
loan. |
|
Loan-to-Value (LTV) Ratio
|
| The ratio of the total amount borrowed on a mortgage against a property
compared to the appraised value of the property. For example, if you have an
$80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is
80% ($80,000 / $100,000 = 80%). |
|
Lock-in
|
| A written agreement in which the lender guarantees a specified loan program
interest rate and points if a mortgage goes to closing within a set period of
time. |
|
Lock-in Period
|
|
The time period during which the lender has guaranteed an interest rate to a
borrower. See Lock-in.
Top
|
M
|
Margin
|
| For an adjustable-rate mortgage (ARM) or home equity line of credit, the
amount that is added to the index to establish the interest rate on each
adjustment date, subject to any limitations on the interest rate change. The
margin is static and will not change during the life of the loan. |
|
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. At the maturity of a 30-year loan the
principal balance will be paid in full. |
|
Maximum Financing
|
| The maximum amount a lender will lend on a specific loan program. |
|
Maximum Rate
|
| The maximum interest rate that can accrue on a variable rate loan |
|
Merged Credit Report
|
| A credit report that contains information from more than one credit
reporting agency. When the report is created, the information is compared for
inconsistencies and duplicate entries. Any duplicates are combined to provide a
summary of a your credit. |
|
Minimum Payment
|
| The minimum amount that must be paid monthly on an account. On the HELOC
product, the minimum payment is interest only during the draw period. On the
Fixed Rate Second products, the minimum payment is principal and interest. |
|
Modification
|
| The act of changing any of the terms of the mortgage. |
|
Money Market Account
|
| A savings account that provides bank depositors with many of the advantages
of a money market fund. Certain regulatory restrictions apply to the withdrawal
of funds from a money market account. |
|
Money Market Fund
|
| A mutual fund that allows individuals to participate in managed investments
in short-term debt securities, such as certificates of deposit and Treasury
bills. |
|
Monthly Debt
|
| A borrower's monthly expenses including credit cards, installment loans,
student loan payments, alimony and child support and housing payment
expense. |
|
Monthly Mortgage Insurance (MI)
Payment
|
| Portion of monthly payment that covers the cost of Private Mortgage
Insurance. |
|
Monthly Principal & Interest (P&I)
Payment
|
| Portion of monthly payment that covers the principal and interest due on the
loan. |
|
Monthly Taxes & Insurance (T&I)
Payment
|
| Portion of monthly payment that funds the escrow or impound account for
taxes and insurance. |
|
Monthly Payment
|
| Payments to reduce the principal balance of a home loan made once a month. |
|
Mortgage
|
| A legal document that pledges a property to the lender as security for
payment of a debt. |
|
Mortgage Banker
|
| A company that originates, sells and services mortgages exclusively for
resale in the secondary mortgage market. |
|
Mortgage Broker
|
| An individual or company that brings borrowers and lenders together for the
purpose of loan origination. Mortgage brokers typically require a fee or a
commission for their services. |
|
Mortgagee
|
| The lender in a mortgage agreement. |
|
Mortgage Insurance
|
| A contract that insures the lender against loss caused by a borrower's
default on a government mortgage or conventional mortgage. Mortgage insurance
can be issued by a private company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of mortgage insurance, the
insurance may cover a percentage of or virtually all of the mortgage loan. See
Private Mortgage Insurance (PMI). |
|
Mortgage Insurance Premium (MIP)
|
| The amount paid by a borrower for mortgage insurance, either to a government
agency such as the Federal Housing Administration (FHA) or to a private mortgage
insurance (MI) company. |
|
Mortgage Life Insurance
|
| A type of term life insurance sometimes bought by borrowers. The amount of
coverage decreases as the loan's principal balance declines. In the event that
the borrower dies while the policy is in force, the debt is automatically
satisfied by insurance proceeds. See Credit Life Insurance. |
|
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. Typically a 2-4 unit
property.
Top
|
N
|
Negative Amortization
|
| An increase in the outstanding balance of a mortgage that occurs when the
monthly payment is not large enough to cover the 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. |
|
No Closing Cost Loan
|
| A loan in which the fees the borrower(s) are not required to pay cash
out-of-pocket at closing for the normal closing costs. The lender typically
includes the closing costs in the principal balance or charges a higher interest
rate than for a loan with closing costs to cover the advance of closing
costs. |
|
Net Worth
|
| The value of all of a person's assets, including cash, minus all
liabilities. |
|
Non-Conforming Loan
|
| See Jumbo Loan. |
|
Non-Liquid Asset
|
| An asset that cannot easily be converted into cash. |
|
"No Out of Pocket Cost" Loan
|
| A loan in which the fees the borrower(s) are not required to pay cash
out-of-pocket at closing for the normal closing costs. The lender typically
includes the closing costs in the principal balance or charges a higher interest
rate than for a loan with closing costs to cover the advance of closing
costs. |
|
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.
Top
|
O
|
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, making a home
loan, and recording a mortgage against the borrower's real property as security
for repayment of the loan. The origination fee is stated in the form of points.
One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan). |
|
Owner Financing
|
|
A property purchase transaction in which the property seller provides all or
part of the financing and takes back a security instrument.
Top
|
P
|
Partial Payment
|
| A payment that is not sufficient to cover the scheduled monthly principal
and interest payment on a mortgage loan. |
|
Payment Change Date
|
| The date when a new monthly payment amount takes effect on an adjustable
rate mortgage (ARM). Generally, the payment change date occurs in the month
immediately after the adjustment date and the borrower is notified 30 days prior
as to the new rate. |
|
Payoff
|
| To pay the outstanding balance of a loan in full. |
|
Periodic Payment Cap
|
| A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or loan payments may increase or decrease. In upward rate markets,
it protects the borrower from large increases in the interest rate or monthly
payment at each adjustment period. See Cap. |
|
Periodic Rate Cap
|
| A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or loan payments may increase or decrease. In upward rate markets,
it protects the borrower from large increases in the interest rate or monthly
payment at each adjustment period. See Cap. |
|
Personal Property
|
| Any property that is not real property or is not permanently fixed to land.
Cash, furniture, and cars are all examples of personal property. |
|
Piggyback
|
| A combination of two loans. Example: A loan is made for 90% of the home
price. 80% of the purchase price is supplied by a 1st mortgage and 10% by a 2nd
mortgage. The 2nd mortgage is piggybacked on the 1st. |
|
PITI
|
| See Principal, Interest, Taxes, and Insurance (PITI). |
|
PITI reserves
|
| A cash amount that a borrower must have on hand after making a down payment
and paying all closing costs for the purchase of a home. The principal,
interest, taxes, and insurance (PITI) reserves must equal the amount that the
borrower would have to pay for PITI for a predefined number of months. |
|
Planned Unit Development
|
| See PUD. |
|
Point
|
| A one-time charge by the lender for originating a loan. A point is 1% of the
amount of the mortgage (e.g., 1,000 on a $100,000 loan). |
|
Power of Attorney
|
| A legal document authorizing one person to act on another's behalf. A power
of attorney can grant complete authority or can be limited to certain acts
and/or certain periods of time. |
|
Pre-Approval
|
| A lender's conditional agreement to lend a specific amount on specific terms
to a homebuyer.
With pre-approval, you know your file has been reviewed by an underwriter and
that you're approved (subject to satisfactory appraisal and no change in
financial condition). |
|
Prearranged Refinancing Agreement
|
| A formal or informal arrangement between a lender and a borrower where the
lender agrees to offer special terms (such as a reduction in the rate or closing
costs) for a future refinancing as an inducement for the borrower to enter into
the original mortgage transaction. |
|
Pre-foreclosure Sale
|
| A procedure in which the investor allows a mortgagor to avoid foreclosure by
selling the property, typically for less than the amount that is owed to the
lender. |
|
Pre-Paid Items
|
| Items required by lender to be paid at closing prior to the period they
cover such as prorated property taxes, homeowners insurance and pre-paid
interest. |
|
Pre-Paid Interest
|
| Mortgage interest that is paid in advance of when it is due. |
|
Prepayment
|
| Any amount paid to reduce the principal balance of a loan before the due
date. Payment in full on a mortgage that may result from a sale of the property,
the owner's decision to pay off the loan in full, or a foreclosure. In each
case, prepayment means payment occurs before the loan has been fully amortized. |
|
Prepayment Penalty
|
| A fee that may be charged to a borrower who pays off a loan before it is
due. Generally, a prepayment penalty is added to a loan in exchange for a
discounted rate. |
|
Pre-Qualification
|
| The process of determining how much money a prospective home buyer might be
eligible to borrow before he or she applies for a loan. Based on the
information you provide and the loan type you want, the lender will calculate
how large a loan you could qualify for. Pre-qualification is neither
pre-approval nor a commitment to lend and requires you to submit additional
information for review and approval. |
|
Primary Residence
|
| The place someone lives most of the time. |
|
Prime Rate
|
| The interest rate that banks charge on short-term loans to its most
creditworthy customers. Changes in the prime rate influence changes in other
rates, including mortgage interest rates. |
|
Principal
|
| The amount borrowed or remaining unpaid. The part of the monthly payment
that reduces the remaining balance of a mortgage. |
|
Principal Balance
|
| The outstanding balance on a mortgage. The principal balance does not
include interest or any other charges. See Remaining Balance. |
|
Principal, Interest, Taxes, and Insurance
(PITI)
|
| Four potential components of a monthly mortgage payment. Principal refers to
the part of the monthly payment that reduces the remaining balance of the
mortgage. Interest is the fee charged for borrowing money. Taxes and insurance
refer to the amounts that may be paid into an escrow account each month for
property taxes and mortgage and hazard insurance. |
|
Principal Payment
|
| Portion of your monthly payment that reduces the remaining balance of a home
loan. |
|
Private Mortgage Insurance (PMI)
|
| Mortgage insurance that is provided by a private mortgage insurance company
to protect lenders against loss if a borrower defaults. Most lenders generally
require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 %. |
|
Promissory Note
|
| A written promise to repay a specified amount over a specified period of
time. |
|
Public Auction
|
| A meeting in an announced public location to sell property to repay a
mortgage that is in default. |
|
PUD (Planned Unit Development)
|
| A project or subdivision that includes common property that is owned and
maintained by a homeowners' association for the benefit and use of the
individual PUD unit owners. |
|
Purchase Agreement
|
| A written contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold. |
|
Purchase Money Transaction
|
| A loan used in part as payment for a purchase. A loan that is used to buy a
home is called a purchase money mortgage. |
|
Purchase Price
|
|
The total amount paid for a home.
Top
|
Q
|
Qualifying Ratios
|
| Calculations that are used in determining whether a borrower can qualify for
a mortgage. They consist of two separate calculations: a housing expense as a
percent of income ratio and total debt obligations as a percent of income ratio. |
|
Quitclaim Deed
|
|
A deed that transfers, without warranty of ownership, whatever interest or
title a grantor may have at the time the conveyance is made.
Top
|
R
|
Rate Reduction Option
|
| A fixed-rate mortgage that includes a provision that gives the borrower an
option to reduce the interest rate (without refinancing) at a later date. It is
similar to a prearranged refinancing agreement, except that it does not require
re-qualifying. See Easy Rate Reduction Option. |
|
Rate Lock
|
| A commitment issued by a lender to a borrower guaranteeing a specified
interest rate for a specified period of time. See Lock-in. |
|
Real Estate Agent
|
| A person who is normally licensed by the state and who, for a commission or
a fee, assists in negotiating a real estate transaction. |
|
Real Estate Settlement Procedures Act
(RESPA)
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| A consumer protection law that, among other things, requires advance
disclosure of settlement costs to home buyers and sellers, prohibits certain
types of referral and other fees, sets rules for escrow accounts, and requires
notice to borrowers when servicing of a home loan is transferred. |
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Real Property
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| Land and appurtenances, including anything of a permanent nature such as
structures, trees, minerals, and the interest, benefits, and inherent rights
thereof. |
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RealtorŪ
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| 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. |
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Reduced Documentation
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| A method used to determine income when qualifying a borrower(s) for a loan.
Borrower(s) provide their income, however no verification documentation is
typically required. |
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Rescission
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| The act of cancellation or annulment of a transaction or contract by the
operation of a law. Borrowers usually have the option to cancel certain credit
transactions, including a refinance or home equity transaction, within three
business days after consummation (when the consumer becomes contractually
obligated by, for example, signing the loan documents). |
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Recorder
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| The public official who keeps records of transactions that affect real
property in the area. Sometimes known as a "Registrar of Deeds" or "County
Clerk." |
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Recording
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| The noting in a book of public record of the terms of a legal document
affecting title to real property, such as a deed, a mortgage note, a
satisfaction of mortgage, or an extension of mortgage. |
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Refinance Transaction
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| The process of paying off one loan with the proceeds from a new loan,
typically using the same property as security for the new loan. |
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Rehabilitation Mortgage
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| A mortgage created to cover the costs of repairing, improving, and sometimes
acquiring an existing property. |
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Remaining Balance
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| The amount of principal that has not yet been repaid. See Principal Balance. |
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Remaining Term
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| The original amortization term minus the number of payments that have been
applied. |
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Repayment Plan
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| An arrangement made to repay delinquent installments or advances. Lenders'
formal repayment plans are often called "relief provisions." |
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Revolving Liability
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| A credit arrangement, such as a credit card or HELOC, that allows a customer
to borrow against a predetermined line of credit when purchasing goods and
services. The borrower makes payments on the amount that is actually borrowed
plus any interest due. |
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Request for Notice of Default
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| A recorded document that obligates the holder of the first mortgage lien to
notify subordinate lien holders in the event of default by the
borrower. |
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Right of First Refusal
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| 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. |
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Right of Ingress or Egress
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| The right to enter or leave designated premises. |
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Right of Survivorship
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| In joint tenancy, the right of survivors to acquire the interest of a
deceased joint tenant. |
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Rural Housing Service (RHS)
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An agency within the Department of Agriculture. This agency provides
financing to farmers and other qualified borrowers buying property in rural
areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S.
Treasury.
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S
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Sale-Leaseback
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| A technique in which a seller deeds property to a buyer for a consideration,
and the buyer simultaneously leases the property back to the seller. |
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Second Home
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| A property occupied part-time by a person in addition to his or her primary
residence. |
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Second Mortgage
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| A mortgage that has a lien position subordinate to the first mortgage. |
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Secondary Mortgage Market
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| An informal market where lenders and investors buy and sell existing
mortgages. Government-sponsored entities and private investors buy mortgages
from lenders who use the proceeds to make additional loans. |
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Secured Loan
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| A loan that is backed by collateral. If the borrower defaults, the lender
can sell the collateral to satisfy the debt. |
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Security
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| The property that will be pledged as collateral for a loan. If the borrower
defaults, the lender can sell the collateral to satisfy the debt. |
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Security Interest
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| An interest a lender takes in the borrower's property to assure repayment of
a debt. If the borrower defaults, the lender can sell the collateral to satisfy
the debt. |
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Seller Take-Back
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| An agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage. See Owner Financing. |
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Servicer
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| An organization that collects principal and interest payments from borrowers
and manages borrowers' tax and insurance escrow accounts. A mortgage banker is
often paid a fee to service mortgages that have been purchased by an investor in
the secondary mortgage market. |
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Servicing
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| The collection of principal and interest payments from borrowers and
management of borrowers' tax and insurance escrow accounts. |
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Settlement
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| See Closing. |
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Settlement Sheet
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| See HUD-1 Settlement Statement. |
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Single Family Residence
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| A residential structure designed to include one dwelling. |
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Special Deposit Account
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| An account that is established for rehabilitation mortgages to hold the
funds needed for the rehabilitation work so they can be disbursed from time to
time as particular portions of the work are completed. |
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Start Rate
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| See Initial Interest Rate. |
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Subdivision
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| A housing development that is created by dividing a tract of land into
individual lots for sale or lease. |
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Subordinate Financing
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| Any mortgage or other lien that has a priority that is lower than that of
the first mortgage. The subordinate loan has a claim to payment in a foreclosure
only after the first mortgage is paid. |
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Subsidized Second Mortgage
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| An alternative financing option known as the Community SecondsŪ mortgage for
low- and moderate-income households. An investor purchases a first mortgage that
has a subsidized second mortgage behind it. The second mortgage may be issued by
a state, county, or local housing agency, foundation, or nonprofit corporation.
Payment on the second mortgage is often deferred and carries a very low interest
rate (or no interest rate). Part or all of the second mortgage debt may be
forgiven depending on how long the buyer remains in the home. |
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Survey
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| A drawing or map showing the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachments, and other
physical features. |
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Sweat Equity
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Contribution to the construction or rehabilitation of a property in the form
of labor or services performed personally by the owner.
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T
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Tenancy by the Entirety
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| A type of joint tenancy of property that provides right of survivorship and
is available only to a husband and wife. One spouse dies the property goes to
the other spouse. Contrast with tenancy in common and joint tenancy. |
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Tenancy in Common
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| A type of joint tenancy in a property without right of survivorship.
Contrast with tenancy by the entirety and with joint tenancy. |
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Third Party Fees
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| Fees collected by lender for services provided by other companies, such as
an appraiser. |
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Third-Party Origination
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| A process by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the home loan. See
Mortgage Broker. |
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Title
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| A legal document evidencing a person's right to or ownership of a property. |
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Title Company
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| A company that specializes in examining and insuring titles to real estate. |
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Title Insurance
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| Insurance that protects the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a property. |
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Title Search
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| A check of the title records to ensure that the seller is the legal owner of
the property and that there are no liens or other claims outstanding. |
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Total Expense Ratio
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| Total obligations as a percentage of gross monthly income. The total expense
ratio includes monthly housing expenses plus other monthly debts. Used to help
qualify a potential borrower for a home loan. |
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Total Monthly Payment
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| See Monthly PITI Payment. |
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Transaction Fee
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| A fee charged each time the borrower draws on the credit line. |
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Transfer of Ownership
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| 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. |
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Transfer Tax
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| State or local tax payable when title to a property passes from one owner to
another. |
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Treasury Index
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| An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It is based on the results of auctions
that the U.S. Treasury holds for its Treasury bills and securities or is derived
from the U.S. Treasury's daily yield curve, which is based on the closing market
bid yields on actively traded Treasury securities in the over-the-counter
market. See Adjustable-Rate Mortgage (ARM). |
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Truth-in-Lending
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| A federal law that requires lenders to fully disclose, in writing, the terms
and conditions of credit, such as a mortgage, including the annual percentage
rate (APR) and other charges. |
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Two- to Four-Family Property
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| 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. See Multi-Unit Housing. |
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Trustee
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A fiduciary who holds or controls property for the benefit of another.
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U
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Underwriting
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| 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. |
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Unsecured Loan
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A loan that is not backed by collateral.
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V
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VA Mortgage
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| A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Also known as a government mortgage. |
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Variable Rate
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| An interest rate that changes periodically in relation to an index. Payments
may increase or decrease per the terms of the loan agreement or note. |
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Vested
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| Having the right to use a portion of a fund such as an individual retirement
fund. For example, individuals who are 100 percent vested can withdraw all of
the funds that are set aside for them in a retirement fund. However, taxes may
be due on any funds that are actually withdrawn. |
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Department of Veterans Affairs
(VA)
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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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W
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What-If Analysis
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An affordability analysis that is based on a what-if scenario. A what-if
analysis is useful if you do not have complete data or if you want to explore
the effect of various changes to your income, liabilities, or available funds or
to the qualifying ratios or down payment expenses that are used in the analysis.
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Y
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Year-End Statement
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| A report sent to the borrower each year. The report shows how much was paid
in taxes and interest during the year, as well as the remaining mortgage loan
balance at the end of the year. |
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