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| acceleration clause
A clause in your mortgage which allows the lender to
demand payment of the outstanding loan balance for various reasons.
The most common reasons for accelerating a loan are if the borrower
defaults on the loan or transfers title to another individual
without informing the lender. | adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to
indexes. | adjustment date
The date the interest rate changes on an adjustable-rate
mortgage | amortization
The loan payment consists of a portion which will be applied to pay
the accruing interest on a loan, with the remainder being applied
to the principal. Over time, the interest portion decreases as the
loan balance decreases, and the amount applied to principal
increases so that the loan is paid off (amortized) in the specified
time. | amortization schedule
A table which shows how much of each payment will be applied toward
principal and how much toward interest over the life of the loan.
It also shows the gradual decrease of the loan balance until it
reaches zero. | annual percentage rate (APR)
This is not the note rate on your loan. It is a value created
according to a government formula intended to reflect the true
annual cost of borrowing, expressed as a percentage. It works sort
of like this, but not exactly, so only use this as a guideline:
deduct the closing costs from your loan amount, then using your
actual loan payment, calculate what the interest rate would be on
this amount instead of your actual loan amount. You will come up
with a number close to the APR. Because you are using the same
payment on a smaller amount, the APR is always higher than the
actual not rate on your loan. | application
The form used to apply for a mortgage loan, containing information
about a borrower’s income, savings, assets, debts, and more.
| appraisal
A written justification of the price paid for a property, primarily
based on an analysis of comparable sales of similar homes
nearby. | appraised value
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
Since an appraisal is based primarily on comparable sales, and the
most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price. | appraiser
An individual qualified by education, training, and experience to
estimate the value of real property and personal property. Although
some appraisers work directly for mortgage lenders, most are
independent. | appreciation
The increase in the value of a property due to changes in market
conditions, inflation, or other causes. | assessed value
The valuation placed on property by a public tax assessor for
purposes of taxation. | assessment
The placing of a value on property for the purpose of
taxation. | assessor
A public official who establishes the value of a property for
taxation purposes. | asset
Items of value owned by an individual. Assets that can be quickly
converted into cash are considered "liquid assets." These include
bank accounts, stocks, bonds, mutual funds, and so on. Other assets
include real estate, personal property, and debts owed to an
individual by others. | assignment
When ownership of your mortgage is transferred from one company or
individual to another, it is called an assignment. | assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold.
Usually, the borrower must "qualify" in order to assume the
loan. | assumption
The term applied when a buyer assumes the seller’s
mortgage. | | | | balloon mortgage
A mortgage loan
that requires the remaining principal balance be paid at a specific
point in time. For example, a loan may be amortized as if it would
be paid over a thirty year period, but requires that at the end of
the tenth year the entire remaining balance must be
paid. | balloon payment
The final lump sum payment that is due at the
termination of a balloon mortgage. | bankruptcy
By filing in federal bankruptcy court, an
individual or individuals can restructure or relieve themselves of
debts and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7 No Asset"
bankruptcy which relieves the borrower of most types of debts. A
borrower cannot usually qualify for an "A" paper loan for a period
of two years after the bankruptcy has been discharged and requires
the re-establishment of an ability to repay debt. | bill of sale
A written document that transfers title to
personal property. For example, when selling an automobile to
acquire funds which will be used as a source of down payment or for
closing costs, the lender will usually require the bill of sale (in
addition to other items) to help document this source of
funds. | biweekly mortgage
A mortgage in which you make payments every
two weeks instead of once a month. The basic result is that instead
of making twelve monthly payments during the year, you make
thirteen. The extra payment reduces the principal, substantially
reducing the time it takes to pay off a thirty year mortgage.
Note: there are independent companies that encourage
you to set up bi-weekly payment schedules with them on your thirty
year mortgage. They charge a set-up fee and a transfer fee for
every payment. Your funds are deposited into a trust account from
which your monthly payment is then made, and the excess funds then
remain in the trust account until enough has accrued to make the
additional payment which will then be paid to reduce your
principle. You could save money by doing the same thing yourself,
plus you have to have faith that once you transfer money to them
that they will actually transfer your funds to your
lender. | bond market
Usually refers to the daily buying and
selling of thirty year treasury bonds. Lenders follow this market
intensely because as the yields of bonds go up and down, fixed rate
mortgages do approximately the same thing. The same factors that
affect the Treasury Bond market also affect mortgage rates at the
same time. That is why rates change daily, and in a volatile market
can and do change during the day as well. | bridge loan
Not used much anymore, bridge loans are
obtained by those who have not yet sold their previous property,
but must close on a purchase property. The bridge loan becomes the
source of their funds for the down payment. One reason for their
fall from favor is that there are more and more second mortgage
lenders now that will lend at a high loan to value. In addition,
sellers often prefer to accept offers from buyers who have already
sold their property. | broker
Broker has several meanings in different
situations. Most Realtors are "agents" who work under a "broker."
Some agents are brokers as well, either working form themselves or
under another broker. In the mortgage industry, broker usually
refers to a company or individual that does not lend the money for
the loans themselves, but broker loans to larger lenders or
investors. (See the Home Loan Library that discusses the different
types of lenders). As a normal definition, a broker is anyone who
acts as an agent, bringing two parties together for any type of
transaction and earns a fee for doing so. | buydown
Usually refers to a fixed rate mortgage where
the interest rate is "bought down" for a temporary period, usually
one to three years. After that time and for the remainder of the
term, the borrower’s payment is calculated at the note rate. In
order to buy down the initial rate for the temporary payment, a
lump sum is paid and held in an account used to supplement the
borrower’s monthly payment. These funds usually come from the
seller (or some other source) as a financial incentive to induce
someone to buy their property. A "lender funded buydown" is when
the lender pays the initial lump sum. They can accomplish this
because the note rate on the loan (after the buydown adjustments)
will be higher than the current market rate. One reason for doing
this is because the borrower may get to "qualify" at the start rate
and can qualify for a higher loan amount. Another reason is that a
borrower may expect his earnings to go up substantially in the near
future, but wants a lower payment right now. | |
| | call option
Similar to the
acceleration clause. | cap
Adjustable Rate Mortgages have fluctuating
interest rates, but those fluctuations are usually limited to a
certain amount. Those limitations may apply to how much the loan
may adjust over a six month period, an annual period, and over the
life of the loan, and are referred to as "caps." Some ARMs,
although they may have a life cap, allow the interest rate to
fluctuate freely, but require a certain minimum payment which can
change once a year. There is a limit on how much that payment can
change each year, and that limit is also referred to as a
cap. | cash-out refinance
When a borrower refinances his mortgage at a
higher amount than the current loan balance with the intention of
pulling out money for personal use, it is referred to as a "cash
out refinance." | certificate of deposit
A time deposit held in a bank which pays a
certain amount of interest to the depositor. | certificate of deposit index
One of the indexes used for determining
interest rate changes on some adjustable rate mortgages. It is an
average of what banks are paying on certificates of
deposit. | Certificate of Eligibility
A document issued by the Veterans
Administration that certifies a veteran’s eligibility for a VA
loan. | Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a
property being bought with a VA loan, the Veterans Administration
issues a CRV. | chain of title
An analysis of the transfers of title to a
piece of property over the years. | clear title
A title that is free of liens or legal
questions as to ownership of the property. | closing
This has different meanings in different
states. In some states a real estate transaction is not consider
"closed" until the documents record at the local recorders office.
In others, the "closing" is a meeting where all of the documents
are signed and money changes hands. | closing costs
Closing costs are separated into what are
called "non-recurring closing costs" and "pre-paid items."
Non-recurring closing costs are any items which are paid just once
as a result of buying the property or obtaining a loan. "Pre-paids"
are items which recur over time, such as property taxes and
homeowners insurance. A lender makes an attempt to estimate the
amount of non-recurring closing costs and prepaid items on the Good
Faith Estimate which they must issue to the borrower within three
days of receiving a home loan application. | closing statement
See Settlement Statement. | cloud on title
Any conditions revealed by a title search
that adversely affect the title to real estate. Usually clouds on
title cannot be removed except by deed, release, or court
action. | co-borrower
An additional individual who is both
obligated on the loan and is on title to the
property. | collateral
In a home loan, the property is the
collateral. The borrower risks losing the property if the loan is
not repaid according to the terms of the mortgage or deed of
trust. | collection
When a borrower falls behind, the lender
contacts them in an effort to bring the loan current. The loan goes
to "collection." As part of the collection effort, the lender must
mail and record certain documents in case they are eventually
required to foreclose on the property. | commission
Most salespeople earn commissions for the
work that they do and there are many sales professionals involved
in each transaction, including Realtors, loan officers, title
representatives, attorneys, escrow representative, and
representatives for pest companies, home warranty companies, home
inspection companies, insurance agents, and more. The commissions
are paid out of the charges paid by the seller or buyer in the
purchase transaction. Realtors generally earn the largest
commissions, followed by lenders, then the others | common area assessments
In some areas they are called Homeowners
Association Fees. They are charges paid to the Homeowners
Association by the owners of the individual units in a condominium
or planned unit development (PUD) and are generally used to
maintain the property and common areas. | common areas
Those portions of a building, land, and
amenities owned (or managed) by a planned unit development (PUD) or
condominium project's homeowners' association (or a cooperative
project's cooperative corporation) that are used by all of the unit
owners, who share in the common expenses of their operation and
maintenance. Common areas include swimming pools, tennis courts,
and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress,
etc. | common law
An unwritten body of law based on general
custom in England and used to an extent in some
states. | community property
In some states, especially
the southwest, property acquired by a married couple during their
marriage is considered to be owned jointly, except under special
circumstances. This is an outgrowth of the Spanish and Mexican
heritage of the area. | comparable sales
Recent sales of similar properties in nearby
areas and used to help determine the market value of a property.
Also referred to as "comps." | condominium
A type of ownership in real property where
all of the owners own the property, common areas and buildings
together, with the exception of the interior of the unit to which
they have title. Often mistakenly referred to as a type of
construction or development, it actually refers to the type of
ownership. | condominium conversion
Changing the ownership of an existing
building (usually a rental project) to the condominium form of
ownership. | condominium hotel
A condominium project that has rental or
registration desks, short-term occupancy, food and telephone
services, and daily cleaning services and that is operated as a
commercial hotel even though the units are individually owned.
These are often found in resort areas like Hawaii. | construction loan
A short-term, interim loan for financing the
cost of construction. The lender makes payments to the builder at
periodic intervals as the work progresses. | contingency
A condition that must be met before a
contract is legally binding. For example, home purchasers often
include a contingency that specifies that the contract is not
binding until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector. | contract
An oral or written agreement to do or not to
do a certain thing. | conventional mortgage
Refers to home loans other than government
loans (VA and FHA). | convertible ARM
An adjustable-rate mortgage that allows the
borrower to change the ARM to a fixed-rate mortgage within a
specific time. | cooperative (co-op)
A type of multiple ownership in which the
residents of a multiunit housing complex own shares in the
cooperative corporation that owns the property, giving each
resident the right to occupy a specific apartment or
unit. | cost of funds index (COFI)
One of the indexes that is used to determine
interest rate changes for certain adjustable-rate mortgages. It
represents the weighted-average cost of savings, borrowings, and
advances of the financial institutions such as banks and savings
& loans, in the 11th District of the Federal Home Loan
Bank. | credit
An agreement in which a borrower receives
something of value in exchange for a promise to repay the lender at
a later date. | credit history
A record of an individual's repayment of
debt. Credit histories are reviewed my mortgage lenders as one of
the underwriting criteria in determining credit risk.
| creditor
A person to whom money is owed.
| credit report
A report of an individual's credit history
prepared by a credit bureau and used by a lender in determining a
loan applicant's creditworthiness. | credit repository
An organization that gathers, records,
updates, and stores financial and public records information about
the payment records of individuals who are being considered for
credit. | |
| | debt
An amount owed to
another. | deed
The legal document conveying title to a
property. | deed-in-lieu
Short for "deed in lieu of foreclosure," this
conveys title to the lender when the borrower is in default and
wants to avoid foreclosure. The lender may or may not cease
foreclosure activities if a borrower asks to provide a
deed-in-lieu. Regardless of whether the lender accepts the
deed-in-lieu, the avoidance and non-repayment of debt will most
likely show on a credit history. What a deed-in-lieu may prevent is
having the documents preparatory to a foreclosure being recorded
and become a matter of public record. | deed of trust
Some states, like California, do not record
mortgages. Instead, they record a deed of trust which is
essentially the same thing. | default
Failure to make the mortgage payment within a
specified period of time. For first mortgages or first trust deeds,
if a payment has still not been made within 30 days of the due
date, the loan is considered to be in default. | delinquency
Failure to make mortgage payments when
mortgage payments are due. For most mortgages, payments are due on
the first day of the month. Even though they may not charge a "late
fee" for a number of days, the payment is still considered to be
late and the loan delinquent. When a loan payment is more than 30
days late, most lenders report the late payment to one or more
credit bureaus. | deposit
A sum of money given in advance of a larger
amount being expected in the future. Often called in real estate as
an "earnest money deposit." | depreciation
A decline in the value of property; the
opposite of appreciation. Depreciation is also an accounting term
which shows the declining monetary value of an asset and is used as
an expense to reduce taxable income. Since this is not a true
expense where money is actually paid, lenders will add back
depreciation expense for self-employed borrowers and count it as
income. | discount points
In the mortgage industry, this term is
usually used in only in reference to government loans, meaning FHA
and VA loans. Discount points refer to any "points" paid in
addition to the one percent loan origination fee. A "point" is one
percent of the loan amount. | down payment
The part of the purchase price of a property
that the buyer pays in cash and does not finance with a
mortgage. | due-on-sale provision
A provision in a mortgage that allows the
lender to demand repayment in full if the borrower sells the
property that serves as security for the mortgage. | |
| | earnest money deposit
A deposit made by the potential home buyer to
show that he or she is serious about buying the
house. | easement
A right of way giving persons other than the
owner access to or over a property. | effective age
An appraiser’s estimate of the physical
condition of a building. The actual age of a building may be
shorter or longer than its effective age. | eminent domain
The right of a government to take private
property for public use upon payment of its fair market value.
Eminent domain is the basis for condemnation
proceedings. | encroachment
An improvement that intrudes illegally on
another’s property. | encumbrance
Anything that affects or limits the fee
simple title to a property, such as mortgages, leases, easements,
or restrictions. | Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other
creditors to make credit equally available without discrimination
based on race, color, religion, national origin, age, sex, marital
status, or receipt of income from public assistance
programs. | equity
A homeowner's financial interest in a
property. Equity is the difference between the fair market value of
the property and the amount still owed on its mortgage and other
liens. | escrow
An item of value, money, or documents
deposited with a third party to be delivered upon the fulfillment
of a condition. For example, the earnest money deposit is put into
escrow until delivered to the seller when the transaction is
closed. | escrow account
Once you close your purchase transaction, you
may have an escrow account or impound account with your lender.
This means the amount you pay each month includes an amount above
what would be required if you were only paying your principal and
interest. The extra money is held in your impound account (escrow
account) for the payment of items like property taxes and
homeowner’s insurance when they come due. The lender pays them with
your money instead of you paying them yourself. | escrow analysis
Once each year your lender will perform an
"escrow analysis" to make sure they are collecting the correct
amount of money for the anticipated expenditures. | escrow disbursements
The use of escrow funds to pay real estate
taxes, hazard insurance, mortgage insurance, and other property
expenses as they become due. | estate
The ownership interest of an individual in
real property. The sum total of all the real property and personal
property owned by an individual at time of death. | eviction
The lawful expulsion of an occupant from real
property. | examination of title
The report on the title of a property from
the public records or an abstract of the title. | exclusive listing
A written contract that gives a licensed real
estate agent the exclusive right to sell a property for a specified
time. | |
| | Fair Credit Reporting
Act
A consumer protection law that regulates the
disclosure of consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting mistakes on
one's credit record. | fair market value
The highest price that a buyer, willing but
not compelled to buy, would pay, and the lowest a seller, willing
but not compelled to sell, would accept. | Fannie Mae (FNMA)
The Federal National Mortgage Association,
which is a congressionally chartered, shareholder-owned company
that is the nation's largest supplier of home mortgage funds. For a
discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and
Ginnie Mae (GNMA), see the Library. | Fannie Mae's Community Home Buyer's
Program
An income-based community lending model,
under which mortgage insurers and Fannie Mae offer flexible
underwriting guidelines to increase a low- or moderate-income
family's buying power and to decrease the total amount of cash
needed to purchase a home. Borrowers who participate in this model
are required to attend pre-purchase home-buyer education
sessions. | Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing
and Urban Development (HUD). Its main activity is the insuring of
residential mortgage loans made by private lenders. The FHA sets
standards for construction and underwriting but does not lend money
or plan or construct housing. | fee simple
The greatest possible interest a person can
have in real estate. | fee simple estate
An unconditional, unlimited estate of
inheritance that represents the greatest estate and most extensive
interest in land that can be enjoyed. It is of perpetual duration.
When the real estate is in a condominium project, the unit owner is
the exclusive owner only of the air space within his or her portion
of the building (the unit) and is an owner in common with respect
to the land and other common portions of the
property. | FHA mortgage
A mortgage that is insured by the Federal
Housing Administration (FHA). Along with VA loans, an FHA loan will
often be referred to as a government loan. | firm commitment
A lender’s agreement to make a loan to a
specific borrower on a specific property. | first mortgage
The mortgage that is in first place among any
loans recorded against a property. Usually refers to the date in
which loans are recorded, but there are
exceptions. | fixed-rate mortgage
A mortgage in which the interest rate does
not change during the entire term of the loan. | fixture
Personal property that becomes real property
when attached in a permanent manner to real estate. | flood insurance
Insurance that compensates for physical
property damage resulting from flooding. It is required for
properties located in federally designated flood
areas. | foreclosure
The legal process by which a borrower in
default under a mortgage is deprived of his or her interest in the
mortgaged property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale being
applied to the mortgage debt. | 401(k)/403(b)
An employer-sponsored investment plan that
allows individuals to set aside tax-deferred income for retirement
or emergency purposes. 401(k) plans are provided by employers that
are private corporations. 403(b) plans are provided by employers
that are not for profit organizations. | 401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans
allow for loans against the monies you have accumulated in these
plans. Loans against 401K plans are an acceptable source of down
payment for most types of loans. | |
|
| government loan (mortgage)
A mortgage that is insured by the Federal
Housing Administration (FHA) or guaranteed by the Department of
Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages
that are not government loans are classified as conventional
loans. | Government National Mortgage Association (Ginnie
Mae)
A government-owned corporation within the
U.S. Department of Housing and Urban Development (HUD). Created by
Congress on September 1, 1968, GNMA performs the same role as
Fannie Mae and Freddie Mac in providing funds to lenders for making
home loans. The difference is that Ginnie Mae provides funds for
government loans (FHA and VA) | grantee
The person to whom an interest in real
property is conveyed. | grantor
The person conveying an interest in real
property. | |
| | hazard insurance
Insurance coverage that in the event of
physical damage to a property from fire, wind, vandalism, or other
hazards. | Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity
mortgage, what makes this type of mortgage unique is that instead
of making payments to a lender, the lender makes payments to you.
It enables older home owners to convert the equity they have in
their homes into cash, usually in the form of monthly payments.
Unlike traditional home equity loans, a borrower does not qualify
on the basis of income but on the value of his or her home. In
addition, the loan does not have to be repaid until the borrower no
longer occupies the property. | home equity line of credit
A mortgage loan, usually in second
position, that allows the borrower to obtain cash drawn against the
equity of his home, up to a predetermined amount. | home inspection
A thorough inspection by a professional
that evaluates the structural and mechanical condition of a
property. A satisfactory home inspection is often included as a
contingency by the purchaser. | homeowners' association
A nonprofit association that manages the
common areas of a planned unit development (PUD) or condominium
project. In a condominium project, it has no ownership interest in
the common elements. In a PUD project, it holds title to the common
elements. | homeowner's insurance
An insurance policy that combines
personal liability insurance and hazard insurance coverage for a
dwelling and its contents. | homeowner's warranty
A type of insurance often purchased by
homebuyers that will cover repairs to certain items, such as
heating or air conditioning, should they break down within the
coverage period. The buyer often requests the seller to pay for
this coverage as a condition of the sale, but either party can
pay. | HUD median income
Median family income for a particular
county or metropolitan statistical area (MSA), as estimated by the
Department of Housing and Urban Development (HUD). | HUD-1 settlement
statement
A document that provides an itemized
listing of the funds that were paid at closing. Items that appear
on the statement include real estate commissions, loan fees,
points, and initial escrow (impound) amounts. Each type of expense
goes on a specific numbered line on the sheet. The totals at the
bottom of the HUD-1 statement define the seller's net proceeds and
the buyer's net payment at closing. It is called a HUD1 because the
form is printed by the Department of Housing and Urban Development
(HUD). The HUD1 statement is also known as the "closing statement"
or "settlement sheet." | |
| | joint tenancy
A form of ownership or taking title to
property which means each party owns the whole property and that
ownership is not separate. In the event of the death of one party,
the survivor owns the property in its entirety. | judgment
A decision made by a court of law. In
judgments that require the repayment of a debt, the court may place
a lien against the debtor's real property as collateral for the
judgment's creditor. Alternative spelling is
"judgment." | judicial foreclosure
A type of foreclosure proceeding used in
some states that is handled as a civil lawsuit and conducted
entirely under the auspices of a court. Other states use
non-judicial foreclosure. | jumbo loan
A loan that exceeds Fannie Mae’s and
Freddie Mac’s loan limits, currently at $227,150. Also called a
nonconforming loan. Freddie Mac and Fannie Mae loans are referred
to as conforming loans. | | | | lease
A written agreement between the property
owner and a tenant that stipulates the payment and conditions under
which the tenant may possess the real estate for a specified period
of time. | leasehold
estate
A way of holding title to a property
wherein the mortgagor does not actually own the property but rather
has a recorded long-term lease on it. | lease option
An alternative financing option that
allows home buyers to lease a home with an option to buy. Each
month's rent payment may consist of not only the rent, but an
additional amount which can be applied toward the down payment on
an already specified price. | legal
description
A property description, recognized by
law, that is sufficient to locate and identify the property without
oral testimony. | lender
A term which can refer to the institution
making the loan or to the individual representing the firm. For
example, loan officers are often referred to as
"lenders." | liabilities
A person's financial obligations.
Liabilities include long-term and short-term debt, as well as any
other amounts that are owed to others. | liability
insurance
Insurance coverage that offers protection
against claims alleging that a property owner's negligence or
inappropriate action resulted in bodily injury or property damage
to another party. It is usually part of a homeowner’s insurance
policy. | lien
A legal claim against a property that must be
paid off when the property is sold. A mortgage or first trust deed
is considered a lien. | life cap
For an adjustable-rate mortgage (ARM), a
limit on the amount that the enterest rate can increase or decrease
over the life of the mortgage. | line of credit
An agreement by a commercial bank or
other financial institution to extend credit up to a certain amount
for a certain time to a specified borrower. | liquid asset
A cash asset or an asset that is easily
converted into cash. | loan
A sum of borrowed money (principal) that
is generally repaid with interest. | loan officer
Also referred to by a variety of other terms,
such as lender, loan representative, loan "rep," account executive,
and others. The loan officer serves several functions and has
various responsibilities: they solicit loans, they are the
representative of the lending institution, and they represent the
borrower to the lending institution. | loan
origination
How a lender refers to the process of
obtaining new loans. | loan servicing
After you obtain a loan, the company you make
the payments to is "servicing" your loan. They process payments,
send statements, manage the escrow/impound account, provide
collection efforts on delinquent loans, ensure that insurance and
property taxes are made on the property, handle pay-offs and
assumptions, and provide a variety of other services.
| loan-to-value
(LTV)
The percentage relationship between the
amount of the loan and the appraised value or sales price
(whichever is lower). | lock-in
An agreement in which the lender
guarantees a specified interest rate for a certain amount of time
at a certain cost. | lock-in period
The time period during which the lender
has guaranteed an interest rate to a borrower. | | | | margin
The difference between the interest rate
and the index on an adjustable rate mortgage. The margin remains
stable over the life of the loan. It is the index which moves up
and down. | maturity
The date on which the principal balance
of a loan, bond, or other financial instrument becomes due and
payable. | merged credit
report
A credit report which reports the raw
data pulled from two or more of the major credit repositories.
Contrast with a Residential Mortgage Credit Report (RMCR) or a
standard factual credit report. | modification
Occasionally, a lender will agree to
modify the terms of your mortgage without requiring you t
refinance. If any changes are made, it is called a
modification. | mortgage
A legal document that pledges a property
to the lender as security for payment of a debt. Instead of
mortgages, some states use First Trust Deeds. | mortgage
banker
For a more complete discussion of
mortgage banker, see "Types of Lenders." A mortgage banker is
generally assumed to originate and fund their own loans, which are
then sold on the secondary market, usually to Fannie Mae, Freddie
Mac, or Ginnie Mae. However, firms rather loosely apply this term
to themselves, whether they are true mortgage bankers or simply
mortgage brokers or correspondents. | mortgage
broker
A mortgage company that originates loans,
then places those loans with a variety of other lending
institutions with whom they usually have pre-established
relationships. | mortgagee
The lender in a mortgage
agreement. | mortgage insurance
(MI)
Insurance that covers the lender against
some of the losses incurred as a result of a default on a home
loan. Often mistakenly referred to as PMI, which is actually the
name of one of the larger mortgage insurers. Mortgage insurance is
usually required in one form or another on all loans that have a
loan-to-value higher than eighty percent. Mortgages above 80% LTV
that call themselves "No MI" are usually a made at a higher
interest rate. Instead of the borrower paying the mortgage
insurance premiums directly, they pay a higher interest rate to the
lender, which then pays the mortgage insurance themselves. Also,
FHA loans and certain first-time homebuyer programs require
mortgage insurance regardless of the loan-to-value. | mortgage insurance premium
(MIP)
The amount paid by a mortgagor for
mortgage insurance, either to a government agency such as the
Federal Housing Administration (FHA) or to a private mortgage
insurance (MI) company. | mortgage life and disability
insurance
A type of term life insurance often
bought by borrowers. The amount of coverage decreases as the
principal balance declines. Some policies also cover the borrower
in the event of disability. In the event that the borrower dies
while the policy is in force, the debt is automatically satisfied
by insurance proceeds. In the case of disability insurance, the
insurance will make the mortgage payment for a specified amount of
time during the disability. Be careful to read the terms of
coverage, however, because often the coverage does not start
immediately upon the disability, but after a specified period,
sometime forty-five days. | mortgagor
The borrower in a mortgage
agreement. | multidwelling
units
Properties that provide separate housing
units for more than one family, although they secure only a single
mortgage. |
| | | negative
amortization
Some adjustable rate mortgages allow the
interest rate to fluctuate independently of a required minimum
payment. If a borrower makes the minimum payment it may not cover
all of the interest that would normally be due at the current
interest rate. In essence, the borrower is deferring the interest
payment, which is why this is called "deferred interest." The
deferred interest is added to the balance of the loan and the loan
balance grows larger instead of smaller, which is called negative
amortization. | no cash-out
refinance
A refinance transaction which is not
intended to put cash in the hand of the borrower. Instead, the new
balance is calculated to cover the balance due on the current loan
and any costs associated with obtaining the new mortgage. Often
referred to as a "rate and term refinance." | no-cost loan
Many lenders offer loans that you can obtain
at "no cost." You should inquire whether this means there are no
"lender" costs associated with the loan, or if it also covers the
other costs you would normally have in a purchase or refinance
transactions, such as title insurance, escrow fees, settlement
fees, appraisal, recording fees, notary fees, and others. These are
fees and costs which may be associated with buying a home or
obtaining a loan, but not charged directly by the lender. Keep in
mind that, like a "no-point" loan, the interest rate will be higher
than if you obtain a loan that has costs associated with
it. | note
A legal document that obligates a borrower to
repay a mortgage loan at a stated interest rate during a specified
period of time. | note rate
The interest rate stated on a mortgage
note. | no-cost loan
Almost all lenders offer loans at "no
points." You will find the interest rate on a "no points" loan is
approximately a quarter percent higher than on a loan where you pay
one point. | notice of default
A formal written notice to a borrower that a
default has occurred and that legal action may be
taken. | | | | original principal balance
The total amount of
principal owed on a mortgage before any payments are
made. | origination fee
On a government loan
the loan origination fee is one percent of the loan amount, but
additional points may be charged which are called "discount
points." One point equals one percent of the loan amount. On a
conventional loan, the loan origination fee refers to the total
number of points a borrower pays. | owner financing
A property purchase
transaction in which the property seller provides all or part of
the financing. | | | | partial payment
A payment that is not
sufficient to cover the scheduled monthly payment on a mortgage
loan. Normally, a lender will not accept a partial payment, but in
times of hardship you can make this request of the loan servicing
collection department. | payment change date
The date when a new
monthly payment amount takes effect on an adjustable-rate mortgage
(ARM) or a graduated-payment mortgage (GPM). Generally, the payment
change date occurs in the month immediately after the interest rate
adjustment date. | periodic payment cap
For an adjustable-rate
mortgage where the interest rate and the minimum payment amount
fluctuate independently of one another, this is a limit on the
amount that payments can increase or decrease during any one
adjustment period. | periodic rate cap
For an adjustable-rate
mortgage, a limit on the amount that the interest rate can increase
or decrease during any one adjustment period, regardless of how
high or low the index might be. | personal property
Any property that is
not real property. | PITI
This stands for
principal, interest, taxes and insurance. If you have an
"impounded" loan, then your monthly payment to the lender includes
all of these and probably includes mortgage insurance as well. If
you do not have an impounded account, then the lender still
calculates this amount and uses it as part of determining your
debt-to-income ratio. | PITI reserves
A cash amount that a
borrower must have on hand after making a down payment and paying
all closing costs for the purchase of a home. The principal,
interest, taxes, and insurance (PITI) reserves must equal the
amount that the borrower would have to pay for PITI for a
predefined number of months. | planned unit development
(PUD)
A type of ownership
where individuals actually own the building or unit they live in,
but common areas are owned jointly with the other members of the
development or association. Contrast with condominium, where an
individual actually owns the airspace of his unit, but the
buildings and common areas are owned jointly with the others in the
development or association. | point
A point is 1 percent of
the amount of the mortgage. | power of attorney
A legal document that
authorizes another person to act on one’s behalf. A power of
attorney can grant complete authority or can be limited to certain
acts and/or certain periods of time. | pre-approval
A loosely used term which is
generally taken to mean that a borrower has completed a loan
application and provided debt, income, and savings documentation
which an underwriter has reviewed and approved. A pre-approval is
usually done at a certain loan amount and making assumptions about
what the interest rate will actually be at the time the loan is
actually made, as well as estimates for the amount that will be
paid for property taxes, insurance and others. A pre-approval
applies only to the borrower. Once a property is chosen, it must
also meet the underwriting guidelines of the lender. Contrast with
pre-qualification. | prepayment
Any amount paid to reduce the
principal balance of a loan before the due date. Payment in full on
a mortgage that may result from a sale of the property, the owner's
decision to pay off the loan in full, or a foreclosure. In each
case, prepayment means payment occurs before the loan has been
fully amortized. | prepayment penalty
A fee that may be charged to a
borrower who pays off a loan before it is due.
| pre-qualification
This usually refers
to the loan officer’s written opinion of the ability of a borrower
to qualify for a home loan, after the loan officer has made
inquiries about debt, income, and savings. The information provided
to the loan officer may have been presented verbally or in the form
of documentation, and the loan officer may or may not have reviewed
a credit report on the borrower. | prime rate
The interest rate
that banks charge to their preferred customers. Changes in the
prime rate are widely publicized in the news media and are used as
the indexes in some adjustable rate mortgages, especially home
equity lines of credit. Changes in the prime rate do not directly
affect other types of mortgages, but the same factors that
influence the prime rate also affect the interest rates of mortgage
loans. | principal
The amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining
balance of a mortgage. | principal balance
The outstanding balance of principal
on a mortgage. The principal balance does not include interest or
any other charges. See remaining balance. | principal, interest, taxes,
and insurance (PITI)
The four components of a monthly
mortgage payment on impounded loans. Principal refers to the part
of the monthly payment that reduces the remaining balance of the
mortgage. Interest is the fee charged for borrowing money. Taxes
and insurance refer to the amounts that are paid into an escrow
account each month for property taxes and mortgage and hazard
insurance. | private mortgage insurance
(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 MI for
a loan with a loan-to-value (LTV) percentage in excess of 80
percent. | promissory note
A written promise to repay a
specified amount over a specified period of
time. | public auction
A meeting in an
announced public location to sell property to repay a mortgage that
is in default. | Planned Unit Development (PUD)
A project or
subdivision that includes common property that is owned and
maintained by a homeowners' association for the benefit and use of
the individual PUD unit owners. | purchase agreement
A written contract
signed by the buyer and seller stating the terms and conditions
under which a property will be sold. | purchase money
transaction
The acquisition of property through
the payment of money or its equivalent. | | | | qualifying ratios
Calculations that are used in determining
whether a borrower can qualify for a mortgage. There are two
ratios. The "top" or "front" ratio is a calculation of the
borrower’s monthly housing costs (principle, taxes, insurance,
mortgage insurance, homeowner’s association fees) as a percentage
of monthly income. The "back" or "bottom" ratio includes housing
costs as will as all other monthly debt. | quitclaim deed
A deed that transfers without warranty
whatever interest or title a grantor may have at the time the
conveyance is made. | | | | rate lock
A commitment issued by a lender to a borrower
or other mortgage originator guaranteeing a specified interest rate
for a specified period of time at a specific cost. | real estate
agent
A person licensed to negotiate and
transact the sale of real estate. | Real Estate Settlement
Procedures Act (RESPA)
A consumer protection law that requires
lenders to give borrowers advance notice of closing
costs. | real property
Land and appurtenances, including
anything of a permanent nature such as structures, trees, minerals,
and the interest, benefits, and inherent rights
thereof. | Realtor®
A real estate agent, broker or an
associate who holds active membership in a local real estate board
that is affiliated with the National Association of
Realtors. | recorder
The public official who keeps records of
transactions that affect real property in the area. Sometimes known
as a "Registrar of Deeds" or "County Clerk." | recording
The noting in the registrar’s office of
the details of a properly executed legal document, such as a deed,
a mortgage note, a satisfaction of mortgage, or an extension of
mortgage, thereby making it a part of the public
record. | refinance
transaction
The process of paying off one loan with
the proceeds from a new loan using the same property as
security. | remaining
balance
The amount of principal that has not yet
been repaid. See principal balance. | remaining term
The original amortization term minus the
number of payments that have been applied. | rent loss
insurance
Insurance that protects a landlord
against loss of rent or rental value due to fire or other casualty
that renders the leased premises unavailable for use and as a
result of which the tenant is excused from paying
rent. | repayment plan
An arrangement made to repay delinquent
installments or advances. | replacement reserve fund
A fund set aside for replacement of common
property in a condominium, PUD, or cooperative project --
particularly that which has a short life expectancy, such as
carpeting, furniture, etc. | revolving debt
A credit arrangement, such as a credit
card, that allows a customer to borrow against a preapproved line
of credit when purchasing goods and services. The borrower is
billed for the amount that is actually borrowed plus any interest
due. | right of first
refusal
A provision in an agreement that requires
the owner of a property to give another party the first opportunity
to purchase or lease the property before he or she offers it for
sale or lease to others. | right of ingress or
egress
The right to enter or leave designated
premises. | right of
survivorship
In joint tenancy, the right of survivors
to acquire the interest of a deceased joint tenant. | | | | sale-leaseback
A technique in which a seller deeds
property to a buyer for a consideration, and the buyer
simultaneously leases the property back to the
seller. | second
mortgage
A mortgage that has a lien position
subordinate to the first mortgage. | secondary
market
The buying and selling of existing
mortgages, usually as part of a "pool" of mortgages. | secured loan
A loan that is backed by
collateral. | security
The property that will be pledged as
collateral for a loan. | seller
carry-back
An agreement in which the owner of a
property provides financing, often in combination with an assumable
mortgage. | servicer
An organization that collects principal
and interest payments from borrowers and manages borrowers’ escrow
accounts. The servicer often services mortgages that have been
purchased by an investor in the secondary mortgage
market. | servicing
The collection of mortgage payments from
borrowers and related responsibilities of a loan
servicer. | settlement
statement
See HUD1 Settlement
Statement | subdivision
A housing development that is created by
dividing a tract of land into individual lots for sale or
lease. | subordinate
financing
Any mortgage or other lien that has a
priority that is lower than that of the first
mortgage. | survey
A drawing or map showing the precise
legal boundaries of a property, the location of improvements,
easements, rights of way, encroachments, and other physical
features. | sweat equity
Contribution to the construction or
rehabilitation of a property in the form of labor or services
rather than cash. | | | | tenancy in
common
As opposed to joint tenancy, when there
are two or more individuals on title to a piece of property, this
type of ownership does not pass ownership to the others in the
event of death. | third-party
origination
A process by which a lender uses another
party to completely or partially originate, process, underwrite,
close, fund, or package the mortgages it plans to deliver to the
secondary mortgage market. | title
A legal document evidencing a person's
right to or ownership of a property. | title company
A company that specializes in examining
and insuring titles to real estate. | title
insurance
Insurance that protects the lender
(lender's policy) or the buyer (owner's policy) against loss
arising from disputes over ownership of a
property. | title search
A check of the title records to ensure
that the seller is the legal owner of the property and that there
are no liens or other claims outstanding. | transfer of
ownership
Any means by which the ownership of a
property changes hands. Lenders consider all of the following
situations to be a transfer of ownership: the purchase of a
property "subject to" the mortgage, the assumption of the mortgage
debt by the property purchaser, and any exchange of possession of
the property under a land sales contract or any other land trust
device. | transfer tax
State or local tax payable when title passes
from one owner to another. | Treasury index
An index that is used to determine
interest rate changes for certain adjustable-rate mortgage (ARM)
plans. It is based on the results of auctions that the U.S.
Treasury holds for its Treasury bills and securities or is derived
from the U.S. Treasury's daily yield curve, which is based on the
closing market bid yields on actively traded Treasury securities in
the over-the-counter market. | Truth-in-Lending
A federal law that requires lenders to
fully disclose, in writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other charges.
| two-step
mortgage
An adjustable-rate mortgage (ARM) that
has one interest rate for the first five or seven years of its
mortgage term and a different interest rate for the remainder of
the amortization term. | two- to four-family
property
A property that consists of a structure
that provides living space (dwelling units) for two to four
families, although ownership of the structure is evidenced by a
single deed. | trustee
A fiduciary who holds or controls
property for the benefit of another. | | | | VA mortgage
A mortgage that is guaranteed by the
Department of Veterans Affairs (VA). | vested
Having the right to use a portion of a
fund such as an individual retirement fund. For example,
individuals who are 100 percent vested can withdraw all of the
funds that are set aside for them in a retirement fund. However,
taxes may be due on any funds that are actually
withdrawn. | Veterans Administration
(VA)
An agency of the federal government that
guarantees residential mortgages made to eligible veterans of the
military services. The guarantee protects the lender against loss
and thus encourages lenders to make mortgages to
veterans. | | |
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