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Abstract of Title - A written history
of all the transactions that bear on the title to a specific piece
of land. An abstract of title covers the time from when the property
was first sold to the present.
Acceleration Clause - The section in a mortgage document that
allows the lender to speed up the payment date in the event of a default,
making the entire principal amount due.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest
rate varies during the term of the mortgage. Also called a Variable
Rate Mortgage.
Amortization Schedule - A timetable for payment of a mortgage
reflecting the amount of each payment applied to interest and principal
and the balance remaining.
Annual Percentage Rate (APR) - The total yearly cost of a mortgage
stated as a percentage of the loan amount; includes such items as
the base interest rate, primary mortgage insurance, and loan origination
fee (points)
Appraisal - A professional opinion or estimate of the market
value of a property.
Appreciation - An increase in the value of a property due to
changes in market conditions or improvements to the property.
Assumable Mortgage - A mortgage that a buyer can assume or
take over from the seller of the property. |
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Balloon Note - A note that usually calls
for a final payment greater than that of the regular periodic payments.
Binder - A preliminary agreement secured by the payment of
earnest money under which a buyer offers to purchase real estate.
Biweekly Mortgage - A mortgage which requires 1/2 the normal
monthly payment every two weeks. Over the course of the year, 26 half
payments are made which is equivalent to 13 full mortgage payments.
As a result of this extra payment, the loan amortizes much faster
than a loan with normal monthly payments.
Blanket Mortgage - A mortgage encumbering more than one piece
of property.
Bridge Loan - A short-term loan in effect from the end of one
loan to the beginning of another loan, or prior to permanent financing.
Broker Premium - Premium paid to mortgage broker as the "middleman"
in the mortgage process between the lender and the borrower. Lenders
offer brokers wholesale rates; brokers add a surcharge to cover the
cost of underwriting to arrive at the rates charged to borrowers.
Buy Down - Obtaining a lower interest rate by paying additional
points to the lender. |
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Cap- A provision of an Adjustable Rate
Mortgage limiting how much the interest rate or mortgage payments
may increase or decrease.
Certificate of Occupancy - Document issued by a local governmental
agency that states a property conforms to local building standards
for occupancy and is in compliance with public health and building
codes.
Certificate of Title - A statement provided by a title company
or attorney stating that the title to the real estate is legally held
by the current owner.
Clear Title - A title that is free of liens or legal questions
as to ownership of a piece of property.
Closing - Time when new mortgage and note are signed by parties
in title or parties taking title to real property.
Closing Costs - Costs associated with securing a mortgage loan.
On a purchase loan, funds are usually brought to closing whereas,
in a refinance or 2nd mortgage, the costs are usually borne from the
loan proceeds.
Commission - Fee paid to a mortgage broker for assisting in
a mortgage transaction. Real estate brokers receive a commission based
on the sales price of a property.
Commitment - see Mortgage Commitment
Comparables or "comps" - Refers to "comparable
properties," which are used for comparative purposes in the appraisal
process. Comps are recently sold properties that are similar in size,
location and amenities to the home for sale. Comps help an appraiser
determine the fair market value of a property.
Conforming Loan - Amount A Fannie Mae (FNMA) established maximum
loan amount based on the property's legal number of units(1 family,
2 family, etc.) Loan amounts up to this maximum dollar amount are
considered "conforming loans."
Contract of Sale - Written contract signed by both parties
in which the seller agrees to sell and the buyer agrees to buy under
certain specific terms and conditions.
Conventional Mortgage - A mortgage made by a bank or other private
institution and not insured by a governmental agency.
Covenant - A written restriction on the use of land, most commonly
in use today in homeowners associations.
Credit Report - A report detailing a consumers credit history
including payment history on revolving and installment accounts. A
credit report may also include information found from public records
such as judgments, tax liens, and bankruptcies.
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Debt-to-Income Ratio - The percentage
of a person's monthly earnings used to pay all debt obligations. Lenders
consider two ratios, constructed in slightly different ways. The first,
called the front-end-ratio, the ratio of the monthly housing expenses
including principal, interest property taxes and insurance (PITI)
is compared to the borrower's gross, pretax monthly income. In the
back-end-ratio, a borrower's other debts such as auto loans and credit
cards, are also figured in. Lenders usually take both into account
and set an acceptable ratio. Some lenders take only the back-end-ratio
into account.
Deed - An instrument in writing duly executed and delivered
that conveys title to real property.
Depreciation - A decline in the value of property: the opposite
of appreciation.
Discount Points - A charge made by the lending institution
to the borrower that is based on the mortgage amount. A point is one
percent of the principal mortgage amount.
Down Payment - The amount paid for the purchase of a property
in addition to the mortgage, but not including any closing costs. |
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Easement - The right to enter or use
a portion of the land of another for a specific purpose.
Encroachment - Construction, such as a wall, fence, building,
etc., on the property of another.
Encumbrance - A lien, charge or liability against a property.
Equal Credit Opportunity Act - A federal law that requires
lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age,
sex, marital status or receipt of income from public assistance programs.
Equity - The interest or value which the owner has in real
estate over and above the liens against it.
Escrow - A written agreement between two or more parties providing
that certain instruments or property be placed with a third party
to be delivered to a designated person upon the fulfillment or performance
of some act or condition. |
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Fair Credit Reporting Act - A consumer
protection law that regulates the disclosure os consumer credit reports
by credit reporting agencies and establishes procedures for correcting
mistakes on a person's credit record.
Fair Market Value - A fair price for a home based on recent
sales of properties of similar size and quality in the neighborhood.
Federal Housing Administration (FHA) Mortgage - A mortgage loan made
by a lender and insured by the Federal Housing Administration.
FHLMC (Freddie Mac) Federal Home Loan Mortgage Corporation
- A federal agency purchasing first mortgages, both conventional and
federally insured, from members of the Federal Reserve system and
the Federal Loan Bank System.
First Mortgage - The primary mortgage on a property. If a foreclosure
occurs, the first mortgage is repaid before any "junior"
mortgages.
Fixed Rate Mortgage - A mortgage in which the monthly payments
remain the same for the term of the loan. This loan is self-liquidating.
Flood Insurance - Insurance indemnifying against loss by flood
damage, required by lenders in areas designated (federally) as potential
flood areas.
FNMA (Fannie Mae) - A quasi-government agency, now publicly
owned, which purchases mortgages from the original mortgage lenders.
Foreclosure - A procedure whereby property pledged as security
for a debt is sold to pay the debt in the event of default in payment
or terms.
Free and Clear - A property that has no liens. |
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Ginnie Mae (GNMA) - Nickname for the
Government National Mortgage Association. A government-owned corporation
within the U.S. Department of Housing and Urban Development (HUD).
Created by Congress in 1968,GNMA offers a special assistance loan
program.
Good Faith Estimate (GFE) - A written estimate of closing costs
that a lender must provide a prospective home buyer within three days
of submitting a mortgage loan application. |
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Hard Money Loans - Mortgage loans that
are made to borrowers who have significantly adverse credit. These
loans are usually made by private investors or funding companies.
Hazard Insurance - Insurance protecting against loss to real
estate caused by fire, natural causes, vandalism, etc., depending
upon the terms of the policy.
Home Equity Line Of Credit (HELOC) - 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 Equity Loan - A home equity loan is a second mortgage
or lien on your home. Home equity loans can be a very powerful tax-deductible
financial tool. Since home equity credit is a type of mortgage, it
shares lower interest rates and the tax advantages of mortgages. You
can borrow up to $100,000 of your available home equity for virtually
any purpose, and, in most cases, 100% of the interest paid each year
is tax deductible (ask your tax advisor).
Homeowner's Insurance - An insurance policy that combines personal
liability insurance and hazard insurance coverage for a residence
and its contents.
Housing Ratio - The ratio of the monthly housing payment (PITI)
to total gross monthly income, Also called Payment-to-Income Ratio
or Front-End-Ratio.
HUD - The U.S. Department of Housing and Urban Development.
HUD-1 Statement - A document with an itemized listing of closing
costs payable at the closing or settlement meeting when mortgaging
property. The closing costs can include a commission, loan fees and
points, and sums set aside for escrow payments, taxes and insurance.
It is signed by the mortgagor(s). This statement form is published
by the Department of Housing and Urban Development (HUD). |
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In Rem - A proceeding against the realty
directly; as distinguished from a proceeding against a person. (Used
in taking land from nonpayment of taxes, etc.)
Index - A published interest rate not controlled by the lender
to which the interest rate on an Adjustable Rate Mortgage (ARM) is
tied. The index and the interest rate linked to it may increase or
decrease.
Interest - The amount of money earned by the principal during
a specified period of time.
Interest Rate - A percentage that when multiplied by the principal
determines the amount of money that the principal earns over a period
of time, usually one year. |
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Joint-Tenancy
- A form of ownership where two parties own a property equally.
Judgment - The decision of a court of law stating that one
individual is indebted to another and fixing the amount of indebtedness.
Judgments when recorded, become a lien on real property owned by the
defendant.
Jumbo Loan - Loan size that is larger than the limit established
by Fannie Mae or Freddie Mac.
Junior Mortgage - A mortgage of lesser rank than the first
mortgage. A mortgage second in lien to a previous mortgage. Also see
"first mortgage". |
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Lease-Purchase Mortgage
- A financing option that allows a potential home buyer to lease a
property with the option to buy. Often constructed so the monthly
rent payment covers the owner's first mortgage payment, plus an additional
amount as a savings deposit to accumulate cash for a down payment.
A seller may agree to a lease-purchase option if the housing market
is saturated and the seller is having difficulty selling the property
Lessee - A person to whom property is rented under a lease
("tenant").
Lessor - A person who rents property to another under a lease
("landlord").
Lien - A legal right or claim upon a specific property which
attaches to the property until a debt is satisfied.
Life Estate - An estate in real property for the life of a
living person. The estate then reverts back to the grantor or to a
third party.
Lis Pendens - A legal document filed in the office of the county
clerk giving notice that an action or proceeding is pending in the
courts affecting the title to the property.
Loan Application - A document required by a lender prior to
loan approval. The application includes detailed information about
the borrower and the property.
Loan Origination Fee or Points - Charge by a lender or broker
connected with originating a loan. This is different than discount
points which are used to buy down the rate of interest.
Loan to Value (LTV) - The percentage of loan available toward
the value of the property.
Lock-in - A written agreement guaranteeing the home buyer/owner
a specified interest rate provided the loan is closed within a set
period of time. There is sometimes a point that is paid in advance
to lock-in at a specific rate/time. |
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Margin - The number of percentage points
added to the index on a one year adjustable rate mortgage (ARM). For
example, if the index rate is 9 percent and the margin is 3 percent,
than the fully indexed rate is 12 percent.
Market Value - The highest price that a buyer would pay and
the lowest price a seller would accept on a property. Market Value
may be different from the price of property could actually be sold
for at a given time.
Mortgage - A legal document that establishes real estate as
the security for the loan which finances that real estate. Colloquially,
the term "mortgage" is sometimes used to refer to the loan
itself.
Mortgage Banker - The lender that originates the mortgage loan;
the one making the loan directly and closing the loan.
Mortgage Broker - An individual or company that brings borrowers
and lenders together for the purpose of loan origination. Unlike a
mortgage banker, brokers do not fund the loan but work on behalf of
several lenders. Brokers typically require a fee or a commission for
their services.
Mortgage Commitment - A written offer of a mortgage loan by
a lending institution . Often in the form of a letter, the commitment
specifies the terms and conditions of the mortgage loan being offered
to the prospective borrower.
Mortgage Note - A written agreement to repay a loan. The agreement
is secured by a mortgage, serves as proof of an indebtedness, and
states the manner in which it should be paid. The note states the
actual amount of the debt that the mortgage secures and renders the
mortgagor personally responsible for repayment.
Mortgagee - The institution or person who is the lender or
creditor on a mortgage loan.
Mortgagor - The institution or person who is the borrower or
debtor on a mortgage loan. |
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Negative Amortization - An increase
in principal balance which occurs when the monthly payments do not
cover all of the interest cost. The interest cost which is not covered
by the payment is added to the unpaid principal balance.
No Income Check Loan - This program is designed for the entrepreneur
or self-employed that choose not to have their income revealed or
just have difficulty proving their income. The rate tends to be higher
on a No Income Check Loan.
No-Documentation Loans or NO-DOC - NO-DOC means No verification
of income or even job. Rates will vary depending on LTV and credit
scores.
Note - A written instrument that acknowledges a debt and promise to
pay. |
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Origination Fee - A fee imposed by a
lender to cover certain processing expenses in connection with making
a real estate loan. It is usually a percentage of the loan amount.
Owner Financing or Seller-take-back - A property purchase transaction
in which the seller of the property provides all or part of the financing.
Owner of Record - The individual named on a deed that has been
recorded at the county recorders office. |
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Piggy Back Loan - A second loan on
a home, usually up to 15%-20% of the property's purchase price. If
you make a 10% down payment on a home, one way to avoid paying for
private mortgage insurance (PMI) is to get two loans. Here's how it
works: you get a loan for 80% of a property's purchase price at a
standard interest rate and then get a second, "piggy back"
loan at 10% of the purchase price, though at a higher rate. This type
of financing is commonly called 80-10-10. If the first loan is less
than $227,150, you can opt for a 75-15-10 arrangement, which will
give you a lower interest rate on the first loan. To figure out if
getting a second makes sense for you, compare your monthly costs with
a piggy back loan versus PMI.
PITI - Principal, interest, taxes and insurance- the components
of a monthly mortgage payment.
Planned Unit Developments (PUD) - A subdivision of five or more
individually owned lots with one or more other parcels owned in common
or with reciprocal rights in one or more other parcels.
Points - Charges levied by the broker or lender and usually payable
at closing. One point represents 1% of the face value of the mortgage
loan.
Power of Attorney - A written document authorizing a person to
act on the behalf of another person. That person does not have to
be an attorney.
Pre-approval - The process goes a step further than prequalification.
It means the broker or lender has verified the borrower's earnings
(unless stated), assets, etc. The borrower receives a letter stating
the lender is willing to grant a mortgage for a specified amount,
within a period of time.
Pre-qualification - An early evaluation by a lender of a potential
home buyer's credit report plus earnings, savings, and debt information.
The home buyer gets a nonbinding estimate of the mortgage amount the
borrower would qualify for, or how much house the borrower can afford.
Buyers who pre-qualify can go a step further and seek pre-approval.
Prepaids - Those expenses of property which are paid in advance
of their due date and will usually be prorated upon sale, such as
taxes, insurance, rent, etc.
Prepayment Penalty - A charge imposed by a mortgage lender on
a borrower who pays off the mortgage loan early in its term. The prepayment
penalty is specified in the note.
Prime Rate - The lowest commercial interest rate charge by a bank
on short term loans to their most credit worthy customers.
Private Mortgage Insurance (PMI) - Insurance provided by non-government
insurers that protects lenders against loss if a borrower defaults.
Fannie Mae generally requires private mortgage insurance for loans
with loan-to-value (LTV) percentages greater than 80%.
Processor - An employee at a mortgage company responsible for
collecting documentation from borrowers and banks. Their duties include
the gathering of income information, mortgage verifications/payoffs,
homeowners insurance, ordering appraisal and title or any other conditions
that a lender requests to facilitate the closing of a mortgage loan.
Purchase Money Mortgage - A mortgage given by a guarantee in part
payment of the purchase price of real estate. |
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Quit Claim Deed - A deed which transfers
whatever interest the maker of the deed may have in the particular
parcel of land. A quitclaim deed is often given to clear the title
when the grantor's interest in a property is questionable. By accepting
such a deed, the buyer assumes all the risks. Such a deed makes no
warranties as to the title, but simply transfers to the buyer whatever
interest the grantor has. |
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Rate Lock - A commitment issued by a
lender to a homebuyer/homeowner guaranteeing a specific interest rate
for a specified amount of time.
Real Estate Agent - A person licensed to negotiate and transact
the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA) - A consumer
protection law that requires lenders to give home buyers advance notice
of closing costs, which are payable at closing or settlement meeting.
Real Property - Land and generally whatever is erected upon
or affixed thereto.
Realtor - A real estate broker or an associate who holds active
membership in a local real estate board that is affiliated with the
National Association of Realtors.
Rescission - The cancellation of a contract. When refinancing
a mortgage on a principal residence, the law gives the homeowner three
days (rescission period) to cancel the contract.
Recording - The act of writing or entering in a book of public
record instruments affecting the title to real property.
Refinance - A mortgage which replaces an existing mortgage.
Reverse Mortgage - A mortgage used by the elderly that provides
income as long as they live in exchange. Payments made cause the loan
principal to increase. |
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Sales Agreement - A written contract
signed by the buyer and the seller of a house stating the terms and
conditions under which the property will be sold.
Second Mortgage - A subordinated lien, created by a mortgage
loan, over the amount of a first mortgage. Second mortgages generally
carry a higher rate than a first since they represent a higher risk
for an investor.
Secondary Mortgage Market - The buying and selling of existing
mortgages.
Section 32 Mortgages - What Loans Are Covered? A loan is covered
by the law if it meets the following tests: the annual percentage
rate (APR) exceeds by more than 10 percentage points the rates on
Treasury securities of comparable maturity; or the total fees and
points payable by the consumer at or before closing exceed the larger
of $451 or 8 percent of the total loan amount. (The $451 figure is
for 2000. This amount is adjusted annually by the Federal Reserve
Board, based on changes in the Consumer Price Index.) The rules primarily
affect refinancing and home equity installment loans that also meet
the definition of a high-rate or high-fee loan. The rules do not cover
loans to purchase or initially construct your home, reverse mortgages,
or home equity lines of credit (similar to revolving credit accounts).
Servicer - An organization that collects monthly mortgage principal
and interest payments from homeowners and manages escrow accounts
for paying taxes and homeowner's insurance premiums. The servicer
often services mortgages that have been purchased by an investor in
the secondary mortgage market.
Settlement - See closing
Stated Loan - A mortgage product available to borrowers who
do not wish to prove their income. It is usually designed for self-employed
borrowers or borrowers that would rather state their income rather
than submit proof of income.
Sub-Prime or sub prime - A sub-prime loan is any loan in which
the borrower has challenges in obtaining mortgage financing because
of poor credit, hard to document income or assets, or any unique situation
that would prevent them from obtaining funding through "conforming"
lenders.
Subordination Clause - A clause which permits the placing of
a mortgage at a later date which takes priority over an existing mortgage.
Survey - Map made by a licensed surveyor who measures land
and charts its boundaries, improvements and relationship to the property
surrounding it. |
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Tax Lien - Lien for nonpayment of taxes.
Tax Sale - Public sale of property at an auction by a government
authority as a result of nonpayment of taxes.
Teaser Rate - A low initial rate on a mortgage. This is often
used to induce people into the loan since the start rate is low.
Tenants-by-Entirety - A form of ownership in which husband
and wife are co-owners with rights of survivorship.
Tenants-in-Common - An undivided interest in property taken
by two or more persons. The interest need not be equal. Upon death
of one or more persons, there is no right of survivorship.
Title - Evidence that an owner of land is in lawful possession
thereto; evidence of ownership.
Title Insurance - A policy of insurance which indemnifies the
holder for any loss sustained by reason of defects in the title.
Title Search - An examination of the public records to determine
the ownership and encumbrances affecting real property.
Transfer Tax - Tax paid to the city, county, state or other
government entity upon sale of a property.
Truth-in-Lending Act or Regulation Z - A federal law requiring
a disclosure of credit terms using a standard format. This is intended
to facilitate comparisons between the lending terms of different financial
institutions. |
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Underwriting
- The decision whether to make a loan to a buyer/homeowner based on
credit, income, employment history, assets, etc.
Unencumbered - Free of liens and other encumbrances. Free and
clear.
Unmarketable Title - Not saleable. A title which has serious
defects.
Unrecorded Deed - A document that transfers title from the
grantor to the grantee without recording( e.g. providing public notice). |
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Vendor - The person who transfers property
by sale. Another word for "seller". Commonly used in land
contract sales.
Verification of Deposit (VOD) - A document signed by the borrower's
bank or other financial institution verifying the account balance
and history.
Verification of Employment (VOE) - A document signed by the
borrower's employer verifying his/her employment. Some investor's
will accept a VOE verbally from an employer.
Verification of Mortgage (VOM) or Mortgage Verification - A
form sent to a potential investor or lender that provides a loan summary
which includes payments made and detailed loan statistics and information.
Veterans Administration (VA) - A government agency guaranteeing
mortgage loans with no down payment to qualified veterans. |
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Waive - To knowingly abandon, relinquish,
or surrender a right, benefit, or claim.
Wraparound Mortgage - A new mortgage that includes the remaining
balance on an old mortgage, plus a new amount. |
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Yield - Ratio of income from an investment
to the total cost of the investment over a given period of time. |
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