A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Acceptance – A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.
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.
Adjustable Rate Mortgage (ARM) – stands for Adjustable Rate Mortgage, also referred to as a Variable Rate Mortgage. They both mean the same thing. An ARM is a mortgage with an interest rate that adjusts periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down (usually on an annual basis) as the interest rate changes. To protect you in a rising interest market, rate increases are limited (usually 2 percentage points annually; 6 percentage points over the life of the loan).
Amenity – 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.Amortization – The gradual repayment of a home loan by periodic installments.
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 aftereach payment is made.
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 amortizationterm is 360 months.
Amortize – To repay a loan with regular payments that cover both principal and interest.
Annual Percentage Rate (APR) – stands for Annual Percentage Rate. This refers to the interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs associated with the mortgage, it’s usually higher than the advertised simple interest rate. The APR more accurately reflects what you’ll be paying and allows you to compare different mortgages based on actual costs.
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 – 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.
Appraisal – An estimate of the value of a home, made by a professional appraiser. The maximum amount of the mortgage is usually based on the appraisal.
Appraised Value – 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.Appraiser – A person qualified by education, training, and experience to estimate the value of real property.
Appreciation – 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 ofappreciation. The opposite of depreciation.
Assessed Value – The value used to determine property taxes, based on a public tax assessor’s opinion. Contrast with appraised value.
Assessment – 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.
Assessment Rolls – A public record of the assessed value of property in the taxing jurisdiction.
Assessor – A public official who establishes the value of a property for taxation purposes.
Asset – Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutualfunds, and so on).
Assumable Loan – 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.
Assumption Clause – 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 originalborrower (seller) upon sale or transfer of the property.
Assumption Fee – 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).
B
Balance Sheet – A financial statement that shows an individual’s assets, liabilities, and net worth as of a specific date.
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 ashorter term (e.g., 10 years).
Balloon Payment – 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.
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.
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.
Bill Of Sale – A written document that transfers title to personal property from seller to buyer.
Biweekly 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.
Bond – 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.
Breach – A violation of terms of any legal obligation.
Break Even Point – Point at which total income equals total expenses.
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 usuallyup 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.”
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. Seemortgage broker.
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.
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 onsafety and health standards.
Buydown Account – 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.
Buydown – 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, orborrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.
C
Call Option – 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.
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 fromlarge increases in the interest rate or monthly payment. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.
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 businessenterprise. (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.
Capital Expenditure – 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 capitalexpenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.
Capital Improvement – Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. See Capital Expenditure.
Cash Available For Closing – 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.
Cash Flow Basis – This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. It does not consider the tax impact or differences inprincipal balance reduction between your current loan and the refinance suggestions. You can use the Amortization Schedule Calculator to compare principal reduction.
Cash For Transaction – Enter the amount your want to use toward closing costs (discount points and fees) and/or to reduce your loan balance. In situations where your loan balance is abovethe conforming amount, reducing the principal may allow you to get a lower rate. Enter zero if you want a no-point loan and/or to finance the closing fees.
Cash-Out Refinance – 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.
Ceiling – The maximum interest rate that can accrue on a variable rate loan or adjustable rate mortgage (ARM). See lifetime rate cap.
Certificate Of Eligibility – A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) loan.
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 approvedappraisal.
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.
Chain Of Title – 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.
Clear Title – A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.
Closing – The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of fundsnecessary to the sale or loan transaction. Also referred to as settlement.
Closing Cost Item – 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.
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 suchas 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 home buyers even before the HUD-1settlement statement is delivered.
Closing Statement – An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.
Cloud On Title – 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 aquit claim deed, release, or court action.
Coinsurance – 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 theactual value of the property insured at the time of the loss.
Coinsurance Clause – 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 orderfor the insured to collect the full amount of a loss.
Combined Loan To Value (CLTV) – 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%).
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%, or6%).
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.”
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.
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.
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.
Community Seconds – 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.
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.
Compound Interest – Interest paid on the principal balance and on the accrued and unpaid interest.
Condemnation – (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.
Condominium – A real estateproject in which each unit owner has title to a unit in amulti-unit building, an undivided interest in the commonareas of the project, and sometimes the exclusive use ofcertain limited common areas.
Condominium Conversion – Changingthe ownership of an existing building (usually a rentalproject) to the condominium form of ownership.
Condominium Hotel (condotel) – Acondominium project that has rental or registrationdesks, short-term occupancy, food and telephone services,and daily cleaning services and that is operated as acommercial hotel even though the units are individuallyowned.
Conforming Loan – A homeloan with a maximum loan amount of $252,700 that iseligible for purchase by FNMA and FHLMC.
Construction loan – Ashort-term, interim loan for financing the cost of homeconstruction. The lender makes payments to the builder atperiodic intervals as the work progresses.
Consumer Reporting Agency (orbureau) – An organization that prepares reports thatlenders use to determine a potential borrower’s credithistory. The agency obtains data for these reports from acredit repository as well as from creditors such asmortgage lenders, credit card companies, departmentstores, etc.
Contingency – A conditionthat must be met before a contract is legally binding.For example, home purchasers often include a contingencythat specifies that the contract is not binding until thepurchaser obtains a satisfactory home inspection reportfrom a qualified home inspector.
Contract – An oral orwritten agreement to do or not do something.
Conventional Loan – A homeloan that is not insured or guaranteed by the federalgovernment. Contrast with government loan. Can be forconforming or non-conforming loan amounts.
Convertibility Clause – Aprovision in some adjustable rate mortgages (ARMs) thatallows the borrower to change the ARM to a fixed rateloan at specified times during the life of the loan.
Convertible ARM – Anadjustable rate mortgage (ARM) that can be converted to afixed rate loan under specified conditions.
Cooperative (co-op) – A typeof multiple ownership in which the residents of amulti-unit housing complex own shares in the cooperativecorporation that owns the property, giving each residentthe right to occupy a specific apartment or unit.
Corporate Relocation – Arrangementsunder which an employer moves an employee to another areaas part of the employer’s normal course of business orunder which it transfers a substantial part or all of itsoperations and employees to another area because it isrelocating its headquarters or expanding its officecapacity.
Co-Signer – A person whosigns a promissory note along with the borrower. Aco-maker’s signature helps to assure that the loan willbe repaid. The borrower and the co-maker are jointlyresponsiblefor the repayment of the loan.
Cost Of Funds Index (COFI) – Anindex that is used to determine interest rate changes forcertain adjustable-rate mortgage (ARM) plans. Itrepresents the weighted-average cost of savings,borrowings, and advances of the 11th District members ofthe Federal Home Loan Bank of San Francisco. Seeadjustable-rate mortgage (ARM).
Covenant – A promise in amortgage or deed that requires or prevents certain usesof the property that, if violated, may result in loss orforeclosure of the property.
Credit – An agreement inwhich a borrower receives money or something of value inexchange for a promise to repay the lender on specifiedterms at a later time.
Credit History – Anevaluation of an individual’s capacity and history ofdebt repayment. A credit history helps a lender todetermine whether a potential borrower is likely to repaya loan in a timely manner.
Credit Life Insurance – Atype of insurance that pays off a loan if one of theborrowers dies while the policy is in force.
Credit Limit – The maximumamount that can be borrowed under the home equity line ofcredit.
Creditor – A person to whommoney is owed.
Credit Rating – Anexpression of creditworthiness based upon presentfinancial condition and past credit history.
Credit Report – A detailedaccount of the credit, employment and residence historyof an individual used by a prospective lender to helpdetermine creditworthiness. Credit reports also list anyjudgments, tax liens, bankruptcies or similar matters ofpublic record entered against the individual.
Credit Repository (creditbureau) – An organization that gathers, records,updates, and stores financial and public recordsinformation about the payment records of individuals whoare being considered for credit.
Credit Scoring – Creditscores are numerical values that rank individualsaccording to their credit history at a given point intime. Your score is based on your past payment history,the amount of credit you have outstanding, the amount ofcredit you have available, and other factors. Accordingto Fannie Mae–one of the major investors in home loans,credit scores have proven to be very good predictors ofwhether a borrower will repay his or her loan.
Cumulative Interest – Totalinterest accrued.
Current PITI – This is anabbreviation for a monthly payment that includesprincipal, interest, taxes and insurance. In mortgagelending it is common for the monthly mortgage payment toinclude not only the principal and interest payment onthe loan, but an escrow amount for real estate taxes andhazard insurance as well.
Curtailment – A payment thatreduces the principal balance of a loan.
D
Debt – An amount owed toanother. See installment loan and revolving liability.
Deed – The legal documentconveying title to a property.
Deed-In-Lieu – A deed givenby a borrower to the lender to satisfy a debt and avoidforeclosure. Also called a “voluntaryconveyance.”
Deed Of Trust – The documentused in some states instead of a mortgage; title isvested in a trustee to secure repayment of the loan.
Default – Failure to makeloan payments on a timely basis or to comply with otherrequirements of a mortgage.
Delinquency – Failure tomake mortgage payments when due.
Deposit – A sum of moneygiven to bind the sale of real estate, or a sum of moneygiven to ensure payment or an advance of funds in theprocessing of a loan. See earnest money deposit.
Depreciation – A decline inthe value of property because of physical or economicchanges such as wear and tear; the opposite ofappreciation.
Discount Points – Amountspaid to the lender at origination to lower the rate onthe face of the note. See point.
Document Preparation – Thisfee covers the expenses associated with this process ofpreparing some of the legal documents that you will besigning at the time of closing, such as the mortgage,note, and truth-in-lending statement.
Down Payment – The part ofthe purchase price of a property that the buyer pays incash and does not finance with a home loan.
Draw Period – The timeperiod in which the borrower may access and use a line ofcredit.
Due-On-Sale Provision – Aprovision in a mortgage home loan that allows the lenderto demand repayment in full if the borrower sells theproperty that serves as security for the loan.
Due-On-Transfer Provision – Thisterminology is usually used for second mortgages. Seedue-on-sale provision.
E
Earnest Money Deposit (EarnestMoney) – A deposit made by the potential home buyerto show that he or she is serious about buying the house.
Easement A right of waygiving to persons other than the owner to access to orover a property.
Effective Age – Anappraiser’s estimate of the physical condition of abuilding. The actual age of a building may be shorter orlonger than its effective age.
Eminent Domain – The rightof a government to take private property for public useupon payment of fair compensation to the owner. Eminentdomain is the basis for condemnation proceedings.
Employer-Assisted Housing Aspecial Fannie Mae housing initiative that offers severaldifferent ways for employers to work with local lendersto develop plans to assist their employees in purchasinghomes.
Encroachment – Animprovement that physically intrudes or trespasses onanother’s property.
Encumbrance – Anything thataffects or limits the fee simple title to a property,such as mortgages, leases, easements, deeds, orrestrictions.
Endorser – A person whosigns a check or promissory note over to another party.Contrast with co-signer.
Equal Credit Opportunity Act(ECOA) – A federal law that requires lenders andother creditors to make credit equally available withoutdiscrimination based on race, color, religion, nationalorigin, age, sex, marital status, or receipt of incomefrom public assistance programs.
Equity – The value of yourhome after the outstanding balance of any loans aresubtracted. If you make a 5 percent down payment, youhave 5 percent of the price of your home in equity. Asyou make payments toward principal over time, the equityin your home grows.
Escrow – Can serve twopurposes. 1)As a special third-party account set up bythe lender in which a portion of your monthly paymentfunds are held to pay for taxes and insurance and otheritems. 2)Escrow is most commonly known as a third partywho carries out the instructions of both the buyer andseller to handle the paperwork at the settlement of areal estate purchase.
Escrow (or Impound) Account – Theaccount in which a loan servicer holds the borrower’sescrow payments prior to paying property expenses, suchas property taxes or homeowners insurance.
Escrow Analysis – Theperiodic examination of escrow accounts to determine ifcurrent monthly deposits will provide sufficient funds topay taxes, insurance, and other bills when due.
Escrow Collections – Fundscollected by the loan servicer and set aside in an escrowaccount to pay borrower expenses such as property taxes,mortgage insurance, and hazard homeowners insurance.
Escrow Disbursements – Theuse of escrow funds to pay real estate taxes, homeownersinsurance, mortgage insurance, and other propertyexpenses as they become due.
Escrow Payment – The portionof a borrower’s monthly payment that is held by the loanservicer to pay for taxes, hazard homeowners insurance,mortgage insurance, lease payments, and other items asthey become due. Known as “impounds” or”reserves” in some states.
Estate – The ownershipinterest of an individual in real property. The sum totalof all the real property and personal property owned byan individual at time of death.
Eviction – A legalproceeding by a landlord to recover possession of realproperty from the tenant.
Examination Of Title – Thereport on the title of a property from the public recordsor an abstract of the title.
Exclusive Listing – Awritten contract that gives a licensed real estate agentthe exclusive right to sell a property for a specifiedtime, but reserving the owner’s right to sell theproperty alone without the payment of a commission.
F
Fair Credit Reporting Act – Aconsumer protection law that regulates the disclosure anduse of consumer credit information, establishes rules forcredit reporting to consumer credit reporting agencies,and establishes procedures for a consumer to view his orher credit report and correct mistakes on it.
Fair Market Value – Theprice that a buyer, willing but not compelled to buy, anda seller, willing but not compelled to sell, would agreeon.
Fannie Mae (Federal NationalMortgage Association FNMA) – A New York StockExchange company and the largest non-bank financialservices company in the world. It operates pursuant to afederal charter and is the nation’s largest source offinancing for home mortgages. It adds liquidity to themortgage market by investing in home loans through thecountry.
Federal Housing Administration(FHA) – An agency of the U.S. Department of Housingand Urban Development (HUD). Its main activity is theinsuring of residential mortgage loans made by privatelenders. The FHA sets standards for construction and loanunderwriting but does not lend money or plan or constructhousing.
Fee Simple – Anunconditional, unlimited estate of inheritance thatrepresents the greatest estate and most extensiveinterest in land that can be enjoyed. It is of perpetualduration. When the real estate is in a condominiumproject, the unit owner is the exclusive owner only ofthe air space within his or her portion of the building(the unit) and is an owner in common with respect to theland and other common portions of the property.
FHA Coinsured Home Loan – Aloan (under FHA Section 244) for which the FederalHousing Administration (FHA) and the originating lendershare the risk of loss in the event of the borrower’sdefault.
FHA Home Loan – A mortgagehome loan that is insured by the Federal HousingAdministration (FHA). Also known as a government loan.
Filing Status – Please enterhere whether you file your income taxes as single,married, separated or head-of household.
Firm Commitment – A lender’sagreement to make a loan to a specific borrower on aspecific property.
First Mortgage (Home Loan) – Ahome loan that is the primary lien against a property.
Fixed Installment – Themonthly payment due on a mortgage loan. The fixedinstallment includes payment of both principal andinterest.
Fixed Period ARM – Providesa fixed rate for 3, 5, 7 or 10 years then adjustsannually based on a financial index for the remainingloan term.
Fixed Rate Mortgage – Amortgage with an interest rate that stays the same(fixed) over the life of the mortgage. Monthly paymentsfor a fixed rate mortgage are very stable and will notchange.
Fixture – Personal propertythat becomes real property when attached in a permanentmanner to real estate (such as a lighting fixture or anin-ground spa).
Flood Check – A surveyconducted to determine whether a property is in a floodzone.
Flood Insurance – Insurancethat compensates for physical property damage resultingfrom flooding. It is required for properties located infederally designated flood areas.
Foreclosure – The legalprocess by which a borrower’s interest in mortgagedproperty is taken because of a default on the loan. Thisusually involves a forced sale of the property at publicauction with the proceeds of the sale being applied tothe mortgage debt.
Forfeiture – The loss ofmoney, property, rights, or privileges due to a breach oflegal obligation.
401(k)/403(b) – Anemployer-sponsored investment plan that allowsindividuals to set aside tax-deferred income forretirement or emergency purposes. 401(k) plans areprovided by employers that are private corporations.403(b) plans are provided by employers that arenot-for-profit organizations.
401(k)/403(b) Loan – Someadministrators of 401(k)/403(b) plans allow for loansagainst the monies accumulated in these plans – moniesmust be repaid to avoid serious penalty charges.
Freddie Mac (Federal Home LoanMortgage Corporation) – A federal agency within theDepartment of Housing and Urban Development (HUD), whichinsures residential mortgage loans made by privatelenders and sets standards for underwriting mortgageloans.
G
Good Faith Estimate – Adocument provided when you apply for a loan. It providesestimates of all costs associated with obtaining andclosing a mortgage loan.
Government Loan – A loanthat is insured by the Federal Housing Administration(FHA) or guaranteed by the Department of Veterans Affairs(VA) or the Rural Housing Service (RHS). Contrast withconventional loan.
Government National MortgageAssociation (GNMA or Ginnie Mae) – A government-ownedcorporation within the U.S. Department of Housing andUrban Development (HUD). Created by Congress on September1, 1968, GNMA assumed responsibility for the specialassistance loan programs formerly administered by FannieMae.
Grantee – The person to whoman interest in real property is conveyed (e.g. thebuyer).
Grantor – The person whoconveys an interest in real property (e.g. the seller).
Gross Monthly Income – Normalannual income including overtime that is regular orguaranteed. The before taxes income may be from more thanone source. Salary is generally the principal source, butother income may qualify if it is significant and stable.
Ground Rent – The amount ofmoney that is paid for the use of land when title to aproperty is held as a leasehold estate rather than as afee simple estate.
Group Home A single-familyresidential structure designed or adapted for occupancyby unrelated developmentally disabled persons. Thestructure provides long-term housing and support servicesthat are residential in nature.
H
Homeowner’s Insurance (HazardInsurance) – Insurance coverage that compensates forphysical damage to a property from fire, wind, vandalism,or other hazards. The policy typically combines personalliability insurance and property hazard insurancecoverage for a dwelling and its contents. See alsohomeowner’s insurance.
Home Equity Line Of Credit(HELOC) – A mortgage loan, which is usually in asubordinate position, that allows the borrower to obtainmultiple advances of the loan proceeds at his or her owndiscretion, up to an amount that represents a specifiedpercentage of the borrower’s equity in a property.
Home Inspection – A thoroughinspection that evaluates the structural and mechanicalcondition of a property. A satisfactory home inspectionis often included as a contingency by the purchaser.Contrast with appraisal.
Homeowners’ Association – Anonprofit association that manages the common areas of aplanned unit development (PUD) or condominium project. Ina condominium project, it has no ownership interest inthe common elements. In a PUD project, it holds title tothe common elements. See also master association.
Homeowner’s Insurance – Insurancecoverage that compensates for physical damage to aproperty from fire, wind, vandalism, or other hazards.The policy typically combines personal liabilityinsurance and property hazard insurance coverage for adwelling and its contents.
Homeowner’s Warranty (HOW) – Atype of insurance that covers repairs to specified partsof a house for a specific period of time. It may beprovided by the builder or property seller as a conditionof the sale but homeowners can also purchase it.
Housing Expense Ratio – Thepercentage of gross monthly income that goes towardpaying housing expenses.
HUD Median Income – Medianfamily income for a particular county or metropolitanstatistical area (MSA), as estimated by the Department ofHousing and Urban Development (HUD).
HUD-1 Settlement Statement -A document that provides an itemized listing of the fundsthat are payable at closing. Items that appear on thestatement include real estate commissions, loan fees,points, and initial escrow amounts. Each item on thestatement is represented by a separate number within astandardized numbering system. The totals at the bottomof the HUD-1 statement define the seller’s net proceedsand the buyer’s net payment at closing. The blank formfor the statement is published by the Department ofHousing and Urban Development (HUD). The HUD-1 statementis also known as the “closing statement” or”settlement sheet.”
I
Income Property – Realestate developed or improved to produce income.
Index – A number used tocompute the interest rate for an adjustable-rate mortgage(ARM). The index is generally a published number orpercentage, such as the average interest rate or yield onTreasury bills. A margin is added to the index todetermine the interest rate that will be charged on theARM. Some lenders provide caps that limit how much theinterest rate or loan payments may increase or decrease.
In-File Credit Report – Anobjective account, normally computer-generated, of creditand other financial information obtained from a creditreporting agencies.
Inflation – An increase inthe amount of money or credit available in relation tothe amount of goods or services available, which causesan increase in the general price level of goods andservices. Over time, inflation reduces the purchasingpower of a dollar, making it worth less.
Initial Draw Amount – Theamount of the home equity line of credit that theborrower is requesting at closing (up to, but neverexceeding, the credit line amount).
Initial Interest Rate – Thestarting 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 ofthe loan based on changes in a specified financial index.Sometimes known as “start rate,” “introrate” or “teaser rate.”
Introductory Rate – Thestarting 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 – Borrowedmoney that is repaid in equal payments, known asinstallments. A furniture loan is often paid for as aninstallment loan.
Insurable Title – A propertytitle that a title insurance company agrees to insureagainst defects and disputes.
Insurance – A contract thatprovides compensation for specific losses in exchange fora periodic payment. An individual contract is known as aninsurance policy, and the periodic payment is known as aninsurance premium.
Insurance Binder – Adocument that states that insurance is temporarily ineffect. Because the coverage will expire by a specifieddate, a permanent policy must be obtained before theexpiration date.
Insured Mortgage – Amortgage that is protected by the Federal HousingAdministration (FHA) or by private mortgage insurance(PMI). If the borrower defaults on the loan, the insurermust pay the lender the lesser of the loss incurred orthe insured amount.
Interest – The amount thelender charges to lend you money.
Interest Accrual Rate – Thepercentage rate at which interest accrues on themortgage. In most cases, it is also the rate used tocalculate the monthly payments.
Interest Payment – Theportion of a monthly payment that goes to interest basedon the amortization schedule.
Interest Rate – Thepercentage rate of return charged for use of a sum ofmoney. This percentage rate is specified in the mortgagenote. See note rate.
Interest Rate Buydown Plan – Atemporary buydown gives a borrower a reduced monthlypayment during the first few years of a home loan and istypically paid for in an initial lump sum made by theseller, lender, or borrower. A permanent buydown is paidthe same way but reduces the interest rate over theentire life of a home loan.
Investment Property – Aproperty that is not occupied by the owner and isgenerally rented to a tenant to produce income.
J
Joint Tenancy – A form ofco-ownership that gives each tenant equal undividedinterest and rights in the property, including the rightof survivorship. Contrast with tenancy in common, tenancyby the entirety.
Judgment – A decree by acourt of law that one person, a debtor, is indebted toanother, a creditor, in a specified amount. The court mayplace a lien against the debtor’s real property ascollateral for payment of the judgment to the creditor.
Judgment Lien – A lien onthe property of a debtor resulting from a judgment.
Judicial Foreclosure – Atype of foreclosure proceeding used in some states thatis handled as a civil lawsuit where the court confirmsthe sales price for the property and the distribution ofthe sale proceeds.
Jumbo Loan – Any loan amountin excess of $252,700. Also called a nonconforming loan.
L
Late Charge – The penalty aborrower must pay when a payment is made a stated numberof days (usually 10-15) after the due date.
Lease – A written agreementbetween the property owner and a tenant that stipulatesthe conditions under which the tenant may use the realestate for a specified period of time and the amount ofrent to be paid.
Leasehold Estate – Atenant’s interest in or right to hold possession of aproperty.
Legal Description – Aproperty description, recognized by law, using agovernment rectangular survey, metes and bounds, or aplot map to sufficiently locate and identify a property.
Lender’s Fees – Fees paid tothe lender to cover costs associated with processing,underwriting and closing of the loan.
Lending Guidelines – Everyloan program has different guidelines. Guidelines areused to meet Federal, State and Local laws and enforceminimum requirements by the lender. Guidelines ensurethat prospective borrowers won’t purchase a home thatthey won’t be able to afford.
Liabilities – A person’sdebts or financial obligations. Liabilities includelong-term and short-term debt, as well as potentiallosses from legal claims.
Liability Insurance – Insurancecoverage that offers protection against claims allegingthat a property owner’s negligence or inappropriateaction resulted in bodily injury or property damage toanother party. See also homeowners insurance.
Lien – A legal claim againsta property that must be paid off when the property issold. A lien is created when you borrow money to purchaseor refinance a home loan or and with obtain a home equityloan.
Lifetime Rate Cap – For anadjustable-rate mortgage (ARM), a limit on the amountthat the interest rate can increase or decrease over thelife of the loan. See cap.
Line/Loan Amount – Theentire HELOC or Fixed Rate Second mortgage loan amount.
Line Of Credit – Anagreement by a lender to extend credit up to a certainamount for a certain time without the need for theborrower to file another application. See home equityline of credit.
Liquid Asset – A cash assetor an asset that is easily converted into cash.
Loan Amount – The amount ofmoney you want to borrow to purchase or refinance a home.Also called the principal and is generally repaid overtime with interest.
Loan Commitment – A lender’sagreement to advance money on specified terms afterspecified conditions are met. See commitment letter.
Loan Origination – Theprocess by which a mortgage lender makes a home loan andrecords a mortgage against the borrower’s real propertyas security for repayment of the loan.
Loan Program – Typically alender will have several types of loan programsavailable. They are described in accordance with themajor features of the loan program. For example, a loandescribed as a “Fixed 30 Year” would mean thatthe interest rate and payment remain fixed over thethirty year life of the loan. A program described as”Fixed/ARM 5/1″ means that the interest rateand payment remain fixed for the first five years, andthen it is subject to adjustments every year thereafter.
Loan-To-Value Ratio – Theratio of the total amount borrowed on a mortgage againsta property compared to the appraised value of theproperty. For example, if you have an $80,000 1stmortgage on a home with an appraised value of $100,000,the LTV is 80% ($80,000 / $100,000 = 80%).
Lock-In – A writtenagreement in which the lender guarantees a specified loanprogram interest rate and points if a mortgage goes toclosing within a set period of time.
Lock-In Period – The timeperiod during which the lender has guaranteed an interestrate to a borrower. See lock-in.
M
Margin – For anadjustable-rate mortgage (ARM) or home equity line ofcredit, the amount that is added to the index toestablish 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 lifeof the loan.
Master Association – Ahomeowners’ association in a large condominium or plannedunit development (PUD) project that is made up ofrepresentatives from associations covering specific areaswithin the project. In effect, it is a”second-level” association that handles mattersaffecting the entire development, while the”first-level” associations handle mattersaffecting their particular portions of the project.
Maturity – The date on whichthe principal balance of a loan, bond, or other financialinstrument becomes due and payable. At the maturity of a30-year loan the principal balance will be paid in full.
Maximum Financing – Themaximum amount a lender will lend on a specific loanprogram.
Maximum Rate – The maximuminterest rate that can accrue on a variable rate loan
Merged Credit Report – Acredit report that contains information from more thanone credit reporting agency. When the report is created,the information is compared for inconsistencies andduplicate entries. Any duplicates are combined to providea summary of a your credit.
Minimum Payment – Theminimum amount that must be paid monthly on an account.On the HELOC product, the minimum payment is interestonly during the draw period. On the Fixed Rate Secondproducts, the minimum payment is principal and interest.
Modification – The act ofchanging any of the terms of the mortgage.
Money Market Account – Asavings account that provides bank depositors with manyof the advantages of a money market fund. Certainregulatory restrictions apply to the withdrawal of fundsfrom a money market account.
Money Market Fund – A mutualfund that allows individuals to participate in managedinvestments in short-term debt securities, such ascertificates of deposit and Treasury bills.
Monthly Debt – A borrower’smonthly expenses including credit cards, installmentloans, student loan payments, alimony and child supportand housing payment expense.
Monthly Mortgage Insurance (MI)Payment – Portion of monthly payment that covers thecost of Private Mortgage Insurance.
Monthly Principal & Interest(P&I) Payment – Portion of monthly payment thatcovers the principal and interest due on the loan.
Monthly Taxes & Insurance(T&I) Payment – Portion of monthly payment thatfunds the escrow or impound account for taxes andinsurance.
Monthly Payment (P&I) – Thisis the monthly mortgage payment on a home loan, thisincludes principal and interest, but excludes any amountsthat are applied to taxes and insurance.
Mortgage – A legal documentthat pledges a property to the lender as security forpayment of a debt.
Mortgage Banker – A companythat originates, sells and services mortgages exclusivelyfor resale in the secondary mortgage market.
Mortgage Broker – Anindividual or company that brings borrowers and lenderstogether for the purpose of loan origination. Mortgagebrokers typically require a fee or a commission for theirservices.
Mortgagee – The lender in amortgage agreement.
Mortgage Insurance – Acontract that insures the lender against loss caused by aborrower’s default on a government mortgage orconventional mortgage. Mortgage insurance can be issuedby a private company or by a government agency such asthe Federal Housing Administration (FHA). Depending onthe type of mortgage insurance, the insurance may cover apercentage of or virtually all of the mortgage loan. Seeprivate mortgage insurance (PMI).
Mortgage Insurance Premium (MIP)- The amount paid by a borrower for mortgageinsurance, either to a government agency such as theFederal Housing Administration (FHA) or to a privatemortgage insurance (MI) company.
Mortgage Life Insurance – Atype of term life insurance sometimes bought byborrowers. The amount of coverage decreases as the loan’sprincipal balance declines. In the event that theborrower dies while the policy is in force, the debt isautomatically satisfied by insurance proceeds. See creditlife insurance.
Mortgagor – The borrower ina mortgage agreement.
Multi-Dwelling Units – Propertiesthat provide separate housing units for more than onefamily, although they secure only a single mortgage.Typically a 2-4 unit property.
N
Negative Amortization – Anincrease in the outstanding balance of a mortgage thatoccurs when the monthly payment is not large enough tocover the interest due. The amount of the shortfall isadded to the remaining balance to create”negative” amortization.
Net Cash Flow – The incomethat remains for an investment property after the monthlyoperating income is reduced by the monthly housingexpense, which includes principal, interest, taxes, andinsurance (PITI) for the mortgage, homeowners’association dues, leasehold payments, and subordinatefinancing payments.
No Closing Cost Loan – Aloan in which the fees the borrower(s) are not requiredto pay cash out-of-pocket at closing for the normalclosing costs. The lender typically includes the closingcosts in the principal balance or charges a higherinterest rate than for a loan with closing costs to coverthe advance of closing costs.
Net Worth – The value of allof a person’s assets, including cash, minus allliabilities.
Non-Conforming Loan – Seejumbo loan.
Non-Liquid Asset – An assetthat cannot easily be converted into cash.
“No Out Of PocketCost” Loan – A loan in which the fees theborrower(s) are not required to pay cash out-of-pocket atclosing for the normal closing costs. The lendertypically includes the closing costs in the principalbalance or charges a higher interest rate than for a loanwith closing costs to cover the advance of closing costs.
Notary – An officialauthorized by law to attest and certify certain documentsby his or her hand and official seal.
Note – A legal document thatobligates a borrower to repay a mortgage loan at a statedinterest rate during a specified period of time.
Note Rate – The interestrate stated on a mortgage note.
Notice Of Default – A formalwritten notice to a borrower that a default has occurredand that legal action may be taken.
O
Original Principal Balance – Thetotal amount of principal owed on a mortgage before anypayments are made.
Origination Fee – A fee paidto a lender for processing a loan application, making ahome loan, and recording a mortgage against theborrower’s real property as security for repayment of theloan. The origination fee is stated in the form ofpoints. One point is 1% of the mortgage amount (e.g.,1,000 on a $100,000 loan).
Owner Financing – A propertypurchase transaction in which the property sellerprovides all or part of the financing and takes back asecurity instrument.
P
Partial Payment – A paymentthat is not sufficient to cover the scheduled monthlyprincipal and interest payment on a mortgage loan.
Payment (P&I) – Yourmonthly mortgage payment, including principal andinterest, but excluding Tax and insurance payments.
Payment Change Date – Thedate when a new monthly payment amount takes effect on anadjustable rate mortgage (ARM). Generally, the paymentchange date occurs in the month immediately after theadjustment date and the borrower is notified 30 daysprior as to the new rate.
Payoff – To pay theoutstanding balance of a loan in full.
Periodic Payment Cap – Aprovision of an adjustable-rate mortgage (ARM) thatlimits how much the interest rate or loan payments mayincrease or decrease. In upward rate markets, it protectsthe borrower from large increases in the interest rate ormonthly payment at each adjustment period. See cap.
Periodic Rate Cap – Aprovision of an adjustable-rate mortgage (ARM) thatlimits how much the interest rate or loan payments mayincrease or decrease. In upward rate markets, it protectsthe borrower from large increases in the interest rate ormonthly payment at each adjustment period. See cap.
Personal Property – Anyproperty that is not real property or is not permanentlyfixed to land. Cash, furniture, and cars are all examplesof personal property.
Piggyback – A combination oftwo loans. Example: A loan is made for 90% of the homeprice. 80% of the purchase price is supplied by a 1stmortgage and 10% by a 2nd mortgage. The 2nd mortgage ispiggybacked on the 1st.
PITI – An abbreviation forthe parts of a typical monthly mortgage payment. PITIstands for principal-Interest-Taxes-Insurance. Seeprincipal, interest, taxes, and insurance.
PITI Reserves – A cashamount that a borrower must have on hand after making adown payment and paying all closing costs for thepurchase of a home. The principal, interest, taxes, andinsurance (PITI) reserves must equal the amount that theborrower would have to pay for PITI for a predefinednumber of months.
Planned Unit Development – SeePUD.
PMI – Stands for PrivateMortgage Insurance. PMI is an insurance policy theborrower buys to protect the lender from non-payment ofthe loan. PMI policies are usually required if you make adown payment that is below 20% of the sales price of thehome.
Points (Loan DiscountPoints) – Points are prepaid interest on your mortgage. Aone-time fee charged by the lender at the time of closingfor originating a loan. Each point is 1% of the loanamount – that is, 2 points on a $100,000 mortgage wouldbe $2,000.
Power Of Attorney – A legaldocument authorizing one person to act on another’sbehalf. A power of attorney can grant complete authorityor can be limited to certain acts and/or certain periodsof time.
Pre-Approval – A lender’sconditional agreement to lend a specific amount onspecific terms to a homebuyer. (subject to satisfactoryappraisal and no change in financial condition). You canshop with assurance, because you’ll know up-front howlarge a loan you could qualify for.
Preforeclosure Sale –Aprocedure in which the investor allows a mortgagor toavoid foreclosure by selling the property, typically forless than the amount that is owed to the lender.
Pre-Paid Items (Prepaids) – Itemsrequired by lender to be paid at closing prior to theperiod they cover such as prorated property taxes,homeowners insurance and pre-paid interest.
Pre-Paid Interest – Mortgageinterest that is paid in advance of when it is due.
Prepayment – Any amount paidto reduce the principal balance of a loan before the duedate. Payment in full on a mortgage that may result froma sale of the property, the owner’s decision to pay offthe loan in full, or a foreclosure. In each case,prepayment means payment occurs before the loan has beenfully amortized.
Prepayment Penalty – A feethat may be charged to a borrower who pays off a loanbefore it is due. Generally, a prepayment penalty isadded to a loan in exchange for a discounted rate.
Pre-Qualification – Apreliminary analysis of a borrower’s ability to affordthe purchase of a home. An affordability analysis takesinto 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 theestimated closing costs.
Primary Residence – Theplace someone lives most of the time.
Prime Rate – The interestrate that banks charge on short-term loans to its mostcreditworthy customers. Changes in the prime rateinfluence changes in other rates, including mortgageinterest rates.
Principal – The amountborrowed or remaining unpaid. The part of the monthlypayment that reduces the remaining balance of a mortgage.
Principal Balance – Theoutstanding balance on a mortgage. The principal balancedoes not include interest or any other charges. Seeremaining balance.
Principal, Interest, Taxes, andInsurance (PITI) – Four potential components of amonthly mortgage payment. Principal refers to the part ofthe monthly payment that reduces the remaining balance ofthe mortgage. Interest is the fee charged for borrowingmoney. Taxes and insurance refer to the amounts that maybe paid into an escrow account each month for propertytaxes and mortgage and hazard insurance.
Principal Payment – Portionof your monthly payment that reduces the remainingbalance of a home loan.
Private Mortgage Insurance (PMI)- Mortgage insurance that is provided by a privatemortgage insurance company to protect lenders againstloss if a borrower defaults. Most lenders generallyrequire PMI for a loan with a loan-to-value (LTV)percentage in excess of 80 %.
Processing – The preparationand documentation of a mortgage loan application forunderwriting.
Promissory Note – A writtenpromise to repay a specified amount over a specifiedperiod of time.
Property Value – LTV or Loanto Value Ratio refers to the relationship between theunpaid principal balance of the mortgage and theproperty’s appraised value (or sales price if it islower).
Public Auction – A meetingin an announced public location to sell property to repaya mortgage that is in default.
PUD (Planned Unit Development) –A project or subdivision that includes commonproperty that is owned and maintained by a homeowners’association for the benefit and use of the individual PUDunit owners.
Purchase Agreement – Awritten contract signed by the buyer and seller statingthe terms and conditions under which a property will besold.
Purchase Money Transaction – Aloan used in part as payment for a purchase. A loan thatis used to buy a home is called a purchase moneymortgage.
Purchase Price – The totalamount paid for a home.
Q
Qualifying Ratios – Calculationsthat are used in determining whether a borrower canqualify for a mortgage. They consist of two separatecalculations: a housing expense as a percent of incomeratio and total debt obligations as a percent of incomeratio.
Quit Claim Deed – A deedthat transfers, without warranty of ownership, whateverinterest or title a grantor may have at the time theconveyance is made.
R
Rate – This is the annualinterest rate applied to the outstanding balance of theloans.
Rate Reduction Option – Afixed-rate mortgage that includes a provision that givesthe borrower an option to reduce the interest rate(without refinancing) at a later date. It is similar to aprearranged refinancing agreement, except that it doesnot require re-qualifying.
Rate Lock – A commitmentissued by a lender to a borrower guaranteeing a specifiedinterest rate for a specified period of time. Seelock-in.
Real Estate Agent – A personwho is normally licensed by the state and who, for acommission or a fee, assists in negotiating a real estatetransaction.
Real Estate SettlementProcedures Act (RESPA) – A consumer protection lawthat, among other things, requires advance disclosure ofsettlement costs to home buyers and sellers, prohibitscertain types of referral and other fees, sets rules forescrow accounts, and requires notice to borrowers whenservicing of a home loan is transferred.
Real Property – Land andappurtenances, including anything of a permanent naturesuch as structures, trees, minerals, and the interest,benefits, and inherent rights thereof.
REALTOR® – A real estatebroker or an associate who holds active membership in alocal real estate board that is affiliated with theNATIONAL ASSOCIATION OF REALTORS®.
Recording – Filing adocument in the public records, thereby givingconstructive notice to the world of the existence of thedocument and its contents.
Reduced Documentation – Amethod used to determine income when qualifying aborrower(s) for a loan. Borrower(s) provide their income,however no verification documentation is typicallyrequired.
Rescission – The act ofcancellation or annulment of a transaction or contract bythe operation of a law. Borrowers usually have the optionto cancel certain credit transactions, including arefinance or home equity transaction, within threebusiness days after consummation (when the consumerbecomes contractually obligated by, for example, signingthe loan documents).
Recorder – The publicofficial who keeps records of transactions that affectreal property in the area. Sometimes known as a”Registrar of Deeds” or “CountyClerk.”
Recording – The noting in abook of public record of the terms of a legal documentaffecting title to real property, such as a deed, amortgage note, a satisfaction of mortgage, or anextension of mortgage.
Refinance Transaction – Theprocess of paying off one loan with the proceeds from anew loan, typically using the same property as securityfor the new loan.
Rehabilitation Mortgage – Amortgage created to cover the costs of repairing,improving, and sometimes acquiring an existing property.
Remaining Balance – Theamount of principal that has not yet been repaid. Seeprincipal balance.
Remaining Term – Theoriginal amortization term minus the number of paymentsthat have been applied.
Rent With Option To Buy – Seelease-purchase mortgage loan.
Repayment Plan – Anarrangement made to repay delinquent installments oradvances. Lenders’ formal repayment plans are oftencalled “relief provisions.”
Revolving Liability – Acredit arrangement, such as a credit card or HELOC, thatallows a customer to borrow against a predetermined lineof credit when purchasing goods and services. Theborrower makes payments on the amount that is actuallyborrowed plus any interest due.
Request For Notice of Default – Arecorded document that obligates the holder of the firstmortgage lien to notify subordinate lien holders in theevent of default by the borrower.
Right Of First Refusal – Aprovision in an agreement that requires the owner of aproperty to give another party the first opportunity topurchase or lease the property before he or she offers itfor sale or lease to others.
Right Of Ingress or Egress – Theright to enter or leave designated premises.
Right Of Survivorship – Injoint tenancy, the right of survivors to acquire theinterest of a deceased joint tenant.
Rural Housing Service (RHS) – Anagency within the Department of Agriculture. This agencyprovides financing to farmers and other qualifiedborrowers buying property in rural areas who are unableto obtain loans elsewhere. Funds are borrowed from theU.S. Treasury.
S
Sale-Lease Back – Atechnique in which a seller deeds property to a buyer fora consideration, and the buyer simultaneously leases theproperty back to the seller.
Second Home – A propertyoccupied part-time by a person in addition to his or herprimary residence.
Second Mortgage – A mortgagethat has a lien position subordinate to the firstmortgage.
Secondary Mortgage Market – Aninformal market where lenders and investors buy and sellexisting mortgages. Government-sponsored entities andprivate investors buy mortgages from lenders who use theproceeds to make additional loans.
Secured Loan – A loan thatis backed by collateral. If the borrower defaults, thelender can sell the collateral to satisfy the debt.
Security – The property thatwill be pledged as collateral for a loan. If the borrowerdefaults, the lender can sell the collateral to satisfythe debt.
Security Interest – Aninterest a lender takes in the borrower’s property toassure repayment of a debt. If the borrower defaults, thelender can sell the collateral to satisfy the debt.
Seller Take-Back – Anagreement in which the owner of a property providesfinancing, often in combination with an assumablemortgage. See owner financing.
Servicer – An organizationthat collects principal and interest payments fromborrowers and manages borrowers’ tax and insurance escrowaccounts. A mortgage banker is often paid a fee toservice mortgages that have been purchased by an investorin the secondary mortgage market.
Servicing – The collectionof principal and interest payments from borrowers andmanagement of borrowers’ tax and insurance escrowaccounts.
Settlement – See closing.
Settlement Sheet – See HUD-1settlement statement.
Single Family Residence – Aresidential structure designed to include one dwelling.
Special Deposit Account – Anaccount that is established for rehabilitation mortgagesto hold the funds needed for the rehabilitation work sothey can be disbursed from time to time as particularportions of the work are completed.
Stand Alone – A Home Equityloan originated without obtaining a Countrywide firstmortgage at the same time.
Start Date – The date youwant to use as the start date for the amortization,usually the date you closed on your loan or today’s date.
Start Month – The date youwill begin adding an extra dollar amount to your regularmonthly payments. Enter the payment number from 1 to 360(e.g., if you will start paying extra principal at thestart of year 5 of a 30 year loan, enter “49”.
Start Rate – See initialinterest rate.
Subdivision – A housingdevelopment that is created by dividing a tract of landinto individual lots for sale or lease.
Sub-Escrow – Are feescharged by the escrow company for allowing the borrowerto be able to sign all the loan documents in the Escrowoffice instead of having to go to the lenders office.
Subordinate Financing – Anymortgage or other lien that has a priority that is lowerthan that of the first mortgage. The subordinate loan hasa claim to payment in a foreclosure only after the firstmortgage is paid.
Subprime – Subprime Lendingis also called B&C lending. It refers to a categoryof loan programs that offer more lenient underwritingprovisions and expanded credit guidelines. Theseprovisions allow more flexibility in approving loans forborrowers who have less-than-perfect credit. Subprimeloans are available at various interest rates and terms.They also offer capabilities for debt consolidationallowing borrowers to get a mortgage with enough extracash to consolidate loans.
Subsidized Second Mortgage – Analternative financing option known as the CommunitySeconds� mortgage for low- and moderate-incomehouseholds. An investor purchases a first mortgage thathas a subsidized second mortgage behind it. The secondmortgage may be issued by a state, county, or localhousing agency, foundation, or nonprofit corporation.Payment on the second mortgage is often deferred andcarries a very low interest rate (or no interest rate).Part or all of the second mortgage debt may be forgivendepending on how long the buyer remains in the home.
Survey – A drawing or mapshowing the precise legal boundaries of a property, thelocation of improvements, easements, rights of way,encroachments, and other physical features.
Sweat Equity – Contributionto the construction or rehabilitation of a property inthe form of labor or services performed personally by theowner.
T
Tax Bracket – Please selectthe tax bracket you fall under. If you are unsure whattax bracket you are in, you may want to speak with anaccountant find out.
Tax Savings – This is theamount of money you save in income taxes. You save thismoney because in most cases the interest you pay on yourhome loan is tax deductible!
Tax Service – A feecollected to set up a third-party to monitor theborrower’s property tax payments to ensure that thepayments are made on time, and to prevent tax liens fromoccurring.
Tenancy By The Entirety – Atype of joint tenancy of property that provides right ofsurvivorship 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.
Tenancy In Common – A typeof joint tenancy in a property without right ofsurvivorship. Contrast with tenancy by the entirety andwith joint tenancy.
Term – The term of a homeloan is the number of years the home loan is amortizedfor. Home loans are generally amortized over 15, 20 or 30years.
Termite Report – A reportthat results from an inspection by a professional todetermine if the property has termites.
Third Party Fees – Feescollected by lender for services provided by othercompanies, such as an appraiser.
Third Party Origination – Aprocess by which a lender uses another party tocompletely or partially originate, process, underwrite,close, fund, or package the home loan. See mortgagebroker.
Title – A legal documentevidencing a person’s right to or ownership of aproperty.
Title Company – A companythat specializes in examining and insuring titles to realestate.
Title Insurance – Insurancethat protects the lender (lender’s policy) or the buyer(owner’s policy) against loss arising from disputes overownership of a property.
Title Insurance Endorsements– This is an endorsement of insurance against losses thatmay result from claims of previously unknown ownership ininsured property.
Title Search – A check ofthe title records to ensure that the seller is the legalowner of the property and that there are no liens orother claims outstanding.
Total Expense Ratio – Totalobligations as a percentage of gross monthly income. Thetotal expense ratio includes monthly housing expensesplus other monthly debts. Used to help qualify apotential borrower for a home loan.
Total Monthly Payment – SeeMonthly PITI payment.
Transaction Fee – A feecharged each time the borrower draws on the credit line.
Transfer of Ownership – Anymeans by which the ownership of a property changes hands.Lenders consider all of the following situations to be atransfer of ownership: the purchase of a property”subject to” the mortgage, the assumption ofthe mortgage debt by the property purchaser, and anyexchange of possession of the property under a land salescontract or any other land trust device.
Transfer Tax – State orlocal tax payable when title to a property passes fromone owner to another.
Treasury Index – An indexthat is used to determine interest rate changes forcertain adjustable-rate mortgage (ARM) plans. It is basedon the results of auctions that the U.S. Treasury holdsfor its Treasury bills and securities or is derived fromthe U.S. Treasury’s daily yield curve, which is based onthe closing market bid yields on actively traded Treasurysecurities in the over-the-counter market. Seeadjustable-rate mortgage (ARM).
Truth-in-Lending – A federallaw 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 othercharges.
Two To Four-Family Property – Aproperty that consists of a structure that providesliving space (dwelling units) for two to four families,although ownership of the structure is evidenced by asingle deed. See multi-unit housing.
Trustee – A fiduciary whoholds or controls property for the benefit of another.
U
Underwriting – The analysisof risk, the determination of the appropriate loanamount, and the setting of loan terms and conditions,based on the borrower’s creditworthiness and the value ofthe real property that will secure the loan.
Unsecured Loan – A loan thatis not backed by collateral.
V
VA Mortgage – A mortgagethat is guaranteed by the Department of Veterans Affairs(VA). Also known as a government mortgage.
Variable Rate – An interestrate that changes periodically in relation to an index.Payments may increase or decrease per the terms of theloan agreement or note.
Vested – Having the right touse a portion of a fund such as an individual retirementfund. For example, individuals who are 100 percent vestedcan withdraw all of the funds that are set aside for themin a retirement fund. However, taxes may be due on anyfunds that are actually withdrawn.
Veterans Affairs, Department of(VA) – An agency of the federal government thatguarantees residential mortgages made to eligibleveterans of the military services. The guarantee protectsthe lender against loss and thus encourages lenders tomake mortgages to veterans.
W
Warehouse – A closing-costfee representing the lender’s cost of holding aborrower’s loan temporarily prior to being sold on thesecondary mortgage market.
Y
Year Acquired – The date youacquired your existing mortgage, used to determine yourremaining balance.
Year-End Statement – Areport sent to the borrower each year. The report showshow much was paid in taxes and interest during the year,as well as the remaining mortgage loan balance at the endof the year.
