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