Any questions about home improvement loans, debt
consolidation, or home mortgage loans’ terminology can be answered here.
Frequently, we are asked by our clients to define certain words pertaining to
home mortgage loans, home equity lines, etc. With this in mind, we decided to
create a page specifically designed to answer your questions. Read below to get
a better understanding of the frequently used words in home improvement loans,
home mortgage loans, debt consolidation, and home equity lines. This glossary
will provide you with the tools you need to finalize whatever mortgage
opportunity you seek, whether you’re looking for debt consolidation, home
equity lines, home improvement loans, home mortgage loans or any other type of
loan.
From the alphabet above, click on the
first letter of the word you are looking for to jump to appropriate section of
the glossary.
Abstract (of Title)
A historical summary of all the recorded
transactions that affect the title to the property. An attorney or a title
company will review an abstract of title to determine if there are any problems
affecting the title to the property. All such problems must be cleared before
the buyer can be issued a clear and insurable title.
Acceleration Clause
A loan provision giving the lender the power to
declare all sums owing lender immediately due and payable upon the violation of
a specific loan provision, such as the sale of the property, or the failure to
make loan payments on time.
Example: John sells his property to Mary who takes
over John's mortgage payments. They do not notify the lender of this
transaction. The lender finds out that the title to the property has
transferred and calls the loan, since the loan documents state that the loan is
due on the sale of the property. John is now liable to pay his lender in full.
Accretion
The addition to land through natural forces like
wind or water.
Example: Deposit of soil carried by a river
Agreement of Sale
A written signed agreement between the seller
and the purchaser in which the purchaser agrees to buy certain real estate and
the seller agrees to sell upon terms of the agreement. Also known as contract
of purchase, purchase agreement, offer and acceptance, earnest money contract
or sales agreement.
Acknowledgment
Formal declaration before a public official
(typically a Notary Public) that one has signed a document. Required before
recording real estate legal documents, such as a deeds of trust.
Acre
A measure of land equal to 43,560 square feet.
ARM -
Adjustable Rate Mortgage
Also known as a variable rate mortgage. The interest rate on these mortgages
changes periodically.
Adjustment Period
This is the length of time for which the
interest rate is fixed on an adjustable. Therefore if the adjustment period is
six months, then the interest rate will remain fixed for six months, after
which time it will adjust.
Amortization
A gradual paying off of a debt by periodic
installments which pay principal and interest.
APR - Annual
Percentage Rate
The effective rate of interest for a loan per year. This rate is typically
higher than the note rate because it takes into account closing costs. This is
one way to compare loan programs offered by different lenders. Caution: The APR
is sometimes computed differently by different lenders and can be misleading.
Appraisal
An opinion or estimate of the value of a
property at a given date.
Arm's length transaction
A transaction among parties each of who acts in
his or her own best interest.
Example: A transaction between a father and his son
would NOT be an an Arm's length transaction
Assessment
A local tax levied against a property for a
specific purpose such as street lights.
Assumable Mortgage
A mortgage loan which allows a new home buyer to
take over the obligation of making loan payments with no change in the terms of
the loan. Assumable loans do not have a due-on-sale clause. The lender has to
be notified and agree to the assumption. The lender may require the buyer to
qualify for the loan and may charge an assumption fee. The seller should obtain
a written release from the lender stating clearly that he/she is no longer
liable to make mortgage payments. See also "Subject To".
Attorney In Fact
One who is authorized to act for another under a
power of attorney which may be general or limited in scope.
Example: John wants to sell his house but has to be
out of the country for 4 months. John gives authorization to Mary to sign the
grant deed to sell the property to a buyer. Mary becomes John's Attorney In
Fact.
Balloon (payment) Mortgage
Usually a short-term fixed-rate loan which
involves small payments for a certain period of time and one large payment for
the remaining amount of the principal at a time specified in the contract.
Example: A balloon mortgage for $25,000 has interest
only payments for 5 years at 12% ($250 per month), with the full principal of
$25,000 due and payable after 5 years.
Bankruptcy
The financial inability to pay one's debts when
due. The debtor surrenders his assets to the bankruptcy court. An individual
typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes
a payment plan to pay off debts). A bankruptcy stays on an individual's credit
report for 7 years.
Beneficiary
The person who receives or is to receive the
benefits resulting from certain acts.
Example: The lender is named as the beneficiary on a
mortgage loan.
Example: John has a life insurance policy for $100,000
with Jane as his beneficiary. Should John die - Jane will receive the benefits
i.e. $100,000.
Binder
Definition #1: A title insurance binder is the
written commitment of a title insurance company to insure title to the property
subject to the conditions and exclusions shown on the binder.
Definition #2: Preliminary agreement, normally secured
with earnest money, between a buyer and a seller as an offer to purchase real
estate.
Bi-weekly Mortgage
A mortgage which requires 1/2 the normal monthly
payment every two weeks. Over the course of the year, 26 half payments are made
which is equivalent to 13 full mortgage payments. As a result of this extra
payment the loan amortizes much faster than a loan with normal monthly
payments.
Blanket Mortgage
A mortgage covering more than one piece of
property.
Example: A developer subdivides a tract of land into
lots and obtains a blanket mortgage on the whole tract.
Bond
1. A debt instrument in the capital markets. The
U.S. government, corporations and municipalities use bonds to raise money.
Bonds can also be backed by mortgages. The best known bond is the 30 yr
treasury bond issued by the U.S. government.
2. A sum of money given to a court to guarantee
against a loss. For example if there is a lien on a property, the owner may
remove the lien by posting a bond.
Borrower (Mortgagor)
One who applies for a loan secured by real
estate and is responsible for repaying the loan (mortgage).
Bridge Loan
An interim loan typically used when the buyer is
unable to sell his/her house but needs money to close the transaction on the
house he/she is buying. The bridge loan is made on the buyers current residence
to finance the buyers new residence. The loan is paid off when the buyers
current residence is sold.
Broker
See Real Estate Broker or Mortgage Broker.
Buy Down
Obtaining a lower interest rate (buying down the
rate) by paying additional points to the lender. The lower rate may apply for
the full duration of the loan or for just the first few years. A buydown may be
used to qualify a borrower who would otherwise not qualify . This is because a
buydown results in lower payments which are easier to qualify for.
Example: A very popular buydown is the 2-1 buydown. If
the interest rate on the note is 9%, the buydown results in the rate being 7%
(9%-2%) for the first year, 8% (9%-1%) for the second year, and 9% thereafter.
Buyers Broker
An agent hired by a buyer to locate a property
for purchase. The broker represents the buyer and negotiates with the sellers
broker for the best possible deal for the buyer.
Buyers Market
Market conditions that favor buyers i.e. there
are more sellers than buyers in the market. As a result buyers have ample
choice of properties and may negotiate lower prices. Buyers markets may be
caused by an economic slump or overbuilding.
Bylaws
A set of regulations by which an organization
conducts its business.
Example: A condominium association prepares bylaws
that state the minimum number of owners to conduct a meeting to decide
policies.
Capital Gains
Profit earned from the sale of real estate. A
seller may defer taxes on the capital gain of his/her primary residence by
buying a higher priced residence within 2 years.
Cash Flow
The amount of cash derived over a certain period
of time from an income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage payment,
maintenance, utilities, etc.).
Caveat Emptor
A legal term meaning "let buyer beware". The
buyer must examine the property and buy at his/her own risk.
Example: A property may be offered in an "as is"
condition with no expressed or implied guarantee of quality or condition.
CC&R's - Covenants, conditions, and
restrictions.
The basic rules establishing the rights and
obligations of owners of real property within a condominium, townhouse, PUD,
subdivision or other tract of land. An association is organized for the purpose
of operating and maintaining property commonly owned by the individual owners.
The association is normally made up of property owners.
Certificate of Eligibility
The document issued by the Veterans
Administration to those that qualify for a VA loan which may be used to buy a
house with 0 down. Certificates of eligibility may be obtained by sending the
form DD-214 to the local VA office along with VA form 1880.
CRV - Certificate of Reasonable Value
An appraisal performed by an VA approved
appraiser which establishes the property's current market value. This value
establishes the ceiling on the maximum VA mortgage loan principal.
Certificate of Occupancy
Document issued by a local governmental agency
that states a property meets the local building standards for occupancy and is
in compliance with public health and building codes. This document is normally
required by a lender prior to closing the loan.
Certificate of Title
An opinion rendered by an attorney as to the
status of title to a property, according to the public records. This
certificate does not the same level of protection astitle insurance.
Chain of Title
The chronological order of conveyance of a
parcel of land from the original owner to the present owner.
Example: An abstractor can research title to property
going back to the date that the property was granted to the United States.
Clear Title
A marketable title, free of clouds and disputed
interests. Most lenders require a clear title prior to closing.
Closing
1. The act of transferring ownership of a
property from seller to buyer in accordance with a sales contract.
2. The time when a closing takes place.
Closing Costs
Expenses incurred by the buyer and seller in a
real estate or mortgage transaction. There are two types of costs : recurring
and non recurring.
Non-recurring costs are one time transactional costs
which include:
-
Discount and origination points
-
Lender fees - underwriting, processing, document
preparations, flood certificate, tax service, wire transfer, courier, etc.
-
Title insurance fees
-
Escrow, attorney or closing agent fees
-
Recording fees
-
Inspection and appraisal fees
-
Real estate brokerage commissions
Recurring fees are costs associated with owning the
property and they recur month after month. These costs may include
hazard insurance, interest, property taxes, mortgage insurance (PMI), and
association fees. A pro-rated amount of these fees may have to be paid at
closing including:
-
Pre-paid interest - interest charges from the date of
closing to the end of the month
-
Property taxes if due
-
Hazard insurance, fire insurance or homeowners
insurance has to be paid for one year
-
Mortgage insurance (PMI) - may be required if the
loan amount is more than 80% of the value of the property. In the past a whole
year of PMI had to be paid up front, however in recent years many PMI companies
only require 1-2 months up front. Mortgage insurance premiums are normally paid
every month with the loan payment
-
Impound account may need money to be set up for
future payments
Cloud on Title
An outstanding claim or encumbrance that, if
valid, would affect or impair the owner's title. Compare with clear title.
Commitment
A written document provided by a lender to
agreeing to make a loan on specific terms to a borrower or builder.
Condemnation
1. Taking private property for a public use with
compensation to the owner under eminent domain. Used by governments to acquire
land for streets, schools, freeways, etc and by utilities to acquire necessary
property.
2. Declaring a structure unfit for use because of
violations in housing codes or other reasons.
Conditional Commitment
A written document provided by a lender agreeing
to make a loan provided certain conditions are met prior to closing.
Condominium
Individual ownership of a dwelling unit and an
individual interest in the common areas and facilities which serve the
multi-unit project.
Construction loan
A short term loan to pay for the construction of
buildings or homes. These loans typically provide periodic disbursements to the
builder as each stage of the building is completed. When construction is
completed a take-out or permanent loan is used to pay off the construction
loan.
Consideration
Anything of value given to induce another to
enter into a contract. Earnest money deposit on a sales contract is
consideration.
Contingency
Conditions which must be satisfied before the
buyer can close the purchase of a property. Contingencies are generally
outlined in the purchase contract between the buyer and seller.
Example: The buyer has 14 days to remove the property
contingency under the sales contract. In this case the buyer has 14 days to
inspect the property and request the seller to perform repairs. If the buyer is
not satisfied with the condition of the property or if the buyer and the seller
cannot agree on repairs, the buyer may back out of the contract with no
penalty. After 14 days the buyer no longer has the right to back out with no
penalty as a result of a problem with the condition of the property.
Contract
An agreement between competent parties to do or
not do certain things for consideration.
Example: To have a valid contract for the sale of real
estate there must be :
-
An offer
-
An acceptance
-
Competent parties
-
Consideration
-
Legal purpose
-
Written documentation
-
Description of the property
-
Signatures by principals or their attorney-in-fact
Contract of Sale
Same as the Agreement of Sale
Contract sale or deed
A real estate installment selling arrangement
where the buyer may occupy the property but the seller retains the title until
the agreed upon sales price has been paid. Also known as an installment land
contract.
Example: John sells Mary a house. Mary has to put
$10,000 and pay $1,000 per month for 24 months, after which time she will
receive title to the property.
Conventional Loan
Any mortgage loan other than a VA or an FHA
loan. A convention loan may be conforming or non-conforming.
Conveyance
The transfer of title of real from one party to
another.
Co-op - cooperative
An apartment building or a group of dwellings
owned by a corporation, the stockholders of which are the residents of the
dwellings. It is operated for their benefit by their elected board of
directors. In a cooperative, the corporation or association owns title to the
real estate. A resident purchases stock in the corporation which entitles him
to occupy a unit in the building or property owned by the cooperative. While
the resident does not own his unit, he has an absolute right to occupy his unit
for as long as he owns the stock.
Convertible ARMs
Some variable loans come with options to convert
them to a fixed loan based on a pre-determined formula, during a given time
period. For example the 1 yr tbill adjustable may be converted to a fixed
during the first five years on the adjustment date. The means that you could
convert during the 13th, 25th, 37th, 49th and 61th months of the loan.
Credit Report
A report detailing a borrowers credit history
including payment history on revolving accounts (eg. credit cards) and
installment accounts (e.g.. car loan). A credit report also includes
information found from public records including tax liens and judgements.
Deed
A written document by which title to real
property is transferred from one owner to another. The deed should contain an
accurate description of the property being conveyed, should be signed and
witnessed according to the laws of the State where the property is located, and
should be delivered to the buyer at closing.
Deed of Trust
Used in many states in lieu of a mortgage to
secure the payment of a note. In a deed of trust there are three parties - the
borrower, the trustee, and the lender, (or beneficiary). In such a transaction,
the borrower transfers the legal title for the property to the trustee who
holds the property in trust as security for the payment of the debt to the
lender or beneficiary. If the borrower pays the debt as agreed, the deed of
trust becomes void. If, however, he/she defaults in the payment of the debt,
the trustee may sell the property without a court proceeding.
Deed Restriction
A clause in a deed that limits the use of land.
Example: A deed might require that a road cannot be
built on the land.
Default
Failure to meet legal obligations in a contract - such
as the failure to make the monthly mortgage payment.
Defective Title
Any recorded instrument that would prevent a
grantor/seller from giving a clear title.
Example: The seller has a contractor lien on the
property that was filed when he/she failed to pay the contractor for the
kitchen remodel. The seller may obtain clear title by paying the contractor and
removing the lien.
Deficiency Judgment
Personal claim against the debtor when the sale
of foreclosed property does not yield sufficient proceeds to pay off the
mortgages, accrued interest, legal fees, etc.
Depreciation
Decline in the value of a house due to wear and
tear, obsolescence, adverse changes in the neighborhood, or any other reason.
Discount Points
Fees paid to a lender to reduce the interest
rate.
Documentary Tax Stamps
Stamps affixed to a deed showing the amount of
transfer tax.
Dower
The rights of a widow or child to part of a
deceased husband's or fathers property.
Downpayment
The amount paid for the purchase of a property
in addition to the mortgage, but not including any closing costs.
Example: John buys a house for $100,000 and obtains a
loan for $80,000. His downpayment is $20,000.
Due on Sale Clause
A clause in the Deed of Trust or Mortgage that
states that the entire loan is due upon the sale of the property.
Dragnet Clause
A provision in a mortgage that pledges several
properties as collateral. A default in the mortgage could lead to foreclosure
proceedings on any of the properties in the dragnet.
Earnest Money
A deposit made by a buyer of real estate towards
the down payment to evidence good faith. This money is typically held by the
real estate brokers or the escrow company.
Easement
The right to use the land of another for a
specific purpose. Easements may be temporary or permanent.
Example: The utility company may need an easement to
run electric lines.
Eminent Domain
The right of the government or a public utility
to acquire property for necessary public use by condemnation, with proper
compensation to the owner.
Encroachment
A building, a part of a building, or an
obstruction (e.g.. a fence or a wall) that physically intrudes upon or overlaps
into the property of another.
Encumbrance
A legal right or interest in land that affects a
good or clear title, and diminishes the land's value. It can take numerous
forms, such as zoning ordinances, easement rights, claims, mortgages, liens,
charges, a pending legal action, unpaid taxes, or restrictive convenants. An
encumbrance does not legally prevent transfer of the property to another. A
title search is all that is usually done to reveal the existence of such
encumbrances, and it is up to the buyer to determine whether he wants to
purchase with the encumbrance, or what can be done to remove it.
Equity
Equity = Property Value - Loans/Liens Against
the property.
Equity is typically expressed as a percentage of the
property value.
Equity Sharing
Joint ownership of a property between the
owner/occupant and the owner/investor, that results in tax advantages for both
parties. Upon sale of the property the joint owners split profits based on the
percentage they own.
Escrow
1. Neutral third party that handles all funds in
a real estate transaction. The buyer puts his deposit into escrow, the lender
funds the loan into escrow. Escrow pays the real estate brokers commission,
pays off any loans/liens against the property, pays real estate taxes and any
other fees associated with the transaction and sends the balance of the money
to the seller.
2. Escrow payment - see impound account.
Escheat
The reversion of property to the state in the
event that the owner dies without leaving a will and has no legal heirs.
Executor (Executrix - feminine for Executor)
A person named in a will to carry out its
provisions for the disposition of the estate.
Federal National Mortgage Association (FNMA,
Fannie Mae)
Purchases loans from lenders, securitizes them
and sells FNMA mortgage backed securities on wall street.
Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.
Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of
Agriculture, that administers assistance programs for purchasers of homes and
farms in small towns and rural areas.
Federal Home Loan Mortgage Corporation (FHLMC,
Freddie Mac)
Purchase loans from members of the Federal
Reserve and the Federal Home Loan Bank Systems, securitizes them and sells
FHLMC mortgage backed securities on wall street.
Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing
and Urban Development (HUD) that administers loan programs, issues loan
guarantees to make more housing available.
Federal Reserve System
The central federal banking system that
regulates and provides services to member commercial banks. Also has the
responsibility for conducting federal monetary policy.
Fee Simple (Fee Absolute or Fee Simple Absolute)
Absolute ownership of real property; owner is
entitled to the entire property with unconditional power of disposition during
the owners life and upon his death the property descends to the owner's
designated heirs.
Fidelity Bond
An assurance, generally purchased by an
employer, to cover employees who are entrusted with valuable property or funds.
Example: A landlord employs a clerk who collects
rents. To safeguard these funds during the collection process, the landlord
purchases a fidelity bond the clerk.
Fiduciary
A person in a position of trust or
responsibility with specific duties to act in the best interest of a client. A
real estate broker is a fiduciary for his/her clients.
Finance Charge
Interest charged by a lender.
First Mortgage
A mortgage that has priority as a lien over all
other mortgages. In the case of a foreclosure the first mortgage will be
satisfied before other mortgages. See also second mortgage.
Fixture
Improvements or personal property attached to
the land so as to become a part of the real estate. Fixtures are transferred to
the buyer upon sale of the property. To determine whether an item is a fixture
include:
-
Intent - Was it intended to be part of the property?
-
How is it fixed?
-
Is the fixture essential to the property?
-
Relationship - Was the fixture intended to be a part
of the tenant's business?
Example: John sells his house to Mary. John wants to
take the chandelier because he states it is personal property. Mary wants the
chandelier to stay because she believes it is a fixture.
Flood Insurance
An insurance policy that covers property damage
due to natural flooding. Flood insurance may be required on properties in a
flood zone.
Foreclosure (Repossession)
A legal process by which the lender forces a
sale of a property because the borrower has not met the terms of the mortgage.
Free and clear
A property that has no liens.
FSBO
For sale by owner. A property for sale that is
not listed with a real estate broker.
Fully indexed rate
The fully indexed rate = value of the index +
margin. See adjustable loans.
General Warranty Deed
A deed in which the grantor (seller) agrees to the protect the grantee (buyer)
against any other claim to title of the property. See also warranty deed.
Government National Mortgage Association (GNMA,
Ginnie Mae)
A government agency part of HUD that buys VA and
FHA loans from lenders, securitizes them and sells Ginnie Mae securities to
investors.
Grantee
That party in the deed who is the buyer or
recipient.
Grantor
That party who is the seller or the giver.
Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially
(with potential negative amortization) which increase each year until the loan
is fully amortized.
Grandfather Clause
The clause in a law permitting the continuation
of a use, business, etc., which was permissible but because of a change in the
law is now no longer permissible.
Hazard Insurance (Fire Insurance, Homeowners
insurance)
Insurance on a property against fire and other
risks. A homeowners policy may have additional coverage for theft, liability,
etc that a fire insurance policy may not cover.
Homeowners Association
An association of homeowners in a particular
subdivision, planned unit development (PUD), or condominium organized to manage
the common area of the development and to enforce the association rules and
regulations.
Homestead
Status provided to a homeowner's principal
residence in some states that protects the home against judgements up to
specified amounts.
Homestead Exemption
Available in some states - this causes the
assessed value of a principal residence to be reduced by the amount of the
exemption for the purposes of calculating property tax.
Example: John's principal residence is assessed at
$100,000 and the homestead exemption is $7,000. His property taxes will be
based on $93,000.
Home Warranty Plan
Insurance that covers appliances, heating
systems, etc. Typically purchased at the time of closing.
Housing and Urban Development
A U.S. government agency established to
implement certain federal housing and community development programs.
Housing Code
A local government ordinance that sets minimum
standards of safety and sanitation for existing residential buildings.
HUD 1
A closing document required by HUD that outlines
the settlement cost of a loan. The closing agent prepares this document and
sends it to the buyer upon closing.
Hypothecate
To pledge a property as security without having
to give up possession of it.
Improvements
Additions to raw land such as buildings,
streets, etc that add value to the land.
Impound Account
That portion of a borrower's monthly payments
held by the lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due. Also known as
reserves.
Income Approach
A method used by an appraiser to estimate the
value of a property based on the income it generates.
Income Property
Real estate that generates rental income.
Examples : apartment buildings, office buildings and shopping centers.
Index
A statistic that indicates some current economic
of financial condition. Indexes are used to make adjustments in variable rate
loans.
Ingress and Egress
The right to go in and out over a piece of
property but not the right to park on it. See also Easements.
Installment Sale
See land contract.
Joint and Several Liability
A creditor can demand full repayment from any
and all of those who have borrowed. Each borrower is liable for the full debt,
not just the prorated share.
Joint Tennancy
Ownership of a property by 2 or more people,
each of whom has an undivided interest with the right of survivorship.
Example: John and Mary own a house in joint tenancy.
Each owns half of the entire (undivided) property. If John dies, Mary will own
the entire property and vice versa.
Judgement
The decision of a court of law stating that one
individual is indebted to another and fixing the amount of indebtedness.
Judgements, when recorded, become a lien on real property owned by the
defendant.
Judgement Lien
The claim on the property of a debtor resulting
from a judgement.
Jumbo Loan
Loan size that is larger than the limit
established by Fannie Mae or Freddie Mac.
Junior Mortgage
A mortgage subordinate to another mortgage. In
the case of a foreclosure a senior mortgage will be paid prior to a junior
mortgage.
Kicker
A payment required by a mortgage in addition to
normal principal and interest. Sometimes known as a participation loan.
Land Contract
A real estate installment selling arrangement
whereby the buyer may use and occupy land, but no deed is given by seller until
the sales price has been paid.
Lease with Option to Purchase
A lease under which the lessee has the right to
purchase the property. The option may run for a portion or for the full length
of the lease
Leasehold Estate
Tenant's right of possession for a specific
period of time under a lease agreement.
Legal Description
Legally acceptable identification of real estate
by one of the following:
-
The government rectangular survey
-
Metes and bounds
-
Recorded plat (lot and block number)
Lessee
A person to whom property is rented under a
lease. (Tenant)
Lessor
A person who rents property to another under a
lease. (Landlord)
Lien
A claim against the property for the payment of
a debt, judgement, mortgage or taxes.
Example: Unpaid contractors may file a mechanic's
lien.
Life Estate
An estate in real property for the life of a
living person. The estate then reverts back to the grantor or to a third party.
Lis Pendens
Latin for "lawsuit pending." Recorded notice
that litigation is pending on a property. Most lenders will require the
clearance of the Lis Pendens prior to closing.
Loan Application
A document required by a lender prior to loan
approval. The application includes detailed information about the borrower and
the property.
Loan origination fee or points
Charge by a lender or broker connected with
originating a loan. This is different from discount points which are used to
buy down the rate of interest.
Loan to Value Ratio (LTV)
The loan amount divided by the value of the
property.
Loan Servicing
The act of collecting loan payments, handling
property tax and insurance escrows, foreclosing on defaulted loans and
remitting payments to the investors.
Margin
A fixed number added to the index to compute the
rate on an adjustable rate mortgage.
Marketable Title
Title that is free of liens, clouds and other
legal defects and hence is readily acceptable by a buyer.
Market Value
The highest price that a buyer would pay and the
lowest price a seller would accept on a property. Market value may be different
from the price a property could actually be sold for at a given time.
Mechanics Lien
The right of an unpaid contractor or
subcontractor to file a lien against property to recover the amount due to
him/her.
Mortgage
A written instrument that creates a lien upon
real estate as security for the payment of a specified debt.
Mortgage Backed Security (MBS)
A bond or other financial obligation secured by
a pool of mortgage loans.
Mortgage Banker
Specializes in originating and servicing loans.
They generally sell their loans to investors, but may continue to service them.
Mortgage Broker
Arranges financing for a borrower by placing
loans with lenders. Mortgage brokers are paid a fee by the borrower or the
lender when a loan closes.
Mortgagee
The lender.
Mortgagor
The borrower.
Mortgage Insurance
See private mortgage insurance (PMI)
Mortgage Note
A written agreement to repay a loan. The
agreement is secured by a mortgage, serves as proof of an indebtedness, and
states the manner in which it shall be paid. The note states the actual amount
of the debt that the mortgage secures and renders the mortgagor personally
responsible for repayment.
Negative Amortization
An increase in principal balance which occurs
when the monthly payments do not cover all of the interest cost. The interest
cost which is not covered by the payment is added to the unpaid principal
balance.
Net Effective Income
The borrowers gross income minus federal income
tax.
Non-conforming loan
Loans that do not comply with Fannie Mae or
Freddie Mac guidelines.
Note
A written instrument that acknowledges a debt
and promises to pay.
Notary Public
One authorized to take acknowledgments of
certain types of documents, such as deeds, contracts, and mortgages.
Notice of default
A letter sent to the defaulting party as a
reminder of the default.
Offer
An expression of willingness to purchase a
property at a specified price.
Offeree
One who receives the offer. When the buyer makes
an offer to the seller the seller is an offeree.
Offeror
One who makes the offer. When the buyer makes an
offer to the seller the buyer is an offeror.
Office of Comptroller Currency
The oldest federal financial regulatory body
that oversees the nation's federally chartered banks.
Office of Thrift Supervision
The OTS charters federal thrift institutions and
is the primary regulator of all federal and many state-chartered thrift
institutions.
Open House
A method of showing a home for sale to
prospective buyers where the home is left open for inspection by those who may
be interested in making a purchase.
Open End Mortgage
A mortgage permitting the mortgagor to borrow
additional money under the same mortgage, with certain conditions.
Origination Fee
See Loan Origination Fee.
Optionee
One who receives or purchases an option.
Optionor
One who gives or sells an option.
Oral Contract
A verbal agreement. Verbal agreements for the
sale or use of real estate are normally unenforceable.
Owner of Record
The individual named on a deed that has been
recorded at the county recorders office.
Owner Occupant
A tenant of a residence who also owns the
property.
Package Mortgage
Mortgage covering both real and personal
property.
Paper
A mortgage, deed of trust or land contract
provided in lieu of cash.
Partial Release
A provision in a mortgage that allows some of
the property secured to be freed from serving as collateral.
Participation Mortgage
A mortgage that allows the lender to share in
part of the income or resale proceeds.
Pass Through Certificates
Interests in a pool of mortgages sold by
mortgage bankers to investors. Money collected as monthly mortgage payments is
distributed to those who own certificates..
Permanent Loan or Mortgage
A mortgage for a long period of time. Often
referred to as the mortgage that pays off a construction loan on a completed
property.
Permit
A document issued by a government regulatory
authority that allows the bearer to take some specific action.
An occupancy permit allows the owner of a building to
occupy or rent the building.
PITI
Abbreviation for principal, interest, taxes and
insurance, which may be combined in a single monthly mortgage payment.
Planned Unit Development (PUD)
A zoning classification that allows flexibility
in the design of a subdivision. PUD's include individually owned units as well
as some common space that is jointly owned.
Plat
A plan or map of a specific land area.
Plat Book
A public record containing maps of land, showing
the division of the land into streets, blocks, and lots and indicating the
measurements of the individual parcels.
Points
Fees paid to lenders. 1 point = 1% of the loan
amount. On a $100,000 loan 1 point is $1000. Points may be further classified
into origination points or discount points.
Portfolio Loan
A loan that is held as an investment by a bank
or savings and loan, and NOT sold on the secondary market to investors.
Power of Attorney
A written document authorizing a person to act
on the behalf of another person. That person does not have to be an attorney.
See Attorney-in-fact.
Prepaid Interest
Prepaid interest is the interest charged to
borrowers at closing to pay for the cost of borrowing for a balance of the
month. For example, if a loan closes on the 19th of the month and the first
payment is due on the 1st of the following month, the lender will charge 12
days of prepaid interest.
Prepayment
Full or partial payment of the principal before
the due date. This might occur if the borrower makes extra payments, sells the
property, or refinances the existing loan.
Prepayment Penalty
Fees paid by the borrower if they pay the loan
before its due date.
Primary Mortgage Market
Companies that originate and service mortgage
loans (banks, savings & loans, credit union, mortgage bankers,
institutional lenders) make up the primary mortgage market. See also secondary
mortgage market.
Prime Rate
The lowest commercial interest rate charge by a
bank on short term loans to their most credit worthy customers. View current
prime rate.
Principal
The outstanding balance on a loan.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent
down payment, lenders will allow a smaller down payment - as low as 2 percent
in some cases. With the smaller down payment loans, however, borrowers are
usually required to carry private mortgage insurance. Private mortgage
insurance payments are normally made annual or monthly. An impound account may
be required.
Probate
Court process to establish the validity of the
will of a deceased person.
Purchase Money Mortgage
A mortgage used to finance the purchase of a
property.
Property Tax
A government levy based on the market value (as
assessed by the county assessor's office) of the property.
Public Sale
An auction of property with notice to the
general public.
Purchase Agreement
See Agreement of Sale.
Quiet Title (Action)
A court action to settle a title dispute.
Quit Claim Deed
A deed which transfers whatever interest the
maker of the deed may have in the particular parcel of land. A quitclaim deed
is often given to clear the title when the grantor's interest in a property is
questionable. By accepting such a deed the buyer assumes all the risks. Such a
deed makes no warranties as to the title, but simply transfers to the buyer
whatever interest the grantor has.
Realtor
A real estate professional who is a member of
the National Association of Realtors.
Real Estate Broker
An individual who often owns a real estate
company or is in a management position, and who is licensed to represent a
buyer or a seller in a real estate transaction.
Real Estate Settlement Procedure Act (RESPA)
A law that states how mortgage lenders must
treat those who apply for real estate loans on property with 1-4 units.
Example: A lender is required to provide a good faith
estimate of closing costs within 3 days of an application being filed.
Redlining
The practice of refusing to provide loans or
insurance in a certain neighborhood.
Refinancing
Repaying an existing loan from the proceeds of a
new loan on the same property.
Reconveyance
When a mortgage is paid off in full, the lender
conveys the property back to the owner.
Recording
The act of entering into a book of public
records instruments affecting title to the real property. A lender requires
that a deed of trust or a mortgage be recorded to evidence the debt against the
property.
Recision
The cancellation of a contract. When refinancing
a mortgage on a principal residence the law gives the homeowner three days to
cancel the contract
Recourse
The right of the holder of a note secured by a
mortgage or deed of trust to claim money from the borrower in default in
addition to the property pledged as a collateral.
Regulation Z (Reg Z)
A federal regulation requiring creditors to
provide full disclosure of the terms of a loan including the terms of the loan
and the annual percentage rate (APR).
Real Estate Investment Trusts (REIT)
A trust that uses investors money to purchase
and manage real estate. Investors realize some of the tax advantages in owning
real estate.
Right of survivorship
The right of a surviving joint tenant to acquire
the interest of a deceased joint owner.
Reverse Mortgage
A mortgage used by the elderly that provides
income as long as they live in exchange. Payments made cause the loan principal
to increase.
Rollover Loan
A loan that is amortized over a long period of
time (e.g. 30 yrs) but the interest rate is fixed for a short period (e.g. 5
yrs). The loan may be extended or rolled over, at the end of the shorter term,
based on the terms of the loan.
Restrictive Covenants
Private restrictions limiting the use of real
property. Restrictive covenants are created by deed and may "run with the
land," binding all subsequent purchasers of the land, or may be "personal" and
binding only between the original seller and buyer.
Sales Agreement or Sales Contract
See Agreement of Sale.
Savings & Loan
Depository institutions that specialize in
originating, servicing and holding mortgage loans primarily on owner occupied
residential property.
Secondary Mortgage Market
The market where banks, savings & loans and
mortgage bankers can sell mortgages to investors like Fannie Mae or Freddie
Mac.
Second Home
Also known as a vacation home. This home is
different from an investment property as it is not rented, but used
occasionally by the owners.
Second Mortgage
A subordinated lien, created by a mortgage loan,
over the amount of a first mortgage. Second mortgages generally carry a higher
rate than a first mortgage since they represent a higher risk for an investor.
Section 8 Housing
Privately owned rental units participating in
the low-income rental assistance program. Landlords receive subsidies on behalf
of qualified low-income tenants, allowing the tenants to pay a limited
proportion of their incomes toward the rent.
Section 1031
The section of the IRS that deals with tax free
exchanges of certain property. General rules for tax free exchanges are :
The properties must be :
-
Exchanged
-
Similar
-
Used for business or as an investment
Security
Property that serves as collateral for a debt.
Servicing
The act of billing, collecting payment, filing
reports, managing impound accounts and handling defaults on a mortgage.
Settlement Cost (HUD guide)
A booklet that provides an overview of the
lending process and is required to be given to consumers after the loan
application is completed.
Settlement Statement
See HUD 1
Special Assessment
A special tax imposed on property, individual
lots or all property in the neighborhood to pay for improvements - street
lights, sidewalks, etc.
Special Warranty Deed
The grantor does not warrant against title
defects arising from conditions that existed before he/she owned the property.
The seller warrants that he/she has done nothing to impair title.
Shared Appreciation Mortgage
A residential loan with a fixed interest rate
that is below market, with the lender entitled to a specified share of
appreciation of the property over an agreed upon time interval.
Sheriff's Deed
A deed given at the sheriff's sale in the
foreclosure of a mortgage.
Single Family Housing (SFR)
A type of residential structure designed to
include one dwelling.
Example: Town houses, detached units.
Spec House
A single family dwelling constructed by a
builder in anticipation of finding a buyer.
Specific Performance
A legal action in which the court requires a
party to a contract to perform the terms of the contract when the party has
refused to fulfill its obligations.
Standard Uniform Loan Application (Form 1003)
A standard loan application widely used in the
mortgage industry.
Subdivision
A tract of land divided into lots suitable for
home building purposes.
Subordination
A loan in a lower priority, for example a second
mortgage is subordinate to a first.
Subject To (Purchasing subject to a mortgage)
The buyer agrees to make payments on the
existing mortgage, without notifying the lender. The seller remains liable for
making payments on the loan if the buyer does not make the mortgage payment.
The buyer is not personally liable for mortgage payments, but must make
payments to keep the property. See also Assumable Mortgage
Survey
Map made by a licensed surveyor who measures
land and charts its boundaries, improvements and relationship to the property
surrounding it.
Sweat Equity
Value added to a property due to improvements
made personally by the owner.
Takeout Financing
A commitment to provide permanent financing upon
completion of construction. The take out loan normally pays off the
construction loan.
Tax Lien
Lien for nonpayment of taxes
Tax Sale
Public sale of a property at an auction by a
government authority as a result of non-payment of taxes.
Teaser Rate
A low initial interest rate on a mortgage.
Tenancy at Sufferance
Tenancy established when a person who had been a
lawful tenant wrongfully remains in possession of property after expiration of
a lease.
Tenancy at Will
A license to use or occupy land and buildings at
the will of the owner. The tenant may decide to leave the property at any time
or must leave at the landlords will.
Tenancy by the Entirety
A form of ownership by husband and wife whereby
each owns the entire property. In event of the death of one, the survivor owns
the property without probate
Tenancy for Years
Created by a lease for a fixed term, such as 6
months, 2 years, etc.
Tenancy in Common
Ownership of a property by 2 or more persons,
each of whom has an undivided interest, without the right of survivorship. Upon
the death of one of the owners, the ownership share of the deceased is
inherited by the beneficiary designated on the owner's will.
Tenancy in Severalty
Ownership of property by one person.
Time is of the Essence
Legal phrase in a contract requiring all
references to specific dates and times noted in the contract be interpreted
exactly.
Time Share
A form of property ownership under which a
property is held by a number of people, each with the right of possession for a
specified time interval. Time sharing is used mostly for vacation properties.
Title
Evidence that the owner of the property is in
lawful possession. Evidence of ownership.
Title Insurance
An insurance policy which protects the insured
against loss arising from defects in title. Title insurance policies are
typically obtained for the buyer and the lender.
Title Report
A document indicating the current state of
title. The report includes information on the current ownership, outstanding
deeds of trust or mortgages, liens, easements, convenants, restrictions, and
any defects.
Title Search
An examination of the public records to
determine the ownership and encumbrances affecting the property.
Town House
Residence which normally has 2 or more floors
and is attached to other similar units. Town houses are commonly found in
planned unit developments (PUDs) and condominiums.
Tract
A parcel of land, generally held for
subdividing.
Transfer Tax
Tax paid to the city, county, state or other
government entity upon sale of a property.
Triple-Net Lease
One in which the tenant pays all operating
expense of the property. The landlord receives the net rent.
Trust Account
A separate bank account maintained by a broker
or escrow company to handle all money collected for clients. A broker may not
commingle these funds with his/her own funds.
Trust Deed
See Deed of Trust.
Trustee
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit of" another. The trustee
is one placed in a position of responsibility for another, a responsibility
enforceable in a court of law.
Truth in Lending
See Regulation Z.
Two-Step Mortgage
A mortgage in which the borrower receives a
fixed rate for a specified number of years (most often 5 or 7), and then
receives a new interest rate based on the terms in the note.
Underwriting
The decision whether to make a loan to a
potential home buyer based on credit, income, employment history, assets, etc.
Undivided Interest
An ownership right to use and possess a property
that is shared among co-owners, with no one co-owner having exclusive rights to
any portion of the property.
Unincumbered Property
Real estate with free and clear title.
Unimproved Property
Land that has received no development.
Unrecorded Deed
A document that transfers title from the grantor
to the grantee without recording (i.e. providing public notice).
Usury
Charging a rate of interest greater than that
permitted by law.
Vacation Home
See second home.
VA Loan
Home loan guaranteed by the U.S. Veterans
Administration, enabling a veteran to buy a home with no money down.
Variable Rate Mortgage
See Adjustable Rate Mortgage
Verification of Deposit (VOD)
A document signed by the borrower's bank or
other financial institution verifying the account balance and history.
Verification of Employment
A document signed by the borrower's employer
verifying his/her starting date, job title, salary and probability of continued
employment.
Waiver
The voluntary renunciation, abandonment, or
surrender of some claim, right, or privilege.
Warehousing
Mortgage bankers and other financial
institutions make loans that are then periodically sold on the secondary
market. After the loan is made but before it is sold - the loan is said to be
in the lenders warehouse.
Warranty Deed
A deed conveying the title to a property with a
warranty of a clear marketable title.
Wraparound Mortgage
A loan arrangement whereby the existing loan is
retained an a new loan is added to the property.
Example: The seller sells his/her property for
$200,000. The buyer puts $80,000 down. The seller has an existing loan balance
of $100,000 for a remaining period of 25 years at an interest rate of 6%. The
seller then makes a wraparound mortgage to the buyer, (where the seller acts as
a lender) for $120,000 at 8%. The seller has to continue making payments on his
old loan. They buyer has to pay the seller on the new loan. The buyer may at a
later date refinance the property and close both loans.
No entries.
No entries.
Zero Lot Line
A form of housing where individual units are on
separate lots, but are attached to one another. Example: PUD, townhouse.
Zoning
Areas may be zoned to specify use of a property
i.e. residential, commercial, agricultural. These zoning ordinances are
normally enforced by the city or the county.
|
