adjustable-rate mortgage (ARM) (Return to Top)
A mortgage
that changes interest rate periodically based upon the changes
in a
specified index.
adjustment date (Return to Top)
The date on which the
interest rate changes for an adjustable-rate mortgage (ARM).
adjustment period (Return to Top)
The period that elapses
between the adjustment dates for an adjustable-rate mortgage
(ARM).
amortization (Return to Top)
The repayment of a mortgage loan
by installments with regular payments to cover the principal and
interest.
amortization term (Return to Top)
The amount of time required
to amortize the mortgage loan. The amortization term is expressed as
a number of months. For example, for a 30-year fixed-rate mortgage,
the amortization term is 360 months.
annual percentage rate (APR) (Return to Top)
The cost of a
mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points).
application (Return to Top)
A form, commonly referred to as a
1003 form, used to apply for a mortgage and to provide information
regarding a prospective mortgagor and the proposed security.
appraisal (Return to Top)
A written analysis of the estimated
value of a property prepared by a qualified appraiser.
appraiser (Return to Top)
A person qualified by education, training,
and experience to estimate the value of real property and personal
property.
appreciation (Return to Top)
An increase in the value of a
property due to changes in market conditions or other causes. The
opposite of depreciation.
asset (Return to Top)
Anything of monetary value that is
owned by a person. Assets include real property, personal property,
and enforceable claims against others (including bank accounts,
stocks, mutual funds, and so on).
assignment (Return to Top)
The transfer of a mortgage from
one person to another.
assumable mortgage (Return to Top)
A mortgage that can be
taken over ("assumed") by the buyer when a home is sold.
assumption (Return to Top)
The transfer of the seller's
existing mortgage to the buyer.
assumption clause (Return to Top)
A provision in an assumable
mortgage that allows a buyer to assume responsibility for the
mortgage from the seller. The loan does not need to be paid in full
by the original borrower upon sale or transfer of the property.
assumption fee (Return to Top)
The fee paid to
a lender (usually by the purchaser of real property) resulting from
the assumption of an existing mortgage.
balance sheet (Return to Top)
A financial statement that shows assets,
liabilities, and net worth as of a specific date.
balloon mortgage (Return to Top)
A mortgage that has level
monthly payments that will amortize it over a stated term but that
provides for a lump sum payment to be due at the end of an earlier
specified term.
balloon payment (Return to Top)
The final lump sum payment
that is made at the maturity date of a balloon mortgage.
bankrupt (Return to Top)
A person, firm, or corporation that,
through a court proceeding, is relieved from the payment of all
debts after the surrender of all assets to a court-appointed
trustee.
bankruptcy (Return to Top)
A proceeding in a federal court in
which a debtor who owes more than his or her assets can relieve the
debts by transferring his or her assets to a trustee.
before-tax income (Return to Top)
Income before taxes are
deducted.
beneficiary (Return to Top)
The person designated to receive
the income from a trust, estate, or a deed of trust.
binder (Return to Top)
A preliminary agreement, secured by
the payment of an earnest money deposit, under which a buyer offers
to purchase real estate.
biweekly payment mortgage (Return to Top)
A mortgage that
requires payments to reduce the debt every two weeks (instead of the
standard monthly payment schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the monthly payment that
would be required if the loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted from the borrower's bank
account. The result for the borrower is a substantial savings in
interest.
blanket mortgage (Return to Top)
The mortgage that is secured
by a cooperative project, as opposed to the share loans on
individual units within the project.
bond (Return to Top)
An interest-bearing certificate of debt
with a maturity date. An obligation of a government or business
corporation. A real estate bond is a written obligation usually
secured by a mortgage or a deed of trust.
breach (Return to Top)
A violation of any legal
obligation.
bridge loan (Return to Top)
A form of second trust that is
collateralized by the borrower's present home (which is usually for
sale) in a manner that allows the proceeds to be used for closing on
a new house before the present home is sold. Also known as "swing
loan."
broker (Return to Top)
A person who, for a commission or a
fee, brings parties together and assists in negotiating contracts
between them.
buydown mortgage (Return to Top)
A temporary
buydown is a mortgage on which an initial lump sum payment is made
by any party to reduce a borrower's monthly payments during the
first few years of a mortgage. A permanent buydown reduces the
interest rate over the entire life of a mortgage.
call option (Return to Top)
A provision in the mortgage that gives the
mortgagee the right to call the mortgage due and payable at the end
of a specified period for whatever reason.
cap (Return to Top)
A provision of an adjustable-rate
mortgage (ARM) that limits how much the interest rate or mortgage
payments may increase or decrease.
capital improvement (Return to Top)
Any structure or
component erected as a permanent improvement to real property that
adds to its value and useful life.
cash-out refinance (Return to Top)
A refinance transaction in
which the amount of money received from the new loan exceeds the
total of the money needed to repay the existing first mortgage,
closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens. In other words, a refinance
transaction in which the borrower receives additional cash that can
be used for any purpose.
Certificate of Eligibility (Return to Top)
A document issued
by the federal government certifying a veteran's eligibility for a
Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) (Return to Top)
A
document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
certificate of title (Return to Top)
A statement provided by
an abstract company, title company, or attorney stating that the
title to real estate is legally held by the current owner.
chain of title (Return to Top)
The history of all of the
documents that transfer title to a parcel of real property, starting
with the earliest existing document and ending with the most
recent.
change frequency (Return to Top)
The frequency (in months) of
payment and/or interest rate changes in an adjustable-rate mortgage
(ARM).
clear title (Return to Top)
A title that is free of liens or
legal questions as to ownership of the property.
closing (Return to Top)
A meeting at which a sale of a
property is finalized by the buyer signing the mortgage documents
and paying closing costs. Also called "settlement."
closing cost item (Return to Top)
A fee or amount that a home buyer must pay
at closing for a single service, tax, or product. Closing costs are
made up of individual closing cost items such as origination fees
and attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
closing costs (Return to Top)
Expenses (over and above the
price of the property) incurred by buyers and sellers in
transferring ownership of a property. Closing costs normally include
an origination fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance and a survey.
Closing costs percentage will vary according to the area of the
country.
closing statement (Return to Top)
Also referred to as the
HUD1. The final statement of costs incurred to close on a loan or to
purchase a home.
cloud on title (Return to Top)
Any conditions revealed by a
title search that adversely affect the title to real estate. Usually
clouds on title cannot be removed except by a quitclaim deed,
release, or court action.
collateral (Return to Top)
An asset (such as a car or a home)
that guarantees the repayment of a loan. The borrower risks losing
the asset if the loan is not repaid according to the terms of the
loan contract.
collection (Return to Top)
The efforts used to bring a
delinquent mortgage current and to file the necessary notices to
proceed with foreclosure when necessary.
co-maker (Return to Top)
A person who signs a promissory note
along with the borrower. A co-maker's signature guarantees that the
loan will be repaid, because the borrower and the co-maker are
equally responsible for the repayment. See endorser.
commission (Return to Top)
The fee charged by a broker or
agent for negotiating a real estate or loan transaction. A
commission is generally a percentage of the price of the property or
loan.
commitment letter (Return to Top)
A formal offer by a lender
stating the terms under which it agrees to lend money to a home
buyer. Also known as a "loan commitment."
common areas (Return to Top)
Those portions of a building,
land, and amenities owned (or managed) by a planned unit development
(PUD) or condominium project's homeowners' association (or a
cooperative project's cooperative corporation) that are used by all
of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools,
tennis courts, and other recreational facilities, as well as common
corridors of buildings, parking areas, means of ingress and egress,
etc.
Community Home Improvement Mortgage Loan (Return to Top)
An
alternative financing option that allows low- and moderate-income
home buyers to obtain 95 percent financing for the purchase and
improvement of a home in need of modest repairs. The repair work can
account for as much as 30 percent of the appraised value.
community property (Return to Top)
In some western and southwestern states, a
form of ownership under which property acquired during a marriage is
presumed to be owned jointly unless acquired as separate property of
either spouse.
comparables (Return to Top)
An abbreviation for "comparable
properties"; used for comparative purposes in the appraisal process.
Comparables are properties like the property under consideration;
they have reasonably the same size, location , and amenities and
have recently been sold. Comparables help the appraiser determine
the approximate fair market value of the subject property.
condominium (Return to Top)
A real estate project in which
each unit owner has title to a unit in a building, an undivided
interest in the common areas of the project, and sometimes the
exclusive use of certain limited common areas.
condominium conversion (Return to Top)
Changing the ownership
of an existing building (usually a rental project) to the
condominium form of ownership.
construction loan (Return to Top)
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.
consumer reporting agency (or bureau) (Return to Top)
An
organization that prepares reports that are used by lenders to
determine a potential borrower's credit history. The agency obtains
data for these reports from a credit repository as well as from
other sources.
contingency (Return to Top)
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 (Return to Top)
An oral or written agreement to do
or not to do a certain thing.
conventional mortgage (Return to Top)
A mortgage that is not
insured or guaranteed by the federal government.
convertibility clause (Return to Top)
A provision in some
adjustable-rate mortgages (ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified timeframes after loan
origination.
convertible ARM (Return to Top)
An adjustable-rate mortgage
(ARM) that can be converted to a fixed-rate mortgage under specified
conditions.
cooperative (co-op) (Return to Top)
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.
corporate relocation (Return to Top)
Arrangements under which
an employer moves an employee to another area as part of the
employer's normal course of business or under which it transfers a
substantial part or all of its operations and employees to another
area because it is relocating its headquarters or expanding its
office capacity.
cost of funds index (COFI) (Return to Top)
An index that is
used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the weighted-average cost of
savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
covenant (Return to Top)
A clause in a mortgage that
obligates or restricts the borrower and that, if violated, can
result in foreclosure.
credit (Return to Top)
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 (Return to Top)
A record of an individual's open and fully
repaid debts. A credit history helps a lender to determine whether a
potential borrower has a history of repaying debts in a timely
manner.
credit report (Return to Top)
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. See merged credit
report.
credit repository (Return to Top)
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 (Return to Top)
An amount owed to another.
deed (Return to Top)
The legal document conveying title to a
property.
deed-in-lieu (Return to Top)
A deed given by a mortgagor to
the mortgagee to satisfy a debt and avoid foreclosure.
deed of trust (Return to Top)
The document used in some
states instead of a mortgage; title is conveyed to a trustee.
default (Return to Top)
Failure to make mortgage payments on
a timely basis or to comply with other requirements of a
mortgage.
delinquency (Return to Top)
Failure to make mortgage payments
when mortgage payments are due.
deposit (Return to Top)
A sum of money given to bind the sale
of real estate, or a sum of money given to ensure payment or an
advance of funds in the processing of a loan.
depreciation (Return to Top)
A decline in the value of
property; the opposite of appreciation.
down payment (Return to Top)
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 (Return to Top)
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 (Return to Top)
A deposit made by the
potential home buyer to show that he or she is serious about buying
the house.
easement (Return to Top)
A right of way giving persons other
than the owner access to or over a property.
effective age (Return to Top)
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.
effective gross income (Return to Top)
Normal annual income
including overtime that is regular or guaranteed. The income may be
from more than one source. Salary is generally the principal source,
but other income may qualify if it is significant and stable.
encumbrance (Return to Top)
Anything that affects or limits
the fee simple title to a property, such as mortgages, leases,
easements, or restrictions.
endorser (Return to Top)
A person who signs ownership
interest over to another party. Contrast with co-maker.
Equal Credit Opportunity Act (ECOA) (Return to Top)
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 (Return to Top)
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.
escrow (Return to Top)
An item of value, money, or documents
deposited with a third party to be delivered upon the fulfillment of
a condition. For example, the deposit by a borrower with the lender
of funds to pay taxes and insurance premiums when they become due,
or the deposit of funds or documents with an attorney or escrow
agent to be disbursed upon the closing of a sale of real estate.
escrow account (Return to Top)
The account in which a
mortgage servicer holds the borrower's escrow payments prior to
paying property expenses.
escrow analysis (Return to Top)
The periodic examination of
escrow accounts to determine if current monthly deposits will
provide sufficient funds to pay taxes, insurance, and other bills
when due.
escrow collections (Return to Top)
Funds collected by the servicer and set
aside in an escrow account to pay the borrower's property taxes,
mortgage insurance, and hazard insurance.
escrow disbursements (Return to Top)
The use of escrow funds
to pay real estate taxes, hazard insurance, mortgage insurance, and
other property expenses as they become due.
escrow payment (Return to Top)
The portion of a mortgagor's
monthly payment that is held by the servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments, and other
items as they become due. Known as "impounds" or "reserves" in some
states.
estate (Return to Top)
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 (Return to Top)
The lawful expulsion of an occupant
from real property.
examination of title (Return to Top)
The report
on the title of a property from the public records or an abstract of
the title.
Fair Credit Reporting Act (Return to Top)
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 (Return to Top)
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 (Return to Top)
A congressionally chartered,
shareholder-owned company that is the nation's largest supplier of
home mortgage funds.
Fannie Mae's Community Home Buyer's
Program (Return to Top)
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) (Return to Top)
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 (Return to Top)
The greatest possible interest a
person can have in real estate.
FHA mortgage (Return to Top)
A mortgage that is insured by
the Federal Housing Administration (FHA). Also known as a government
mortgage.
finder's fee (Return to Top)
A fee or commission paid to a
mortgage broker for finding a mortgage loan for a prospective
borrower.
first mortgage (Return to Top)
A mortgage that is the primary
lien against a property.
fixed-rate mortgage (FRM) (Return to Top)
A mortgage in which
the interest rate does not change during the entire term of the
loan.
flood insurance (Return to Top)
Insurance that compensates
for physical property damage resulting from flooding. It is required
for properties located in federally designated flood areas.
foreclosure (Return to Top)
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 mrotgage debt.
fully amortized ARM (Return to Top)
An
adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest
accrual rate, over the amortization term.
good faith estimate
An estimate
of charges which a borrower is likely to incur in connection with a
settlement.
hazard insurance (Return to Top)
Insurance protecting
against loss to real estate caused by fire, some natural causes,
vandalism, etc., depending upon the terms of the policy.
housing ratio (Return to Top)
The ratio of the monthly
housing payment in total (PITI - Principal, Interest, Taxes, and
Insurance) divided by the gross monthly income. This ratio is
sometimes referred to as the top ratio or front end ratio.
HUD (Return to Top)
The U.S. Department of
Housing and Urban Development.
index (Return to Top)
A published interest rate
to which the interest rate on an Adjustable Rate Mortgage (ARM) is
tied. Some commonly used indeces include the 1 Year Treasury Bill, 6
Month LIBOR, and the 11th District Cost of Funds (COFI).
lien (Return to Top)
An encumbrance against
property for money due, either voluntary or involuntary.
lifetime cap (Return to Top)
A provision of an ARM that
limits the highest rate that can occur over the life of the
loan.
loan to value ratio (LTV) (Return to Top)
The ratio of the
amount of your loan to the appraised value of the home. The LTV will
affect programs available to the borrower and generally, the lower
the LTV the more favorable the terms of the programs offered by
lenders.
lock-in (Return to Top)
A written agreement
guaranteeing the home buyer a specified interest rate provided the
loan is closed within a set period of time. The lock-in also usually
specifies the number of points to be paid at closing.
margin (Return to Top)
The number of percentage
points a lender adds to the index value to calculate the ARM
interest rate at each adjustment period. A representative margin
would be 2.75%.
mortgage (Return to Top)
A legal document that pledges a
property to the lender as security for payment of a debt
mortgage disability insurance (Return to Top)
A disability
insurance policy which will pay the monthly mortgage payment in the
event of a covered disability of an insured borrower for a specified
period of time.
mortgage insurance (MI) (Return to Top)
Insurance written by
an independent mortgage insurance company protecting the mortgage
lender against loss incurred by a mortgage default. Usually required
for loans with an LTV of 80.01% or higher.
mortgagee (Return to Top)
The person or company who receives
the mortgage as a pledge for repayment of the loan. The mortgage
lender.
mortgagor (Return to Top)
The mortgage borrower
who gives the mortgage as a pledge to repay.
non-conforming loan
(Return to Top)
Also called a jumbo loan.
Conventional home mortgages not eligible for sale and delivery to
either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various
reasons, including loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur a rate and
origination fee premium.The current non-conforming loan limit is
,601 and above.
note (Return to Top)
A written agreement
containing a promise of the signer to pay to a named person, or
order, or bearer, a definite sum of money at a specified date or on
demand.
origination fee (Return to Top)
A fee imposed by a lender to
cover certain processing expenses in connection with making a real
estate loan. Usually a percentage of the amount loaned, such as one
percent.
owner financing (Return to Top)
A property purchase
transaction in which the property seller provides all or part of the
financing.
Planned Unit Developments (PUD) (Return to Top)
A subdivision
of five or more individually owned lots with one or more other
parcels owned in common or with reciprocal rights in one or more
other parcels.
PITI (Return to Top)
Principal, interest, taxes and
insurance--the components of a monthly mortgage payment.
points (Return to Top)
Charges levied by the mortgage lender
and usually payable at closing. One point represents 1% of the face
value of the mortgage loan.
prepaids (Return to Top)
Those expenses of property which are
paid in advance of their due date and will usually be prorated upon
sale, such as taxes, insurance, rent, etc.
prepayment penalty (Return to Top)
A charge imposed by a
mortgage lender on a borrower who wants to pay off part or all of a
mortgage loan in advance of schedule.
principal (Return to Top)
Amount of debt, not including
interest. The face value of a note or mortgage.
private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that
protects lenders against loss if a borrower defaults. Fannie Mae
generally requires private mortgage insurance for loans with
loan-to-value (LTV) percentages greater than 80%.
qualifying ratios (Return to Top)
The ratio of
your fixed monthly expenses to your gross monthly income, used to
determine how much you can afford to borrow. The fixed monthly
expenses would include PITI along with other obligations such as
student loans, car loans, or credit card payments.
rate cap (Return to Top)
A limit on how much the interest
rate can change, either at each adjustment period or over the life
of the loan.
rate lock-in (Return to Top)
A written agreement in which the
lender guarantees the borrower a specified interest rate, provided
the loan closes within a set period of time.
rebate (Return to Top)
Compensation received from a wholesale
lender which can be used to cover closing costs or as a refund to
the borrower. Loans with rebates often carry higher interest rates
than loans with "points" (see above).
refinancing (Return to Top)
The process of paying off one
loan with the proceeds from a new loan using the same property as
security.
residential mortgage credit report (RMCR)
(Return to Top)
A report requested by your lender that utilizes
information from at least two of the three national credit bureaus
and information provided on your loan application.
seller carry back (Return to Top)
An agreement in which the owner of
a property provides financing, often in combination with an assumed
mortgage.
survey (Return to Top)
A print showing the
measurements of the boundaries of a parcel of land, together with
the location of all improvements on the land and sometimes its area
and topography.
tenants-in-common (Return to Top)
An undivided interest in property
taken by two or more persons. The interest need not be equal. Upon
death of one or more persons, there is no right of survivorship.
title (Return to Top)
The evidence one has of right to
possession of land.
title insurance (Return to Top)
Insurance against loss
resulting from defects of title to a specifically described parcel
of real property.
title search (Return to Top)
An investigation into the
history of ownership of a property to check for liens, unpaid
claims, restrictions or problems, to prove that the seller can
transfer free and clear ownership.
total debt ratio (Return to Top)
Monthly debt and housing
payments divided by gross monthly income. Also known as
Obligations-to-Income Ratio or Back-End Ratio.
Truth-in-Lending Act (Return to Top)
A federal law requiring a
disclosure of credit terms using a standard format. This is intended
to facilitate comparisons between the lending terms of different
financial institutions.
Veterans Administration (VA) (Return to Top)
A government
agency guaranteeing mortgage loans with no down payment to qualified
veterans.
