acceleration clause
A clause in a mortgage which allows the lender to demand payment of
the outstanding loan balance. The most common reason for
accelerating a loan is 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. ARM mortgages may begin as
fixed mortgages for a short period of time and them become
adjustable.
adjustment date
The date the interest rate changes on an adjustable-rate (ARM)
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.
This may also show the corresponding 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 that reflects the true annual cost
of borrowing. The APR percentage will always be higher than the
actual rate of your mortgage.
application (1003)
The form used to apply for a mortgage loan, containing information
about a borrower's income, savings, assets, debts, and more.
appraisal
A professional estimate for the value of a property. Appraisals are
based on the condition of the property, as well as square footage
and comparable sales of similar homes.
appraised value
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property. For
nearly all purchase loans, the purchase price is considered the
appraised value.
appraiser
An individual qualified by education, training, and experience to
estimate the value of real property and personal property.
appreciation
The increase in the value of a property due to changes in market
conditions, inflation, improvements and/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
Any Item 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
such as: real estate, personal property, and debts owed to an
individual by others are not considered "liquid assets".
assignment
When ownership of your mortgage is transferred from one lender or
investor to another, it is called an assignment.
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. 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. At that time, the owner will generally sell
the property or refinance into a new mortgage.
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 twelve months
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 result is that instead of making twelve monthly
payments during the year, you make thirteen. The extra payment goes
directly to the principal, substantially reducing the interest paid
on a mortgage and the time it takes to pay off the mortgage.
broker
Broker has several meanings in different situations. Most Realtors
are "agents" who work under a "broker." Some agents may be brokers
as well. In the mortgage industry, broker usually refers to a
company or individual that does not lend money, but broker loans to
larger lenders or investors. 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.
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."
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 Eligibility
A document issued by the Veterans Administration that certifies a
veteran's eligibility for a VA loan.
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.
co-borrower
An 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 law
An unwritten body of law based on general custom in England and used
to an extent in some states.
community property
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.
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.
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
An adjustable-rate mortgage that allows the borrower to change the
ARM to a fixed-rate mortgage within a specific time.
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.
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.
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.
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.
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.
eviction crew
Workers who accompany the sheriff on behalf of the lender to assist
in the eviction of an occupant from real property. The eviction crew
are the workers who will actually move the occupants belongings from
the home to the street/yard//driveway/sidewalk and then change the
locks to keep the previous occupant from retunring to the home.
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.
Fannie Mae's Community Home Buyer's Program
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.
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.
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-buyback
A technique in which a seller deeds property to a buyer for a
consideration and the buyer simultaneously sells the property back
to the seller using a land contract or similar agreement.
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
sheriffs sale
Public Auction of a borrower's assets seized in a Foreclosure order
obtained from a court, and carried out by a sheriff or other court
officer. Assets pledged as loan collateral and secured by
attachments, liens, or mortgages may be sold at auction.
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.
