Real Estate Terms and Definitions
Includes financial and legal terms
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ABSTRACT OF TITLE Documents recording the ownership of property throughout time.
ACCELERATION CAUSE A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
ACCEPTANCE The written approval of the buyer's offer by the seller.
ACRE A measure, usually of land equal to 160 square rods, (43560 sq. ft.) in a shape.
ADDITIONAL PRINCIPAL PAYMENT Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.
ADJUSTABLE RATE MORTGAGE (ARM) A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap. A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
ADJUSTMENT DATE The date the interest rate changes on an adjustable-rate mortgage.
ADJUSTMENT INDEX The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.
ADJUSTMENT INTERVAL The time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.
AFFIDAVIT A sworn statement in writing.
AMENITY A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
AMERICAN SOCIETY OF HOME INSPECTORS The American Society of Home Inspectors is a professional association of independent home inspectors.
AMORTIZATION The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
AMORTIZATION SCHEDULE A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
ANNUAL MORTGAGOR STATEMENT Yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.
ANNUAL PERCENTAGE RATE (APR) This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
APPLICATION The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.
APPLICATION FEE A sum of money collected which is applied toward the estimated initial mortgage processing expenses. (Appraisal and Credit Report).
APPRAISAL A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
APPRAISED VALUE An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
APPRAISER An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
APPRECATION The increase in the value of a property due to changes in market conditions, inflation, or other causes.
ARBITRATION The act of negotiating a debt to a lesser rate of interest or balance to achieve a settlement and closure of an account.
AS-IS CONDITION The purchase or sale of a property in its existing condition without repairs.
ASKING PRICE A seller's stated price for a property.
ASSESSED VALUE The valuation placed on property by a public tax assessor for purposes of taxation.
ASSESSMENT The placing of a value on property for the purpose of taxation.
ASSESSOR A public official who establishes the value of a property for taxation purposes.
ASSET Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
ASSIGNMENT When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
ASSUMABLE MORTGAGE A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.
ASSUMPTION The term applied when a buyer assumes the seller's mortgage.
ASSUMPTION CLAUSE A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.
AUTOMATED UNDERWRITING Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
AVERAGE PRICE Determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.
BACK END RATIO (DEBT RATIO) A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.
BACK TO BACK ESCROW Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.
BALANCE SHEET A financial statement that shows the assets, liabilities and net worth of an individual or company.
BALLOON LOAN OR MORGAGE 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. A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
BALLOON PAYMENT The final lump sum payment that is due at the termination of a balloon mortgage.
BANKET MORTGAGE A mortgage that covers more than one parcel of real estate owned by the mortgagor.
BANKRUPTCY By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
BASIS POINT One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage backed securities. (Yield Spread)
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 PAYMENT MORGAGE A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender. amortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
BOND MARKET Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
BORROWER A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
BRIDGE LOAN Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
BROKER Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
BUDGET A detailed record of all income earned and spent during a specific period of time.
BUILDING CODE Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
BUY-DOWN Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
CALL OPTION Similar to the acceleration clause.
CALLABLE DEBT A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.
CAP Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
CAPACITY The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.
CAPITAL GAIN The profit received based on the difference of the original purchase price and the total sale price.
CAPITAL IMPROVEMENTS Property improvements that either will enhance the property value or will increase the useful life of the property.
CAPITAL OR CASH RESERVES An individual's savings, investments, or assets.
CAPS (INTEREST) Consumer safeguard on an ARM (Adjustable Rate Mortgage) that limits the amount the interest rate may change per year.
CAPS (PAYMENT) Consumer safeguard on a ARM (Adjustable Rate Mortgage) which limits the amount monthly payment may change.
CASH-OUT REFINANCE 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."
CASUALTY PROTECTION Property insurance that covers any damage to the home and personal property either inside or outside the home.
CERTIFICATE OF DEPOSIT A time deposit held in a bank which pays a certain amount of interest to the depositor
CERTIFICATE OF DEPOSIT INDEX One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
CERTIFICATE OF ELIGIBILITY A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan
CERTIFICATE OF REASONABLE VALUE (CRV) Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
CERTIFICATE OF TITLE A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
CHAIN OF TITLE An analysis of the transfers of title to a piece of property over the years.
CHAPTER 13 BANKRUPTCY This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.
CHAPTER 7 BANKRUPTCY A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.
CHARGE-OFF The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
CLAIR TITLE A title that is free of liens or legal questions as to ownership of the property.
CLOSING This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.
CLOSING COSTS Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
CLOSING STATEMENT See Settlement Statement.
CLOUD ON TITLE Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
CO-BORROWER An additional individual who is both obligated on the loan and is on title to the property.
CO-SIGNED ACCOUNT An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed
CO-SIGNER A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
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.
COLLECTION ACCOUNT An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.
COMMISSION Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others
COMMON AREA ASSESSMENTS In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
COMMON AREAS Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
COMMON LAW An unwritten body of law based on general custom in England and used to an extent in some states.
COMMON STOCK A security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid. This is the most common stock held within a company.
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. This is an outgrowth of the Spanish and Mexican heritage of the area.
COMPARABLE SALES Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps".
COMPARABLES Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property, (AKA: COMPS)
COMPARATIVE MARKET ANALYSIS (COMPS) A property evaluation that determines property value by comparing similar properties sold within the last year.
COMPENSATING FACTORS Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
CONDO A condominium, or condo, is the form of housing tenure and other real property where a specified part of a piece of real estate (usually of an apartment house) is individually owned while use of and access to common facilities in the piece such as hallways, heating system, elevators, exterior areas is executed under legal rights associated with the individual ownership and controlled by the association of owners that jointly represent ownership of the whole piece. Colloquially, the term is often used to refer to the unit itself in place of the word "apartment". A condominium may be simply defined as an "apartment" that the resident "owns" as opposed to rents.
CONDOMINIUM A condominium, or condo, is the form of housing tenure and other real property where a specified part of a piece of real estate (usually of an apartment house) is individually owned while use of and access to common facilities in the piece such as hallways, heating system, elevators, exterior areas is executed under legal rights associated with the individual ownership and controlled by the association of owners that jointly represent ownership of the whole piece. Colloquially, the term is often used to refer to the unit itself in place of the word "apartment". A condominium may be simply defined as an "apartment" that the resident "owns" as opposed to rents.
CONDOMINIUM A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
CONDOMINIUM CONVERSION Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
CONDOMINIUM HOTEL A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.
CONFORMING LOAN Is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
CONSIDERATION An item of value given in exchange for a promise or act.
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.
CONVENANTS Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.
CONVENTIONAL LOAN A private sector loan, one that is not guaranteed or insured by the U.S. government.
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.
CONVERTION CLAUSE A provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.
COOPERATIVE (CO-OP) A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
COST OF FUNDS INDEX (COFI) One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
COUNTER OFFER A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.
COUPON RATE The stated anual interest rate on debt instrument. The term is used to describe the contract interest rate on the face of the mortgage note.
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 BUREAU An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.
CREDIT COUNSELING Education on how to improve bad credit and how to avoid having more debt than can be repaid.
CREDIT ENHANCEMENT A method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.
CREDIT GRANTOR The lender that provides a loan or credit.
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
CREDIT LOSS RATIO The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
CREDIT RELATED EXPENSES Foreclosed property expenses plus the provision for losses.
CREDIT RELATED LOSSES Foreclosed property expenses combined with charge-offs.
CREDIT REPAIR COMPANIES Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.
CREDIT REPORT A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness
CREDIT REPOSITORY An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
CREDIT RISK A term used to describe the possibility of default on a loan by a borrower.
CREDIT SCORE A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.
CREDIT UNION A non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you have to become a member to use the available services.
CREDITOR A person to whom money is owed.
CREDITWORTHINESS The way a lender measures the ability of a person to qualify and repay a loan.
DEBT An amount owed to another.
DEBT SECURITY A security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.
DEBT-TO-INCOME RATIO (DTI) The relationship of a borrower's total monthly payment obligations on long-term debts divisded by gross monthly income, expressed in percentages (AKA: Back End Ratio).
DEBTOR The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
DEDUCTIBLE The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses." For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.
DEED The legal document conveying title to a property.
DEED OF TRUST Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
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.
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".
DEPOSIT EARNEST MONEY Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
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.
DERIVATIVE A contract between two or more parties where the security is dependent on the price of another investment.
DISCLOSURES The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.
DISCOUNT POINTS In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.
DISCOUNTED LOAN When the note rate on a loan is less than the market rate of interest. The lender requires additional points to raise the yield on the loan to the market rate.
DOCUMENT RECORDING After closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
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 CLAUSE A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.
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.
DURATION The number of years it will take to receive the present value of all future payments on a security to include both principal and interest.
EARNEST MONEY DEPOSIT A deposit made by the potential home buyer to show that he or she is serious about buying the house.
EARNINGS PER SHARE (EPS) A corporation's profit that is divided among each share of common stock. It is determined by taking the net earnings divided by the number of outstanding common stocks held. This is a way that a company reports profitability.
EASEMENT A right of way giving persons other than the owner access to or over a property.
EASEMENTS The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
EFFECTIVE AGE An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
EMINENT DOMAIN The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
ENCROACHMENT An improvement that intrudes illegally on another's property.
ENCUMBRANCE Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
ENERGY EFFICIENT MORTGAGE (EEM) An FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase
EQUAL CREDIT OPPORTUNITY ACT (ECOA) A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
EQUITY A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
EQUITY LOAN A loan based upon the equity in a property. The credit of the borrower is not a major factor.
ESCAPE CLAUSE A provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.
ESCROW An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
ESCROW ACCOUNT Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.
ESCROW ANALYSIS Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.
ESCROW DISBURSEMENTS The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
ESTATE The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
EVICTION The lawful expulsion of an occupant from real property.
EXAMINATION OF TITLE The report on the title of a property from the public records or an abstract of the title.
EXCLUSIVE LISTING A written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.
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 HOUSING ACT A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
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.
FAMILIAL STATUS HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.
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.
FARMER'S HOME ADMINISTRATION (FmHA) A government agency within the Department of Agriculture that operates under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmenrs and other qualified borrowers who are unable to obtain loans elsewhere.
FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA) Federal agency which, among other things directs the activities of the Federal Insurance Administration andestablishes flood insurance rates and terms of coverage, issues policies, processes claims and indicates and maps flood-prone areas.
FEDERAL HOUSING ADMINISTRATION (FHA) A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
FEDERAL NATIONAL MORTGAGE ASSOSIATION (FANNIE MAE) A tax paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residental mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.
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.
FICO SCORE FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
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 EXPENSES Payments that do not vary from month to month.
FIXED INTEREST RATE An interest rate, which does not change during the loan term.
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.
FLOAT The act of allowing an interest rate and discount points to fluctuate with changes in the market.
FLOOD INSURANCE Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
FORBEARANCE The act of refraining from taking legal action despite the fact the mortgage is in arrears. It is usually granted only when a mortggor makes a satisfactory arrangement to pay the amount owed at a future date.
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.
FREDDIE MAC Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).
FUNDING DATE Date when the purchaser of the mortgage disburses payment to the seller or warehouse lender.
FUNDING FEE The consideration paid by a mortgagee (borrower) for mortgage insurance on a VA loan.
GINNIE MAE Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
GLOBAL DEBT FACILITY Designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.
GOOD FAITH ESTIMATE An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
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) 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)
GOVERNMENT SPONSORED ENTERPRISES (GSE) A collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Examples include Fannie Mae and Freddie Mac.
GRADUATED PAYMENT MORTGAGES Mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.
GRANTEE The person to whom an interest in real property is conveyed.
GRANTOR The person conveying an interest in real property.
GROSS INCOME Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
GUARANTY FEE Payment to Fannie Mae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders
HAZARD INSURANCE Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
HAZARD INSURANCE Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
HELP Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
HIGH RATIO LOAN Mortgage loans in excess of 80% of the lower of the sales price or appraised value.
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 EQUITY LOAN A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
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.
HOME INSPECTION An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
HOMEOWNER'S 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 POLICY A multiple peril insurance policy available to owners of private dwellings, which covers the dwelling and its contents, as well as personal liability.
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.
HOMEOWNERS INSURANCE An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
HOMEOWNERSHIP EDUCATON CLASES Classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.
HOMESTEAD STATE In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors.
HOUSING AND URBAN DEVELOPMENT (HUD) Established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.
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".
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).
IMPROVEMENTS Those additions to raw lands tending to increase value such as buildings, streets, sewers, etc.
INDEX When talking about adjusting rate mortgages, the index is usually expressed as a composite of interest rates. Often, these rates are the rates of the U.S. Treasury Securities. Changes in the index determine how the interest rates will change on an adjustable rate mortgage (ARM).
JOINT TENACY 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.
LAND CONTRACT An agreement to ttransfer title to a property once conditions of the contract have been fulfilled.
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.
LATE ROCK 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.
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.
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.
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.
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".
LEVEL PAYMENT MORTGAGE A mortgage that provides for a fixed sum to be paid periodically during the term of the loan. Part of the fixed payments is credited to interest and the balance is used to reduce the principal of the loan.
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.
LIBOR INDEX The Libor (London Interbank Offered Rate) Index is the daily average of interbank offered rates for six-month U.S. dollar-denominated deposits as published in the Wall St. Journal.
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.
MARGED 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.
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.
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.
MORTGAGE INSURANCE 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.
MORTGAGEE The lender in a mortgage agreement.
MORTGAGOR The borrower in a mortgage agreement.
MULTDWELLING UNIT 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.
NET WORTH The value of all assets less total liabilities. It is often used as an underwriting guideline to indicate credit worthiness and financial strength.
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-CLOST 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.
OPEN-END MORTGAGE A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.
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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.
ORIGINATOR A person who solicits builders, brokers, and others to obtain applications for mortgaage loans, (AKA: Loan Officer).
OVER-IMPROVEMENT Renovation or remodeling inappropriate to a site due to its excess isze or cost, or inadequate return.
OWNER FINANCING A property purchase transaction in which the property seller provides all or part of the financing.
OWNERS POLICY A policy of title insurance, which insures a named owner against loss by reason of defects, liens and encumbrances or lack of marketability of the title. The company also agrees to defend covered claims made against the title.
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 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 RESERVERS 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 project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
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.
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.
PREPAIDS This generally includes homeowners insurance, escrow accrual for insurance and taxes, interest to the end of the month and PMI (Private Mortgage Insurance) if necessary.
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.
PREPAYMENT PRIVEILEGE The right given a borrower to pay all or part of a debt prior to its maturity.
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) 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.
PROCESSING The paration of a mortgage loan application and supporting documentation for consideration by a lender or insurer.
PROMISSORY NOTE A written promise to repay a specified amount over a specified period of time.
PROPERTY TYPE A description of property, which classifies it according to the number of living units and type of structure (example: townhouse, condominium, single family dwelling, multi-family dwelling, etc).
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.
QUALIFING 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.
REAL ESTATE AGENT A person licensed to negotiate and transact the sale of real estate.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) 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.
RECIPROCITY Condition through which two or more users of the system linking all their properties to the overall search process, regardless of the site from where the query originated.
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.
REFINANCING The repayment of a debt from the proceeds of a new loan using the same property as security.
REGULATION Z Federal Reserve regulation issued under the Truth in Lending (TIL) Law, which requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase or refinance.
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.
RESERVE MORTGAGE (HECM) The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
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 INGRESS OR EGRESS The right to enter or leave designated premises.
RIGHT OF SUVIVORSHIP In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
RIGHT OR 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.
SALE-LEASEBACK 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.
SALES CONTRACT A written agreement between buyer and seller stating terms and conditions of a sale or exchange of a property.
SECOND HOME (VACATION HOME, WEEKEND HOME) A residence other than the borrower's primarty residence which the borrower intends to occupy for a portion of each year. Must be suitable for year round occupancy. No rental income from the property will be allowed to qualify the applicant for a loan against the purchase of a second home.
SECOND MORTGAGE A mortgage that has a lien position subordinate to the first mortgage.
SECOND MORTGAGE MARKET A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.
SECONDARY FINANCING A written agreement between buyer and seller stating terms and conditions of a sale or exchange of a property.
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.
SELLER CONTRIBUTIONS Payment by the seller or any other interested party of some or all of the purchaser's usual closing costs.
SERVICER An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
SERVICING The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
SETTLEMENT STATEMENT See HUD1 Settlement Statement
SUBDIVISION A housing development that is created by dividing a tract of land into individual lots for sale or lease.
SUBORDINATE FINANCING Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
SURVEY A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
SWEAT EQUITY Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
TAX LIEN A claim against property of unpaid taxes.
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.
TENANTS IN THE ENTIRETY Ownership of real property by husband and wife with equal rights of possession. No disposition of any interest can take place without the consent of both. The property passes to the survivor in the event of the death of one or the other.
THRID-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.
TIMESHARE A timeshare is a form of ownership or right to the use of a property, or the term used to describe such properties. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time (typically one week, and almost always the same time every year) in which they may use the property. Units may be on a part-ownership or lease/"right to use" basis, in which the sharer holds no claim to ownership of the property.
TITLE A legal document evidencing a person's right to or ownership of a property. Written evidence of the right to or ownership in a property. In the case of real estate, the documentary evidence of ownerships the title deed that specifies whom the legal estate is vested and the history of ownership and transfers. Title may be aquired through purchase, inheritance, devise, and gift or through foreclosures of a mortgage.
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 INSURANCE PROPERTY A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgage or otherwise.
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. An examination of public records to disclose the past and the current facts regarding the ownership of a given piece of real estate.
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. The Treasury Index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one, three or five years, as made available by the Federal Reserve Board.
TRUSTEE A fiduciary who holds or controls property for the benefit of another.
TRUTH IN LENDING ACT (TIL) 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. This is intended to facilitate comparison between the lending terms of financial institutions.
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.
UNDERWRITING Analysis of risk and setting of an appropriate rate and term for a mortgage on a given property for given borrowers.
UNIFORM RESIDENTIAL APPRAISAL REPORT (URAR) Standard form used by appraisers to detail facts supporting the value of single-family properties (AKA: FNMA Form 1004/FHLMC 65).
UNIFORM RESIDENTIAL LOAN APPLICATION (URLA) Standard form where mortgage applicants provide the lender with information essential to loan approval (AKA: FNMA Form 1003).
UNIMPROVED LAND Raw land.
VA MORTGAGE A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
VACANCY FACTOR The percentage of gross rental income that represents vacant units.
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.
VETERAN 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.
WAREHOUSE LOANS Loans that are funded and awaiting sale or delivery to an investor.
WHOLESASE ORIGINATION A loan origination strategy by which loans are purchased from mortgage brokers, mortgage bankers or other loan originators (banks, thrifts, etx). The loans may be purchased prior to closing, at closing or after the loans are closed depending on the arrangement between the originator and the wholesale lender. Wholesale origination enables a lender to acquire mortgage-servicing rights without incurring the fixed costs assiciated with a retail origination strategy.
WITHOUT RECOURSE A mortgage in which the lender will not pursue personal liability against the borrower. The lender's security is the real estate being financed.
YIELD The ratio of investment income to the total amount invested over a given period of time.
ZERO COUPON MORTGAGE Long term commercial financing that defers all principal and interest payments until maturity.
ZONING The creation of districts by local governments in which specific types of property uses are authorized (i.e. residential, commercial, mixed use).