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V
A
acceleration clause
A clause in your
mortgage which allows
the lender to demand
payment of the
outstanding loan balance
for various reasons. The
most common reasons for
accelerating a loan are
if the borrower defaults
on the loan or transfers
title to another
individual without
informing the lender.
adjustable-rate
mortgage (ARM)
A mortgage in which the
interest changes
periodically, according
to corresponding
fluctuations in an
index. All ARMs are tied
to indexes.
adjustment date
The date the interest
rate changes on an
adjustable-rate mortgage
(ARM).
amortization
The loan payment
consists of a portion
which will be applied to
pay the accruing
interest on a loan, with
the remainder being
applied to the
principal. Over time,
the interest portion
decreases as the loan
balance decreases, and
the amount applied to
principal increases so
that the loan is paid
off (amortized) in the
specified time.
amortization schedule
A table which shows how
much of each payment
will be applied toward
principal and how much
toward interest over the
life of the loan. It
also shows the gradual
decrease of the loan
balance until it reaches
zero.
annual percentage
rate (APR)
This is not the note
rate on your loan. It is
a value created
according to a
government formula
intended to reflect the
true annual cost of
borrowing, expressed as
a percentage. It works
sort of like this, but
not exactly, so only use
this as a guideline:
deduct the closing costs
from your loan amount,
then using your actual
loan payment, calculate
what the interest rate
would be on this amount
instead of your actual
loan amount. You will
come up with a number
close to the APR.
Because you are using
the same payment on a
smaller amount, the APR
is always higher than
the actual not rate on
your loan.
application
The form used to apply
for a mortgage loan,
containing information
about a borrower's
income, savings, assets,
debts, and more.
appraisal
A written justification
of the price paid for a
property, primarily
based on an analysis of
comparable sales of
similar homes nearby.
appraised value
An opinion of a
property's fair market
value, based on an
appraiser's knowledge,
experience, and analysis
of the property. Since
an appraisal is based
primarily on comparable
sales, and the most
recent sale is the one
on the property in
question, the appraisal
usually comes out at the
purchase price.
appraiser
An individual qualified
by education, training,
and experience to
estimate the value of
real property and
personal property.
Although some appraisers
work directly for
mortgage lenders, most
are independent.
appreciation
The increase in the
value of a property due
to changes in market
conditions, inflation,
or other causes.
assessed value
The valuation placed on
property by a public tax
assessor for purposes of
taxation.
assessment
The placing of a value
on property for the
purpose of taxation.
assessor
A public official who
establishes the value of
a property for taxation
purposes.
asset
Items of value owned by
an individual. Assets
that can be quickly
converted into cash are
considered "liquid
assets." These include
bank accounts, stocks,
bonds, mutual funds, and
so on. Other assets
include real estate,
personal property, and
debts owed to an
individual by others.
assignment
When ownership of your
mortgage is transferred
from one company or
individual to another,
it is called an
assignment.
assumable mortgage
A mortgage that can be
assumed by the buyer
when a home is sold.
Usually, the borrower
must "qualify" in order
to assume the loan.
assumption
The term applied when a
buyer assumes the
seller's mortgage.
Top of page
B
balloon mortgage
A mortgage loan that
requires the remaining
principal balance be
paid at a specific point
in time. For example, a
loan may be amortized as
if it would be paid over
a thirty year period,
but requires that at the
end of the tenth year
the entire remaining
balance must be paid.
balloon payment
The final lump sum
payment that is due at
the termination of a
balloon mortgage.
bill of sale
A written document that
transfers title to
personal property. For
example, when selling an
automobile to acquire
funds which will be used
as a source of down
payment or for closing
costs, the lender will
usually require the bill
of sale (in addition to
other items) to help
document this source of
funds.
biweekly mortgage
A mortgage in which you
make payments every two
weeks instead of once a
month. The basic result
is that instead of
making twelve monthly
payments during the
year, you make thirteen.
The extra payment
reduces the principal,
substantially reducing
the time it takes to pay
off a thirty year
mortgage. Note: there
are independent
companies that encourage
you to set up bi-weekly
payment schedules with
them on your thirty year
mortgage. They charge a
set-up fee and a
transfer fee for every
payment. Your funds are
deposited into a trust
account from which your
monthly payment is then
made, and the excess
funds then remain in the
trust account until
enough has accrued to
make the additional
payment which will then
be paid to reduce your
principle. You could
save money by doing the
same thing yourself,
plus you have to have
faith that once you
transfer money to them
that they will actually
transfer your funds to
your lender.
bond market
Usually refers to the
daily buying and selling
of thirty year treasury
bonds. Lenders follow
this market intensely
because as the yields of
bonds go up and down,
fixed rate mortgages do
approximately the same
thing. The same factors
that affect the Treasury
Bond market also affect
mortgage rates at the
same time. That is why
rates change daily, and
in a volatile market can
and do change during the
day as well.
bridge loan
Not used much anymore,
bridge loans are
obtained by those who
have not yet sold their
previous property, but
must close on a purchase
property. The bridge
loan becomes the source
of their funds for the
down payment. One reason
for their fall from
favor is that there are
more and more second
mortgage lenders now
that will lend at a high
loan to value. In
addition, sellers often
prefer to accept offers
from buyers who have
already sold their
property.
broker
Broker has several
meanings in different
situations. Most
Realtors are "agents"
who work under a
"broker." Some agents
are brokers as well,
either working form
themselves or under
another broker. In the
mortgage industry,
broker usually refers to
a company or individual
that does not lend the
money for the loans
themselves, but broker
loans to larger lenders
or investors. (See the
Home Loan Library that
discusses the different
types of lenders). As a
normal definition, a
broker is anyone who
acts as an agent,
bringing two parties
together for any type of
transaction and earns a
fee for doing so.
buydown
Usually refers to a
fixed rate mortgage
where the interest rate
is "bought down" for a
temporary period,
usually one to three
years. After that time
and for the remainder of
the term, the borrower's
payment is calculated at
the note rate. In order
to buy down the initial
rate for the temporary
payment, a lump sum is
paid and held in an
account used to
supplement the
borrower's monthly
payment. These funds
usually come from the
seller (or some other
source) as a financial
incentive to induce
someone to buy their
property. A "lender
funded buydown" is when
the lender pays the
initial lump sum. They
can accomplish this
because the note rate on
the loan (after the
buydown adjustments)
will be higher than the
current market rate. One
reason for doing this is
because the borrower may
get to "qualify" at the
start rate and can
qualify for a higher
loan amount. Another
reason is that a
borrower may expect his
earnings to go up
substantially in the
near future, but wants a
lower payment right now.
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C
call option
Similar to the
acceleration clause.
cap
Adjustable Rate
Mortgages have
fluctuating interest
rates, but those
fluctuations are usually
limited to a certain
amount. Those
limitations may apply to
how much the loan may
adjust over a six month
period, an annual
period, and over the
life of the loan, and
are referred to as
"caps." Some ARMs,
although they may have a
life cap, allow the
interest rate to
fluctuate freely, but
require a certain
minimum payment which
can change once a year.
There is a limit on how
much that payment can
change each year, and
that limit is also
referred to as a cap.
cash-out refinance
When a borrower
refinances his mortgage
at a higher amount than
the current loan balance
with the intention of
pulling out money for
personal use, it is
referred to as a "cash
out refinance."
certificate of
deposit
A time deposit held in a
bank which pays a
certain amount of
interest to the
depositor.
certificate of
deposit index
One of the indexes used
for determining interest
rate changes on some
adjustable rate
mortgages. It is an
average of what banks
are paying on
certificates of deposit.
Certificate of
Eligibility
A document issued by the
Veterans Administration
that certifies a
veteran's eligibility
for a VA loan.
Certificate of
Reasonable Value (CRV)
Once the appraisal has
been performed on a
property being bought
with a VA loan, the
Veterans Administration
issues a CRV.
chain of title
An analysis of the
transfers of title to a
piece of property over
the years.
clear title
A title that is free of
liens or legal questions
as to ownership of the
property.
closing
This has different
meanings in different
states. In some states a
real estate transaction
is not consider "closed"
until the documents
record at the local
recorders office. In
others, the "closing" is
a meeting where all of
the documents are signed
and money changes hands.
closing costs
Closing costs are
separated into what are
called "non-recurring
closing costs" and
"pre-paid items."
Non-recurring closing
costs are any items
which are paid just once
as a result of buying
the property or
obtaining a loan. "Pre-paids"
are items which recur
over time, such as
property taxes and
homeowners insurance. A
lender makes an attempt
to estimate the amount
of non-recurring closing
costs and prepaid items
on the Good Faith
Estimate which they must
issue to the borrower
within three days of
receiving a home loan
application.
closing statement
See Settlement
Statement.
cloud on title
Any conditions revealed
by a title search that
adversely affect the
title to real estate.
Usually clouds on title
cannot be removed except
by deed, release, or
court action.
co-borrower
IAn additional
individual who is both
obligated on the loan
and is on title to the
property.
collateral
In a home loan, the
property is the
collateral. The borrower
risks losing the
property if the loan is
not repaid according to
the terms of the
mortgage or deed of
trust.
collection
When a borrower falls
behind, the lender
contacts them in an
effort to bring the loan
current. The loan goes
to "collection." As part
of the collection
effort, the lender must
mail and record certain
documents in case they
are eventually required
to foreclose on the
property.
commission
Most salespeople earn
commissions for the work
that they do and there
are many sales
professionals involved
in each transaction,
including Realtors, loan
officers, title
representatives,
attorneys, escrow
representative, and
representatives for pest
companies, home warranty
companies, home
inspection companies,
insurance agents, and
more. The commissions
are paid out of the
charges paid by the
seller or buyer in the
purchase transaction.
Realtors generally earn
the largest commissions,
followed by lenders,
then the others.
common area
assessments
In some areas they are
called Homeowners
Association Fees. They
are charges paid to the
Homeowners Association
by the owners of the
individual units in a
condominium or planned
unit development (PUD)
and are generally used
to maintain the property
and common areas.
common areas
Those portions of a
building, land, and
amenities owned (or
managed) by a planned
unit development (PUD)
or condominium project's
homeowners' association
(or a cooperative
project's cooperative
corporation) that are
used by all of the unit
owners, who share in the
common expenses of their
operation and
maintenance. Common
areas include swimming
pools, tennis courts,
and other recreational
facilities, as well as
common corridors of
buildings, parking
areas, means of ingress
and egress, etc.
comparable sales
Recent sales of similar
properties in nearby
areas and used to help
determine the market
value of a property.
Also referred to as
"comps."
condominium
A type of ownership in
real property where all
of the owners own the
property, common areas
and buildings together,
with the exception of
the interior of the unit
to which they have
title. Often mistakenly
referred to as a type of
construction or
development, it actually
refers to the type of
ownership.
condominium conversion
Changing the ownership
of an existing building
(usually a rental
project) to the
condominium form of
ownership.
condominium hotel
A condominium project
that has rental or
registration desks,
short-term occupancy,
food and telephone
services, and daily
cleaning services and
that is operated as a
commercial hotel even
though the units are
individually owned.
These are often found in
resort areas like
Hawaii.
construction loan
A short-term, interim
loan for financing the
cost of construction.
The lender makes
payments to the builder
at periodic intervals as
the work progresses.
contingency
A condition that must be
met before a contract is
legally binding. For
example, home purchasers
often include a
contingency that
specifies that the
contract is not binding
until the purchaser
obtains a satisfactory
home inspection report
from a qualified home
inspector.
contract
An oral or written
agreement to do or not
to do a certain thing.
conventional mortgage
Refers to home loans
other than government
loans (VA and FHA).
convertible ARM
IAn adjustable-rate
mortgage that allows the
borrower to change the
ARM to a fixed-rate
mortgage within a
specific time.
cooperative (co-op)
A type of multiple
ownership in which the
residents of a multiunit
housing complex own
shares in the
cooperative corporation
that owns the property,
giving each resident the
right to occupy a
specific apartment or
unit.
credit
An agreement in which a
borrower receives
something of value in
exchange for a promise
to repay the lender at a
later date.
credit history
A record of an
individual's repayment
of debt. Credit
histories are reviewed
my mortgage lenders as
one of the underwriting
criteria in determining
credit risk.
creditor
A person to whom money
is owed.
credit report
A report of an
individual's credit
history prepared by a
credit bureau and used
by a lender in
determining a loan
applicant's
creditworthiness.
credit repository
An organization that
gathers, records,
updates, and stores
financial and public
records information
about the payment
records of individuals
who are being considered
for credit.
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D
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.
default
Failure to make the
mortgage payment within
a specified period of
time. For first
mortgages or first trust
deeds, if a payment has
still not been made
within 30 days of the
due date, the loan is
considered to be in
default.
delinquency
Failure to make mortgage
payments when mortgage
payments are due. For
most mortgages, payments
are due on the first day
of the month. Even
though they may not
charge a "late fee" for
a number of days, the
payment is still
considered to be late
and the loan delinquent.
When a loan payment is
more than 30 days late,
most lenders report the
late payment to one or
more credit bureaus.
deposit
A sum of money given in
advance of a larger
amount being expected in
the future. Often called
in real estate as an
"earnest money deposit."
depreciation
A decline in the value
of property; the
opposite of
appreciation.
Depreciation is also an
accounting term which
shows the declining
monetary value of an
asset and is used as an
expense to reduce
taxable income. Since
this is not a true
expense where money is
actually paid, lenders
will add back
depreciation expense for
self-employed borrowers
and count it as income.
discount points
In the mortgage
industry, this term is
usually used in only in
reference to government
loans, meaning FHA and
VA loans. Discount
points refer to any
"points" paid in
addition to the one
percent loan origination
fee. A "point" is one
percent of the loan
amount.
down payment
The part of the purchase
price of a property that
the buyer pays in cash
and does not finance
with a mortgage.
due-on-sale provision
A provision in a
mortgage that allows the
lender to demand
repayment in full if the
borrower sells the
property that serves as
security for the
mortgage.
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E
earnest money
deposit
A deposit made by the
potential home buyer to
show that he or she is
serious about buying the
house.
easement
A right of way giving
persons other than the
owner access to or over
a property.
effective age
An appraiser's estimate
of the physical
condition of a building.
The actual age of a
building may be shorter
or longer than its
effective age.
eminent domain
The right of a
government to take
private property for
public use upon payment
of its fair market
value. Eminent domain is
the basis for
condemnation
proceedings.
encroachment
An improvement that
intrudes illegally on
another's property.
encumbrance
Anything that affects or
limits the fee simple
title to a property,
such as mortgages,
leases, easements, or
restrictions.
equity
A homeowner's financial
interest in a property.
Equity is the difference
between the fair market
value of the property
and the amount still
owed on its mortgage and
other liens.
escrow
An item of value, money,
or documents deposited
with a third party to be
delivered upon the
fulfillment of a
condition. For example,
the earnest money
deposit is put into
escrow until delivered
to the seller when the
transaction is closed.
escrow account
Once you close your
purchase transaction,
you may have an escrow
account or impound
account with your
lender. This means the
amount you pay each
month includes an amount
above what would be
required if you were
only paying your
principal and interest.
The extra money is held
in your impound account
(escrow account) for the
payment of items like
property taxes and
homeowner's insurance
when they come due. The
lender pays them with
your money instead of
you paying them
yourself.
escrow analysis
Once each year your
lender will perform an
"escrow analysis" to
make sure they are
collecting the correct
amount of money for the
anticipated
expenditures.
escrow disbursements
The use of escrow funds
to pay real estate
taxes, hazard insurance,
mortgage insurance, and
other property expenses
as they become due.
estate
The ownership interest
of an individual in real
property. The sum total
of all the real property
and personal property
owned by an individual
at time of death.
eviction
The lawful expulsion of
an occupant from real
property.
examination of title
The report on the title
of a property from the
public records or an
abstract of the title.
exclusive listing
A written contract that
gives a licensed real
estate agent the
exclusive right to sell
a property for a
specified time.
executor
A person named in a will
to administer an estate.
The court will appoint
an administrator if no
executor is named.
"Executrix" is the
feminine form.
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F
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.
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.
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.
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.
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G
grantee
The person to whom an
interest in real
property is conveyed.
grantor
The person conveying an
interest in real
property.
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H
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."
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J
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.
Alternative spelling is
"judgement."
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L
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.
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M
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.
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.
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.
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N
negative
amortization
Some adjustable rate
mortgages allow the
interest rate to
fluctuate independently
of a required minimum
payment. If a borrower
makes the minimum
payment it may not cover
all of the interest that
would normally be due at
the current interest
rate. In essence, the
borrower is deferring
the interest payment,
which is why this is
called "deferred
interest." The deferred
interest is added to the
balance of the loan and
the loan balance grows
larger instead of
smaller, which is called
negative amortization.
no cash-out refinance
A refinance transaction
which is not intended to
put cash in the hand of
the borrower. Instead,
the new balance is
caculated to cover the
balance due on the
current loan and any
costs associated with
obtaining the new
mortgage. Often referred
to as a "rate and term
refinance."
no-cost loan
Many lenders offer loans
that you can obtain at
"no cost." You should
inquire whether this
means there are no
"lender" costs
associated with the
loan, or if it also
covers the other costs
you would normally have
in a purchase or
refinance transactions,
such as title insurance,
escrow fees, settlement
fees, appraisal,
recording fees, notary
fees, and others. These
are fees and costs which
may be associated with
buying a home or
obtaining a loan, but
not charged directly by
the lender. Keep in mind
that, like a "no-point"
loan, the interest rate
will be higher than if
you obtain a loan that
has costs associated
with it.
note
A legal document that
obligates a borrower to
repay a mortgage loan at
a stated interest rate
during a specified
period of time.
note rate
The interest rate stated
on a mortgage note.
no-points loan
Almost all lenders offer
loans at "no points."
You will find the
interest rate on a "no
points" loan is
approximately a quarter
percent higher than on a
loan where you pay one
point.
notice of default
A formal written notice
to a borrower that a
default has occurred and
that legal action may be
taken.
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O
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.
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P
partial payment
A payment that is not
sufficient to cover the
scheduled monthly
payment on a mortgage
loan. Normally, a lender
will not accept a
partial payment, but in
times of hardship you
can make this request of
the loan servicing
collection department.
payment change date
The date when a new
monthly payment amount
takes effect on an
adjustable-rate mortgage
(ARM) or a
graduated-payment
mortgage (GPM).
Generally, the payment
change date occurs in
the month immediately
after the interest rate
adjustment date.
periodic payment cap
For an adjustable-rate
mortgage where the
interest rate and the
minimum payment amount
fluctuate independently
of one another, this is
a limit on the amount
that payments can
increase or decrease
during any one
adjustment period.
periodic rate cap
For an adjustable-rate
mortgage, a limit on the
amount that the interest
rate can increase or
decrease during any one
adjustment period,
regardless of how high
or low the index might
be.
personal property
Any property that is not
real property.
PITI
This stands for
principal, interest,
taxes and insurance. If
you have an "impounded"
loan, then your monthly
payment to the lender
includes all of these
and probably includes
mortgage insurance as
well. If you do not have
an impounded account,
then the lender still
calculates this amount
and uses it as part of
determining your
debt-to-income ratio.
PITI reserves
A cash amount that a
borrower must have on
hand after making a down
payment and paying all
closing costs for the
purchase of a home. The
principal, interest,
taxes, and insurance (PITI)
reserves must equal the
amount that the borrower
would have to pay for
PITI for a predefined
number of months.
planned unit
development (PUD)
A type of ownership
where individuals
actually own the
building or unit they
live in, but common
areas are owned jointly
with the other members
of the development or
association. Contrast
with condominium, where
an individual actually
owns the airspace of his
unit, but the buildings
and common areas are
owned jointly with the
others in the
development or
association.
point
A point is 1 percent of
the amount of the
mortgage.
power of attorney
A legal document that
authorizes another
person to act on one's
behalf. A power of
attorney can grant
complete authority or
can be limited to
certain acts and/or
certain periods of time.
pre-approval
A loosely used term
which is generally taken
to mean that a borrower
has completed a loan
application and provided
debt, income, and
savings documentation
which an underwriter has
reviewed and approved. A
pre-approval is usually
done at a certain loan
amount and making
assumptions about what
the interest rate will
actually be at the time
the loan is actually
made, as well as
estimates for the amount
that will be paid for
property taxes,
insurance and others. A
pre-approval applies
only to the borrower.
Once a property is
chosen, it must also
meet the underwriting
guidelines of the
lender. Contrast with
pre-qualification.
prepayment
Any amount paid to
reduce the principal
balance of a loan before
the due date. Payment in
full on a mortgage that
may result from a sale
of the property, the
owner's decision to pay
off the loan in full, or
a foreclosure. In each
case, prepayment means
payment occurs before
the loan has been fully
amortized.
prepayment penalty
A fee that may be
charged to a borrower
who pays off a loan
before it is due.
pre-qualification
This usually refers to
the loan officer's
written opinion of the
ability of a borrower to
qualify for a home loan,
after the loan officer
has made inquiries about
debt, income, and
savings. The information
provided to the loan
officer may have been
presented verbally or in
the form of
documentation, and the
loan officer may or may
not have reviewed a
credit report on the
borrower.
prime rate
The interest rate that
banks charge to their
preferred customers.
Changes in the prime
rate are widely
publicized in the news
media and are used as
the indexes in some
adjustable rate
mortgages, especially
home equity lines of
credit. Changes in the
prime rate do not
directly affect other
types of mortgages, but
the same factors that
influence the prime rate
also affect the interest
rates of mortgage loans.
principal
The amount borrowed or
remaining unpaid. The
part of the monthly
payment that reduces the
remaining balance of a
mortgage.
principal balance
The outstanding balance
of principal on a
mortgage. The principal
balance does not include
interest or any other
charges. See remaining
balance.
principal, interest,
taxes, and insurance (PITI)
The four components of a
monthly mortgage payment
on impounded loans.
Principal refers to the
part of the monthly
payment that reduces the
remaining balance of the
mortgage. Interest is
the fee charged for
borrowing money. Taxes
and insurance refer to
the amounts that are
paid into an escrow
account each month for
property taxes and
mortgage and hazard
insurance.
private mortgage
insurance (MI)
Mortgage insurance that
is provided by a private
mortgage insurance
company to protect
lenders against loss if
a borrower defaults.
Most lenders generally
require MI for a loan
with a loan-to-value
(LTV) percentage in
excess of 80 percent.
promissory note
A written promise to
repay a specified amount
over a specified period
of time.
public auction
A meeting in an
announced public
location to sell
property to repay a
mortgage that is in
default.
Planned Unit
Development (PUD)
A project or subdivision
that includes common
property that is owned
and maintained by a
homeowners' association
for the benefit and use
of the individual PUD
unit owners.
purchase agreement
A written contract
signed by the buyer and
seller stating the terms
and conditions under
which a property will be
sold.
purchase money
transaction
The acquisition of
property through the
payment of money or its
equivalent.
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Q
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.
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R
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.
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S
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.
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.
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T
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.
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.
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V
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.
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