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A
Abstract of Title: A summary of recorded transactions concerning
a property. (An attorney or title insurance company examines an abstract
of title for any title defects that must be cleared before a buyer can
purchase clear, marketable, and insurable title.)
Acceleration Clause:
Condition in a mortgage that gives the lender
the right to require immediate repayment of the loan balance if regular
mortgage payments are not made, or for breach of other conditions of the
mortgage.
Accrued Interest: Interest earned but not yet paid.
Adjustable Rate: An interest rate that changes periodically according
to an index.
Adjustable Rate Mortgage (ARM): A mortgage with an interest rate
that changes over time in line with movements in the index. ARMS are also
referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate
mortgages).
Adjustment Period: The length of time between interest rate changes
on an ARM. For example, a loan with an adjustment period of one year is
called a one-year ARM, which means that the interest rate can change once
a year.
Agreement of Sale: Contract signed by buyer and seller stating
the terms and conditions under which a property will be sold.
Alternative Documentation: A method of documenting a loan that
relies on information the borrower is likely able to provide instead of
waiting as a substitute for verification sent to third parties to confirm
statements made in the loan application. For example, traditional
full documentation calls for the lender to get a written verification of
bank balance directly from the borrower’s bank. Under alternative
documentation, the lender instead relies upon copies of bank statements
provided by the borrower.
Amortization: Repayment of a loan in installments of principal
and interest, rather than interest-only payments.
Annual Percentage Rate (APR): The total finance charge (interest,
loan fees, points) expressed as a percentage of the loan amount.
Application: An initial statement of personal and financial information
required to approve a loan, provided by the borrower and necessary to initiate
the approval process for a loan.
Application Fee: Fees charged by lender at loan closing to cover
the initial cost of processing a loan application.
Appraisal: A written estimate of a property’s current market
value, based on recent sales information for similar properties, the condition
of the property and the neighborhood’s impact on future property value.
Appraisal Fee: A fee charged by a licensed, certified appraiser
to render an opinion of market value as of a specific date.
APR: See Annual Percentage Rate.
ARM: See Adjustable Rate Mortgage.
Assessment: A local tax levied against a property for a specific
purpose, such as road or sidewalk construction or sewer or street light
installation.
Assignment: The transfer of property rights by one person, the
assignor, to another, the assignee.
Assumablility: A loan feature that allows the loan to be transferred
to the new purchaser of a home. Assumable mortgages can help attract
buyers since assumption of a loan requires fees and/or qualifying standards
lower than a new loan.
Assumption of Mortgage: A buyer’s agreement to assume the liability
under an existing note that is secured by a mortgage or deed of trust.
The lender must approve
the buyer in order to release the original borrower (usually the seller)
from liability.
• Return to Index •
B
Balance Sheet: A document showing the financial situation – assets,
liabilities and net worth – of a company at a specific point in time.
Balloon Payment: A lump sum principal payment due at the end
of some mortgages or other long-term loans.
Bankruptcy: Proclamation by a court of an individual’s (or organization’s)
state of insolvency, or inability to pay debts. Petition may be brought
by an individual or creditors, with a goal of orderly and equitable settlement
of obligations.
Bearer: The legal owner of a piece of property.
Bequest: A gift of personal property by will.
Bill of Sale: A document by which one transfers ownership of
goods to another.
Binder: Sometimes known as an offer to purchase or an earnest
money receipt. A binder is the acknowledgment of a deposit along with a
brief written agreement to enter into a contract for the sale of real estate.
Bi-Weekly Mortgage: A payment plan under which the borrower pays
one half of a monthly mortgage payment every two weeks.
Blanket Mortgage: A mortgage covering at least two or more pieces
of real estate, both of which together serve as collateral for the loan.
Bona Fide: In good faith.
Bond: A document representing a right to certain payments on
underlying collateral.
Borrower (Mortgagor): An individual who applies for and receives
a loan in the form of a mortgage with the intention of repaying the loan
in full.
Broker: An individual who assists in arranging funding or negotiating
contracts for a client but does not loan money himself.
Buydown: A situation in which the seller contributes money, allowing
the lender to give the buyer a lower rate and payment, usually in exchange
for an increase in sales price.
Buyer’s Broker: An agent hired by a buyer to locate a property
for purchase and to represent the buyer in negotiations with the seller’s
broker.
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C
Call Option: A loan feature that allows the lender to require
repayment of the loan in full before the term of the loan is up.
Cap: The limit on how much an interest rate or monthly payment
can change, either at each adjustment or over the life of the mortgage.
Cash Out: A refinance for more than the balance of the original
mortgage so that the excess money taken out reduces the borrower’s equity
built up in the house property.
Cashier’s Check (Bank Check): A check whose payment is guaranteed
because it was paid for in advance and is drawn on the bank’s account instead
of the customer’s.
CC&R’s: Covenants, conditions and restrictions. A document
that controls the use, requirements and restrictions of a property.
Ceiling: The maximum allowable interest rate of an adjustable
rate mortgage.
Certificate of Eligibility: Document issued by the Veterans Administration
to qualified veterans which entitles then to VA-guaranteed loans.
Obtainable through local VA offices by submitting for DD-214 (Separation
Paper) and VA form 1880 (Request for Certificate of Eligibility).
Certificate of Occupancy: Document issued by local government
agency stating that a property meets the requirements of health and building
codes.
Certificate of Reasonable Value (CRV): A document that establishes
the maximum value and loan amount for a VA guaranteed mortgage.
Certificate of Title: Written opinion of the status of title
to a property given by an attorney or title company. This certificate
does not offer the protection given by title insurance.
Certificate of Veteran Status: Document given to veterans or
reservists who have served 90 days of continuous active duty (including
training time) which enables them to obtain lower down payments on certain
FHA-insured loans. Obtainable through local VA offices by submitting
for DD-214 (Separation Paper) and form 26-8261a (Request for Certificate
of Veteran Status).
Certified Check: A check drawn on the issuer’s account for funds
that have been segregated by the bank, thus guaranteeing sufficient funds
for payment.
Chain of Title: The chronological order of conveyance of a property
from the original owner to the present owner.
Clear Title: A marketable title, free of clouds and disputes.
Closing (Settlement): Meeting between the buyer, seller and lender
or their agents at which property and funds legally change hands.
Closing Costs: Fees incurred in a real estate or mortgage transaction
and paid by the borrower and/or seller during the closing of the mortgage
loan. These typically include a loan origination fee, discount points,
attorney’s fees, title insurance, appraisal, survey and any items which
must be pre-paid, such as taxes and insurance escrow payments. The
costs of closing are usually 2-6% of the mortgage amount.
Closing Statement: The financial disclosure statement that accounts
for all of the funds received and expected at the closing, including deposits
for taxes, hazard insurance, and mortgage insurance.
Cloud on Title: An outstanding claim or encumbrance that, if
valid, would affect or impair the owner’s title.
COFI: See Cost of Funds Index.
Collateral: Assets that back a mortgage loan (real property in
the case of a mortgage loan).
Commission: Money paid to a real estate agent or broker by the
seller (usually 6-7% of the sale price of the house).
Condominium: A form of real estate ownership where the owner
receives title to a particular unit and has a proportionate interest in
certain common areas. The unit itself is generally a separately owned space
whose interior surfaces (walls, floors and ceilings) serve as its boundaries.
Conforming Loan: A mortgage loan meeting the requirements set
down by Fannie Mae and Freddie Mac including, most importantly, the requirement
that the original loan balance not exceed specified limits under the maximum
amount of loans FNMA and FHLMC are legally allowed to buy (currently $240,000
in 1999 for loans secured by a one unit property in most areas).
Construction Loan: A short-term interim loan to fund the construction
of buildings or homes, which usually advances to money to the builder in
installments as work progresses. After completion, a permanent loan
is used to pay off the construction loan.
Contingency: A condition that must be satisfied before a contract
is binding. For instance, a sales agreement may be contingent upon the
buyer obtaining financing.
Contract of Sale: The agreement between the buyer and seller
on the purchase price, terms and conditions of a sale.
Conventional Loan: A mortgage not insured by the FHA or guaranteed
by the VA.
Conversion Clause: A provision in some ARMS that enables you
to change an ARM to a fixed-rate loan, usually after the first adjustment
period. The new fixed rate is generally set at the prevailing interest
rate for fixed-rate mortgages. This conversion feature may cost extra.
Convertible ARMs: ARMs with the option of conversion to a fixed
loan during a given period of time (see “Conversion Clause”).
Conveyance: The transfer of deed, lease or mortgage.
Cooperative: A form of multiple ownership in which a corporation
or business trust entity holds title to a property and grants occupancy
rights to shareholders by means of proprietary leases or similar arrangements.
Cost of Funds Index (COFI): A common index used in adjustable
rate loans and based on the weighted-average interest rate paid by a defined
group of savings institutions for sources of funds, usually by members
of the 11th Federal Home Loan Bank District.
CRB (Certified Residential Broker). To be certified a
broker must be a member of the National Association of Realtors, have five
years of experience as a licensed broker and have completed required Residential
Division courses.
Credit Report: A report detailing the credit history of a prospective
borrower, used to help determine creditworthiness.
Credit Risk: The possibility that the borrower may default on
financial obligations to the investor.
CRS: Certified Residential Specialist.
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D
Debt-to-Income Ratio: The ratio, expressed as a percentage, which
results when a borrower’s monthly payment obligation on long-term debts
is divided by his or her gross monthly income.
Deed: Legal document by which title to a property is transferred
from one owner to another. The deed contains a description of the
property, and is signed, witnessed and delivered to the buyer at closing.
Deed of Trust: Agreement to pledge property as security for a
loan used in many states in place of a mortgage. In such an arrangement,
the borrower transfers legal title to a trustee who holds the property
in trust as security for the repayment of the debt. The deed of trust
becomes void if the debt is repaid, but if the borrower defaults on the
loan, the trustee may sell the property to pay the debt.
Default: Failure to meet legal obligations in a contract, including
failure to make payments on a loan. A mortgage is generally considered
to be in default when a payment is 30 days past due.
Deferred Interest: Interest added to the balance of a loan when
monthly payments are not sufficient to cover it (see “Negative Amortization”).
Delinquency: Failure to make required payments on time.
Deposit: Cash paid to the seller when a formal sales contract
is signed.
Depreciation: Decline in property value.
Discount Points (Points): Money paid to a lender at closing in
exchange for lower interest rates. Each point is equal to 1% of the
loan amount.
Documentary Stamps: A state tax, in the form of stamps, required
on deeds and mortgages when real estate title passes from one owner to
another.
Document Review: Fee charged by lender for review of documents
necessary to fund a loan.
Down Payment: Money paid for a house from the buyer’s funds at
closing. The down payment is the difference between the purchase
price and the mortgage amount.
Due-On-Sale Clause: A clause that requires full payment of a
mortgage or deed of trust when the secured property changes ownership.
• Return to Index •
E
Earnest Money: The portion of the down payment delivered to the
seller or escrow agent by the purchaser
with a written offer as evidence of good faith.
ECOA: See Equal Credit Opportunity Act.
Effective Interest Rate: The cost of a mortgage expressed as
a yearly rate, usually higher than the interest rate on the mortgage since
this figure factors in the up-front costs of acquiring the loan.
Encumbrance: A legal right or interest in a property that affects
title and lessens the property value. Encumbrances can take the form
of claims, liens, unpaid taxes, etc. These usually must be resolved
before a buyer purchases the property.
Equal Credit Opportunity Act (ECOA): Federal law requiring creditors
to make credit equally available without discriminating based on race,
sex, color, age, religion, national origin, marital status or receipt of
income from public assistance programs.
Equity: The percentage of property value held by the owner; the
difference between the current market value of a property and the outstanding
mortgage balance.
Equity Loan: A loan based on the borrower’s equity in his or
her home.
Escrow: A procedure in which a third party acts as a stakeholder
for both the buyer and the seller, carrying out both parties’ instructions
and assuming responsibility for handling all of the paperwork and distribution
of funds.
• Return to Index •
F
Fannie Mae: See Federal National Mortgage Association.
Farmer’s Home Administration (FmHA): An agency of the U.S. Department
of Agriculture that provides financing for purchasers of homes and farms
in small towns and rural areas.
FDIC: See Federal Deposit Insurance Corporation.
Federal Deposit Insurance Corporation (FDIC): Independent deposit
insurance agency created by Congress to maintain stability and public confidence
in the nation’s banking system.
Federal Home Loan Bank Board (FHLBB): Former name for the regulatory
and supervisory agency of federally chartered savings institutions, now
called the Office of Thrift Supervision.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac): Quasi-governmental
agency that purchases conventional mortgages from insured depository institutions
and HUD-approved mortgage bankers.
Federal Housing Administration (FHA): Government agency, division
of the Department of Housing and Urban Development, which insures residential
mortgage loans made by private lenders and sets standards for underwriting
mortgage loans.
Federal National Mortgage Association (FNMA): Popularly known
as Fannie Mae. A privately owned corporation created by Congress to support
the secondary mortgage market. It purchases and sells residential mortgages
insured by FHA or guaranteed by the VA, as well as conventional home mortgages.
Federal Reserve: Central bank of the United States and major
regulatory agency for many commercial banks.
Fee Simple: An estate in which the owner has unrestricted power
to dispose of the property as he wishes, including leaving by will or inheritance.
It is the greatest interest a person can have in real estate.
FHA: See Federal Housing Administration.
FHA Loan: A loan insured by the Federal Housing Administration
(of the Department of Housing and Urban Development).
FHLBB: See Federal Home Loan Bank Board.
FHLMC: See Federal Home Loan Mortgage Corporation.
Finance Charge: The total cost a borrower must pay, directly
or indirectly, to obtain credit according to Regulation.
First Mortgage: A mortgage that is in first lien position, taking
priority over all other liens. In the case of a foreclosure, the
first mortgage will be paid before any other mortgage.
Fixed Rate: An interest rate that is fixed for the term of the
loan.
Fixed-Rate Mortgage: A mortgage whose interest rate does not
change for the life of the loan. The payments are also fixed.
Flood Insurance: A form of hazard insurance required by lenders
to cover property damage or loss in flood zones.
Floor: The minimum rate of interest payable on an adjustable-rate
mortgage.
FmHA: See Farmer’s Home Administration.
FNMA: See Federal National Mortgage Association.
Forbearance: Grace period given when a lender postpones foreclosure
to give the borrower time to catch up on overdue payments.
Foreclosure (Repossession): Legal process by which the lender
forces the sale of a property when the borrower has not met the mortgage
terms.
Freddie Mac: See Federal Home Loan Mortgage Corporation.
• Return to Index •
G
Ginnie Mae: See Government National Mortgage Association.
GNMA: See Government National Mortgage Association.
Good Faith Estimate: Written estimate of costs the borrower must
pay at closing, provided by a lender within three days of a loan application.
Government National Mortgage Association (GNMA or Ginnie Mae):
Government agency that provides funds for VA and FHA loans.
Grace Period: Period of time during which a loan payment may
be made after its due date without incurring a late penalty.
Graduated Payment Mortgage: A residential mortgage with monthly
payments that start at a low level and increase at a predetermined rate.
GRI: Graduate, Realtors Institute. A professional designation
granted to a member of the National Association of Realtors® who has
successfully completed courses covering Law, Finance and Principles of
Real Estate.
Gross Income: Total income before taxes or expenses are deducted.
Gross Monthly Income: The total amount earned by the borrower
each month.
Growing Equity Mortgage: A fixed-rate loan in which payments
increase by a predetermined amount each year, reducing the outstanding
balance of the loan. This accelerated payment plan allows repayment
of a 30-year loan in 15 to 20 years.
Guarantee or Guaranty: A promise by one party to pay a debt or
perform an obligation contracted by another in the event of that person’s
death.
• Return to Index •
H
Hazard Insurance: A policy that protects the insured against
loss due to fire or other natural disaster in exchange for a premium paid
to the insurer.
Home Equity Loan: A loan secured by the equity in a home and
sought for a variety of purposes, including home improvements, major purchases
or expenses, or debt consolidation. A portion or all of the interest
paid may be tax deductible.
Home Inspection Report: A qualified inspector’s report on a property’s
overall condition. The report usually includes an evaluation of both the
structure and mechanical systems.
Home Warranty Plan: Protection against failure of mechanical
systems within the property. Usually includes plumbing, electrical, heating
systems and installed appliances.
Housing and Urban Development (HUD): A U.S. government agency
established to implement federal housing and community development programs;
oversees the Federal Housing Administration.
Housing Code: Local government ordinance that sets minimum standards
of safety and sanitation for existing residential buildings.
Housing Expense-to-Income Ratio: The ratio, expressed as a percentage,
is the result of dividing a borrower’s housing expenses by his or her gross
monthly income.
HUD: See Housing and Urban Development.
HUD-I Settlement Statement: A form that itemizes the closing
costs associated with purchasing a home.
• Return to Index •
I
Impound (Reserves): Portion of a borrower’s monthly payments
held by the lender to pay for taxes, insurance and other items as they
become due.
Impound Account: Savings account for accumulating that portion
of a borrower’s monthly payments designated for future payments of taxes
and insurance. This is required by lenders for certain types of financing.
Index: A measure of interest rate changes used to determine changes
in an ARM’s interest rate over the term of the loan.
Initial Rate: The rate charged during the first interval of an
ARM.
Insolvency: Condition of a person unable to pay debts as they
fall due.
Interest: Charge paid for borrowing money.
Interest Rate: The periodic charge, generally expressed as a
percentage per annum of the outstanding balance, for use of credit.
Interest Rate Cap: A safeguard built into ARMs to prevent drastic
changes in interest rates.
• Return to Index •
J
Joint Liability: Liability shared among two or more people, each
of whom is liable for the full debt.
Joint Tenancy: An equal undivided ownership of property by two
or more persons. Upon the death of any owner, the survivors take the decedent’s
interest in the property.
Jumbo Loan: A mortgage larger than the limits set by the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation
(currently $240,000 for a single-family home in most areas). Because
jumbo loans cannot be funded by these two agencies, they usually carry
a higher interest rate.
Junior Mortgage: A mortgage subordinate or secondary to another
mortgage. In the case of a foreclosure, a senior mortgage will be
paid first.
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L
Lease-Purchase Mortgage Loan: An alternative financing option
that allows low- and moderate-income homebuyers to lease a home from a
nonprofit organization with an option to buy. Monthly rental payments
cover mortgage payments and include an additional amount that is saved
toward a down payment.
Lender: The bank, mortgage company or mortgage broker offering
the loan.
LIBOR (London Interbank Offered Rate): The interest rate charged
among banks for short-term Eurodollar loans, and a common index for ARMs.
Lien: A legal hold or claim on property as security for a debt
or charge.
Loan Administration (Loan Servicing): The collection of mortgage
payments from borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on defaulted loans
and remitting payments to investors).
Loan Application: Document required by lenders prior to loan
approval containing detailed information about the borrower and property.
Loan Application Fee: A fee paid by prospective buyer to the
lender when applying for a mortgage.
Loan Commitment: A written promise to make a loan for a specified
amount on specified terms.
Loan Origination Fee: Fee charged by a lender that compensates
for the work in evaluating and processing the loan.
Loan Servicing (Loan Administration): The collection of mortgage
payments from borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on defaulted loans
and remitting payments to investors).
Loan-To-Value Ratio: The relationship between the amount of the
mortgage and the appraised value of the property, expressed as a percentage
of the appraised value.
Lock (Lock In): A lender’s guarantee of an interest rate and
related points for a set period of time, usually between loan application
and loan closing. Protects borrower against rate increases during
that time.
• Return to Index •
M
Margin: The number of percentage points the lender adds to the
index rate to calculate the ARM interest rate at each adjustment.
Marketable Title: A title that is free and clear of all liens,
clouds or other defects which would prevent the sale of the property.
Market Value: The value that a willing seller would accept and
a willing buyer would offer given a reasonable time for the seller to market
a property.
Monthly Housing Expense: Total monthly expenses of principal,
interest, taxes and insurance.
Mortgagee: The lender in a mortgage loan transaction.
Mortgage: Document creating a lien on a property as security
for the payment of a debt.
Mortgage Banker: An entity that originates and funds, then sells
and services mortgage loans.
Mortgage Broker: A person or entity that arranges financing for
borrowers, but places loans with lenders rather than funding them with
broker’s own money.
Mortgage Insurance: Insurance purchased by a buyer to cover the
lender’s risk of loss. Lenders generally require mortgage insurance
when the down payment is less than 20 percent of the purchase price.
MIP (Mortgage Insurance Premium): Insurance purchased by borrower
to insure against default on government (FHA or VA) loans.
Mortgage Life Insurance: A type of term life insurance often
bought by home buyers . The coverage decreases as the mortgage balance
declines. If the borrower dies while the policy is in force, the mortgage
debt is automatically covered by insurance proceeds.
Mortgage Loan: A loan for which real estate serves as collateral
to provide for repayment in case of default.
Mortgage Note: Legal document obligating a borrower to repay
a loan at a stated interest rate during a specified period of time.
The agreement is secured by a mortgage.
Mortgagor: The borrower in a mortgage loan transaction.
• Return to Index •
N
Negative Amortization: Negative amortization occurs when monthly
payments tail to cover the interest cost. The interest that isn’t covered
is added to the unpaid principal balance, which means that even after several
payments you could owe more than you did at the beginning of the loan.
Negative amortization can occur when an ARM has a payment cap that results
in monthly payments that aren’t high enough to cover the interest.
Net: After taxes.
Net Effective Income: Gross income minus federal income tax.
Non-Assumption Clause: A statement in a mortgage contract forbidding
the assumption of the mortgage by another borrower without the prior approval
of the lender.
Non-Dischargeable Debt: Debt, such as taxes, that cannot be forgiven
in bankruptcy liquidation.
Note: Legal document stating the terms of a debt and a promise
to repay it.
Notice of Default: Written notice to a borrower that default
has occurred and that legal action may be taken.
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O
Office of Comptroller of the Currency: The oldest federal financial
regulatory body, which oversees the nation’s federally chartered banks.
Office of Thrift Supervision: Regulatory and supervisory agency
for federally chartered savings institutions.
Origination Fee: A fee or charge for work involved in evaluating,
preparing, and submitting a proposed mortgage loan. The fee is limited
to 1 percent for FHA and VA loans.
Owner Financing: A purchase in which the seller provides all
or part of the financing.
• Return to Index •
P
Payment Cap: Limit on the amount by which a borrower’s ARM payments
may increase, regardless of rise in interest rates. May result in
negative amortization.
Per Diem Interest: Interest calculated per day. Depending
on the day of the month on which closing takes place, the borrower pays
interest from the date of closing to the end of the month. The first
mortgage payment of a loan is generally due the first of the following
month.
Permanent Loan: A long-term mortgage of ten years or more.
PITI: Principal, Interest, Taxes and Insurance.
Planned Unit Development (PUD): A zoning designation for property
developed at the same or slightly greater overall density than conventional
development, sometimes with improvements clustered between open, common
areas. Uses may be residential, commercial or industrial.
Pledged Account Mortgage (PAM): Money is placed in a pledged
savings account. This fund, plus earned interest, is used to
gradually reduce mortgage payments.
Point: An amount equal to 1 percent of the principal amount of
the investment or note. The lender assesses loan discount points at closing
to increase the yield on the mortgage to a position competitive with other
types of investments.
Power of Attorney: Legal document authorizing one person to act
on behalf of another.
Prepaid Expenses: Taxes, insurance and assessments paid in advance
of due dates, including at closing.
Prepaid Interest: Interest charged to a borrower at closing to
cover interest on the loan between closing and the end of the month in
which the loan closes.
Prepayment: Full or partial payment of the principal before the
due date. This might occur if the borrower makes extra payments,
sells the property or refinances the existing loan.
Prepayment Penalty: A fee charged to a borrower who pays a loan
before it is due. Not allowed for FHA or VA loans.
Pre-Qualification: The process of determining how much money
a prospective buyer will be eligible to borrower prior to application for
a loan.
Primary Mortgage Market: Includes banks, savings and loan, credit
unions and mortgage banks that make mortgage loans directly to borrowers.
These lenders sometimes sell their mortgages to lenders such as FNMA in
the secondary mortgage market.
Prime Rate: Lowest commercial interest rate charged by a bank
on short-term loans to its most creditworthy customers.
Principal: The amount of debt, not counting interest, left on
a loan.
Private Mortgage Insurance (PMI): See Mortgage Insurance.
Profit and Loss Statement: Financial statement showing sales,
expenses and profits over a period of time.
Property Tax: A government tax based on the market value of the
property.
Purchase Agreement: A written document in which the purchaser
agrees to buy certain real estate and the seller agrees to sell under stated
terms and conditions. Also called a sales contract, earnest money contract,
or agreement for sale.
• Return to Index •
Q
Qualifying Ratio: Comparison of a borrower’s expenses (housing
or total debt) to income.
• Return to Index •
R
Real Estate Broker: An agent who represents a buyer or seller
in a real estate transaction.
Real Estate Settlement Procedures Act: Law requiring lenders
to give borrowers advance notice of closing costs.
Real Property: Land and everything that is permanently affixed
to it.
Realtor®: A real estate broker or associate active in a local
real estate board affiliated with the National Association of Realtors®.
Recision: The cancellation of a mortgage loan, permitted by law,
within three days of signing when the loan is not used to refinance a home.
Reclamation: The right of the person with title to a property
to recover it from the debtor in event of a bankruptcy.
Reconveyance: The transfer of property back to the owner when
a mortgage is fully repaid.
Recording: The act of entering documents concerning title to
a property into public record.
Recording Fee: Money paid to an agent for entering the sale of
a property into the public record.
Refinancing: The process of paying off one loan with the proceeds
from a new loan secured by the same property.
Regulation Z: The set of rules governing consumer lending issued
by the Federal Reserve Board of Governors in accordance with the Consumer
Protection Act.
Rent With Option to Buy: See Lease-Purchase Mortgage Loan.
Repossession (Foreclosure): Legal process by which the lender
forces the sale of a property because the borrower has not met the mortgage
terms.
RESPA: See Real Estate Settlement Procedures Act.
Reverse Annuity Mortgage (RAM): Type of mortgage applicable to
senior citizens in which the lender makes periodic payments to the borrower
from the borrower’s equity in their home, thus providing the borrower with
a cash annuity.
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S
Sale Agreement: Contract signed by buyer and seller stating the
terms and conditions under which a property will be sold.
Satisfaction: The payment of a debt, which satisfies an obligation.
Secondary Mortgage Market: The market into which primary mortgage
lenders sell the mortgages to obtain funds to originate more new loans.
Includes investors like Fannie Mae and Freddie Mac.
Second Mortgage: A subordinate mortgage made in addition to a
first mortgage.
Servicing (Loan Administration): The collection of mortgage payments
from borrowers and related responsibilities (such as handling escrows for
property tax and insurance, foreclosing on defaulted loans and remitting
payments to investors).
Settlement (Closing): Meeting between buyer, seller and lender
or their agents at which property funds legally change hands.
Settlement Costs: See Closing Costs.
Settlement Cost (HUD Guide): Booklet that provides an overview
of the lending process, given to consumers after completing their loan
application.
Settlement Sheet: The computation of costs payable at closing
which determines the seller’s net proceeds and the buyer’s net payment.
Shared Appreciation Mortgage (SAM): Loan in which the borrower
is given a below-market interest rate and the lender receives a portion
of the future appreciation of the property value.
Simple Interest: Interest computed only on the principle balance.
Subsidized Second Mortgage: Alternative financing option for
low- and moderate-income households that also includes a down payment and
a first mortgage, with funds for the second mortgage provided by city,
county or state housing agencies, foundations or nonprofit corporations.
Payment on the second mortgage is often deferred and carries a low interest
rate (if any). Part of the debt may be forgiven each year the family
remains in the home.
Survey: A measurement of land, prepared by a licensed surveyor,
showing a property’s boundaries, elevations, improvements and relationship
to surrounding tracts.
Sweat Equity: Value added to a property by improvements made
by the owner.
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T
Tax Impound: Money paid to and held by a lender for annual tax
payments. See Impound Account.
Tax Lien: Claim against a property for unpaid taxes.
Tax Sale: Public sale of property by a government authority as
a result of non-payment of taxes.
Tenancy in Common: A type of joint ownership of property by two
or more persons with no right of survivorship.
Term: The number of years it will take to pay off a loan.
Title: Document that gives evidence of ownership of a property
and the rights of ownership and possession of that property.
Title Company: A company that insures title to property.
Title Insurance Policy: A policy that protects the purchaser,
mortgagee or other party against losses.
Title Search: Examination of municipal records to ensure that
the seller is the legal owner of a property and that no liens or other
claims exist against that property.
Transfer Tax: Tax paid when title passes from one owner to another.
Trust Account: Account maintained by a broker or escrow company
to handle all money collected for clients.
Trustee: Someone given legal responsibility to hold property
in the best interest of another.
Truth-In-Lending Act: Federal law requiring written disclosure
of the terms of a mortgage (including the APR and other charges) by a lender
to a borrower after a loan application is made.
Two-Step Mortgage: Mortgage with a low fixed interest rate for
5, 7 or 10 years, which is then adjusted to a new rate for the rest of
the loan.
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U
Underwriting: The process of verifying data and evaluating a
loan for approval.
Usury: Interest charged in excess of the legal rate established
by law.
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V
VA Loans: A loan, made by a private lender, that is partially guaranteed by the Veterans Administration.
Variable Rate Mortgage: See Adjustable Rate Mortgage.
Variable Rate: Interest rate that changes periodically in relation to an index.
Verification of Deposit (VOD): Document signed by the borrower’s bank or other financial institution verifying the borrower’s account balance
and history.
Verification of Employment (VOE): Document signed by the borrower’s employer verifying the borrower’s position and salary.
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W
Waiver: Voluntary relinquishment or surrender of some right or
privilege.
Walk-Through: A final inspection of a home to check for problems
that may need to be corrected before closing.
Wraparound Mortgage: Loan arrangement in which an existing loan
is combined with a new loan, resulting in an interest rate somewhere between
the old rate and the current market rate.
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Z
Zoning Ordinances (Zoning Regulation): Local law establishing
building codes and usage regulations for properties in a specified area.
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