An alternative financing plan that enables households whose earnings are no
more than 115 percent of the medium income in their regional area to make a 3
percent down payment with their own funds, coupled with a 2 percent gift from a
relative or a 2 percent grant or unsecured loan from a nonprofit or state or
local government program.
A historical summary of all the recorded transactions that affect the title to
the property. An attorney or a title company will review an abstract of title
to determine if there are any problems affecting the title to the property. All
such problems must be cleared before the buyer can be issued a clear and
insurable title.
Acceleration Clause
A loan provision giving the lender the power to declare all sums owing lender
immediately due and payable upon the violation of a specific loan provision,
such as the sale of the property, or the failure to make loan payments on time.
Example: John sells his property to Mary who takes over John's mortgage
payments. They do not notify the lender of this transaction. The lender finds
out that the title to the property has transferred and recalls the loan, since
the loan documents state that the loan is due on the sale of the property. John
is now liable to pay his lender in full.
Accretion
The addition to land through natural forces like wind or water.
Example: deposit of soil carried by a river
Acknowledgment
Formal declaration before a public official (typically a Notary Public) that
one has signed a document. Required before recording real estate legal
documents, such as a deed of trust.
Acre
A measure of land equal to 43,560 square feet.
Adjustable Rate Mortgage (ARM)
Also known as a variable rate mortgage. The interest rate on these mortgages
changes periodically.
Adjustment Period
This is the length of time for which the interest rate is fixed on an
adjustable rate mortgage. Therefore if the adjustment period is six months,
then the interest rate will remain fixed for six months, after which time it
will adjust.
Agreement of Sale
A written signed agreement between the seller and the purchaser in which the
purchaser agrees to buy certain real estate and the seller agrees to sell upon
terms of the agreement. Also known as contract of purchase, purchase agreement,
offer and acceptance, earnest money contract or sales agreement.
Amortization
A gradual paying off of a debt by periodic installments which pay principal and
interest.
Amortization Schedule:
A timetable for payment of a mortgage showing the amount of each payment
applied to interest and principal and the remaining balance on the loan.
Annual Membership
An amount that may be charged annually for having a line of credit available.
Often charged regardless of whether or not you use the line. Also referred to
as a "participation fee".
Annual Percentage Rate (APR)
The effective rate of interest for a loan per year. This rate is typically
higher than the note rate because it takes into account closing costs. This is
one way to compare loan programs offered by different lenders. Caution: the APR
is sometimes computed differently by different lenders and can be misleading.
Application
An initial statement of personal and financial information which is required to
approve your loan.
Application Fee
Fees that are paid upon application. An application fee may frequently include
charges for a property appraisal ($200-$400) and a credit report ($30-50).
Appraisal
An opinion or estimate of the value of a property at a given date.
Appraised Value
An opinion of the value of a property at a given time, based on facts regarding
the location, improvements, etc., to the property and surroundings.
Appreciation
An increase in the value of a house due to changes in market conditions or
other causes.
Arm's Length Transaction
A transaction among parties each of who acts in his or her own best interest.
Example: A transaction between a father and his son would NOT be an
Arm's length transaction
Assessed Value
The valuation placed upon a property by a public tax assessor for purposes of
taxation.
Assessment
A local tax levied against a property for a specific purpose such as street
lights.
A mortgage loan which allows a new home buyer to take over the obligation of
making loan payments with no change in the terms of the loan. Assumable loans
do not have a due-on-sale clause. The lender has to be notified and agree to
the assumption. The lender may require the buyer to qualify for the loan and
may charge an assumption fee. The seller should obtain a written release from
the lender stating clearly that he/she is no longer liable to make mortgage
payments. See also Subject To.
Assumption (of Mortgage)
The transfer of the seller's existing mortgage to the buyer.
Attorney In Fact
One who is authorized to act for another under a power of attorney which may be
general or limited in scope.
Example: John wants to sell his house but has to be out of the country for 4
months. John gives authorization to Mary to sign the grant deed to sell the
property to a buyer. Mary becomes John's Attorney In Fact.
Balloon Mortgage
Usually a short-term fixed-rate loan which involves small payments for a
certain period of time and one large payment for the remaining amount of the
principal at a time specified in the contract.
Example: A balloon mortgage for $25,000 has interest only payments for 5 years
at 12% ($250 per month), with the full principal of $25,000 due and payable
after 5 years.
Balloon Payment
A lump sum payment of the unpaid balance of the loan
Bankruptcy
The financial inability to pay one's debts when due. The debtor surrenders his
assets to the bankruptcy court. An individual typically files for Chapter 7
(all debts wiped out) or Chapter 13 (establishes a payment plan to pay off
debts). A bankruptcy stays on an individual's credit report for 7 years.
Beneficiary
The person who receives or is to receive the benefits resulting from certain
acts.
Example: The lender is named as the beneficiary on a mortgage loan.
Example: John has a life insurance policy for $100,000 with Jane as his
beneficiary. Should John die - Jane will receive the benefits i.e. $100,000.
Binder
Definition #1
: A title insurance binder is the written
commitment of a title insurance company to insure title to the property subject
to the conditions and exclusions shown on the binder.
Definition #2
: Preliminary agreement, normally secured with earnest
money, between a buyer and a seller as an offer to purchase real estate.
Bi-weekly Mortgage
A mortgage which requires 1/2 the normal monthly payment every two weeks. Over
the course of the year, 26 half payments are made which is equivalent to 13
full mortgage payments. As a result of this extra payment the loan amortizes
much faster than a loan with normal monthly payments.
Blanket Mortgage
A mortgage covering more than one piece of property.
Example: A developer subdivides a tract of land into lots and obtains a blanket
mortgage on the whole tract.
Bond
1. A debt instrument in the capital markets. The U.S. government, corporations
and municipalities use bonds to raise money. Bonds can also be backed by
mortgages. The best known bond is the 30 yr. treasury bond issued by the U.S.
government.
2. A sum of money given to a court to guarantee against a loss. For example if
there is a lien on a property, the owner may remove the lien by posting a bond.
Borrower (Mortgagor)
One who applies for a loan secured by real estate and is responsible for
repaying the loan (mortgage).
Bridge Loan
An interim loan typically used when the buyer is unable to sell his/her house
but needs money to close the transaction on the house he/she is buying. The
bridge loan is made on the buyer's current residence to finance the buyer's new
residence. The loan is paid off when the buyer's current residence is sold.
Obtaining a lower interest rate (buying down the rate) by paying additional
points to the lender. The lower rate may apply for the full duration of the
loan or for just the first few years. A buydown may be used to qualify a
borrower who would otherwise not qualify. This is because a buydown results in
lower payments which are easier to qualify for.
Example: A very popular buydown is the 2-1 buydown. If the interest rate on the
note is 9%, the buydown results in the rate being 7% (9%-2%) for the first
year, 8% (9%-1%) for the second year, and 9% thereafter.
Buyers Broker
An agent hired by a buyer to locate a property for purchase. The broker
represents the buyer and negotiates with the seller's broker for the best
possible deal for the buyer.
Buyers Market
Market conditions that favor buyers i.e. there are more sellers than buyers in
the market. As a result buyers have ample choice of properties and may
negotiate lower prices. Buyers markets may be caused by an economic slump or
overbuilding.
Bylaws
A set of regulations by which an organization conducts its business. Example: A
condominium association prepares bylaws that state the minimum number of owners
to conduct a meeting to decide policies.
Call Provision
A clause in the mortgage or deed of trust giving the mortgagee or beneficiary
the right to accelerate payment of the mortgage debt in full on a certain date
or on the happening of specified conditions.
Capital Gains
Profit earned from the sale of real estate. A seller may defer taxes on the
capital gain of his/her primary residence by buying a higher priced residence
within 2 years.
Cap (on Interest)
Consumer safeguard which limits the amount the interest rate on an adjustable
rate mortgage may change per year and/or the life of the loan.
Cap (on Payment)
Consumer safeguard which limits the amount monthly payments on an adjustable
rate mortgage may change.
Cash Flow
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, maintenance,
utilities, etc.).
Cash Out
Receiving money back when refinancing your present mortgage.
Cash Reserve
A requirement of some lenders that buyers have sufficient cash remaining after
closing to make the first two mortgage payments.
Caveat Emptor
A legal term meaning "let buyer beware". The buyer must examine the property
and buy at his/her own risk.
Example: A property may be offered in an "as is" condition with no expressed or
implied guarantee of quality or condition.
CC&R's - Covenants, conditions, and restrictions.
The basic rules establishing the rights and obligations of owners of real
property within a condominium, townhouse, PUD, subdivision or other tract of
land. An association is organized for the purpose of operating and maintaining
property commonly owned by the individual owners. The association is normally
made up of property owners.
Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable
rate mortgage.
Certificate of Eligibility
The document issued by the Veterans Administration to those that qualify for a
VA loan which may be used to buy a house with 0 down. Certificates of
eligibility may be obtained by sending the form DD-214 to the local VA office
along with VA form 1880.
Certificate of Reasonable Value (CRV)
An appraisal performed by a VA approved appraiser which establishes the
property's current market value. This value establishes the ceiling on the
maximum VA mortgage loan principal.
Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the
local building standards for occupancy and is in compliance with public health
and building codes. This document is normally required by a lender prior to
closing the loan.
Certificate of Title
An opinion rendered by an attorney as to the status of title to a property,
according to the public records. This certificate does not carry the same
level of protection as title insurance.
Certified Mortgage Banker (CMB)
A professional designation in the mortgage banking industry.
Chain of Title
The chronological order of conveyance of a parcel of land from the original
owner to the present owner.
Example: An abstractor can research title to property going back to the date
that the property was granted to the United States.
Recurring fees are costs associated with owning the property and they recur
month after month. These costs may include hazard insurance, interest, property
taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of
these fees may have to be paid at closing including:
Pre-paid interest - interest charges from the date of closing to the end of the
month
Property taxes if due
Hazard insurance, fire insurance or homeowners insurance has to be paid for one
year
Mortgage insurance (PMI) - may be required if the loan amount is more than 80%
of the value of the property. In the past a whole year of PMI had to be paid up
front, however in recent years many PMI companies only require 1-2 months up
front. Mortgage insurance premiums are normally paid every month with the loan
payment
Impound account may need money to be set up for
future payments
Cloud on Title
An outstanding claim or encumbrance that, if valid, would affect or impair the
owner's title. Compare with clear title.
Commitment (Letter)
A written document provided by a lender to agreeing to make a loan on specific
terms to a borrower or builder.
Community Home Buyer's Program
An alternative financing option that allows households of modest means to
qualify for mortgages using nontraditional credit histories, 33 percent
housing-to-income and 38 percent debt-to-income ratios, and the waiver of the
usual two payments cash reserves at closing.
Community Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home
buyers to obtain 95 percent financing for the purchase and improvement of a
home in need of modest repairs.
Community Land Trust Mortgage Loan
An alternative financing option that enables low- and moderate-income home
buyers to purchase housing that has been improved by a non-profit Community
Land Trust, and to lease the land on which the property stands.
Condemnation
1. Taking private property for a public use with compensation to the owner
under eminent domain. Used by governments to acquire land for streets, schools,
freeways, etc and by utilities to acquire necessary property.2. Declaring a
structure unfit for use because of violations in housing codes or other
reasons.
Conditional Commitment
A written document provided by a lender agreeing to make a loan provided
certain conditions are met prior to closing.
Condominium
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
Conforming Loan
Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting
methods are standardized to a large degree.
Construction loan
A short term loan to pay for the construction of buildings or homes. These
loans typically provide periodic disbursements to the builder as each stage of
the building is completed. When construction is completed a take-out
or permanent loan is used to pay off the
construction loan.
Consideration
Anything of value given to induce another to enter into a contract. Earnest
money deposit on a sales contract is consideration.
Contingency
Conditions which must be satisfied before the buyer can close the purchase of a
property. Contingencies are generally outlined in the purchase contract between
the buyer and seller.
Example: The buyer has 14 days to remove the property contingency under the
sales contract. In this case the buyer has 14 days to inspect the property and
request the seller to perform repairs. If the buyer is not satisfied with the
condition of the property or if the buyer and the seller cannot agree on
repairs, the buyer may back out of the contract with no penalty. After 14 days
the buyer no longer has the right to back out with no penalty as a result of a
problem with the condition of the property.
Contract
An agreement between competent parties to do or not do certain things for
consideration.
Example: To have a valid contract for the sale of real estate there must be:
an offer
an acceptance
competent parties
consideration
legal purpose
written documentation
description of the property
signatures by principals or their attorney-in-fact
Contract Sale or Deed
A real estate installment selling arrangement where the buyer may occupy the
property but the seller retains the title until the agreed upon sales price has
been paid. Also known as an installment land contract.
Example: John sells Mary a house. Mary has to put $10,000 and pay $1,000 per
month for 24 months, after which time she will receive title to the property.
Same as the Agreement of Sale
Conventional Loan
Any mortgage loan other than a VA or an FHA loan. A convention a loan may
be conforming or non-conforming.
Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government.
Conversion Clause
A provision in some Adjustable Rate Mortgages that permit converting the ARM to
a fixed rate loan under specified conditions at a predetermined time. Sometimes
available for an additional cost.
Convertible ARMs
Some variable loans come with options to convert them to a fixed loan based on
a pre-determined formula, during a given time period. For example the 1 yr
t-bill adjustable may be converted to a fixed during the first five years on
the adjustment date. The means that you could convert during the 13th, 25th,
37th, 49th and 61st months of the loan.
Conveyance
The transfer of title of real from one party to another.
Co-op; Cooperative
An apartment building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated for
their benefit by their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate. A resident purchases
stock in the corporation which entitles him to occupy a unit in the building or
property owned by the cooperative. While the resident does not own his unit, he
has an absolute right to occupy his unit for as long as he owns the stock.
Covenant
A clause in a mortgage that obligates or restricts the borrower and which, if
violated, can result in foreclosure.
Credit Limit
The maximum amount that you can borrow under a home equity plan.
Credit Report
A report detailing a borrower's credit history including payment history on
revolving accounts (e.g. credit cards) and installment accounts (e.g. car
loan). A credit report also includes information found from public records
including tax liens and judgments.
A written document by which title to real property is transferred from one
owner to another. The deed should contain an accurate description of the
property being conveyed, should be signed and witnessed according to the laws
of the State where the property is located, and should be delivered to the
buyer at closing.
Deed in Lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid
foreclosure.
Deed of Trust
Used in many states in lieu of a mortgage to secure the payment of a note. In a
deed of trust there are three parties: the borrower, the trustee, and the
lender, (or beneficiary). In such a transaction, the borrower transfers the
legal title for the property to the trustee who holds the property in trust as
security for the payment of the debt to the lender or beneficiary. If the
borrower pays the debt as agreed, the deed of trust becomes void. If, however,
he/she defaults in the payment of the debt, the trustee may sell the property
without a court proceeding.
Deed Restriction
A clause in a deed that limits the use of land.
Example: A deed might require that a road cannot be built on the land.
Default
Failure to meet legal obligations in a contract - such as the failure to make
the monthly mortgage payment.
Defective Title
Any recorded instrument that would prevent a grantor/seller from giving a clear
title.
Example: The seller has a contractor lien on the property that was filed when
he/she failed to pay the contractor for the kitchen remodel. The seller may
obtain clear title by paying the contractor and removing the lien.
Deficiency Judgment
Personal claim against the debtor when the sale of foreclosed property does not
yield sufficient proceeds to pay off the mortgages, accrued interest, legal
fees, etc.
Delinquency
Failure to make payments on time. Can lead to foreclosure.
Delivery
The final, unconditional and absolute transfer of a deed to the Grantee so that
the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not
pass title.
Department of Veterans Affairs
An independent agency of the federal government which guarantees long-term,
low-or no-down payment mortgages to eligible veterans.
Deposit
Cash paid to the seller when a formal sales contract is signed.
Depreciation
Decline in the value of a house due to wear and tear, obsolescence, adverse
changes in the neighborhood, or any other reason.
Fees paid to a lender to reduce the interest rate.
Documentary Tax Stamps
Stamps affixed to a deed showing the amount of transfer tax.
Dower
The rights of a widow or child to part of a deceased husband's or father's
property.
Down Payment
The amount paid for the purchase of a property in addition to the mortgage, but
not including any closing costs.
Example: John buys a house for $100,000 and obtains a loan for $80,000. His
down payment is $20,000.
Dragnet Clause
A provision in a mortgage that pledges several properties as collateral. A
default in the mortgage could lead to foreclosure proceedings on any of the
properties in the dragnet.
Due on Interest
A clause inserted in a mortgage that allows the lender to call the loan due and
payable at its option upon the transfer of the property also known as paragraph
"17" in FNMA/ FHLMC Mortgage
Due on Sale Clause
A clause in the Deed of Trust or Mortgage that states that the entire loan is
due upon the sale of the property.
Earnest Money
A deposit made by a buyer of real estate towards the down payment to evidence
good faith. This money is typically held by the real estate brokers or the
escrow company.
The right to use the land of another for a specific purpose. Easements may be
temporary or permanent.
Example: The utility company may need an easement to run electric lines.
Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes
up-front costs paid to obtain the loan, and is, therefore, usually a higher
amount than the interest rate stipulated in the mortgage note. Useful in
comparing loan programs with different rates and points.
Eminent Domain
The right of the government or a public utility to acquire property for
necessary public use by condemnation, with proper compensation to the owner.
Encroachment
A building, a part of a building, or an obstruction (e.g. a fence or a wall)
that physically intrudes upon or overlaps into the property of another.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens, charges, a pending legal
action, unpaid taxes, or restrictive covenants. An encumbrance does not legally
prevent transfer of the property to another. A title search is all that is
usually done to reveal the existence of such encumbrances, and it is up to the
buyer to determine whether he wants to purchase with the encumbrance, or what
can be done to remove it.
Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed
home loan. This is also known as eligibility.
Equal Credit Opportunity Act (ECOA)
Is 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
Equity = Property Value - Loans/Liens Against the property.
Equity is typically expressed as a percentage of the property value.
Equity Loan
A loan based on the borrower's equity in his or her home.
Equity Sharing
Joint ownership of a property between the owner/occupant and the
owner/investor, that results in tax advantages for both parties. Upon sale of
the property the joint owners split profits based on the percentage they own.
Escheat
The reversion of property to the state in the event that the owner dies without
leaving a will and has no legal heirs.
Escrow
1. Neutral third party that handles all funds in a real estate transaction. The
buyer puts his deposit into escrow; the lender funds the loan into escrow.
Escrow pays the real estate brokers commission, pays off any loans/liens
against the property, pays real estate taxes and any other fees associated with
the transaction and sends the balance of the money to the seller.
A consumer protection law that sets up a procedure for correcting mistakes on
one's credit record.
Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of Agriculture, that administers
assistance programs for purchasers of homes and farms in small towns and rural
areas.
Federal National Mortgage Association (FNMA, Fannie Mae)
Purchases loans from lenders, securitizes them and sells FNMA mortgage backed
securities on wall street.
Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
Purchase loans from members of the Federal Reserve and the Federal Home Loan
Bank Systems, securitizes them and sells FHLMC mortgage backed securities on
wall street.
Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD)
that administers loan programs, issues loan guarantees to make more housing
available.
Federal Reserve System
The central federal banking system that regulates and provides services to
member commercial banks. Also has the responsibility for conducting federal
monetary policy.
Fee Simple (Fee Absolute or Fee Simple Absolute)
Absolute ownership of real property; owner is entitled to the entire property
with unconditional power of disposition during the owners life and upon his
death the property descends to the owner's designated heirs.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified
home purchasers. While there are limits to the size of FHA loans ($124,875),
they are generous enough to handle moderately-priced homes almost anywhere in
the country.
FHA Mortgage Insurance
Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or
a portion of this fee added to each monthly payment of an FHA loan to insure
the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this
fee would amount to either $2,850 at closing or an extra $31 a month for the
life of the loan. In addition, FHA mortgage insurance requires an annual fee of
0.5 percent of the current loan amount, paid in monthly installments. The lower
the down payment, the more years the fee must be paid.
Fidelity Bond
An assurance, generally purchased by an employer, to cover employees who are
entrusted with valuable property or funds. Example: A landlord employs a clerk
who collects rents. To safeguard these funds during the collection process, the
landlord purchases a fidelity bond the clerk.
Fiduciary
A person in a position of trust or responsibility with specific duties to act
in the best interest of a client. A real estate broker is a fiduciary for
his/her clients.
Finance Charge
Interest charged by a lender.
Firm Commitment
A promise by FHA to insure a mortgage loam for a specified property and
borrower. A promise from a lender to make a mortgage loan.
First Mortgage
A mortgage that has priority as a lien over all other mortgages. In the case of
a foreclosure the first mortgage will be satisfied before other mortgages. See
also second mortgage.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout
the term of the mortgage for the original borrower.
Fixture
Improvements or personal property attached to the land so as to become a part
of the real estate. Fixtures are transferred to the buyer upon sale of the
property. To determine whether an item is a fixture include:
Intent (was it intended to be part of the property)
How is it fixed?
Is the fixture essential to the property?
Relationship - was the fixture intended to be a part of the tenant's business?
Example: John sells his house to Mary. John wants to take the chandelier
because he states it is personal property. Mary wants the chandelier to stay
because she believes it is a fixture.
Flood Insurance
An insurance policy that covers property damage due to natural flooding. Flood
insurance may be required on properties in a flood zone.
Forbearance
The lender's postponement of foreclosure to give the borrower time to catch up
on overdue payments.
Foreclosure (Repossession)
A legal process by which the lender forces a sale of a property because the
borrower has not met the terms of the mortgage.
A written estimate of closing costs which a lender must provide you within
three days of submitting an application.
Government National Mortgage Association (GNMA)
A government agency part of HUD that buys VA and FHA loans from lenders,
securitizes them and sells Ginnie Mae securities to investors
Grace Period
A period of time during which a loan payment may be paid after its due date but
not incur a late penalty. Such late payments may be reported on your credit
report.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party who is the seller or the giver.
Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially (with potential negative
amortization) which increase each year until the loan is fully amortized.
Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which
was permissible but because of a change in the law is now no longer
permissible.
Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses
are deducted.
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by
another if the original party fails to pay or perform according to a contract.
Insurance on a property against fire and other risks. A homeowner's policy may
have additional coverage for theft, liability, etc that a fire insurance policy
may not cover.
Homeowners Association
An association of homeowners in a particular subdivision, planned unit
development (PUD), or condominium organized to manage the common area of the
development and to enforce the association rules and regulations.
Homeowner's warranty
A type of insurance that covers repairs to specified parts of a house for a
specific period of time.
Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the
amount you choose, up to a maximum credit limit for which you have qualified.
Repayment is secured by the equity in your home. Simple interest (interest-only
payments on the outstanding balance) is usually tax-deductible. Often used for
home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by
the equity in your home. Interest paid is usually tax -deductible. Often used
for home improvement or freeing of equity for investment in other real estate
or investment. Recommended by many to replace or substitute for consumer loans
whose interest is not tax-deductible, such as auto or boat loans, credit card
debt, medical debt, and education loans.
Homestead
Status provided to a homeowner's principal residence in some states that
protects the home against judgments up to specified amounts.
Homestead Exemption
Available in some states - this causes the assessed value of a principal
residence to be reduced by the amount of the exemption for the purposes of
calculating property tax.
Example: John's principal residence is assessed at $100,000 and the homestead
exemption is $7,000. His property taxes will be based on $93,000.
Home Warranty Plan
Insurance that covers appliances, heating systems, etc. Typically purchased at
the time of closing.
Housing and Urban Development
A U.S. government agency established to implement certain federal housing and
community development programs.
Housing Code
A local government ordinance that sets minimum standards of safety and
sanitation for existing residential buildings.
Housing Expenses to Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing
expenses are divided by his/her net effective income (FHA/VA loans) or gross
monthly income (conventional loans).
HUD 1
A closing document required by HUD that outlines the settlement cost of a loan.
The closing agent prepares this document and sends it to the buyer upon
closing.
Hypothecate
To pledge a property as security without having to give up possession of it.
Improvements
Additions to raw land such as buildings, streets, etc that add value to the
land.
That portion of a borrower's monthly payments held by the lender or servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due. Also known as reserves.
Income Approach
A method used by an appraiser to estimate the value of a property based on the
income it generates.
Income Property
Real estate that generates rental income. Examples: apartment buildings, office
buildings and shopping centers.
Index
A statistic that indicates some current economic of financial condition.
Indexes are used to make adjustments in variable rate loans.
Ingress and Egress
The right to go in and out over a piece of property but not the right to park
on it. See also easement.
A mortgage insured against loss to the mortgagee in the event of default and a
failure of the mortgaged property to satisfy the balance owing plus costs of
foreclosure.
Interest Rate
The periodic charge, expressed as a percentage, for use of credit.
Interest rate cap
A provision of an ARM limiting how much interest rates my increase in a given
adjustment period. See also lifetime cap.
Investor
A money source for a lender.
Interim Financing
A construction loam made during completion of a building or a project. A
permanent loan usually replaces this loan after completion
A payment required by a mortgage in addition to normal principal and interest.
Sometimes known as a participation loan.
Land Contract
A real estate installment selling arrangement whereby the buyer may use and
occupy land, but no deed is given by seller until the sales price has been
paid.
Late Charge
The penalty a borrower must pay when a payment is made after the due date.
Lease-Purchase Mortgage Loan
An
alternative financing option that allows low- and moderate-income home buyers
to lease a home from a nonprofit organization with an option to buy, and with
each month's rent payments consisting of "PITI" payments on the first mortgage,
plus an extra amount that is earmarked for a savings account in which money for
a down payment accumulates.
Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The
option may run for a portion or for the full length of the lease.
Leasehold Estate
Tenant's right of possession for a specific period of time under a lease
agreement.
Legal Description
Legally acceptable identification of real estate by one of the following:
the government rectangular survey
metes and bounds
recorded plat (lot and block number)
Lessee
A person to whom property is rented under a lease. (Tenant)
Lessor
A person who rents property to another under a lease. (Landlord)
Lien
A claim against the property for the payment of a debt, judgment, mortgage or
taxes.
Example: Unpaid contractors may file a mechanic's lien.
Life Estate
An estate in real property for the life of a living person. The estate then
reverts back to the grantor or to a third party.
Lifetime Cap
A provision of an ARM that limits the total increase in interest rates over the
life of the loan.
Lis Pendens
Latin for "lawsuit pending." Recorded notice that litigation is pending on a
property. Most lenders will require the clearance of the Lis Pendens prior to
closing.
Loan Application
A document required by a lender prior to loan approval. The application
includes detailed information about the borrower and the property.
Charge by a lender or broker connected with originating a loan. This is
different from discount points which are used to buy down the rate of interest.
Loan-to-Value Ratio (LTV)
The loan amount divided by the value of the property.
Loan Servicing
The act of collecting loan payments, handling property tax and insurance
escrows, foreclosing on defaulted loans and remitting payments to the
investors.
Lock or Lock In
A commitment you obtain from a lender assuring you a particular interest rate
or feature for a definite time period. Provides protection should interest
rates rise between the time you apply for a loan, acquire loan approval, and,
subsequently, close the loan and receive the funds you have borrowed.
A written instrument that creates a lien upon real estate as security for the
payment of a specified debt.
Mortgage Backed Security (MBS)
A bond or other financial obligation secured by a pool of mortgage loans.
Mortgage Banker
Specializes in originating and servicing loans. They generally sell their loans
to investors, but may continue to service them.
Arranges financing for a borrower by placing loans with lenders. Mortgage
brokers are paid a fee by the borrower or the lender when a loan closes.
Mortgage Banking
The packaging or mortgage loans secured by real property to be sold to a
permanent investor with servicing retained for the life of the loan for a fee.
The origination, sale, and servicing of mortgage loans by a firm or individual.
The investor-correspondent system is the foundation of the mortgage banking
industry and the Secondary Market.
An increase in principal balance which occurs when the monthly payments do not
cover all of the interest cost. The interest cost which is not covered by the
payment is added to the unpaid principal balance.
Negotiable Rate Mortgage (RBM)
Loan in which the interest rate is adjusted periodically.
Net Effective Income
The borrowers gross income minus federal income tax.
Net worth
The value of all assets, including cash, less total liabilities. It is often
used as an underwriting guideline to indicate an individual's creditworthiness
and financial strength.
Non-assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage
without the prior approval of the lender. Note: The signed obligation to pay a
debt, as a mortgage note.
Non-conforming loan
Loans that do not comply with Fannie Mae or Freddie Mac guidelines.
Note
A written instrument that acknowledges a debt and promises to pay.
Notary Public
One authorized to take acknowledgments of certain types of documents, such as
deeds, contracts, and mortgages.
Notice of Default
A letter sent to the defaulting party as a reminder of the default.
An expression of willingness to purchase a property at a specified price.
Offeree
One who receives the offer. When the buyer makes an offer to the seller the
seller is an offeree.
Offeror
One who makes the offer. When the buyer makes an offer to the seller the buyer
is an offeror.
Office of Comptroller Currency
The oldest federal financial regulatory body that oversees the nation's
federally chartered banks.
Office of Thrift Supervision
The OTS charters federal thrift institutions and is the primary regulator of
all federal and many state-chartered thrift institutions.
Open House
A method of showing a home for sale to prospective buyers where the home is
left open for inspection by those who may be interested in making a purchase.
Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same
mortgage, with certain conditions.
Mortgage covering both real and personal property.
Paper
A mortgage, deed of trust or land contract provided in lieu of cash.
Partial Release
A provision in a mortgage that allows some of the property secured to be freed
from serving as collateral.
Participation Mortgage
A mortgage that allows the lender to share in part of the income or resale
proceeds.
Pass Through Certificates
Interests in a pool of mortgages sold by mortgage bankers to investors. Money
collected as monthly mortgage payments is distributed to those who own
certificates.
A mortgage for a long period of time. Often referred to as the mortgage that
pays off a construction loan on a completed property.
Permit
A document issued by a government regulatory authority that allows the bearer
to take some specific action.
An occupancy permit allows the owner of a building to occupy or rent the
building.
PITI
Abbreviation for principal, interest, taxes and insurance, which may be
combined in a single monthly mortgage payment.
Planned Unit Development (PUD)
A zoning classification that allows flexibility in the design of a subdivision.
PUD's include individually owned units as well as some common space that is
jointly owned.
Plat
A plan or map of a specific land area.
Plat Book
A public record containing maps of land, showing the division of the land into
streets, blocks, and lots and indicating the measurements of the individual
parcels.
Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest
is gradually used to reduce mortgage payments.
Fees paid to lenders. 1 point = 1% of the loan amount. On a $100,000 loan 1
point is $1000. Points may be further classified into origination
points or discount points.
Portfolio Loan
A loan that is held as an investment by a bank or savings and loan, and NOT
sold on the secondary market to investors.
Power of Attorney
A written document authorizing a person to act on the behalf of another person.
That person does not have to be an attorney. See Attorney-in-fact.
Prequalification
The process of determining how much money a prospective home buyer will be
eligible to borrow before a loan is applied for.
Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing escrow
account. Can include taxes, hazard insurance, private mortgage insurance and
special assessments.
Prepaid Interest
Prepaid interest is the interest charged to borrowers at closing to pay for the
cost of borrowing for a balance of the month. For example, if a loan closes on
the 19th of the month and the first payment is due on the 1st of the following
month, the lender will charge 12 days of prepaid interest.
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
Fees paid by the borrower if they pay the loan before its due date.
Primary Mortgage Market
Companies that originate and service mortgage loans (banks, savings &
loans, credit union, mortgage bankers, institutional lenders) make up the
primary mortgage market. See also secondary
mortgage market.
Prime Rate
The lowest commercial interest rate charge by a bank on short term loans to
their most credit worthy customers. View current prime rate.
Principal
Amount of debt, not including interest. The face value of a note, mortgage,
etc.
In the event that you do not have a 20 percent down payment, lenders will allow
a smaller down payment - as low as 2 percent in some cases. With the smaller
down payment loans, however, borrowers are usually required to carry private
mortgage insurance. Private mortgage insurance payments are normally made
annual or monthly. An impound account may be
required.
Probate
Court process to establish the validity of the will of a deceased person.
Property Tax
A government levy based on the market value (as assessed by the county
assessor's office) of the property.
Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other
items which the buyer and seller share as of the time of closing, or other
agreed upon time.
Public Sale
An auction of property with notice to the general public.
A deed which transfers whatever interest the maker of the deed may have in the
particular parcel of land. A quitclaim deed is often given to clear the title
when the grantor's interest in a property is questionable. By accepting such a
deed the buyer assumes all the risks. Such a deed makes no warranties as to the
title, but simply transfers to the buyer whatever interest the grantor has.
Land and anything permanently affixed to the land, and those things attached to
the building.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf
of either the borrower or seller, or in some cases both partied.
Real Estate Broker
An individual who often owns a real estate company or is in a management
position, and who is licensed to represent a buyer or a seller in a real estate
transaction.
Real Estate Investment Trusts (REIT)
A trust that uses investors money to purchase and manage real estate. Investors
realize some of the tax advantages in owning real estate.
Real Estate Settlement Procedure Act (RESPA)
A law that states how mortgage lenders must treat those who apply for real
estate loans on property with 1-4 units.
Example: A lender is required to provide a good faith estimate of closing costs
within 3 days of an application being filed.
Realtor®
A real estate professional who is a member of the National Association of
Realtors.
Reconveyance
When a mortgage is paid off in full, the lender conveys the property back to
the owner.
Recording
The act of entering into a book of public records instruments affecting title
to the real property. A lender requires that a deed of trust or a mortgage be
recorded to evidence the debt against the property.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities,
thereby making it part of the public records.
Recision
The cancellation of a contract. When refinancing a mortgage on a principal
residence the law gives the homeowner three days to cancel the contract
Recourse
The right of the holder of a note secured by a mortgage or deed of trust to
claim money from the borrower in default in addition to the property pledged as
a collateral.
Redlining
The practice of refusing to provide loans or insurance in a certain
neighborhood.
