adjustment
date
The date on which the interest
rate changes for an adjustable-rate mortgage
(ARM).
adjustment
period
The period that elapses between
the adjustment dates for an adjustable-rate
mortgage (ARM).
amortization
The repayment of a mortgage loan by installments
with regular payments to cover the principal
and interest.
amortization
term
The amount of time required to amortize
the mortgage loan. The amortization term
is expressed as a number of months. For
example, for a 30-year fixed-rate mortgage,
the amortization term is 360 months.
annual
percentage rate (APR)
The cost of a mortgage stated as a yearly
rate; includes such items as interest,
mortgage insurance, and loan origination
fee (points).
application
A form, commonly referred to as a 1003
form, used to apply for a mortgage to
1and to provide information regarding
a prospective mortgagor and the proposed
security.
appraisal
A written analysis of the estimated value
of a property prepared by a qualified
appraiser.
appraiser
A person qualified by education, training,
and experience to estimate the value of
real property and personal property.
appreciation
An increase in the value of a property
due to changes in market conditions or
other causes. The opposite of depreciation.
asset
Anything of monetary value that is owned
by a person. Assets include real property,
personal property, and enforceable claims
against others (including bank accounts,
stocks, mutual funds, and so on).
assignment
The transfer of a mortgage from one person
to another.
assumable
mortgage
A mortgage that can be taken over ("assumed")
by the buyer when a home is sold.
assumption
The transfer of the seller's
existing mortgage to the buyer.
assumption
clause
A provision in an assumable mortgage
that allows a buyer to assume responsibility
for the mortgage from the seller. The
loan does not need to be paid in full
by the original borrower upon sale or
transfer of the property.
assumption
fee
The fee paid to a lender (usually by the
purchaser of real property) resulting
from the assumption of an existing mortgage.
balance
sheet
A financial statement that shows assets,
liabilities, and net worth as of a specific
date.
balloon
mortgage
A mortgage that has level monthly payments
that will amortize it over a stated term
but that provides for a lump sum payment
to be due at the end of an earlier specified
term.
balloon
payment
The final lump sum payment that is made
at the maturity date of a balloon mortgage.
bankrupt
A person, firm, or corporation that, through
a court proceeding, is relieved from the
payment of all debts after the surrender
of all assets to a court-appointed trustee.
bankruptcy
A proceeding in a federal court in which
a debtor who owes more than his or her
assets can relieve the debts by transferring
his or her assets to a trustee.
before-tax
income
Income before taxes are deducted.
beneficiary
The person designated to receive the income
from a trust, estate, or a deed of trust.
binder
A preliminary agreement, secured by the
payment of an earnest money deposit, under
which a buyer offers to purchase real
estate.
biweekly
payment mortgage
A mortgage that requires payments to reduce
the debt every two weeks (instead of the
standard monthly payment schedule). The
26 (or possibly 27) biweekly payments
are each equal to one-half of the monthly
payment that would be required if the
loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted
from the borrower's bank account. The
result for the borrower is a substantial
savings in interest.
blanket
mortgage
The mortgage that is secured by a cooperative
project, as opposed to the share loans
on individual units within the project.
bond
An interest-bearing certificate of debt
with a maturity date. An obligation of
a government or business corporation.
A real estate bond is a written obligation
usually secured by a mortgage or a deed
of trust.
breach
A violation of any legal obligation.
bridge
loan
A form of second trust that is collateralized
by the borrower's present home (which
is usually for sale) in a manner that
allows the proceeds to be used for closing
on a new house before the present home
is sold. Also known as "swing loan."
broker
A person who, for a commission or a fee,
brings parties together and assists in
negotiating contracts between them.
buydown
mortgage
A temporary buydown is a mortgage on which
an initial lump sum payment is made by
any party to reduce a borrower's monthly
payments during the first few years of
a mortgage. A permanent buydown reduces
the interest rate over the entire life
of a mortgage.
call
option
A provision in the mortgage that gives
the mortgagee the right to call the mortgage
due and payable at the end of a specified
period for whatever reason.
cap
A provision of an adjustable-rate mortgage
(ARM) that limits how much the interest
rate or mortgage payments may increase
or decrease.
capital
improvement
Any structure or component erected as
a permanent improvement to real property
that adds to its value and useful life.
cash-out
refinance
A refinance transaction in which the amount
of money received from the new loan exceeds
the total of the money needed to repay
the existing first mortgage, closing costs,
points, and the amount required to satisfy
any outstanding subordinate mortgage liens.
In other words, a refinance transaction
in which the borrower receives additional
cash that can be used for any purpose.
Certificate
of Eligibility
A document issued by the federal government
certifying a veteran's eligibility for
a Department of Veterans Affairs (VA)
mortgage.
Certificate
of Reasonable Value (CRV)
A document issued by the Department of
Veterans Affairs (VA) that establishes
the maximum value and loan amount for
a VA mortgage.
certificate
of title
A statement provided by an abstract company,
title company, or attorney stating that
the title to real estate is legally held
by the current owner.
chain
of title
The history of all of the documents that
transfer title to a parcel of real property,
starting with the earliest existing document
and ending with the most recent.
change
frequency
The frequency (in months) of payment and/or
interest rate changes in an adjustable-rate
mortgage (ARM).
clear
title
A title that is free of liens or legal
questions as to ownership of the property.
closing
A meeting at which a sale of a property
is finalized by the buyer signing the
mortgage documents and paying closing
costs. Also called "settlement."
closing
cost item
A fee or amount that a home buyer must
pay at closing for a single service, tax,
or product. Closing costs are made up
of individual closing cost items such
as origination fees and attorney's fees.
Many closing cost items are included as
numbered items on the HUD-1 statement.
closing
costs
Expenses (over and above the price of
the property) incurred by buyers and sellers
in transferring ownership of a property.
Closing costs normally include an origination
fee, an attorney's fee, taxes, an amount
placed in escrow, and charges for obtaining
title insurance and a survey. Closing
costs percentage will vary according to
the area of the country.
closing
statement
Also referred to as the HUD1. The final
statement of costs incurred to close on
a loan or to purchase a home.
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 a quitclaim deed,
release, or court action.
collateral
An asset (such as a car or a home) that
guarantees the repayment of a loan. The
borrower risks losing the asset if the
loan is not repaid according to the terms
of the loan contract.
collection
The efforts used to bring a delinquent
mortgage current and to file the necessary
notices to proceed with foreclosure when
necessary.
co-maker
A person who signs a promissory note along
with the borrower. A co-maker's signature
guarantees that the loan will be repaid,
because the borrower and the co-maker
are equally responsible for the repayment.
See endorser.
commission
The fee charged by a broker or agent for
negotiating a real estate or loan transaction.
A commission is generally a percentage
of the price of the property or loan.
commitment
letter
A formal offer by a lender stating the
terms under which it agrees to lend money
to a home buyer. Also known as a "loan
commitment."
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.
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. The repair work can account for
as much as 30 percent of the appraised
value.
community
property
In some western and southwestern states,
a form of ownership under which property
acquired during a marriage is presumed
to be owned jointly unless acquired as
separate property of either spouse.
comparables
An abbreviation for "comparable properties";
used for comparative purposes in the appraisal
process. Comparables are properties like
the property under consideration; they
have reasonably the same size, location
, and amenities and have recently been
sold. Comparables help the appraiser determine
the approximate fair market value of the
subject property.
condominium
A real estate project in which each unit
owner has title to a unit in a building,
an undivided interest in the common areas
of the project, and sometimes the exclusive
use of certain limited common areas.
condominium
conversion
Changing the ownership of an existing
building (usually a rental project) to
the condominium form of ownership.
construction
loan
A short-term, interim loan for financing
the cost of construction. The lender makes
payments to the builder at periodic intervals
as the work progresses..
consumer
reporting agency (or bureau)
An organization that prepares reports
that are used by lenders to determine
a potential borrower's credit history.
The agency obtains data for these reports
from a credit repository as well as from
other sources.
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
A mortgage that is not insured or guaranteed
by the federal government.
convertibility
clause
A provision in some adjustable-rate mortgages
(ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified
timeframes after loan origination.
convertible
ARM
An adjustable-rate mortgage (ARM) that
can be converted to a fixed-rate mortgage
under specified conditions.
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.
corporate
relocation
Arrangements under which an employer moves
an employee to another area as part of
the employer's normal course of business
or under which it transfers a substantial
part or all of its operations and employees
to another area because it is relocating
its headquarters or expanding its office
capacity.
cost
of funds index (COFI)
An index that is used to determine interest
rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the
weighted-average cost of savings, borrowings,
and advances of the 11th District members
of the Federal Home Loan Bank of San Francisco.
covenant
A clause in a mortgage that obligates
or restricts the borrower and that, if
violated, can result in foreclosure.
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 open and fully
repaid debts. A credit history helps a
lender to determine whether a potential
borrower has a history of repaying debts
in a timely manner.
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. See merged credit report.
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.
debt
An amount owed to another.
deed
The legal document conveying title to
a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee
to satisfy a debt and avoid foreclosure.
deed
of trust
The document used in some states instead
of a mortgage; title is conveyed to a
trustee.
default
Failure to make mortgage payments on a
timely basis or to comply with other requirements
of a mortgage.
delinquency
Failure to make mortgage payments when
mortgage payments are due.
deposit
A sum of money given to bind the sale
of real estate, or a sum of money given
to ensure payment or an advance of funds
in the processing of a loan.
depreciation
A decline in the value of property; the
opposite of appreciation.
down
payment
The part of the purchase price of a property
that the buyer pays in cash and does not
finance with a mortgage.
due-on-sale
provision
A provision in a mortgage that allows
the lender to demand repayment in full
if the borrower sells the property that
serves as security for the mortgage.
earnest
money deposit
A deposit made by the potential home buyer
to show that he or she is serious about
buying the house.
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.
effective
gross income
Normal annual income including overtime
that is regular or guaranteed. The income
may be from more than one source. Salary
is generally the principal source, but
other income may qualify if it is significant
and stable.
encumbrance
Anything that affects or limits the fee
simple title to a property, such as mortgages,
leases, easements, or restrictions.
endorser
A person who signs ownership interest
over to another party. Contrast with co-maker.
Equal
Credit Opportunity Act (ECOA)
A federal law that requires lenders and
other creditors to make credit equally
available without discrimination based
on race, color, religion, national origin,
age, sex, marital status, or receipt of
income from public assistance programs.
equity
A homeowner's financial interest in a
property. Equity is the difference between
the fair market value of the property
and the amount still owed on its mortgage.
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 deposit by a borrower with
the lender of funds to pay taxes and insurance
premiums when they become due, or the
deposit of funds or documents with an
attorney or escrow agent to be disbursed
upon the closing of a sale of real estate.
escrow
account
The account in which a mortgage servicer
holds the borrower's escrow payments prior
to paying property expenses.
escrow
analysis
The periodic examination of escrow accounts
to determine if current monthly deposits
will provide sufficient funds to pay taxes,
insurance, and other bills when due.
escrow
collections
Funds collected by the servicer and set
aside in an escrow account to pay the
borrower's property taxes, mortgage insurance,
and hazard insurance.
escrow
disbursements
The use of escrow funds to pay real estate
taxes, hazard insurance, mortgage insurance,
and other property expenses as they become
due.
escrow
payment
The portion of a mortgagor's monthly payment
that is held by the servicer to pay for
taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they
become due. Known as "impounds"
or "reserves" in some states.
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.
Fair
Credit Reporting Act
A consumer protection law that regulates
the disclosure of consumer credit reports
by consumer/credit reporting agencies
and establishes procedures for correcting
mistakes on one's credit record.
fair
market value
The highest price that a buyer, willing
but not compelled to buy, would pay, and
the lowest a seller, willing but not compelled
to sell, would accept.
Fannie
Mae
A congressionally chartered, shareholder-owned
company that is the nation's largest supplier
of home mortgage funds.
Fannie
Mae's Community Home Buyer's Program
An income-based community lending model,
under which mortgage insurers and Fannie
Mae offer flexible underwriting guidelines
to increase a low- or moderate-income
family's buying power and to decrease
the total amount of cash needed to purchase
a home. Borrowers who participate in this
model are required to attend pre-purchase
home-buyer education sessions.
Federal
Housing Administration (FHA)
An agency of the U.S. Department of Housing
and Urban Development (HUD). Its main
activity is the insuring of residential
mortgage loans made by private lenders.
The FHA sets standards for construction
and underwriting but does not lend money
or plan or construct housing.
fee
simple
The greatest possible interest a person
can have in real estate.
FHA
mortgage
A mortgage that is insured by the Federal
Housing Administration (FHA). Also known
as a government mortgage.
finder's
fee
A fee or commission paid to a mortgage
broker for finding a mortgage loan for
a prospective borrower.
first
mortgage
A mortgage that is the primary lien against
a property.
fixed-rate
mortgage (FRM)
A mortgage in which the interest rate
does not change during the entire term
of the loan.
flood
insurance
Insurance that compensates for physical
property damage resulting from flooding.
It is required for properties located
in federally designated flood areas.
foreclosure
The legal process by which a borrower
in default under a mortgage is deprived
of his or her interest in the mortgaged
property. This usually involves a forced
sale of the property at public auction
with the proceeds of the sale being applied
to the mrotgage debt.
fully
amortized ARM
An adjustable-rate mortgage (ARM) with
a monthly payment that is sufficient to
amortize the remaining balance, at the
interest accrual rate, over the amortization
term.
good
faith estimate
An estimate of charges which a borrower
is likely to incur in connection with
a settlement.
hazard
insurance
Insurance protecting against loss
to real estate caused by fire, some natural
causes, vandalism, etc., depending upon
the terms of the policy.
housing
ratio
The ratio of the monthly housing payment
in total (PITI - Principal, Interest,
Taxes, and Insurance) divided by the gross
monthly income. This ratio is sometimes
referred to as the top ratio or front
end ratio.
HUD
The U.S. Department of Housing and
Urban Development.
index
A published interest rate to which
the interest rate on an Adjustable Rate
Mortgage (ARM) is tied. Some commonly
used indeces include the 1 Year Treasury
Bill, 6 Month LIBOR, and the 11th District
Cost of Funds (COFI).
lien
An encumbrance against property for
money due, either voluntary or involuntary.
lifetime
cap
A provision of an ARM that limits
the highest rate that can occur over the
life of the loan.
loan
to value ratio (LTV)
The ratio of the amount of your loan
to the appraised value of the home. The
LTV will affect programs available to
the borrower and generally, the lower
the LTV the more favorable the terms of
the programs offered by lenders.
lock-in
A written agreement guaranteeing the
home buyer a specified interest rate provided
the loan is closed within a set period
of time. The lock-in also usually specifies
the number of points to be paid at closing.
margin
The number of percentage points a
lender adds to the index value to calculate
the ARM interest rate at each adjustment
period. A representative margin would
be 2.75%.
mortgage
A legal document that pledges a property
to the lender as security for payment
of a debt
mortgage
disability insurance
A disability insurance policy which
will pay the monthly mortgage payment
in the event of a covered disability of
an insured borrower for a specified period
of time.
mortgage
insurance (MI)
Insurance written by an independent
mortgage insurance company protecting
the mortgage lender against loss incurred
by a mortgage default. Usually required
for loans with an LTV of 80.01% or higher.
mortgagee
The person or company who receives
the mortgage as a pledge for repayment
of the loan. The mortgage lender.
mortgagor
The mortgage borrower who gives the
mortgage as a pledge to repay.
non-conforming
loan
Also called a jumbo loan. Conventional
home mortgages not eligible for sale and
delivery to either Fannie Mae (FNMA) or
Freddie Mac (FHLMC) because of various
reasons, including loan amount, loan characteristics
or underwriting guidelines. Non-conforming
loans usually incur a rate and origination
fee premium. The current non-conforming
loan limit is ,601 and above.
note
A written agreement containing a promise
of the signer to pay to a named person,
or order, or bearer, a definite sum of
money at a specified date or on demand.
origination
fee
A fee imposed by a lender to cover
certain processing expenses in connection
with making a real estate loan. Usually
a percentage of the amount loaned, such
as one percent.
owner
financing
A property purchase transaction in
which the property seller provides all
or part of the financing.
Planned
Unit Developments (PUD)
A subdivision of five or more individually
owned lots with one or more other parcels
owned in common or with reciprocal rights
in one or more other parcels.
PITI
Principal, interest, taxes and insurance--the
components of a monthly mortgage payment.
points
Charges levied by the mortgage lender
and usually payable at closing. One point
represents 1% of the face value of the
mortgage loan.
prepaids
Those expenses of property which are
paid in advance of their due date and
will usually be prorated upon sale, such
as taxes, insurance, rent, etc.
prepayment
penalty
A charge imposed by a mortgage lender
on a borrower who wants to pay off part
or all of a mortgage loan in advance of
schedule.
principal
Amount of debt, not including interest.
The face value of a note or mortgage.
private
mortgage insurance (PMI)
Insurance provided by nongovernment
insurers that protects lenders against
loss if a borrower defaults. Fannie Mae
generally requires private mortgage insurance
for loans with loan-to-value (LTV) percentages
greater than 80%.
qualifying
ratios
The ratio of your fixed monthly expenses
to your gross monthly income, used to
determine how much you can afford to borrow.
The fixed monthly expenses would include
PITI along with other obligations such
as student loans, car loans, or credit
card payments.
rate
cap
A limit on how much the interest rate
can change, either at each adjustment
period or over the life of the loan.
rate
lock-in
A written agreement in which the lender
guarantees the borrower a specified interest
rate, provided the loan closes within
a set period of time.
rebate
Compensation received from a wholesale
lender which can be used to cover closing
costs or as a refund to the borrower.
Loans with rebates often carry higher
interest rates than loans with "points"
(see above).
refinancing
The process of paying off one loan with
the proceeds from a new loan using the
same property as security.
residential
mortgage credit report (RMCR)
A report requested by your lender that
utilizes information from at least two
of the three national credit bureaus and
information provided on your loan application.
seller
carry back
An agreement in which the owner of a property
provides financing, often in combination
with an assumed mortgage.
survey
A print showing the measurements of the
boundaries of a parcel of land, together
with the location of all improvements
on the land and sometimes its area and
topography.
tenants-in-common
An undivided interest in property taken
by two or more persons. The interest need
not be equal. Upon death of one or more
persons, there is no right of survivorship.
title
The evidence one has of right to possession
of land.
title
insurance
Insurance against loss resulting from
defects of title to a specifically described
parcel of real property.
title
search
An investigation into the history of ownership
of a property to check for liens, unpaid
claims, restrictions or problems, to prove
that the seller can transfer free and
clear ownership.
total
debt ratio
Monthly debt and housing payments divided
by gross monthly income. Also known as
Obligations-to-Income Ratio or Back-End
Ratio.
Truth-in-Lending
Act
A federal law requiring a disclosure of
credit terms using a standard format.
This is intended to facilitate comparisons
between the lending terms of different
financial institutions.
Veterans
Administration (VA)
A government agency guaranteeing mortgage
loans with no down payment to qualified
veterans.
