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Mortgage Glossary
A
B C D
E F G
H I J K
L M N
O P Q
R S T
U V W X Y
Z
A
Abstract (Of Title)
A summary of the public records relating to the title to a
particular piece of land. An attorney or title insurance company
reviews an abstract of title to determine whether there are any
title defects which must be cleared before a buyer can purchase
clear, marketable, and insurable title.
Acceleration Clause
Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or
for breach of other conditions of the mortgage.
Adjustable-Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during
the life of the loan in line with movements in an index rate. You
may also see ARMs referred to as AMLs (adjustable mortgage loans) or
VRMs (variable-rate mortgages).
Adjustment Period
This is the length of time for which the interest rate is fixed on
an adjustable rate mortgage. After that period it will be adjusted.
Typically once or twice a year depending on the index.
Agreement of Sale
Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees to
buy, under certain specific terms and conditions spelled out in
writing and signed by both parties.
Alienation Clause
Provision in a mortgage document stating that the loan must be paid
in full if ownership is transferred.
Amortization
A payment plan which enables the borrower to reduce his debt
gradually through monthly payments of principal.
Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It
includes interest as well as other charges. Because all lenders
follow the same rules to ensure the accuracy of the annual
percentage rate, it provides consumers with a good basis for
comparing the cost of loans, including mortgage plans.
Appraisal
An expert judgment or estimate of the quality or value of real
estate as of a given date.
Assessed Value
A figure in dollars determined for tax purposes by an assessor which
reflects a property's worth and which, unless exempt, is used to
compute a tax dollar obligation by multiplying it by a tax rate.
Assessing Unit
A city, county, town or village with the authority to value real
property for purposes of taxation.
Assumability
When a home is sold, the seller may be able to transfer the mortgage
to the new buyer. This means the mortgage is assumable. Lenders
generally require a credit review of the new borrower and may charge
a fee for the assumption. Some mortgages contain a due-on-sale
clause, which means that the mortgage may not be transferable to a
new buyer. Instead, the lender may make you pay the entire balance
that is due when you sell the home. Assumability can help you
attract buyers if you sell your home.
Assumption
The agreement between buyer and seller where the buyer takes over
the payments on an existing mortgage from the seller. The lender has
to be notified and agree to the assumption. Assuming a loan can
usually save a money since the buyer isn't required to pay most of
the closing costs.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be
personally liable for payment of an existing mortgage. In an
assumption, the purchaser is substituted for the original mortgagor
in the mortgage instrument and the original mortgagor is to be
released from further liability in the assumption, the mortgagee's
consent is usually required.
The original mortgagor should always obtain a written release from
further liability if he desires to be fully released under the
assumption. Failure to obtain such a release renders the original
mortgagor liable if the person assuming the mortgage fails to make
the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing
subject to a mortgage." When one purchases subject to a mortgage,
the purchaser agrees to make the monthly mortgage payments on an
existing mortgage, but the original mortgagor remains personally
liable if the purchaser fails to make the monthly payments. Since
the original mortgagor remains liable in the event of default, the
mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage"
are used to finance the sale of property. They may also be used when
a mortgagor is in financial difficulty and desires to sell the
property to avoid foreclosure.
Attached Home
A home that has one or more common walls adjoining another home.
Condominiums and row houses are attached homes.
B
Balloon Mortgage
A short-term fixed-rate loan which involves smaller payments for a
certain period of time and one large payment for the entire amount
of the outstanding principal. Usually they have terms of 3,5, and 7
years.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real estate. A
binder secures the right to purchase real estate upon agreed terms
for a limited period of time. If the buyer changes his mind or is
unable to purchase, the earnest money is forfeited unless the binder
expressly provides that it is to be refunded.
Biweekly Mortgage
A mortgage which requires a payment for half the monthly amount
every two weeks. As a result the loan amortizes much faster than a
loan with normal monthly payments. For example, a 30 year fixed rate
loan will be paid off in approximately 19 years.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security
for the same mortgage.
Bridge Loan
An interim loan is made to finance a buyers new residence if the
buyer is unable to sell his/her current residence but needs money to
close the transaction.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established by
a filed plat of subdivision, by restrictive covenants in deeds or
leases, by building codes, or by zoning ordinances.
Buydown
With a buydown, the seller pays an amount to the lender so that the
lender can give you a lower rate and lower payments, usually for an
early period in an ARM. The seller may increase the sales price to
cover the cost of the buydown. Buydowns can occur in all types of
mortgages, not just ARMs.
C
Caps
A limit on how much the interest rate or the monthly payment can
change, either at each adjustment or during the life of the
mortgage. Most ARMs have an interest rate caps to protect you from
enormous increases in monthly payments.
A lifetime cap limits the interest rate increase over the life of
the loan. Lifetime caps can vary by lender, but most ARMs have caps
of 5% or 6%. A periodic or adjustment cap limits how much your
interest rate can rise at one time. Generally, a 6 month ARM will
have a cap of 1% while a 1 year ARM will have a 2% cap.
Periodic and lifetime caps are quoted as two numbers as in 2/6 which
would mean that periodic cap is 2% and the lifetime cap is 6%.
Examples:
1. The initial interest rate is 4.5%, the index is 7%, and the
margin is 3%,
then the new interest rate = 7% + 3% = 10%.
If the lifetime cap is 5% then
the actual new interest rate will be 4.5% + 5% = 9.5%.
2. The initial interest rate is 6%, the index is 5%, and the margin
is 3%,
then the new interest rate = 5% + 3% = 8%.
If the periodic cap is 1% then
the actual new interest rate will be 6% + 1% = 7%.
ARMs which have an initial fixed period -- 30/3/1, 30/5/1, 30/7/1
and 30/10/1 -- can have also first adjustment cap. It limits the
interest rate you will pay the first time your rate is adjusted.
These ARMs are quoted as three numbers as in 5/2/5 which would mean
that the first adjustment cap is 5%, adjustment cap thereafter is
2%, and the lifetime cap is 5%.
Two-Step loans -- 5/25 and 7/23 -- have only one adjustment after
the first five or seven years of its term. They are quoted with a
single first adjustment cap.
Capital Gains
Profit earned from the sale of real estate. The new tax code does
not tax the profits from the sale of a home if the proceeds are used
to buy another house costing at least as much as the sales price of
the old one.
Certificate of Eligibility
The document issued by the U.S. Department of Veterans Affairs. It
is required when applying for VA loans.
Certificate of Occupancy
Document issued by a local governmental agency that states a
property meets the local building standards for occupancy.
Certificate of Reasonable Value
An appraisal issued by the VA approved appraiser which establishes
the property's current market value.
Certificate of Title
A certificate issued by a title company or a written opinion
rendered by an attorney that the seller has good marketable and
insurable title to the property which he is offering for sale. A
certificate of title offers no protection against any hidden defects
in the title which an examination of the records could not reveal.
The issuer of a certificate of title is liable only for damages due
to negligence. The protection offered a homeowner under a
certificate of title is not as great as that offered in a title
insurance policy.
Clear Title
A title that free of clouds and disputed interests.
Closing Costs
The numerous expenses which buyers and sellers normally incur to
complete a transaction in the transfer of ownership of real estate.
These costs are in addition to price of the property and are items
prepaid at the closing day. This is a typical list:
BUYER'S EXPENSES SELLER'S EXPENSES
Documentary Stamps on Notes Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
The agreement of sale negotiated previously between the buyer and
the seller may state in writing who will pay each of the above
costs.
Closing Day
The day on which the formalities of a real estate sale are
concluded. The certificate of title, abstract, and deed are
generally prepared for the closing by an attorney and this cost
charged to the buyer. The buyer signs the mortgage, and closing
costs are paid. The final closing merely confirms the original
agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the
marketability of title.
Commission
Money paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale. Usually it
is a percentage of the sale price--6 to 7 percent on houses, 10
percent on land.
Commitment
A written agreement between a lender and a borrower to loan money on
specific terms or conditions.
Condemnation
The taking of private property for public use by a government unit,
against the will of the owner, but with payment of just compensation
under the government's power of eminent domain. Condemnation may
also be a determination by a governmental agency that a particular
building is unsafe or unfit for use.
Condominium
Individual ownership of a dwelling unit and an individual interest
in the common areas and facilities which serve the multi-unit
project.
Construction loan
A short term loan to pay for the construction of buildings or homes.
These loans usually provide periodic disbursements to the builder as
each stage of the building is completed. Generally followed by long
term financing called a "take out" loan issued upon completion of
construction.
Contingency
A condition put on an offer to buy a home; such as the perspective
buyer making an offer contingent on his or her sale of a present
home.
Contractor
In the construction industry, a contractor is one who contracts to
erect buildings or portions of them. There are also contractors for
each phase of construction: heating, electrical, plumbing, air
conditioning, road building, bridge and dam erection, and others.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans'
Administration. It is subject to conditions established by the
lending institution and State statutes. The mortgage rates may vary
with different institutions and between States. (States have various
interest limits.)
Conversion Option
Some ARMs come with options to convert them to a fixed rate mortgage
during a given time period without having to go through a
refinancing, which could cost up to 5 percent or 6 percent of the
loan amount. For example popular conversion options for 1 year
treasury-indexed ARMs include:
1. option to convert on the third, fourth, or fifth adjustment date,
i.e. during the 37th, 49th and 61th months of the loan.
2. option to convert during the first five years on the adjustment
date, i.e. during the 13th, 25th, 37th, 49th and 61th months of the
loan.
The interest rate or points may be somewhat higher for a convertible
ARM. Also, a convertible ARM may require a small fee at the time of
conversion.
Conveyance
The transfer of title to the property from one party to another.
Cooperative Housing
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.
Credit Report
A report documenting the history of how you paid back the companies
you have borrowed money from, or how you have met other financial
obligations.
D
Deed
A formal written instrument 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 purchaser at
closing day. There are two parties to a deed: the grantor and the
grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim
Deed, and Special Warranty Deed)
Deed of Trust
Like a mortgage, a security instrument whereby real property is
given as security for a debt. However, in a deed of trust there are
three parties to the instrument: 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 defaults in the payment
of the debt, the trustee may sell the property at a public sale,
under the terms of the deed of trust. In most jurisdictions where
the deed of trust is in force, the borrower is subject to having his
property sold without benefit of legal proceedings. A few States
have begun in recent years to treat the deed of trust like a
mortgage.
Default
Failure to make mortgage payments as agreed to in a commitment based
on the terms and at the designated time set forth in the mortgage or
deed of trust. It is the mortgagor's responsibility to remember the
due date and send the payment prior to the due date, not after.
Generally, thirty days after the due date if payment is not
received, the mortgage is in default. In the event of default, the
mortgage may give the lender the right to accelerate payments, take
possession and receive rents, and start foreclosure. Defaults may
also come about by the failure to observe other conditions in the
mortgage or deed of trust.
Deferred interest
When the monthly payments do not cover all of the interest cost, the
unpaid interest is deferred by adding it to the loan balance.
Deficiency Judgment
Personal claim against the debtor when the sale of foreclosed
property does not yield sufficient proceeds to pay off the
mortgages.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in
the neighborhood, or any other reason.
Discount
In an ARM with an initial rate discount, the lender gives up a
number of percentage points in interest to give you a lower rate and
lower payments for part of the mortgage term (usually for one year
or less). After the discount period, the ARM rate will probably go
up depending on the index rate.
A State tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another. The amount
of stamps required varies with each State.
Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another. The amount
of stamps required varies with each State.
Downpayment
The amount of money to be paid by the purchaser to the seller upon
the signing of the agreement of sale. The agreement of sale will
refer to the downpayment amount and will acknowledge receipt of the
downpayment. Downpayment is the difference between the sales price
and maximum mortgage amount. The downpayment may not be refundable
if the purchaser fails to buy the property without good cause. If
the purchaser wants the downpayment to be refundable, he should
insert a clause in the agreement of sale specifying the conditions
under which the deposit will be refunded, if the agreement does not
already contain such clause. If the seller cannot deliver good
title, the agreement of sale usually requires the seller to return
the downpayment and to pay interest and expenses incurred by the
purchaser.
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.
E
Earnest Money
The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he is
serious about buying the house. If the sale goes through, the
earnest money is applied against the downpayment. If the sale does
not go through, the earnest money will be forfeited or lost unless
the binder or offer to purchase expressly provides that it is
refundable.
Easement Rights
A right-of-way granted to a person or company authorizing access to
or over the owner's land. An electric company obtaining a
right-of-way across private property is a common example.
Encroachment
An obstruction, building, or part of a building that intrudes beyond
a legal boundary onto neighboring private or public land, or a
building extending beyond the building line.
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.
Equal Credit Opportunity Act
Prohibits discrimination in any aspect of a credit transaction on
the basis of race, religion, age, color, national origin, receipt of
public assistance funds, sex, or marital status. Text.
Equity
The value of a homeowner's unencumbered interest in real estate.
Equity is computed by subtracting from the property's fair market
value the total of the unpaid mortgage balance and any outstanding
liens or other debts against the property. A homeowner's equity
increases as he pays off his mortgage or as the property appreciates
in value. When the mortgage and all other debts against the property
are paid in full the homeowner has 100% equity in his property.
Escrow
Funds paid by one party to another (the escrow agent) to hold until
the occurrence of a specified event, after which the funds are
released to a designated individual. In FHA mortgage transactions an
escrow account usually refers to the funds a mortgagor pays the
lender at the time of the periodic mortgage payments. The money is
held in a trust fund, provided by the lender for the buyer. Such
funds should be adequate to cover yearly anticipated expenditures
for mortgage insurance premiums, taxes, hazard insurance premiums,
and special assessments. See also Escrow Account.
F
Fair Housing Act
Prohibits discrimination in housing sales or loans on the basis of
race, religion, color, national origin, sex, familial status, or
handicap. Your Rights under the Fair Housing Act.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
A stockholder-owned corporation chartered by Congress to create a
continuous flow of funds to mortgage lenders in support of
homeownership and rental housing. Freddie Mac purchases
single-family and multifamily residential mortgages from lenders and
packages them into securities that are sold to investors.
Federal Housing Administration (FHA)
A part of the U.S. Department of Housing and Urban Development
(HUD). FHA assists first-time home buyers and others who might not
be able to meet down payment requirements for conventional loans by
providing mortgage insurance to private lenders. It also insures
loans for home improvements and buying manufactured (mobile) homes.
These programs operate through FHA approved lending institutions
which submit applications to have the property appraised and have
the buyer's credit approved.
Federal National Mortgage Association (FNMA, Fannie Mae)
A stockholder-owned federally chartered corporation. Fannie Mae
purchases residential home loans from mortgage lending institutions,
packages the mortgages into securities and sells the securities to
investors. The largest source of residential mortgage funds in the
United States.
FHA Loan
A loan insured by the Federal Housing Administration open to all
qualified home purchasers. Interest rates on FHA loans are generally
market rates, while down payment requirements are lower than for
conventional loans. FHA loans cannot exceed the statutory limit.
Firm Commitment
A lender’s agreement to make a loan to a specific borrower on a
specific property.
First Mortgage
A mortgage that has priority as a lien over all other mortgages.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment
includes payment of both principal and interest.
Flood Insurance
Insurance that compensates for physical property damage resulting
from flooding. It is required for properties located in federally
designated flood areas.
Foreclosure
A legal term applied to any of the various methods of enforcing
payment of the debt secured by a mortgage, or deed of trust, by
taking and selling the mortgaged property, and depriving the
mortgagor of possession.
FSBO
For sale by owner.
G
General Warranty Deed
A deed which conveys not only all the grantor's interests in and
title to the property to the grantee, but also warrants that if the
title is defective or has a "cloud" on it (such as mortgage claims,
tax liens, title claims, judgments, or mechanic's liens against it)
the grantee may hold the grantor liable.
Government National Mortgage Association (GNMA, Ginnie Mae)
A wholly-owned government corporation within the U.S. Dept. of
Housing and Urban Development helping to finance government-assisted
housing programs. Ginnie Mae guarantees securities backed by pools
of mortgages. The mortgages are insured by the Federal Housing
Administration (FHA), or guaranteed by the Veterans Administration
(VA) or by the Rural Housing Service (RHS). Ginnie Mae securities
are bought and sold through financial institutions that trade
government securities.
Graduated Payment Mortgage
A type of a mortgage that has lower payments initially and then
payments increase each year until the loan is fully amortized.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
H
Hazard Insurance
Protects against damages caused to property by fire, windstorms, and
other common hazards.
Homestead Exemption
The assessed value of a owner-occupied residential property may be
reduced by the amount of the exemption for the purposes of
calculating property tax. Available in some states.
HUD
U.S. Department of Housing and Urban Development. Office of
Housing/Federal Housing Administration within HUD insures home
mortgage loans made by lenders and sets minimum standards for such
homes.
HUD-1 Settlement Statement
A standard form that shows all charges imposed on borrowers and
sellers in connection with the settlement. RESPA allows the borrower
to request to see the HUD-1 Settlement Statement one day before the
actual settlement.
I
Impound
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.
Index
A published measure of economic conditions usually relative to other
financial instruments such as Treasury notes or Treasury bills. The
lender uses a particular index to calculate the interest rate on an
adjustable rate mortgage (ARM) by adding a fixed margin to the
index. The most common indexes are:
Constant Maturity Treasury (CMT)
Treasury Bill (T-Bill)
12-Month Treasury Average (MTA)
11th District Cost of Funds Index (COFI)
London Inter Bank Offering Rates (LIBOR)
Certificates of Deposit (CD) Indexes
Prime Rate
Click on index title for explanations and current values. [For
historical values of the most frequently used indexes, click here]
Interest
A charge paid for borrowing money. See Mortgage Note
J
Joint Tenancy
Joint tenancy is one of the methods available for two or more people
to hold title to real estate or personal property. It includes a
right of survivorship, meaning that on the death of one joint
tenant, his/her interests transfer to the remaining joint tenants.
Jumbo Loan
A loan that is larger than the conforming loan limit established by
Fannie Mae or Freddie Mac. It often has interest rates a little
higher than conforming loan.
L
Lien
A claim by one person on the property of another as security for
money owed. Such claims may include obligations not met or
satisfied, judgments, unpaid taxes, materials, or labor. See also
Special Lien
Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the
value of the real property expressed as a percentage. For purchase
loans the value of the property is the appraised value or the
purchase price, whichever is less. For refinance loans the value is
the appraised value.
A LTV of 90% means that you can borrow a maximum of 90% of the
property value. If a LTV exceeds 80%, a Private Mortgage Insurance (PMI)
-- that insures the lender in the event a borrower defaults -- is
generally required.
Downpayment is the difference between the purchase price and the
mortgage amount.
Lock
A lender's promise to hold a certain interest rate and points for
you, for a given number of days, while your loan application is
processed. The interest rates quoted to you may stay the same,
decrease, or increase from the day you apply for your mortgage.
Lock-ins on rates and points might offer you a way to ensure that
what you shop for is what you get.
However, a locked-in rate could also prevent you from taking
advantage of rate decreases. If you think that rates will remain
level or even go down, you may choose to bet on interest rates
decreasing by electing to float until you go to closing.
Lock-ins of 30-60 days are common. If your lock-in period expires
before you go to closing, you might lose the interest rate and the
number of points you had locked-in. You may ask lender for a longer
lock-in period. But bear in mind that lenders may charge you a fee
for a longer lock-in period. Request information from the lender
regarding lock procedures.
A Consumer's Guide To Mortgage Lock-Ins A Federal Reserve Board
publication.
M
Marketable Title
A title that is free and clear of objectionable liens, clouds, or
other title defects. A title which enables an owner to sell his
property freely to others and which others will accept without
objection.
Margin
The number of percentage points the lender adds to the index rate to
calculate the ARM interest rate at each adjustment.
Mortgage
A lien or claim against real property given by the buyer to the
lender as security for money borrowed. Under government-insured or
loan-guarantee provisions, the payments may include escrow amounts
covering taxes, hazard insurance, water charges, and special
assessments. Mortgages generally run from 10 to 30 years, during
which the loan is to be paid off.
Mortgage Broker
A person (not an employee of a lender) who brings a borrower and a
lender together to obtain a federally-related mortgage loan. A
mortgage broker has access to a variety of lenders and often offers
the most choice in loan programs. Mortgage brokers are paid a fee by
the borrower or the lender when a loan closes.
Mortgage Commitment
A written notice from the bank or other lending institution saying
it will advance mortgage funds in a specified amount to enable a
buyer to purchase a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD
to help defray the cost of the FHA mortgage insurance program and to
provide a reserve fund to protect lenders against loss in insured
mortgage transactions. In FHA insured mortgages this represents an
annual rate of one-half of one percent paid by the mortgagor on a
monthly basis.
Mortgage Note
A written agreement to repay a loan. The agreement is secured by a
mortgage, serves as proof of an indebtedness, and states the manner
in which it shall be paid. The note states the actual amount of the
debt that the mortgage secures and renders the mortgagor personally
responsible for repayment.
Mortgage (Open-End)
A mortgage with a provision that permits borrowing additional money
in the future without refinancing the loan or paying additional
financing charges. Open-end provisions often limit such borrowing to
no more than would raise the balance to the original loan figure.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
Multiple Listing Service (MLS)
A service offered to participating real estate brokers that lists
available homes for sale. The listings are published and distributed
among the member brokers to assist in sales efforts.
N
Negative Amortization
Amortization means that monthly payments are large enough to pay the
interest and reduce the principal on your mortgage. Negative
amortization occurs when the monthly payments do not cover all of
the interest cost. The interest cost that isn't covered is added to
the unpaid principal balance. This means that even after making many
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 not high enough to cover the
interest due.
Non-conforming loan
Loans that do not comply with Fannie Mae or Freddie Mac guidelines.
These guidelines establish the maximum loan amount, down payment,
borrower credit and income requirements, and suitable properties.
Loans that does conform to these guidelines may be sold to Fannie
Mae or Freddie Mac.
O
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered
savings institutions.
Open End Mortgage
see Mortgage (Open-End)
Owner Financing
A property purchase transaction in which the property seller
provides all or part of the financing.
P
Package Mortgage
A mortgage covering both real and personal property.
Parcel
A separately assessed for tax purposes lot or piece of real
property.
PITI
Principal, Interest, Taxes and Insurance. These components are
usually included in the monthly mortgage payment.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned
and maintained by a homeowners' association for the benefit and use
of the individual PUD unit owners.
Plat
A map or chart of a lot, subdivision or community drawn by a
surveyor showing boundary lines, buildings, improvements on the
land, and easements.
Points
Sometimes called "discount points." A point is one percent of the
amount of the mortgage loan. For example, if a loan is for $25,000,
one point is $250. Points are charged by a lender to raise the yield
on his loan at a time when money is tight, interest rates are high,
and there is a legal limit to the interest rate that can be charged
on a mortgage. Buyers are prohibited from paying points on HUD or
Veterans' Administration guaranteed loans (sellers can pay,
however). On a conventional mortgage, points may be paid by either
buyer or seller or split between them.
Power of Attorney
A legal document that authorizes another person to act on one’s
behalf. A power of attorney can grant complete authority or can be
limited to certain acts and/or certain periods of time.
Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage
agreements often restrict the right of prepayment either by limiting
the amount that can be prepaid in any one year or charging a penalty
for prepayment. Lenders who impose prepayment penalties will charge
borrowers a fee if they wish to repay part or all of their loan in
advance of the regular schedule. The Federal Housing Administration
does not permit such restrictions in FHA insured mortgages.
Principal
The basic element of the loan as distinguished from interest and
mortgage insurance premium. In other words, principal is the amount
upon which interest is paid.
Private Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from
non-payment of the loan.
Prorations
The allocation of expenses, such as taxes between buyer and seller
at closing based on the number of days the property is owned during
the month of closing.
Processing, Underwriting and Document Fees
Charges for the lender's services associated with making the loan.
Purchase Agreement
See Agreement of Sale
Q
Quitclaim Deed
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. See Deed
Qualifying Ratios
Lenders use certain guidelines to determine a potential borrower's
credit-worthiness. The two guidelines used are the housing and debt
ratios. They are expressed as two numbers like 28/36 where 28 would
be the housing ratio and 36 would be the debt ratio. It means that:
1. Your housing expenses should not exceed 28 percent of your gross
monthly income and
2. Housing expenses plus long- term debt should not exceed 36
percent of your gross monthly income.
The housing expenses include monthly mortgage principal, interest
payments, property taxes and homeowner’s insurance. There may be
other expenses, such as condominium fees, homeowners fees, special
assessments, etc., that are included. Long-term debt is defined as
monthly expenses extending more than 10 months into the future. The
qualifying ratios may vary from lender to lender.
Please note that qualifying ratios are only a rough guidelines and
underwriters consider many variables in their analysis. Many times,
borrowers fall outside the guidelines, but have strong compensating
factors that reflect low credit risk. Some compensating factors are
history of savings, long-term job stability, a substantial down
payment or excellent credit history will influence the decision to
approve or deny a particular loan.
R
Rate Reduction Option
A mortgage loan with rate reduction option can be adjusted, under
the right conditions, to a lower interest rate with a payment of
small fee. This allows the borrowers to adjust the interest rate on
the loan without having to go through a refinancing, which could
cost up to 5 percent or 6 percent of the loan amount. The interest
rate or points may be somewhat higher for a loan with rate reduction
option.
Real Estate Broker
A middle man or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have
title to the property, but generally represents the owner.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection statute designed to help consumers be better
shoppers in the home buying process. It requires that borrowers
receive disclosures at various times. RESPA also prohibits certain
practices that increase the cost of settlement services. More about
RESPA
Recorder
The public official who keeps records of transactions that affect
real property in the area. Sometimes known as a "Registrar of Deeds"
or "County Clerk."
Refinancing
The process of the same mortgagor paying off one loan with the
proceeds from another loan.
Rescission
The cancellation of a contract. When you use your home as collateral
for a loan, you generally have the right to cancel the credit
transaction within three business days. This is called your "right
of rescission," and it is guaranteed by the Federal Truth in Lending
Act. See FTC publication Getting a Loan: Your Home as Security
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land," binding
all subsequent purchasers of the land, or may be "personal" and
binding only between the original seller and buyer. The
determination whether a covenant runs with the land or is personal
is governed by the language of the covenant, the intent of the
parties, and the law in the State where the land is situated.
Restrictive covenants that run with the land are encumbrances and
may affect the value and marketability of title. Restrictive
covenants may limit the density of buildings per acre, regulate
size, style or price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from owning
or occupying homes in a given area. (This latter discriminatory
covenant is unconstitutional and has been declared unenforceable by
the U.S. Supreme Court.)
Reverse Mortgage
A special type of home loan that lets elderly homeowners convert the
equity in their home into cash.
Right of Survivorship
In joint tenancy, the right of survivors to acquire the interest of
a deceased joint tenant.
S
Sales Agreement
See Agreement of Sale
Second Home (or Vacation Home)
This home is not rented and is occupied occasionally by the owners.
Second mortgage
A mortgage in addition to the first mortgage. Home equity loans,
credit lines, home improvement loans are second mortgage loans.
Second mortgage is subordinate to the first one. Second mortgage
loans are non-conforming loans, so, they usually carry a higher
interest rate, and they often are for a shorter time.
Secondary (subordinate) financing
Borrowing additional money toward the down payment. If it is
acceptable, usually subject to a maximum combined LTV. Secondary
financing is used as an alternative to obtaining Private Mortgage
Insurance
Section 1031
Under section 1031 of the IRS, owners or real estate held for
investment or for use in a trade or business can exchange their
property tax-free for "like-kind" real estate.
Sec. 1031. Exchange of property held for productive use or
investment. Statute.
Servicing
Servicing means the collection of payments, handling your escrow
accounts and management of operational procedures, related to
mortgages, that a lender performs.
Set Back Ordinance
Regulates the distance from the lot line to the point where
improvements may be constructed.
Shared Appreciation Mortgage
A residential loan in which a borrower receives a below-market
interest rate in return for which the lender receives a specified
share of the future appreciation in the value of the property.
Special Assessments
A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers,
street lights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general
lien, which is levied against all one's assets. It creates a right
to retain something of value belonging to another person as
compensation for labor, material, or money expended in that person's
behalf. In some localities it is called "particular" lien or
"specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees
to protect the grantee against title defects or claims asserted by
the grantor and those persons whose right to assert a claim against
the title arose during the period the grantor held title to the
property. In a special warranty deed the grantor guarantees to the
grantee that he has done nothing during the time he held title to
the property which has, or which might in the future, impair the
grantee's title.
State Stamps
See Documentary Stamps
Survey
A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries,
and its relationship to surrounding tracts of land. A survey is
often required by the lender to assure him that a building is
actually sited on the land according to its legal description.
T
Tax
As applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the State. The governing
body in turn utilizes the funds in the best interest of the general
public.
Taxable Assessed Value
The assessed value of a parcel against which the tax rate is applied
to compute the tax due. In case of a partial exemption, the exempt
amount is subtracted from the assessed value in order to determine
the taxable assessed value.
Teaser Rate
A low initial interest rate on a mortgage.
Title
As generally used, the rights of ownership and possession of
particular property. In real estate usage, title may refer to the
instruments or documents by which a right of ownership is
established (title documents), or it may refer to the ownership
interest one has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest in
property due to legal defects in title. Title insurance may be
issued to a "mortgagee's title policy." Insurance benefits will be
paid only to the "named insured" in the title policy, so it is
important that an owner purchase an "owner's title policy", if he
desires the protection of title insurance.
Title Insurance Binder
Written commitment of a title insurance company to insure title to
the property under the conditions stated in the binder.
Title Search or Examination
A check of the title records, generally at the local courthouse, to
make sure the buyer is purchasing a house from the legal owner and
there are no liens, overdue special assessments, or other claims or
outstanding restrictive covenants filed in the record, which would
adversely affect the marketability or value of title.
Trustee
A party who is given legal responsibility to hold property in the
best interest of or "for the benefit of" another. The trustee is one
placed in a position of responsibility for another, a responsibility
enforceable in a court of law. See Deed of Trust
Truth-In-Lending Act ( TIL, also called Regulation Z)
Under this act a lender is required to provide you with a disclosure
estimating the costs of the loan you have applied for, including
your total finance charge and the Annual Percentage Rate (APR)
within three business days of your application for a loan.
Two-Step Mortgage
With this type of loan homebuyers get a fixed rate loan at a
slightly lower interest rate for a fixed period of time (most often
for 5, 7, or 10 years) and then the interest rate is adjusted to fit
market conditions at that time. After that adjustment, the mortgage
maintains a fixed rate for the remaining years.
U
Underwriting
A process of deciding whether to make a loan based on your credit
reputation, income, debt, appraised value of the house and other
factors.
V
VA Loan
A mortgage for veterans and service persons guaranteed by the
Department of Veterans Affairs (VA), requiring very low or no
downpayments and with generous requirements for qualification.
W
Wraparound Mortgage
A loan arrangement whereby the existing loan is retained and a new
loan is added to the property. Full payments on both mortgages are
made to the wraparound mortgagee, who then forwards the payments on
the first mortgage to the first mortgagee.
Z
Zoning
A local government authority's specifications for the use of
property in certain areas.
Zoning Ordinances
The acts of an authorized local government establishing building
codes, and setting forth regulations for property land usage.
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