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Glossary of Terms
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3/1, 5/1, 7/1 and 10/1 ARMs
Adjustable-rate mortgages in which rate is fixed for three-year, five-year, seven-year and ten-year periods, respectively, but may adjust annually after that.
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
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.
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
Accrue
To increase, to grow.
Accrual Date
The date the lien holder begins to charge interest.
Accrued Interest
Interest that has been charged but not yet paid.
Addendum
An addition to a written document (e.g., a contract).
Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years 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.
Alienation occurs when title to a property passes to another party, such as when a property is sold.
Allonge.
If there is no room on an original note for an endorsement, the endorsement is written on a separate piece of paper. It is then permanently attached to the original note and is called an allonge.
Amendment.
An alteration or change to a written document (e.g., a contract).
Amortization
Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Annual percentage rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.
Amortization
A method of equalizing monthly mortgage payments over the life of a loan. Payments usually are paid monthly but can be paid annually, quarterly, or on any other schedule. In the early part of a loan, repayment of interest is higher than that of principal. This relationship is reversed at the end of the loan.
Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser".
Appurtenance.
Something that belongs to someone else. An example would be the right to cross through someone else's property.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights. Taxes or special payments owed to a municipality or association.A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Taxes or special payments owed to a municipality or association
Assignee
The person to whom an agreement or contract is assigned. If you are assigning interest in your note to an investor, that investor would be the assignee.
Assignment
To transfer something from one party to another. For instance, a lien holder might transfer his or her interest to another party in exchange for a lump sum of cash.
Assignor.
A party who assigns or transfers something to another. If you are assigning interest in your note to an investor, you are the assignor
Assumption.
An assumption occurs when a property owner sells his or her property, allowing the new owner to "assume" or take over payment of the mortgage. Most assumptions require the prospective buyer to meet certain financial criteria required by the lienholder. Some liens can be assumed without meeting any financial criteria. These are called non-qualifying assumable liens.
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.
B
Balloon Mortgage
A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty-year amortization and a five year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
Barter
The exchange of goods and services for other goods and services without the use of money.
Beginning Balance
The sales price of a property minus the down payment and/or other considerations such as bartered items.
Beneficiary
One who benefits from the act of another, such as the beneficiary of a fire insurance policy, or the beneficiary of a deed of trust.
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. Broker
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Building Line of 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.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Breach of Contract.
A default or failure to abide by the terms of the contract.
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buyer's Expenses
Documentary Stamps on Notes
Recording Deed and Mortgage
Escrow Fees
Attorney's Fee
Title Insurance
Appraisal and Inspection
Survey Charge
Buy-down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
C
Cancellation Notice
A notice sent by the insurance carrier to the beneficiary of an insurance policy, stating that the policy has been canceled and is no longer active.
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.).
Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.
Caps (payment)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.
Certificate of veteran status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).
Certificate of Title.
A written statement, usually provided by a title company, which states that the title to a piece of property is legally owned by the present owner.
Certified Note Appraising.
The appraisal of individual and multiple notes. Appraisers are certified by The American Appraisal Institute of Privately Held Notes and Mortgages.
Clear Title.
Title that is not encumbered or burdened with clouds such as mortgages or unpaid taxes.
Cloud on Title.
Any encumbrance or burden that adversely affects title to a property.
Examples would include liens or unpaid taxes.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. Closing costs usually include an origination fee,discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee,credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
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.
COFI
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.
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.
Commit Waste
Failure to maintain property or allowing property to be used in a way that reduces its value.
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 interim loan to pay for the construction of buildings or homes. These are usually
designed to provide periodic disbursements to the builder as he progresses.
Contract sale or deed:
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
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, and others.
Condominium
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.
Conventional loan
A mortgage not insured by FHA or guaranteed by the VA.
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.)
Convey
To pass or transfer title to another party.
Conveyance
The document used to transfer 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 Bureau.
Firms that collect information on individuals and businesses for the purpose of providing the information to subscribers.
Credit Report.
A report from a credit bureau that provides a credit rating and other financial data on a person or a company.
D
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment
obligation on long-term debts is divided by his or her gross monthly income. See housing
expenses-to-income ratio.
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.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly
payments on a mortgage.
Deferred interest
When a mortgage is written with a monthly payment that is less than required to satisfy the
note rate, the unpaid interest is deferred by adding it to the loan balance. See negative
amortization
Delinquency
Failure to make payments on time. this can lead to foreclosure.
Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low-or
no-down payment mortgages to eligible veterans.
Discount Point
see point
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.
Down Payment
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. Money paid to make up the difference between the purchase price and the mortgage amount.
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
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 .
Easements.
A right of use over the property of another. A utility easement, for example, allows the utility company to lay its lines across another's property .
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 convenants. 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.
Endorsement.
Assigning or transferring a lien to another person is accomplished through the use of an endorsement. The words "PAY TO THE ORDER OF:" and then the name of the person to whom the lien is being assigned to, is written. If there is not enough space on the original note to write an endorsement, it is written on a separate piece of paper that is permanently affixed to the original note. This is called an allonge.
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.
Escape Clause
A way out. This is a clause in a legal document that allows a party to avoid liability and/or the performance of contractual obligations under certain conditions .
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 .
F
Fannie Mae
see Federal National Mortgage Association.
Federal Home Loan Mortgage Corporation(FHLMC) also called "Freddie Mac"
Is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A tax-paying corporation created by Congress that purchases and sells conventional
residential mortgages as well as those insured by FHA or guaranteed by VA. This institution,
which provides funds for one in seven mortgages, makes mortgage money more available and
more affordable.
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 ($155,250 as of 1/1/96), they are generous
enough to handle moderately-priced homes almost anywhere in the country.
FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 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.
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
FICO Scores
A FICO score is a credit score developed by Fair Isaac & Co. FICO / Fair Isaac & Co is the company used by the Experian (formerly TRW) credit bureau to calculate credit scores. Transunion and Equifax are two other credit bureaus that also provide credit scores. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair Isaac & Company began its pioneering work with credit scoring in the late 1950s, and since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance.
Developing these models involved studying how millions of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.
Each time your credit report is pulled it is run through a computer program with a built-in scoreboard. Points are awarded or deducted based on certain items such as how long you have had credit cards, whether you make your payments on time, if your credit balances are near the maximum, and assorted other variables. When the credit report prints in your lenders office the total score is displayed. Your score can be anywhere between the high 300s and the low 800s.
Lenders wanted to determine if there was any relationship between these credit scores and whether borrowers made their payments on time, so they did a study. The study showed that borrowers with scores above 680 almost always made their payments on time. Borrowers with scores below 600 seemed fairly certain to develop problems.
As a result, credit scoring became a more important factor in approving mortgage loans. Credit scores also made it easier to develop artificial intelligence computer programs that can make a yes decision for loans that should obviously be approved. Today, a computer and not a person may have actually approved your mortgage loan.
In short, lower credit scores require a more thorough review than higher scores. Often, mortgage lenders will not even consider a score below 600.
Credit scores analyze a borrower's credit history considering numerous factors such as:
Late Payments
The amount of time credit has been established
The amount of credit used versus credit available
Length of time at present residence
Employment history
Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed by data provided by each of the three bureaus Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.
Fiduciary
Having a duty to act primarily for another's benefit. If you hire an attorney, for example, that attorney has a duty to act primarily for your benefit.
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.
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
Something that is attached to land, becoming part of the real estate. Examples are wells or fencing.
FNMA
The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property. The sale of mortgaged property. Proceeds from the sale go to the lien holders as repayment.
Freddie Mac
see Federal Home Loan Mortgage Corporation
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.
Ginnie Mae
see Government National Mortgage Association.
Government National Mortgage Association (GNMA)
Also known as "Ginnie Mae", provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
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 (Homeowners Insurance)
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Hereditaments
Things capable of being inherited
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
I
Improvements.
A valuable addition made to property.
Impute. To put in place. Example, to impute interest means to begin charging interest.
Insurance Binder. Proof of insurance. It is usually a one page summary of the insurance coverage.
Insurance Premium.
The price of an insurance policy. Insurance premiums can be paid monthly, just like a mortgage.
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 be
Interest.
A right or entitlement. For example, you can assign your interest in your note to a third party. This means you assign your right to collect monthly payments to someone else.
Interest Rate. A percentage of money charged for the use of such money; usually described in annual terms (e.g., 10 percent).
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J
Junior Lien.
A lien which is subordinate to a prior lien; a lien that was recorded after another lien. Junior liens have fewer legal rights than a lien in first position.
Jumbo Loan
A loan which is larger (more than $240,000 as of 1/1/99) than the limits set by the Federal
National Mortgage Association and the Federal Home Loan Mortgage Co.
K
L
Land Contract.
Contract for the purchase and sale of land. Title to the land is transferred upon execution of the contract. This means the property seller retains title to the land until the loan is paid off. The term commonly refers to an installment contract for the sale of land whereby a purchaser (vendee) receives the deed from an owner (vendor) upon payment of a final installment. The vendor/seller finances the sale for the buyer and retains legal title to the property as security. Equivalent terms are "contract for deed" and "installment land contract."
Lessee. The person who makes lease payments. One who has right of possession and use of a property under the terms of a lease.
Lessor
The person who receives lease payments. One who leases property.
Legal Description. A technical description of real estate by government survey, metes and bounds, or lot numbers of a recorded plat. It also includes descriptions of any easements or reservations.
Lien
A type of security instrument (i.e., a tax lien), placed against property, making it security for the payment of a debt, judgment, mortgage, or taxes. If the lien is not paid, the lien holder has the right to confiscate the property in order to recover the money that was loaned.
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.
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.
Market Value.
The price a note commands in the open market.
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 Commitment
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
Money paid to insure the mortgage when the down payment is less than 20 percent. See
private mortgage insurance, FHA mortgage insurance.
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.
N
Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Effective Income
The borrower's gross income minus federal income tax.
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.
O
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions.
Formally known as Federal Home Loan Bank Board
One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on movements of
a published index plus a specified margin, chosen by the lender.
Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect
and sometimes appraise a property; usually computed as a percentage of the face value
of the loan.
Owner Financing.
Also called "Carrying Paper," "Purchase Money Mortgage" or "Seller Carry-Back Financing," owner financing occurs when the seller of a property finances the property for a buyer. A security instrument is thus created to secure the performance of that financing.
P
Party.
A person taking part in a transaction or proceeding.
Payee.
The person to whom a payment is made.
Payer, or Payor.
The person who makes a payment. The payer pays the payee.
Payment.
A previously agree-upon dollar amount paid in regular installments.
Plat.
A map of a specific area showing details such as streets, alleys, subdivided lots, easements, etc.
PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
Plot
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
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.
Points
A point is one percent of the amount of the mortgage loan.
Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of
the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Power of Attorney
A legal document authorizing one person to act on behalf of another.
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.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of
their due date.
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. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in
some form (but not necessarily imposed) in many states.
Principal
The amount of debt, not counting interest, left on a loan.
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)
In the event that you do not have a 20 percent down payment, lenders will allow a
smaller down payment - as low as 3 percent in some cases. With the smaller down
payment loans, however, borrowers are usually required to carry private mortgage
insurance. Private mortgage insurance will usually require an initial premium payment
and may require an additional monthly fee depending on you loan's structure.
Promissory Note
See note.
Protective Equity.
The difference between fair market value and total debt owed on a property. It is protective because without it, if you had to foreclose, you would have little chance of recovering the amount owed to you after paying attorney fees, real estate commissions, fix-up costs, and other costs.
Purchaser.
Someone who acquires property; the buyer. Technically, it is someone who acquires property in any manner other than by descent.
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.
R
Real Estate
A parcel of land and everything attached to it.
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.
Recission
The cancellation of a contract. With respect to mortgage refinancing, the law that gives
the homeowner three days to cancel a contract in some cases once it is signed if the
transaction uses equity in the home as security.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby
making it part of the public records.
Refinancing
The process of the same mortgagor paying off one loan with the proceeds from another loan.Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Restrictive Convents
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.)
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that
allows consumers to review information on known or estimated settlement cost once
after application and once prior to or at a settlement. The law requires lenders to
furnish the information after application only.
Reserve
Funds set aside to cover future expenses such as taxes and insurance.
Return on Investment
The amount earned per year on an investment, usually expressed as a percentage of the investment.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using
the borrower's equity in the home as collateral for and repayment of the loan.
S
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
Seasoning
This term refers to the pay history on a loan. A loan that is "seasoned" will have at least six months of pay history. Notes that are brand new, having only a few payments received, are non-seasoned. Non-seasoned loans are more risky than seasoned loans because they lack a pay history.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Secondary Market
The primary market is where securities are originally created. A secondary market is where securities are bought and sold after their original issue.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain
more funds to originate more new loans. It provides liquidity for the lenders.
Securitization
The pooling and selling of huge portfolios of privately-held mortgages to public investors (in a secondary market).
Security
Something given as a pledge of payment.
Seller
One who has contracted to sell property.
Seller's Expense's
Cost of Abstract
Documentary Stamps on Deed
Real Estate Commission
Recording Mortgage
Survey Charge
Escrow Fees
Attorney's Fee
Senior Lien
A lien that has been recorded before another. A lien that was recorded after a previous lien is called a junior lien. Liens that are in first position have more legal rights than junior liens.
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.
Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as
collection of payments, payment of taxes, insurance, property inspections and the like.
Settlement/Settlement Costs
see closing/closing costs
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for
which the lender (or another investor such as a family member or other partner)
receives a portion of the future appreciation in the value of the property. May also
apply to mortgage where the borrowers shares the monthly principal and interest
payments with another party in exchange for part of the appreciation.
Simple Interest
Interest which is computed only on the principle balance.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of
the land with reference to know points, its dimensions, and the location and dimensions
of any buildings. 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.
Sweat Equity
Equity created by a purchaser performing work on a property being purchased
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.
Tax Auction
A public sale of property to the highest bidder as repayment for delinquent taxes.
Tax ID Number
An identification number usually given by a borough, municipality, or county to a property parcel for tax purposes. This is the number a tax office will ask you for when you call to find out if taxes have been paid.
Tenements
Possessions that are permanent and fixed to land.
Term
The length of a loan, usually stated in months or years.
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. Written evidence that the owner of the land has lawful possession.
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 Search
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 convenants filed in the record, which would adversely affect the marketability or value of title.An examination of municipal records to determine the legal ownership of property.
Usually is performed by a title company.
Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers
shortly after they apply for the loan. Also known as Regulation Z.
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.)
One designated to hold property for another, pending the performance of an obligation. In a deed of trust state, the trustee is often the title company that handled the property sale closing.
Trustor
The payer of the lien. In a deed-of-trust state, this is the purchaser of the property.
Trust Deed
The legal document used to create a trust.
Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a specified
number of years (most often seven or 10), and then receives a new interest rate
adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.
U
Underwriting
The decision whether to make a loan to a potential home buyer based on credit,
employment, assets, and other factors and the matching of this risk to an appropriate
rate and term or loan amount
USURY
Interest charged in excess of the legal rate established by law.
V
VA Loan
A long-term, low-or no-down payment loan guaranteed by the Department of Veterans
Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on
a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this
would amount to $1,406 either paid at closing or added to the amount financed.
Variable Rate Mortgage (VRM)
see adjustable rate mortgage
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and
balance of his/her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.
Verification of Mortgage (VOM)
A document signed by the borrower's current lender verifying the history of payments on the current mortgage.
Verification of Rent (VOR)
A document signed by the borrower's landlord verifying the history of rent payments.
W
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate
loans which are to be sold later in the secondary mortgage market (or to investors).
When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.
Warranty Deed
A deed that conveys or transfers title from one party to another. It also includes covenants to assure that the title transferred is free from all encumbrances.
Wraparound mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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