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| Abstract
of Title |
| A written
history of ownership to a specific area of
land. An abstract of title covers the
period from the original source of title
to the present time and summarizes all
subsequent documents that have been
recorded against that area. |
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| ACH
(Automatic Clearing House) |
| Electronic
Drafting system that debits an authorized
bank account and electronically transfers
funds scheduled for remittance. |
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| Acquisition
Costs |
| Costs of
acquiring property other than purchase
price, for example, attorney fees, title
insurance, lender's fees. |
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| Addendum |
| An
agreement or list that is added to a
contract, agreement, or other document
such as a letter of intent. FHA and VA
require that an addendum be added to or
incorporated in a sales contract, if it is
written prior to the appraisal. |
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| Additional
Principal Payment |
| A payment
by a borrower of more than the scheduled
principal amount due in order to reduce
the remaining balance on the loan. |
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| Adjustable
Rate Mortgage (ARM) |
| A mortgage
in which the interest rate is adjusted
periodically according to a pre-selected
index. |
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| Adjusted
Gross Income |
| A person's
total income, as reported on his or her
IRS 1040 tax return form, after allowable
contributions, deductions and expenses
(alimony). |
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| Adjustment
Period |
| The period
that elapses between the adjustment dates
for an adjustable rate mortgage (ARM). |
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| Agricultural
Property |
| Unimproved
property available for farming activities. |
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| Alimony |
| Periodic
payments made under a divorce decree or a
written separation agreement toward the
support of a former spouse. |
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| American
Land Title Association (ALTA) |
| A national
association of title insurance companies,
abstractors, and attorneys specializing in
real property law. The association speaks
for the title insurance and abstracting
industry and establishes standard
procedures and title policy forms. |
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| Amortization |
| Payment of
a debt in regular, periodic installments
of principal and interest as opposed to
interest only payments. |
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| Amortization
Schedule |
| A timetable
for payment of a mortgage showing the
amount of each payment applied to interest
and principal and the remaining balance. |
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| Annual
Percentage Rate (APR) |
| A term used
in the Truth-in-Lending Act to represent
the percentage relationship of the total
finance charge to the amount of the loan.
The APR reflects the cost of your mortgage
loan as a yearly rate. It will be higher
than the interest rate stated on the note
because it includes, in addition to the
interest rate, loan discount points, fees
and mortgage insurance. |
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| Applicant |
| A
prospective borrower who has completed an
application. An application is series of
steps, usually including the completion of
documents, a lender requires of those
seeking a loan. |
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| Application |
| A printed
form used by a mortgage lender to record
necessary information concerning a
prospective mortgage. |
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| Application
Fee |
| A sum of
money paid towards estimated initial
mortgage processing expenses such as
appraisal and credit report. |
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| Appraisal |
| A report
made by a qualified person setting forth
an opinion or estimate of property value.
The term also refers to the process by
which this estimate is obtained. |
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| Appraised
Value |
| An opinion
of value reached by an appraiser based
upon knowledge, experience, and a study of
pertinent data. |
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| Appraiser |
| A person
qualified by education, training and
experience to estimate the value of real
and personal property. |
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| Appreciation |
| An increase
in the value of property due to either a
positive improvement of the area or the
elimination of negative factors. Commonly,
and incorrectly, used to describe an
increase in value through inflation. |
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| Arm's-Length
Transaction |
| Legal slang
meaning that there existed no special
relationship between the parties involved
in any matter which would taint the
result. |
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| As
Separate Property |
| Ownership
in real property which is to be
specifically excluded from community
property. |
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| Assessed
Valuation |
| The value
that a taxing authority places on real or
personal property for the purpose of
taxation. |
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| Assessment |
| A charge
against a property for purpose of
taxation. This may take the form of a levy
for a special purpose or a tax in which
the property owner pays a share of the
cost of community improvements according
to the valuation of his or her property. |
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| Assumable
Mortgage |
| A mortgage
that can be taken over (assumed) by the
buyer when a home is sold. |
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| Return
to Top |
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| Balloon
Mortgage |
| A mortgage
that has level monthly payments that will
fully amortize it over a stated term, but
which provides for a lump-sum payment to
be due at the end of an earlier specified
term. |
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| Bankruptcy |
| A
proceeding in a federal court in which a
debtor, who owes more than his or her
assets, can discharge personal liability
for his or her debts. This affects the
borrower's personal liability for a
mortgage debt but not the lien of the
mortgage. |
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| Biweekly
Mortgage |
| A mortgage
with payments due every two weeks,
totaling 26 payments a year. |
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| Borrower |
| A person
(also known as mortgagor) who receives
funds in the form of a loan with an
obligation to repay principal with
interest. |
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| Break-Even
Point |
| The point
at which total income is equal to total
expenses. |
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| Bridge
Financing |
| A loan
spanning the gap between the termination
of one loan (generally short-term) and the
start of another (generally permanent
long-term) loan. Also referred to as gap
financing. |
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| Bridge
Loan |
| A form of
second deed of trust or mortgage that is
collateralized by the borrower's present
home (which is usually for sale) in a
manner that allows the proceeds to be used
for closing on a new house before the
present home is sold. |
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| Buydown |
| Money
advanced by an individual (builder,
seller, etc.) to reduce the monthly
payments for a home mortgage either during
the entire term or for an initial period
of years. |
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| Return
to Top |
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| Cash |
| Currency,
checks and other negotiable instruments
acceptable for direct deposit by a bank. |
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| Cash
to Close |
| Liquid
assets that are readily available to be
used to pay the closing costs involved in
a closing of a mortgage transaction. |
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| Cash
Reserve |
| A
requirement by some lenders that buyers
have sufficient cash remaining after
closing to make the first mortgage
payment. |
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| Cash
Out Refinancing |
| When the
principal amount of a new mortgage
involved in refinancing is greater than
the principal amount outstanding of the
existing mortgage being refinanced, and
all or a portion of the equity is
converted to cash. |
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| Closing |
| The
consummation of a real estate transaction.
The closing includes the delivery of a
deed, financial adjustments, the signing
of notes, and the disbursement of funds
necessary to complete the sale and loan
transaction. |
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| Closing
Costs |
| Money paid
by the borrower in connection with the
closing of a mortgage loan. This generally
involves an origination fee, discount
points, appraisal, credit report, title
insurance, attorney's fees, survey, and
pre-paid items such as tax and insurance
escrow payments. |
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| Closing
Statement |
| A form used
at closing that gives an account of the
funds received and paid at the closing,
including the escrow deposits for taxes,
hazard insurance, and mortgage insurance. |
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| Co-Borrower |
| Additional
borrower(s) whose income contributes to
qualifying for a loan and whose name(s)
appears on documents with equal legal
obligations. |
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| Collateral |
| Property
pledged as security for a debt, such as
the real estate pledged as security for a
mortgage. |
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| Collection |
| The
servicing procedure followed to bring a
delinquent mortgage current and to file
the required notices to bring foreclosure
when necessary. |
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| Commitment
(Loan) |
| A binding
pledge made by the lender to the borrower
to make a loan, usually at a stated
interest rate within a given period of
time for a given purpose, subject to the
compliance of the borrower to stated
conditions. |
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| Commitment
Fee (Loan) |
| Any fee
paid by a potential borrower to a lender
for the lender's promise to lend money at
a specified rate and within a given time
period. |
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| Commitment
Letter |
| A formal
offer by a lender stating the terms under
which it agrees to loan money to a
homebuyer. |
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| Compensating
Factors |
| Positive
characteristics of a borrower's credit,
employment or savings history which may be
used to offset high debt-to-income ratios
in the underwriting process. |
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| Co-mortgager |
| A second
borrower who signs a mortgage loan with a
mortgagor. The co-mortgagor's income,
assets and debts are combined with the
mortgagor's for underwriting and ratio
analysis purposes. The co-mortgagor's name
must appear on the FHA Certificate of
Commitment and the mortgage or deed of
trust. For full guarantee under the VA's
program, the co-mortgagor must be either a
spouse or another eligible veteran. |
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| Comparable
Properties |
| Properties
used for comparative purposes in the
appraisal process that have been recently
sold and have characteristics similar to
property being appraised, thereby
indicating the approximate fair market
value of the subject property. |
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| Concession |
| A discount
or other inducement given by a landlord or
seller to a prospective tenant or buyer to
induce them to sign a lease or purchase
property. |
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| Conforming
Loan |
| Conventional
home mortgages eligible for sale and
delivery to either the Federal National
Mortgage Association (FNMA) or the Federal
Home Loan Mortgage Corporation (FHLMC).
These agencies generally purchase first
mortgages up to loan amounts mandated by
Congressional directive. |
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| Contingency |
| A condition
that must be met before a contract is
legally binding. |
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| Conventional
Mortgage |
| A mortgage
not obtained under a government insured
program (such as FHA or VA). |
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| Convertible
ARM |
| An
adjustable-rate mortgage that can be
converted to a fixed-rate mortgage under
specified conditions. |
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| Cooperative |
| A building
of two or more dwelling units that is
owned by a cooperative corporation made up
of people in the building. The right to
occupy a unit is obtained by buying shares
of stock in the corporation and signing an
occupancy agreement known as a proprietary
lease. |
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| Covenant |
| A clause in
a contract that obligates or restricts the
parties and which, if violated, can result
in legal action. |
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| Credit
Report |
| A report
detailing an individual's credit history. |
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| Return
to Top |
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| Deed |
| The legal
document conveying title to a real
property. |
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| Deed
of Trust |
| An
instrument used in many states in place of
a mortgage. Property is transferred to a
trustee by the borrower (trustor), in
favor of the lender (beneficiary) and
reconveyed upon payment in full. |
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| Default |
| The failure
to perform an obligation as agreed in a
contract. |
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| Delinquency |
| A loan
payment that is overdue but within the
period allowed before actual default is
declared. |
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| DeMinimus
PUD |
| A Planned
Unit Development (PUD) in which the common
property has less than a 2% influence upon
the value of the premises. The 2% rule of
thumb is calculated by dividing the dollar
amount of amenities by the total number of
units. |
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| Department
of Housing and Urban Development (HUD) |
| A
governmental entity responsible for the
implementation and administration of
housing and urban development programs.
HUD was established by the Housing and
Urban Development Act of 1965 to supersede
the Housing and Home Finance Agency. |
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| Department
of Veterans Affairs (VA) |
| A
cabinet-level agency of the federal
government. The Servicemen's Readjustment
Act of 1944 authorized the agency to
administer a variety of benefit programs
designed to facilitate the adjustment of
returning veterans to civilian life. Among
the benefit programs is the VA Home Loan
Guaranty program, which encourages
mortgage lenders to offer long-term, no
down payment financing to eligible
veterans by partially guaranteeing the
lender against loss upon foreclosure. |
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| Deposit |
| A sum of
money given to bind a sale of real estate.
Also known as earnest money. |
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| Depreciation |
| A loss of
value in real property brought about by
age, physical deterioration, functional or
economic obsolescence. |
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| Disclosure |
| Information
relevant to specific transactions that is
required by law. |
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| Discount
Point |
| A point
paid to the lender to permanently buy down
or lower an interest rate. It is usually a
percentage of the loan amount. |
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| Discounted
Loan |
| When the
note rate on a loan is less than the
market rate, it is a discounted loan.
However, the lender requires additional
points to raise the yield on the loan to
the market rate. |
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| Down
Payment |
| Money paid
to make up the difference between the
purchase price and the mortgage amount. |
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| Return
to Top |
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| Earnest
Money |
| A portion
of the down payment delivered with a
purchase offer by the purchaser of real
estate. Delivered to the seller, or an
escrow agency, by the purchaser with the
purchase offer as evidence of good faith.
Also known as a deposit. |
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| Easement |
| A right of
way giving persons other than the property
owner access to or over a property. |
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| Effective
Interest Rate |
| The actual
rate of return or yield to an investor.
The actual rate of interest paid by a
borrower. |
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| Encroachment |
| An
improvement that illegally violates
another's property or right to use that
property. |
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| Encumbrance |
| Anything
that affects or limits the fee simple
title to property, such as mortgages,
liens, leases, easements, or restrictions. |
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| Equal
Credit Opportunity Act (ECOA) |
| A Federal
law requiring lenders and other creditors
to make credit equally available without
discrimination based on race, color,
religion, national origin, sex, age,
marital status, receipt of income from
public assistance programs or past
exercising of rights under the Consumer
Credit Protection Act. |
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| Equity |
| The
ownership interest; i.e. portion of a
property's value over and above the liens
against it. |
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| Equity
Loan |
| A loan
based on the borrower's equity in his or
her home. |
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| Escrow |
| An item of
value, money or documents, deposited with
a third party, to be delivered upon the
fulfillment of a condition. For example,
the deposit by a borrower with the lender
of funds to pay taxes and insurance
premiums when they become due, or the
deposit of funds or documents with an
attorney or escrow agent to be disbursed
upon the closing of a sale of real estate.
In some parts of the country, escrows of
taxes and insurance premiums are called
impounds or reserves. |
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| Escrow
Account |
| The
segregated trust account in which escrow
funds are held. |
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| Escrow
Agent |
| The person
or organization having a fiduciary
responsibility to both the buyer and
seller (or lender and borrower) to see
that the terms of the purchase/sale (or
loan) are carried out. Also called escrow
company or escrow depository. |
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| Escrow
Payment |
| That
portion of a mortgagor's monthly payments
held by a lender or servicer to pay taxes,
hazard insurance, mortgage insurance,
lease payments, and other items as they
become due. Also called impounds or
reserves in some states. |
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| Return
to Top |
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| Fair
Credit Reporting Act (FCRA) |
| This law
requires consumer reporting agencies to
exercise fairness, confidentiality and
accuracy in preparing and disclosing
credit information. |
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| Federal
Home Loan Mortgage Corporation - FHLMC
(FREDDIE MAC) |
| A
quasi-governmental agency that purchases
conventional mortgages in the secondary
mortgage market from insured depository
institutions and HUD-approved mortgage
bankers. It sells participation sales
certificates secured by pools of
conventional mortgage loans, their
principal, and interest guaranteed by the
federal government through the FHLMC. It
also sells Government National Mortgage
Association bonds to raise funds to
finance the purchase of mortgages.
Popularly know as Freddie Mac. |
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| Federal
National Mortgage Association - FNMA
(FANNIE MAE) |
| A taxpaying
corporation created by Congress to support
the secondary mortgage market. It
purchases and sells residential mortgages
insured by the Federal Housing
Administration (FHA) or guaranteed by the
Veterans Administration (VA) as well as
conventional home mortgages. |
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| Fee
Simple |
| The
greatest possible interest a person can
have in real estate, including the right
to dispose of the property or pass it on
to one's heirs. |
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| First
Mortgage |
| A real
estate loan that has priority over any
subsequently recorded mortgages. |
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| Fixed
Interest Rate |
| An interest
rate which does not change during the loan
term. |
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| Fixed-rate
Mortgage (FRM) |
| A mortgage
in which the interest rate and payments
remain the same for the life of the loan. |
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| Foreclosure |
| A legal
procedure in which property mortgaged as
security for a loan is sold to pay the
defaulting borrower's debt. |
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| Return
to Top |
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| Gift
Letter |
| A written
explanation signed by the individual
giving the gift stating, "This is a
bona fide gift and there is no obligation
expressed or implied to repay this sum at
any time." |
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| Ginnie
Mae |
| Created in
1968 by an amendment to Title III of the
National Housing Act (12 USC 1716 et
seq.), this federal government corporation
is a constituent part of the Department of
Housing and Urban Development. Among other
governmental functions, it guarantees
securities backed by mortgages that are
insured or guaranteed by other government
agencies. Also called Government National
Mortgage Association (GNME). |
| |
| Good
Faith Estimate (GFE) |
| A document
which tells borrowers the approximate
costs they will pay at or before
settlement, based on common practice in
the locality. Under requirements of the
Real Estate Settlement Procedures Act (RESPA),
the mortgage banker or mortgage broker, if
any, must deliver or mail the GFE to the
applicant. |
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| Gross
Income |
| Total
income produced by a property before any
expenses are deducted. |
| |
| Gross
Monthly Income |
| Total
monthly income earned before tax and other
deductions. |
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| Return
to Top |
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| Hazard
Insurance |
| A contract
whereby an insurer, for a premium,
undertakes to compensate the insured for
loss on a specific property due to certain
hazards (i.e. fire). |
| |
| High-Ratio
Loan |
| Mortgage
loans in excess of 80 percent of the loan
amount divided by the lower of the sales
price or appraised value. |
| |
| Home
Equity Line of Credit |
| A form of
revolving credit in which your home serves
as collateral. |
| |
| Home
Equity Loan |
| A revolving
line of credit or loan based on the equity
in the mortgagor's house. The property is
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