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- Acceleration
Clause
- A
provision in a mortgage that gives
the lender the right to demand
payment of the entire principal
balance if any monthly payments are
missed.
- Acceptance
- An
offer's consent to enter into a
contract and be bound by the terms
of the offer.
- 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.
- Adjustable
Rate Mortgage (ARM)
- A
mortgage that permits the lender to
adjust its interest rate
periodically on the basis of changes
in a specified index.
- Adjustment
Date
- The
date on which the interest rate
changes for an adjustable-rate
mortgage (ARM).
- Adjustment
Period
- The
period that elapses between the
adjustment dates for an
adjustable-rate mortgage (ARM).
- Amortization
- The
gradual repayment of a mortgage loan
by installments.
- Amortization
Schedule
- A
timetable for payment of a mortgage
loan. An amortization schedule shows
the amount of each payment applied
to interest and principal and shows
the remaining balance after each
payment is made.
- Amortize
- To
repay a mortgage with regular
payments that cover both principal
and interest.
- Annual
Percentage Rate (APR)
- The
cost of a mortgage stated as a
yearly rate; includes such items as
interest, mortgage insurance, and
loan origination fees (points).
- Application
- A
form used to apply for a mortgage
loan and to record pertinent
information concerning a prospective
mortgagor and the proposed security.
- Appraisal
- A
written analysis of the estimated
value of a property prepared by a
qualified appraiser. Contrast with
home inspection.
- Appraised
Value
- An
opinion of a property's fair market
value, based on an appraiser's
knowledge, experience, and analysis
of the property.
- Appraiser
- A
person qualified by education,
training, and experience to estimate
the value of real property and
personal property.
- Appreciation
- An
increase in the value of a property
due to changes in market conditions
or other causes. The opposite of
depreciation.
- Assessed
Value
- The
valuation placed on property by a
public tax assessor for purposes of
taxation.
- Asset
- Anything
of monetary value that is owned by a
person. Assets include real
property, personal property, and
enforceable claims against others
(including bank accounts, stocks,
mutual funds, and so on).
- Assignment
- The
transfer of a mortgage from one
person to another.
- Assumable
Mortgage
- A
mortgage that can be taken over
("assumed") by the buyer
when the home is sold.
- Assumption
Clause
- A
provision in an assumable mortgage
that allows a buyer to assume
responsibility for the mortgage from
the seller. The loan does not need
to be paid in full by the original
borrower upon sale or transfer of
the property.
- Assumption
Fee
- The
fee paid to a lender (usually by the
purchaser of real property)
resulting from the assumption of an
existing mortgage.
- Attorney-In-Fact
Fee
- One
who holds a power of attorney from
another to execute documents on
behalf of the grantor of the power.
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- Balance
Sheet
- A
financial statement that shows
assets, liabilities, and net worth
as of a specific date.
- Balloon
Mortgage
- A
mortgage that has level monthly
payments that will amortize over a
stated term but that provides for a
lump sum payment to be due at the
end of an earlier specified term.
- Bankruptcy
- A
proceeding in the federal courts in
which a debtor, who owes more that
his or her assets can repay, can
relieve those debts by transferring
his or her assets to a trustee.
- Beneficiary
- The
person designated to receive the
income from a trust, estate, or a
deed of trust.
- Binder
- A
preliminary agreement secured by the
payment of an earnest money deposit,
under which a buyer offers to
purchase real estate.
- Blanket
Insurance Policy
- A
single policy that covers more than
one piece of property (or more than
one person).
- BridgeLoan
- A
form of second trust that is
collateralized by the borrower's
present home (which is usually for
sale) in a manner that allows the
proceeds to be used for closing on a
new house before the present home is
sold. Also known as "swing
loan".
- Broker
- A
person who, for a commission or a
fee, brings parties together and
assists in negotiating contracts
between them. See mortgage
broker.
- Buydown
Account
- An
account in which funds are held so
that they can be applied as part of
the monthly mortgage payment as each
payment comes due during the period
that an interest rate buydown plan
is in effect.
- Buydown
Mortgage
- A
temporary buydown is a mortgage on
which an initial lump sum payment is
made by any party to reduce a
borrower's monthly payments during
the first few years of a mortgage. A
permanent buydown reduces the
interest rate over the entire life
of a mortgage.
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- Call
Option
- A
provision in the mortgage that gives
the mortgagee the right to call the
mortgage due and payable at the end
of a specified period for whatever
reason.
- Cap
- A
provision of an adjustable-rate
mortgage (ARM) that limits how much
the interest rate or mortgage
payments may increase or decrease.
See lifetime
payment cap, lifetime
rate cap, periodic
payment cap, and periodic
rate cap.
- Cash-Out-Refinance
- A
refinance transaction in which the
amount of money received from the
new loan exceeds the total of the
money needed to repay the existing
mortgages, closing cost, points, and
the amount required to satisfy any
outstanding subordinate mortgage
liens. In other words, a refinance
transaction in which the borrower
receives additional cash that can be
used for other purposes.
- Certificate
of Deposit
- A
document written by a bank or other
financial institution that is
evidence of a deposit, with the
issuer's promise to return the
deposit plus earnings at a specified
interest rate within a specified
time period.
- Certificate
of Deposit Index
- An
index that is used to determine
interest rate changes for certain
ARM plans. It represents the weekly
average of secondary market interest
rates on six-month negotiable
certificates of deposit. See adjustable-rate
mortgage (ARM).
- Certificate
of Eligibility
- A
document issued by the federal
government certifying a veteran's
eligibility for a Department of
Veterans Affairs (VA) mortgage.
- Certificate
of Reasonable Value
- A
document issued by the Department of
Veterans Affairs (VA) that
establishes the maximum value and
loan amount for a VA mortgage.
- Chain
of Title
- The
history of all of the documents that
transfer title to a parcel of real
property, starting with the earliest
existing document and ending with
the most recent.
- Change
Frequency
- The
frequency (in months) of payment
and/or interest rate changes in an
adjustable-rate mortgage (ARM).
- Clear
Title
- A
title that is free of liens or legal
questions as to ownership of the
property.
- Closing
- A
meeting at which the sale of a
property is finalized when the buyer
signs the mortgage documents and
pays the closing costs. Also called
"settlement".
- Closing
Cost Item
- A
fee or amount that a homebuyer must
pay at closing for a single service,
tax, or product. Closing costs are
made up of individual closing cost
items such as origination fees and
attorney's fees. Many closing cost
items are included as numbered items
on the HUD-1 statement.
- Closing
Costs
- Expenses
(over and above the price of the
property) incurred by buyers and
sellers in transferring ownership of
a property. Closing costs normally
include an origination fee, an
attorney's fee, taxes, an amount
placed in escrow, and charges for
obtaining title insurance and a
survey. The closing cost percentage
will vary according to the area of
the country; lenders or realtors
often provide estimates of closing
costs to prospective homebuyers.
- Closing
Statement
- See
HUD-1
statement.
- Cloud
on Title
- Any
conditions revealed by a title
search that adversely affects the
title to real estate. Usually clouds
on title cannot be removed except by
a quitclaim deed, release, or court
action.
- Collateral
- An
asset (such as a car or a home) that
guarantees the repayment of a loan.
The borrower risks losing the asset
if the loan is not repaid according
to the terms of the loan contract.
- Collection
- The
efforts used to bring a delinquent
mortgage current and to file the
necessary notices to proceed with
foreclosure when necessary.
- Co-Maker
- A
person who signs a promissory note
along with the borrower. A
co-maker's signature guarantees that
the loan will be repaid, because the
borrower and the co-maker are
equally responsible for the
repayment. See endorser.
- Commission
- The
fee charged by a broker or agent for
negotiating a real estate or loan
transaction. The commission fee is
generally a percentage of the price
of the property or loan.
- Commitment
Letter
- A
formal offer by the lender stating
the terms under which it agrees to
lend money to the homebuyer. Also
known as a "loan
commitment".
- Common
Area Assessments
- Levies
against individual unit owners in a
condominium or planned unit
development (PUD) project for
additional capital to defray
homeowner's association costs and
expenses and to repair, replace,
maintain, improve, or operate the
common areas of the project.
- Common
Areas
- Those
portions of a building, land, and
amenities owned (or managed) by a
planned unit development (PUD) or
condominium project's homeowner's
association (or a cooperative
project's cooperative corporation)
that are used by all of the unit
owners, who share in the common
expenses of their operation and
maintenance. Common areas include
swimming pools, tennis courts, and
other recreational facilities, as
well as common corridors of
buildings, parking areas, means of
ingress and egress, etc.
- Common
Law
- An
unwritten body of law based on
general custom in England and used
to an extent in the United States.
- Community
Property
- In
some western and southwestern
states, a form of ownership under
which property acquired during a
marriage is presumed to be owned
jointly unless acquired as separate
property of either spouse.
- Comparable
- An
abbreviation for "comparable
properties"; used for
comparative purposes in the
appraisal process. Comparables are
properties like the property under
consideration; they have reasonably
the same size, location, amenities,
and have recently been sold.
Comparables help the appraiser to
determine the approximate fair
market value of the subject
property.
- Compound
Interest
- Interest
paid on the original principal
balance and on the accrued and
unpaid interest.
- Condemnation
- The
determination that a building is not
fit for use or is dangerous and must
be destroyed; the taking of private
property for a public purpose
through an exercise of the right of
eminent domain.
- Condominium
- A
real estate project in which each
unit owner has title to a unit in a
building, undivided interest in the
common areas of the project, and
sometimes the exclusive use of
certain limited common areas.
- Condominium
Conversion
- Changing
the ownership of an existing
building (usually a rental project)
to the condominium form of
ownership.
- Construction
Loan
- A
short-term, interim loan for
financing the cost of construction.
The lender makes payments to the
builder at periodic intervals as the
work progresses.
- Consumer
Reporting Agency (or Bureau)
- An
organization that prepares reports
that are used by lenders to
determine a potential borrower's
credit history. The agency obtains
data for these reports from a credit
repository as well as from other
sources.
- Contingency
- A
condition that must be met before a
contract is legally binding. For
example, home purchasers often
include a contingency that specifies
that the contract is not binding
until the purchaser obtains a
satisfactory home inspection report
from a qualified home inspector.
- Contract
- An
oral or written agreement to do or
to not do a certain thing.
- Conventional
Mortgage
- A
mortgage that is not insured or
guaranteed by the federal
government. Contrast with government
mortgage.
- Convertibility
Clause
- A
provision in some adjustable-rate
mortgages (ARMs) that allows the
borrower to change the ARM to a
fixed-rate mortgage at specified
timeframes after loan origination.
- Convertible
ARM
- An
adjustable-rate mortgage (ARM) that
can be converted to a fixed-rate
mortgage under specified conditions.
- Cooperative
(Co-Op)
- A
type of multiple ownership in which
the residents of a multiunit housing
complex own shares in the
cooperative corporation that owns
the property, giving each resident
the right to occupy a specific
apartment or unit.
- Cost
Of Funds Index (COFI)
- An
index that is used to determine
interest rate changes for certain
adjustable-rate mortgage (ARM)
plans. It represents the weighted
average cost of savings, borrowings,
and advances of the 11th District
members of the Federal Home Loan
Bank of San Francisco. See adjustable-rate
mortgage (ARM).
- Credit
- An
agreement in which a borrower
receives something of value in
exchange or a promise to repay the
lender at a later date.
- Credit
History
- A
record of an individual's open and
fully repaid debts. A credit history
helps the lender to determine
whether a potential borrower has a
history of repaying debts in a
timely manner.
- Creditor
- A
person to whom money is owed.
- Credit
Report
- A
report of an individual's credit
history prepared by a credit bureau
and used by a lender in determining
the loan applicant's
creditworthiness. See merged
credit report.
- Credit
Repository
- An
organization that gathers, records,
updates, and stores financial and
public records information about the
payment records of individuals who
are being considered for credit.
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- Debt
- An
amount owed to another. See installment
loan and revolving liability.
- Deed
- The
legal document conveying title to a
property.
- Deed-In-Lieu
- A
deed given by a mortgagor to the
mortgagee to satisfy a debt and
avoid foreclosure. Also called a
"voluntary conveyance".
- Deed
Of Trust
- The
document used in some states instead
of a mortgage; title is conveyed to
a trustee.
- Default
- Failure
to make mortgage payments on a
timely basis or to comply with other
requirements of a mortgage.
- Delinquency
- Failure
to make mortgage payments when
mortgage payments are due.
- Deposit
- A
sum of money given to bind the sale
of real estate, or a sum of money
given to ensure payment or an
advance of funds in the processing
of a loan. See earnest
money deposit.
- Depreciation
- A
decline in the value of a property;
the opposite of appreciation.
- Discount
Points
- See
point.
- Down
Payment
- The
part of the purchase price of a
property that the buyer pays in cash
and does not finance with a
mortgage.
- Due-On-Sale
Provision
- A
provision in a mortgage that allows
the lender to demand repayment in
full if the borrower sells the
property that serves as a security
for the mortgage.
- Due-On-Transfer
Provision
- This
terminology is usually used for
second mortgages. See due-on-sale
provision.
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- Earnest
Money Deposit
- A
deposit made by the potential
homebuyer to show that he or she is
serious about buying the house.
- Easement
- A
right of way giving persons other
than the owner access to or through
a property.
- Eminent
Domain
- The
right of a government to take
private property for public use upon
payment of its fair market value.
Eminent domain is the basis for
condemnation proceedings.
- Encroachment
- An
improvement that intrudes illegally
onto another's property.
- Encumbrance
- Anything
that affects or limits the fee
simple title to a property, such as
mortgages, leases, easements, or
restrictions.
- Endorser
- A
person who signs their ownership
interest over to another party.
Contrast with co-maker.
- Equal
Credit Opportunity Act (ECOA)
- A
federal law that requires lenders
and other creditors to make credit
equally available without
discrimination based on race, color,
religion, national origin, age, sex,
marital status, or receipt of income
from public assistance programs.
- Equity
- A
homeowner's financial interest in a
property. Equity is the difference
between the fair market value of the
property and the amount still owed
on its mortgage.
- Escrow
- An
item of value, money, or documents
deposited with a third party to be
delivered upon the fulfillment of a
condition. For example, the deposit
by a borrower with the lender of
funds to pay taxes and insurance
premiums when they become due, or
the deposit of funds or documents
with an attorney or escrow agent to
be disbursed upon the closing of a
sale of real estate.
- Escrow
Account
- The
account in which a mortgage servicer
holds the borrower's escrow payments
prior to paying property expenses.
- Escrow
Analysis
- The
periodic examination of an escrow
account to determine if current
monthly deposits will provide
sufficient funds to pay taxes,
insurance, and other bills when due.
- Escrow
Collections
- Funds
collected by the servicer and
set-aside in an escrow account to
pay real estate taxes, hazard
insurance, mortgage insurance, and
other property expenses as they
become due.
- Escrow
Payment
- The
portion of a mortgagor's monthly
payment that is held by the servicer
to pay for taxes, hazard insurance,
mortgage insurance, lease payments,
and other items as they become due.
Known as "impounds" or
"reserves" in some states.
- Estate
- The
ownership interest of an individual
in real property. The sum total of
all the real property and personal
property owned by an individual at
time of death.
- Eviction
- The
lawful expulsion of an occupant from
real property.
- Examinaiton
Of Title
- The
report on the title of a property
from the public records or an
abstract of the title.
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- Government
Mortgage
- A
mortgage that is insured by the
Federal Housing Administration (FHA)
or guaranteed by the Department of
Veterans Affairs (VA) or the Rural
Housing Service (RHS). Contrast with
conventional mortgage.
- Grantee
- The
person to whom an interest in real
property is conveyed.
- Grantor
- The
person conveying an interest in real
property.
- Guaranteed
Loan
- Also
known as a government
mortgage.
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- Hazard
Insurance
- Insurance
coverage that compensates for
physical damage to a property from
fire, wind, vandalism, or other
hazards.
- Home
Equity Line Of Credit
- A
mortgage loan, which is usually in a
subordinate position, that allows
the borrower to obtain multiple
advances of the loan proceeds at his
or her own discretion, up to an
amount that represents a specified
percentage.
- Home
Inspection
- A
thorough inspection that evaluates
the structural and mechanical
condition of a property. A
satisfactory home inspection is
often included as a contingency by
the purchaser. Contrast with
appraisal.
- Homeowner's
Association
- A
nonprofit association that manages
the common areas of a planned unit
development (PUD) or condominium
project. In the case of a
condominium project, the homeowner's
association has no ownership
interest in the common elements. In
a PUD project, the homeowner's
association holds title to the
common elements.
- Homeowner's
Insurance
- An
insurance policy that combines
personal liability insurance and
hazard insurance coverage for a
dwelling and its contents.
- Housing
Expense Ratio
- The
percentage of gross monthly income
that goes toward paying housing
expenses.
- HUD-1
Statement
- A
document that provides an itemized
listing of the funds that are
payable at closing. Items that
appear on this statement include
real estate commissions, loan fee
points, and initial escrow amounts.
Each item on the statement is
represented by a separate number
within a standardized numbering
system. The totals at the bottom of
the HUD-1 statement define the
seller's net proceeds and buyer's
net payment at closing. The blank
form for the statement is published
by the Department of Housing and
Urban Development (HUD). The HUD-1
statement is also known as the
"closing statement" or
"settlement sheet".
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- Income
Property
- Real
estate developed or improved to
produce income.
- Index
- A
number used to compute the interest
rate for an adjustable-rate mortgage
(ARM). The index is generally a
published number or percentage, such
as the average interest rate or
yield on Treasury bills. A margin is
added to the index to determine the
interest rate that will be charged
on the ARM. This interest rate is
subject to any caps that are
associated with the mortgage.
- In-File
Credit Report
- An
objective account, normally computer
generated, of credit and legal
information obtained from a credit
repository.
- Initial
Interest Rate
- The
original interest rate of the
mortgage at the time of closing.
These rate changes for an
adjustable-rate mortgage (ARM).
Sometimes known as "start
rate" or "teaser".
- Installment
- The
regular periodic payment that a
borrower agrees to make to a lender.
- Installment
Loan
- Borrowed
money that is repaid in equal
payments, known as installments. A
furniture loan is often paid for as
an installment loan.
- Insurance
- A
contract that provides compensation
for specific losses in exchange for
a periodic payment. An individual
contract is known as an insurance
policy and the periodic payment is
known as an insurance premium.
- Insurance
Holder
- A
document stating that insurance is
temporarily in effect. Because the
coverage will expire by a specified
date, a permanent policy must be
obtained before the expiration date.
- Insured
Mortgage
- A
mortgage that is protected by the
federal Housing Administration (FHA)
or by private mortgage insurance (PMI).
If the borrower defaults on the
loan, the insurer must pay the
lender the lesser of the loss
incurred or the insured amount.
- Interest
- The
fee charged for borrowing money.
- Interest
Accrual Rate
- The
percentage rate at which interest
accrues on the mortgage. In most
cases, it is also the rate used to
calculate the monthly payments,
although it is not used for an
adjustable- rate mortgage (ARM) with
payment change limitations.
- Interest
Rate
- The
rate of interest in effect for
monthly payment due.
- Interest
Rate Buydown Plan
- An
arrangement wherein the property
seller (or any other party) deposits
money to an account so that it can
be released each month to reduce the
mortgagor's monthly payments during
the early years of a mortgage.
During the specified period, the
mortgagor's effective interest rate
is "bought down" below the
actual interest rate.
- Interest
Rate Ceiling
- For
an adjustable-rate mortgage (ARM),
the maximum interest rate, as
specified in the mortgage note.
- Interest
Rate Floor
- For
an adjustable-rate mortgage (ARM),
the minimum interest rate, as
specified in the mortgage note.
- Investment
Property
- A
property that is not occupied by the
owner.
- IRA
(Individual Retirement Account)
- A
retirement account that allows
individuals to make tax-deferred
contributions to a personal
retirement fund. Individuals can
place IRA funds in bank accounts or
in other forms of investment such as
stocks, bonds or mutual funds.
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- Joint
Tenancy
- A
form of co-ownership that gives each
tenant equal rights in the property,
including the right of survivorship.
- Judgment
- A
decision made by a court of law. In
judgments that require the repayment
of a debt, the court may place a
lien against the debtor's real
property as collateral for the
judgment's creditor.
- Judgment
Lien
- A
lien on the property of a debtor
resulting from the decree of a
court.
- Jumbo
Loan
- A
loan that exceeds Fannie Mae's
legislated mortgage amount limits.
Also called a nonconforming loan.
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- Late
Charge
- The
penalty a borrower must pay when a
payment is made a stated number of
days (usually 15) after the due
date.
- Lease
- A
written agreement between the
property owner and a tenant that
stipulates the conditions under
which the tenant may possess the
real estate for a specified period
of time and rent.
- Leasehold
Estate
- A
way of holding title to a property
wherein the mortgagor does not
actually own the property but rather
has a recorded long-term lease on
it.
- Lease
Purchase Mortgage Loan
- An
alternative financing option that
allows for low-and moderate- income
homebuyers to lease a home from a
non-profit organization with an
option to buy. Each months rent
payment consists of principal,
interest, taxes, and insurance (PITI)
payments on the first mortgage plus
an extra amount that is earmarked
for deposit to a savings account in
which money for a down payment will
accumulate.
- Legal
Description
- A
property description recognized by
law that is sufficient to locate and
identify the property without oral
testimony.
- Liabilities
- A
person's financial obligations.
Liabilities include long-term and
sort-term debt, as well as any other
amounts that are owed to others.
- Liability
Insurance
- Insurance
coverage that offers protection
against claims alleging that a
property owner's negligence or
inappropriate action resulted in
bodily injury or property damage to
another party.
- Lien
- A
legal claim against a property that
must be paid off when property is
sold.
- Lifetime
Payment Cap
- For
an adjustable-rate mortgage (ARM), a
limit on the amount that payments
can increase or decrease over the
life of the mortgage. See cap.
- Lifetime
Rate Cap
- For
an adjustable-rate mortgage (ARM), a
limit on the amount that the
interest rate can increase or
decrease over the life of the loan.
See cap.
- Line
Of Credit
- An
agreement by a commercial bank or
other financial institution to
extend credit up to a certain amount
for a certain time to a specified
borrower. See home equity line of
credit. An asset that is easily
converted into cash.
- Loan
- A
sum of borrowed money (principal)
that is generally repaid with
interest.
- Loan
Commitment
- See
commitment
letter.
- Loan
Origination
- The
process by which a mortgage lender
brings into existence a mortgage
secured by real property.
- Loan-To-Value
(LTV) Percentage
- The
relationship between the principal
balance of the mortgage and the
appraised value (or sales price if
it is lower) of the property. For
example, a $100,000 home with an
$80,000 mortgage has a LTV
percentage of 80 percent.
- Lock-In
- A
written agreement in which the
lender guarantees a specified
interest rate if a mortgage goes to
closing within a set period of time.
The lock-in also usually specifies
the number of points to be paid at
closing.
- Lock-In
Period
- The
time period during which the lender
has guaranteed an interest rate to a
borrower. See lock-in.
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- Margin
- For
an adjustable-rate mortgage (ARM),
the amount that is added to the
index to establish the interest rate
on each adjustment date, subject to
any limitations on the interest rate
change.
- Maturity
- The
date on which the principal balance
of a loan, bond, or other financial
instrument becomes due and payable.
- Maximum
Financing
- A
mortgage amount that is within 5
percent of the highest loan-to-value
(LTV) percentage allowed for a
specific product. Thus, maximum
financing on a fixed rate mortgage
would be 90 percent or higher,
because 95 percent is the maximum
allowable LTV percentage for that
product.
- Merged
Credit Report
- A
credit report that contains
information from three credit
repositories. When the report is
created, the information is compared
for duplicate entries.
- Modification
- The
act of changing any of the terms of
the mortgage.
- Money
Market Account
- A
savings account that provides bank
depositors with many of the
advantages of a money market fund.
Certain regulatory restrictions
apply to the withdrawal of funds
from a money market account.
- Money
Market Fund
- A
mutual fund that allows individuals
to participate in managed
investments in short-term debt
securities, such as certificates of
deposit and Treasury bills.
- Monthly
Fixed Installment
- That
portion of the total monthly payment
that is applied toward principal and
interest. When a mortgage negatively
amortizes, the monthly fixed
installment does not include any
amount for principal reduction.
- Monthly
Payment Mortgage
- A
mortgage that requires payments to
reduce the debt once a month.
- Mortgage
- A
legal document that pledges a
property to the lender as security
for payment of a debt.
- Mortgage
Banker
- A
company that originates mortgages
exclusively for resale in the
secondary mortgage market.
- Mortgage
Broker
- An
individual or company that brings
borrowers and lenders together for
the purpose of loan origination.
Mortgage brokers typically require a
fee or a commission for their
services.
- Mortgagee
- The
lender in a mortgage agreement.
- Mortgage
Insurance
- A
contract that insures the lender
against loss caused by a mortgagor's
default on a government mortgage or
conventional mortgage. Mortgage
insurance can be issued by a private
company or by a government agency
such as the Federal Housing
Administration (FHA). Depending on
the type of mortgage insurance, the
insurance may cover a percentage of
or virtually the entire mortgage
loan. See Private
Mortgage Insurance (PMI).
- Mortgage
Insurance Premium (MIP)
- The
amount paid by a mortgagor for
mortgage insurance, either to a
government agency such as Federal
Housing Administration (FHA) or to a
private mortgage insurance (PMI)
company.
- Mortgage
Life Insurance
- A
type of term life insurance often
bought by mortgagors. The amount of
coverage decreases as the principal
balance declines. In the event that
the borrower dies while the policy
is in force, the debt is
automatically satisfied by insurance
proceeds.
- Mortgagor
- The
borrower in a mortgage agreement.
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- Negative
Amortization
- A
gradual increase in mortgage debt
that occurs when the monthly payment
is not large enough to cover the
entire principal and interest due.
The amount of the shortfall is added
to the remaining balance to create
"negative" amortization.
- Net
Cash Flow
- The
income that remains for an
investment property after the
monthly operating income is reduced
by the monthly housing expense,
which includes principal, interest,
taxes, and insurance (PITI) for the
mortgage, homeowners' association
dues, leasehold payments, and
subordinate financing payments.
- Net
Worth
- The
value of all of a person's assets,
including cash, minus all
liabilities.
- No
Cash-Out Refinance
- A
refinance transaction where the new
mortgage amount is limited to the
sum of the remaining balance of the
existing first mortgage, closing
costs (including pre-paid items),
points, the amount required to
satisfy any mortgage liens that are
more than one year old (if the
borrower chooses to satisfy them),
and others funds for the borrower's
use (as long as the amount does not
exceed 1 percent of the principal
amount of the new mortgage).
- Non-Liquid
Asset
- An
asset that cannot be easily
converted into cash.
- Note
- A
legal document that obligates a
borrower to repay a mortgage loan at
a stated interest rate during a
specified period of time.
- Note
Rate
- The
interest rate stated on a mortgage
note.
- Notice
of Default
- A
formal written notice to a borrower
that their loan is in default and
that legal action may be taken.
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- Original
Principal Balance
- The
total amount of principal owned on a
mortgage before any payments are
made.
- Origination
Fee
- A
fee paid to originator of the loan.
The origination fee is stated in the
form of points. One point is 1
percent of the mortgage amount.
- Owner
Financing
- A
property purchase transaction in
which the property seller provides
all or part of the financing.
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- Partial
Payment
- A
payment that is not sufficient to
cover the scheduled monthly payment
on a mortgage loan.
- Payment
Change Date
- The
date when a new monthly payment
amount takes effect on an
adjustable-rate (ARM), or a
graduated-payment adjustable period.
See cap.
- Periodic
Payment Cap
- For
an adjustable-rate mortgage (ARM), a
limit on the amount that the
interest can increase or decrease
during any one adjustment period.
See cap.
- Periodic
Rate Cap
- For
an adjustable-rate mortgage (ARM), a
limit on the amount that the
interest rate can increase or
decrease during any one adjustment
period, regardless of how high or
low the index might be. See cap.
- Personal
Property
- Any
property that is not real property.
- PITI
- See
principal,
interest, taxes, and insurance (PITI).
- PITI
Reserves
- A
cash amount that a borrower must
have on hand after making a down
payment and paying all closing costs
for the purchase of a home. The
principal, interest taxes, and
insurance (PITI) reserves must equal
the amount that the borrower would
have to pay for PITI for a
predefined number of months.
- Planned
Unit Development
- See
PUD.
- Point
- One-time
charge by the lender for originating
a loan. A point is 1 percent of the
amount of the mortgage.
- Power
of Attorney
- A
legal document that authorizes one
person to act on another's behalf. A
power of attorney can grant complete
authority or can be limited to
certain acts/or certain periods of
time.
- Prepayment
- Any
amount paid to reduce the principal
balance of a loan before the due
date. Payment in full on a mortgage
that may result from a sale of the
property, the owner's decision to
pay off the loan in full, or a
foreclosure. In each case,
prepayment means payment occurs
before the loan has been fully
amortized.
- Prepayment
Penalty
- A
fee that may be charged to a
borrower who pays off a loan before
it is due.
- Pre-Qualification
- The
process of determining how much a
prospective homebuyer will be
eligible to borrower before he or
she applies for a loan.
- Prime
Rate
- The
interest rate that banks charge to
their preferred customers. Changes
in the prime rate influence changes
in other rates, including mortgage
interest rates.
- Principal
- The
amount borrowed or remaining unpaid.
The part of the monthly payment that
reduces the remaining balance of a
mortgage.
- Principal
Balance
- The
outstanding balance of principal on
a mortgage. The principal balance
does not include interest or any
other charges. See remaining
balance.
- Principal,
Interest, Taxes, and Insurance (PITI)
- The
four components of a monthly
mortgage payment. Principal refers
to the part of the monthly payment
that reduces the remaining balance
of the mortgage. Interest is the fee
charged for borrowing money. Taxes
and insurance refer too the amounts
that are paid into an escrow account
each month for property taxes,
mortgage insurance, and hazard
insurance.
- Private
Mortgage Insurance (PMI)
- Mortgage
insurance that is provided by a
private mortgage insurance company
to protect lenders against loss if a
borrower defaults. Most lenders
generally require PMI for a loan
with loan-to-value (LTV) percentage
in excess of 80 percent.
- Promissory
Note
- A
written promise to repay a specified
amount over a specified period of
time.
- Planned
Unit Development (PUD)
- A
project or subdivision that includes
common property that is owned and
maintained by a homeowner's
association for the benefit and use
of the individual PUD unit owners.
- Purchase
Money Transaction
- The
acquisition of property through the
payment of money or it's equivalent.
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- Qualifying
Ratios
- Calculations
that are used in determining whether
a borrower can qualify for a
mortgage. They consist of two
separate calculations: housing
expense as a percentage of income
ratio and total debt obligations as
a percentage of income ratio.
- Quitclaim
Deed
- A
deed that transfers without warranty
whatever interest or title a grantor
may have at the time the conveyance
is made.
- Rate
Lock
- A
commitment issued by the lender to a
borrower or other mortgage
originator guaranteeing a specified
interest rate for a specified period
of time. See lock-in.
- Real
Estate Agent
- A
person licensed to negotiate and
transact the sale of estate on
behalf of the property owner.
- Real
Estate Settlement Procedures Act (RESPA)
- A
consumer protection law that
requires lenders to give borrowers
advance notice of closing costs.
- Real
Property
- Land
and appurtenances, including
anything of a permanent nature such
as trees, minerals, and the
interest, benefits, and inherent
rights thereof.
- Realtor
- A
real estate broker or an associate
who holds active membership in a
local real estate board that is
affiliated with the National
Association of Realtors.
- Recession
- The
cancellation or annulment of a
transaction or contract by the
operation of a law or by mutual
consent. Borrowers usually have the
option to cancel a refinance
transaction within three business
days after it has closed.
- Recording
- The
noting in the registrar's office of
the details of a properly executed
legal document, such as a deed, a
mortgage note, a satisfaction of
mortgage, or an extension of
mortgage, thereby making it a part
of the public record.
- Refinance
Transaction
- The
process of paying off one loan with
the proceeds from a new loan using
the same property as security.
- Rehabilitation
Mortgage
- A
mortgage created to cover the costs
of repairing, improving, and
sometimes acquiring an existing
property.
- Remaining
Balance
- The
amount of principal that has not yet
been repaid. See principal
balance.
- Rent
with Option to Buy
- See
lease-purchase
mortgage loan.
- Repayment
Plan
- An
arrangement made to repay delinquent
installments or advances. Lenders'
formal repayment plans are called
"relief provisions".
- Right
of First Refusal
- A
provision in an agreement that
requires the owner of a property to
give another party the first
opportunity to purchase or lease the
property before he or she offers it
for sale or lease to others.
- Right
of Ingress or Egress
- The
right to enter or leave a designated
premises.
- Right
of Survivorship
- In
joint tenancy, the right of
survivors to acquire the interest of
a deceased joint tenant.
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- Second
Mortgage
- A
mortgage that has a lien position
subordinate to the first mortgage.
- Secondary
Mortgage Market
- The
buying and selling of existing
mortgage.
- Secured
Loan
- A
loan that is backed by collateral.
- Security
- The
property that will be pledged as
collateral for a loan.
- Seller
Take-Back
- An
agreement in which the owner of the
property provides financing, often
in combination with an assumable
mortgage. See owner
financing.
- Servicer
- An
organization that collects principal
and interest payments from borrowers
and manages borrowers' escrow
accounts. The servicer often
services mortgages that have been
purchased by an investor in the
secondary mortgage market.
- Servicing
- The
collection of mortgage payments from
borrowers and related
responsibilities of the loan
servicer.
- Settlement
- See
closing.
- Settlement
Sheet
- See
HUD-1 statement.
- Standard
Payment Calculation
- The
method used to determine the monthly
payment required to repay the
remaining balance of a mortgage in
substantially equal installments
over the remaining term of the
mortgage at the current interest
rate.
- Subdivision
- A
housing development that is created
by dividing a tract of land into
individual lots for sale or lease.
- Subordinate
Financing
- Any
mortgage or other lien that has a
priority that is lower than that of
the first mortgage.
- Survey
- A
drawing or map showing the precise
legal boundaries of a property, the
location of improvements, easements,
rights of way, encroachments, and
other physical features.
- Sweat
Equity
- Contribution
to the construction or
rehabilitation of a property using
labor or services rather than cash.
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- Tenancy
by the Entirety
- A
type of joint tenancy in a property
that provides right of survivorship
and is available only to the husband
and wife. Contrast with tenancy in
common.
- Tenancy
in Common
- A
type of joint tenancy in a property
without right of survivorship.
Contrast with tenancy by the
entirety and with joint tenancy.
- Third-Party
Organization
- A
process by which another lender uses
another party to completely or
partially originate, process,
underwrite, close, fund, or package
the mortgages it plans to deliver to
the secondary mortgage market. See mortgage
broker.
- Title
- A
legal document evidencing a person's
right to or ownership of a property.
- Title
Company
- A
company that specializes in
examining and insuring titles to
real estate.
- Title
Insurance
- Insurance
that protects the lender (lender's
policy) or the buyer (owner's
policy) against loss arising from
disputes over ownership of a
property.
- Title
Search
- A
check of the title records to ensure
that the seller is the legal owner
of the property and that there are
no liens or other claims
outstanding.
- Total
Expense Ratio
- Total
obligations as a percentage of gross
monthly income. The total expense
ratio includes monthly housing
expenses plus other monthly debts.
- Trade
Equity
- Equity
that results from a property
purchaser giving his or her existing
property (or an asset other than
real estate) as trade for all or
part of the down payment for the
property that is being purchased.
- Transfer
of Ownership
- Any
means by which the ownership or
property changes hands. Lenders
consider all of the following
situations to be a transfer of
ownership: the purchase of a
property "subject to" the
mortgage, the assumption of the
mortgage debt by the property
purchaser, and any exchange of
possession of the property under a
land sales contract or any other
land trust device. In cases in which
an intervivos revocable trust is the
borrower, lenders also consider any
transfer of a beneficial interest in
the trust to be a transfer of
ownership.
- Transfer
Tax
- State
or local tax payable when title
passes from one owner to another.
- Treasury
Index
- An
index that is used to determine
interest rate changes for certain
adjustable-rate mortgage (ARM)
plans. It is based on the results of
auctions that the U.S. treasury
holds for its Treasury bills and
securities or is derived from the
U.S. Treasury's daily yield curve,
which is based on the closing market
bid yields on actively traded
Treasury securities in the
over-the-counter market. See adjustable-rate
mortgage (ARM).
- Truth-In-Lending
- A
federal law that requires lenders to
fully disclose, in writing, the
terms and conditions of a mortgage,
including the annual percentage rate
(APR) and other charges.
- Two
to Four Family Property
- A
property that consists of a
structure that provides living space
(dwelling units) for two to four
families, although ownership of the
structure is evidenced by a single
deed.
- Trustee
- A
fiduciary who holds or controls
property for the benefit of another.
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- Underwriting
- The
process of evaluating a loan
application to determine the risk
involved for the lender.
Underwriting involves an analysis of
the borrower's creditworthiness and
the quality of the property itself.
- Unsecured
Loan
- A
loan that is not backed by
collateral.
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- VA
Mortgage
- A
mortgage that is guaranteed by the
Department of Veterans Affairs (VA),
also known as a government mortgage.
- Vested
- Having
the right to use a portion of a fund
as an individual retirement fund.
For example, individuals who are 100
percent vested can withdraw all of
the funds that are set aside for
them in a retirement fund. However,
taxes may be due on any funds that
are actually withdrawn.
- Department
of Veterans Affairs (VA)
- An
agency of the federal government
that guarantees residential
mortgages made to eligible veterans
of the military services. The
guarantee protects the lender
against loss and thus encourages
lenders to make mortgages to
veterans.
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- What-if-scenario
- A
change in the amounts that is used
as the basis of an affordability
analysis. What-if scenarios can
include changes to monthly income,
debts, or down payment funds or to
the qualifying ratios or down
payment expenses that are used in
the analysis. You can use a what-if
scenario to explore different ways
to improve your ability to afford a
house.
- Wraparound
Mortgage
- A
mortgage that includes the remaining
balance on an existing first
mortgage plus an additional amount
requested by the mortgagor. Full
payments on both are made to the
wraparound mortgagee, who then
forwards the payments on the first
mortgage to the first mortgagee.
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