VA Mortgage Terms: Glossary

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Glossary of VA Mortgage Terms

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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.

Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable 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.

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.)
Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan

Appraisal
An estimate of the value of property, made by a qualified professional called an “appraiser”.

Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.


Balloon (payment) mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.

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.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

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.

Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage 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.

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).

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 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.

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.

Commitment
A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

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.

Conventional loan
A mortgage not insured by FHA or guaranteed by the VA.

Credit Report
A report documenting the credit history and current status of a borrower’s credit standing.


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 of trust
In many states, this document is used in place of a mortgage to secure the payment of a note.

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.

Down Payment
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.


Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

Equal Credit Opportunity Act (ECOA)
Is 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
The difference between the fair market value and current indebtedness, also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.

Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.


Fannie Mae
see Federal National Mortgage Association.

Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision

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.”

Firm Commitment
A promise by FHA to insure a mortgage loan 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.

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.

Freddie Mac
See Federal Home Loan Mortgage Corporation.


Ginnie Mae
See Government National Mortgage Association.

Government National Mortgage Association (GNMA)

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.

Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.


Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

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.


Impound
That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Investor
A money source for a lender.


Jumbo Loan
A loan which is larger (more than $214,600 as of 1/1/97) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.


Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.


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.


Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.

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.


Permanent Loan
A long term mortgage, usually ten years or more. Also called an “end loan.”

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

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 (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 Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Primary Mortgage Market
Lenders making mortgage loans directly to borrower’s such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal
The amount of debt, not counting interest, left on a loan.

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 5 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.


Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision
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.

Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

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.

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 Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage.”


Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.

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. Security.

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.

Sweat Equity
Equity created by a purchaser performing work on a property being purchased.


Title
A document that gives evidence of an individual’s ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests.

Title Search
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.

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.


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. VA Loan


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.


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.

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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Abstract (Of Title)


A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract
of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurable
title.


Acceleration Clause


Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or for
breach of other conditions of the mortgage.


Acceptance


An offeree’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 Mortgage Loan


Any mortgage that does not have a fixed interest rate and a fixed
payment for the term of the loan, or does not amortize to zero at the end
of the set term, when required payments are made on time.


Adjustable Rate Mortgage


A mortgage in which the interest rate is adjusted periodically
according to the movement in a pre-selected index.


Adjusted basis


The original cost of a property plus the value of any capital
expenditures for improvements to the property minus any depreciation
taken


Adjustment date


The date on which the interest rate changes for an adjustable-rate
mortgage (ARM).


Adjustment Interval


For an adjustable rate mortgage, the time between changes in the
interest rate charged. The most common adjustment intervals are one, three
or five years.


Adjustment period


The period that elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).


Administrator


A person appointed by a probate court to administer the estate of a
person who died intestate.


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.


Amenity


A feature of real property that enhances its attractiveness and
increases the occupant’s or user’s satisfaction although the feature is
not essential to the property’s use. Natural amenities include a pleasant
or desirable location near water, scenic views of the surrounding area,
etc. Human-made amenities include swimming pools, tennis courts, community
buildings, and other recreational facilities.


Amortization


A payment plan, which enables the borrower to reduce his debt gradually
through monthly payments of principal.


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.


Amortization term


The amount of time required to amortize the mortgage loan. The
amortization term is expressed as a number of months.


Amortize


Reduce a debt by regular payments of both principal and interest.


Amortization Schedule


A timetable for payment of a mortgage showing the amount of each
payment applied to interest and principal and the remaining balance.


Annual Percentage Rate (APR)


The total yearly cost of a mortgage stated as a percentage of the loan
amount: includes the base interest rate, primary mortgage insurance, and
loan origination fee (points)


Annuity


An amount paid yearly or at other regular intervals, often on a
guaranteed dollar basis.


Application


A form used to apply for a mortgage loan and to record pertinent
information concerning a prospective mortgagor and the proposed
security.


Application Fee


The fee charged by the lender to the borrower for applying for a
loan.


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.


Appraisal 


A professional opinion of the market value of a property.


Appreciation


An increase in the value of a house due to changes in market conditions
or other causes.


Assessed Value 


The valuation placed upon property by a public tax assessor for
purposes of taxation.


Assessment


The process of placing a value on property for the strict purpose of
taxation. May also refer to a levy against property for a special purpose,
such as a sewer assessment.


Assessor


A public official who establishes the value of a property for taxation
purposes.


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 Loan


These loans may be passed on from a seller of a home to the buyer. The
buyer “assumes” all outstanding payments.


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.


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.


Attorney-in-fact


One who holds a power of attorney from another to execute documents on
behalf of the grantor of the power. 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.


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– B –

Balance sheet


A financial statement that shows assets, liabilities, and net worth as
of a specific date.


Bankrupt


A person, firm, or corporation that, through a court proceeding, is
relieved from the payment of all debts after the surrender of all assets
to a court-appointed trustee.


Bankruptcy


A proceeding in a federal court in which a debtor who owes more than
his or her assets can relieve the debts by transferring his or her assets
to a trustee.


Before-tax income


Income before taxes are deducted.


Beneficiary


The person designated to receive the income from a trust, estate, or a
deed of trust.


Bill of sale


A written document that transfers title to personal property.


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 (See Real Estate Broker)


Blanket insurance policy


A single policy that covers more than one piece of property (or more
than one person).


Bond


An interest-bearing certificate of debt with a maturity date. An
obligation of a government or business corporation. A real estate bond is
a written obligation usually secured by a mortgage or a deed of trust.


Borrower 


One who receives funds with the expressed or implied intention of
repaying the loan in full.


Bridge loan


A form of second trust that is collateralized by the borrower’s present
home (which is usually for sale) in a manner that allows the proceeds to
be used for closing on a new house before the present home is sold.


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.


Building code


Local regulations that control design, construction, and materials used
in construction. Building codes are based on safety and health
standards.


Building Line or Setback


Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established by a
filed plat of subdivision, by restrictive covenants in deeds or leases, by
building codes, or by zoning ordinances.


Buy down 


Money advanced by an individual (seller, builder, etc.) to reduce
monthly payments for a home mortgage either during the entire term or for
an initial period of years.


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– C –

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.


Capital expenditure


The cost of an improvement made to extend the useful life of a property
or to add to its value.


Capital improvement


Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life.


Cap


A provision of an ARM limiting how much the interest rate or mortgage
payments may increase.


Cash Out


A loan transaction in which the borrower receives funds at the time of
closing.


Cash-out refinance


A refinance transaction in which the amount of money received from the
new loan exceeds the total of the money needed to repay the existing first
mortgage, closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens.


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 Eligibility A document issued by the federal government certifying a veteran’s
eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.


Certificate of Title


A certificate issued by a title company or a written opinion rendered
by an attorney that the seller has good marketable and insurable title to
the property, which he is offering for sale. A certificate of title offers
no protection against any hidden defects in the title, which an
examination of the records could not reveal. The issuer of a certificate
of title is liable only for damages due to negligence. The protection
offered a homeowner under a certificate of title is not as great as that
offered in a title insurance policy.


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).


Chattel


Another name for personal property.


Claim


An amount requested of an insurer, by a policyholder or a claimant, for
an insured loss.


Clear title


A title that is free of liens or legal questions as to ownership of the
property


Closing


The occasion where a sale is finalized; the buyer signs the mortgage,
and closing costs are paid. Also called “settlement.”


Closing Costs


Expenses (over and above the price of the property) incurred by buyers
and sellers in transferring ownership of a property. Also called
“settlement costs.”


Closing cost item


A fee or amount that a homebuyer must pay at closing for a single
service, tax, or product.


Closing
Day  


The day on which the formalities of a real estate sale are concluded.
The certificate of title, abstract, and deed are generally prepared for
the closing by an attorney and this cost charged to the buyer. The buyer
signs the mortgage, and closing costs are paid. The final closing merely
confirms the original agreement reached in the agreement of sale.


Cloud (On Title)


An outstanding claim or encumbrance, which adversely affects the
marketability of title.


Co-Borrower


An additional borrower on a loan. A co-borrower’s obligation on a loan
are the same as all other borrowers.


Coinsurance


A sharing of insurance risk between the insurer and the insured.
Coinsurance depends on the relationship between the amount of the policy
and a specified percentage of the actual value of the property insured at
the time of the loss.


Coinsurance clause


A provision in a hazard insurance policy that states the amount of
coverage that must be maintained — as a percentage of the total value of
the property — for the insured to collect the full amount of a loss.


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.


Commission


Money paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale.


Commitment Letter


A formal offer by a lender stating the terms under which it agrees to
loan money to a homebuyer.


Common area assessments


Levies against individual unit owners in a condominium or planned unit
development (PUD) project for additional capital to defray homeowners’
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 homeowners’
association (or a cooperative project’s cooperative corporation) that are
used by all of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools, tennis
courts, and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.


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.


Comparables


An abbreviation for comparable properties used for comparative purposes
in the appraisal process; facilities of reasonably the same size and
location with similar amenities; properties which have been recently sold,
which have characteristics similar to property under consideration,
thereby indicating 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 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.


Condominium conversion


Changing the ownership of an existing building (usually a rental
project) to the condominium form of ownership.


Condominium hotel


A condominium project that has rental or registration desks, short-term
occupancy, food and telephone services, and daily cleaning services and
that is operated as a commercial hotel even though the units are
individually owned.


Construction Loan


A short-term loan for funding the cost of construction. The lender
advances funds to the builder 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.


Contract


An oral or written agreement to do or not to do a certain thing.


Contractor


In the construction industry, a contractor is one who contracts to
erect buildings or portions of them. There are also contractors for each
phase of construction: heating, electrical, plumbing, air conditioning,
road building, bridge and dam erection, and others.


Conventional Mortgage


Any mortgage that is not insured or guaranteed by the federal
government.


Convertibility clause


A provision in some adjustable-rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed-rate mortgage at specified time.


Convertible Arm


An adjustable-rate mortgage that can be converted to a fixed-rate
mortgage under specified conditions.


Coverage


The amount of protection, usually expressed in a percentage of the
total claim amount, an insured receives under a certificate.


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.


Cooperative Corporation


A business trust entity that holds title to a cooperative project and
grants occupancy rights to particular apartments or units to shareholders
through proprietary leases or similar arrangements.


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.


Cooperative mortgages


Mortgages related to a cooperative project.


Cooperative project


A residential or mixed-use building wherein a corporation or trust
holds title to the property and sells shares of stock representing the
value of a single apartment unit to individuals who, in turn, receive a
proprietary lease as evidence of title.


Corporate relocation


Arrangements under which an employer moves an employee to another area
as part of the employer’s normal course of business or under which it
transfers a substantial part or all of its operations and employees to
another area because it is relocating its headquarters or expanding its
office capacity.


Cost of funds index (COFI)


An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weighted-average
cost of savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.


Covenant


A clause in a mortgage that obligates or restricts the borrower and
that, if violated, can result in foreclosure.


Commitment


A written letter of agreement detailing the terms and conditions by
which the lender will lend and the borrower will borrow funds to finance a
home.


Credit history


A record of an individual’s open and fully repaid debts. A credit
history helps a lender to determine whether a potential borrower has a
history of repaying debts in a timely manner.


Credit life insurance


A type of insurance often bought by mortgagors because it will pay off
the mortgage debt if the mortgagor dies while the policy is in force.


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 a loan applicant’s
creditworthiness.


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.


Cure


A loan that is removed from a delinquency status with no loss to the
insurer.


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-D-  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 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 on a timely basis or to comply with
other conditions of a mortgage.

 

Deficiency Judgment

 

A court order to pay the balance owed on a loan if the proceeds from
the sale of the security are insufficient to pay off the loan. Deficiency
judgments are not allowed in all states.

 

Delinquency 

 

A loan in which a payment is overdue but not yet in default.

 

Deposit

 

A sum of money given to bind the sale of real estate, or a sum of money
given to ensure payment or an advance of funds in the processing of a
loan.

 

Depreciation

 

A decline in the value of property; the opposite of “appreciation.”

 

Discount Points

 

See Points.

 

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.

 

Dower  

 

The rights of a widow in the property of her husband at his death.

 

Down Payment

 

The part of the purchase price, which the buyer pays in cash and does
not finance with a mortgage

 

Due-on-sale provision

 

A provision in a mortgage that allows the lender to demand repayment in
full if the borrower sells the property that serves as security for the
mortgage.

 

Due-on-transfer provision

 

This terminology is usually used for second mortgages.

 

 

 

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– 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 down payment. If the sale does not go through, the
earnest money will be forfeited or lost unless the binder or offer to
purchase expressly provides that it is refundable.


Easement Rights


A right-of-way granted to a person or company authorizing access to or
over the owner’s land. An electric company obtaining a right-of-way across
private property is a common example.


Effective age


An appraiser’s estimate of the physical condition of a building. The
actual age of a building may be shorter or longer than its effective age.


Effective gross income


Normal annual income including overtime that is regular or guaranteed.
The income may be from more than one source. Salary is generally the
principal source, but other income may qualify if it is significant and
stable.


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.


Employer-assisted housing


A special Fannie Mae housing initiative that offers several different
ways for employers to work with local lenders to develop plans to assist
their employees in purchasing homes.


Encroachment


An obstruction, building, or part of a building that intrudes beyond a
legal boundary onto neighboring private or public land, or a building
extending beyond the building line.


Encumbrance


A legal right or interest in land that affects a good or clear title,
and diminishes the land’s value. It can take numerous forms, such as
zoning ordinances, easement rights, claims, mortgages, liens, charges, a
pending legal action, unpaid taxes, or restrictive covenants. An
encumbrance does not legally prevent transfer of the property to another.
A title search is all that is usually done to reveal the existence of such
encumbrances, and it is up to the buyer to determine whether he wants to
purchase with the encumbrance, or what can be done to remove it.


Endorser


A person who signs ownership interest over to another party. Contrast
with co-maker.


Equal Credit Opportunity Act (ECOA)


A federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from
public assistance programs.


Equity


The difference between the market value of a property and the
homeowner’s outstanding mortgage balance.


Equity Loan


A loan based on the borrower’s equity in his or her home. Prior to
closing; also, an account held by the lender into which a homeowner pays
money for taxes and insurance.


Escrow account


The account in which a mortgage servicer holds the borrower’s escrow
payments prior to paying property expenses.

Escrow analysis
The periodic examination of escrow accounts to determine if current
monthly deposits will provide sufficient funds to pay taxes, insurance,
and other bills when due.


Escrow collections


Funds collected by the servicer and set aside in an escrow account to
pay the borrower’s property taxes, mortgage insurance, and hazard
insurance.

Escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.


Escrow payment


The portion of a mortgagor’s monthly payment that is held by the
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due.

Estate
The ownership interest of an individual in real property. The sum total
of all the real property and personal property owned by an individual at
time of death.


Eviction


The lawful expulsion of an occupant from real property.


Examination of title


The report on the title of a property from the public records or an
abstract of the title.


Exclusive listing


A written contract that gives a licensed real estate agent the
exclusive right to sell a property for a specified time, but reserving the
owner’s right to sell the property alone without the payment of a
commission.


Executor


A person named in a will to administer an estate


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– F –

Fair Credit Reporting Act


A consumer protection law that regulates the disclosure of consumer
credit reports by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one’s credit record.


Fair-market-value


The highest price that a buyer, willing but not compelled to buy would
pay, and the lowest a seller, willing but not compelled to sell, would
accept.


FDIC


(Federal Deposit Insurance Corporation). Provides insurance of accounts
for institutions whose deposits were formerly covered by the Federal
Savings & Loan Insurance Corporation. (FSLIC).


Fee simple


The greatest possible interest a person can have in real estate.


Fee simple estate


An unconditional, unlimited estate of inheritance that represents the
greatest estate and most extensive interest in land that can be enjoyed.
It is of perpetual duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of the air space
within his or her portion of the building (the unit) and is an owner in
common with respect to the land and other common portions of the
property.


FHA


(Federal Housing Administration). A division of the Department of
Housing and Urban Development. The FHA’s main activity is the insuring of
residential mortgage loans made by private lenders. It sets standards for
construction and underwriting. FHA neither lends money, nor plans, nor
constructs housing.


FHA Loan


Government loans are loans that are guaranteed or purchased by
government organizations. Two of the most popular Government Loans are the
Federal Housing Administration (FHA) and the Department of Veterans
Affairs (VA).


FHFB


(Federal Housing Finance Board). It oversees the credit functions of
the twelve regional Federal Home Loan Banks.


FHLBB


(Federal Home Loan Bank Board). A regulatory and supervisory agency for
federally charted savings institutions, which oversees the operations of
the FSLIC and FHLMC. This agency was abolished by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. (See
FIRREA.)


FHLMC


(Federal Home Loan Mortgage Corporation, Freddie Mac). A private
corporation authorized by Congress, which became an independent,
stockholder-owned government corporation with the passage of FIRREA. FHLMC
promotes the flow of funds into the housing markets by purchasing
conventional mortgages in the secondary market and selling securities
backed by those mortgages in the capital market.


Finance Charge


The total dollar amount your loan will cost you. It includes all
interest payments for the life of the loan, any interest paid at closing,
your origination fee and any other charges paid to the lender and/or
broker. Appraisal, credit report and title search fees are not included in
the finance charge calculation.


Finder’s fee


A fee or commission paid to a mortgage broker for finding a mortgage
loan for a prospective borrower.


FIRRA


(Financial Institutions Reform, Recovery and Enforcement Act of 1989).
An act signed into law in August 1989, by President Bush that restructured
the thrift regulatory an insurance system.


Firm commitment


A lender’s agreement to make a loan to a specific borrower on a
specific property.


First Mortgage


The mortgage that has first claim in the event of default.


Fixed installment


The monthly payment due on a mortgage loan.


Fixed-Rate Mortgage


(FRM) A mortgage in which the interest rate does not change during the
entire term of the loan.


FNMA


(Federal National Mortgage Association, Fannie Mae). A
government-sponsored corporation, owned solely by private investors,
created to provide support to the secondary market for FHA and VA
mortgages and conventional mortgages.


Fixture


Personal property that becomes real property when attached in a
permanent manner to real estate.


Flood insurance


Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated
flood areas.


Forfeiture


The loss of money, property, rights, or privileges due to a breach of
legal obligation.


Foreclosure


The process by which a mortgage property may be sold when a mortgage is
in default.


Fully amortized ARM


An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest accrual
rate, over the amortization term.


Full Recasting


Setting the P&I payments to the level that will fully amortize the
loan’s outstanding balance over the remaining term using the fully indexed
accrual rate at the recasting point.


Fully Indexed Accrual Rate


The interest (accrual) rate resulting from the index at closing (or at
another point in the loan) plus the lender’s full spread, rounded as
prescribed in the loan documents (often to the nearest 1/8th of 1%).



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– 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.


Good Faith Estimate


An estimate of charges, which a borrower is likely to incur in
connection with a loan closing.


Graduated Payment Mortgage


(GPM) A mortgage where the payments are scheduled to increase, usually
annually, for a set number of years, and then level off. GPM can be used
with either a fixed or adjustable interest rate, and usually has a 30-year
term.


Grantee


That party in the deed who is the buyer or recipient.


Grantor


That party in the deed who is the seller or giver.


Gross Monthly Income


The total amount the borrower earns per month, not counting any taxes
or expenses. Often used in calculations to determine whether a borrower
qualifies for a particular loan.


Growing Equity Mortgage


(GEM) A fixed rate, graduated payment mortgage with small initial
payments that increase each year so that the loan pays off in a shortened
term, usually 15 years.


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– H –

Hazard Insurance


Insurance to protect the homeowner and the lender against physical
damage to a property from fire, wind, vandalism, or other hazards.


Homeowner’s Insurance


An insurance policy that combines liability coverage and hazard
insurance.


Homeowner’s Warranty


A type of insurance that covers repairs to specified parts of a house
for a specific period of time.


Housing Ratio


The ratio of the monthly housing payment to total gross monthly income.
Also called Payment-to-Income Ratio or Front-End Ratio.


HUD


(Department of Housing and Urban Development). A cabinet department
responsible for the implementation and administration of government
housing and urban development programs.


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– I –

Income property


Real estate developed or improved to produce income.


Index


(Also called “Rate Index”). A regularly published rate, independent of
the lending institution, that measures the prevailing cost of funds, and
is used periodically with the margin to set AML accrual rates.


Initial Borrower Interest Rate


The rate on which the borrower’s first payment is calculated.


Initial Borrower Payment Rate


The annual interest rate used to calculate the borrower’s initial cash
payment.


Inflation


An increase in the amount of money or credit available in relation to
the amount of goods or services available, which causes an increase in the
general price level of goods and services. Over time, inflation reduces
the purchasing power of a dollar, making it worth less.


Initial interest rate


The original interest rate of the mortgage at the time of closing.


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.


Insurable title


A property title that a title insurance company agrees to insure
against defects and disputes.


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 binder


A document that states 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 (MI). 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 percentage of an amount of money, which is paid for its use for a
specified time.


Interest Rate Cap


A provision of an ARM limiting how much interest rates may increase per
adjustment period.


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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– J –

Joint tenancy


A form of co-ownership that gives each tenant equal interest and 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.


Judicial foreclosure


A type of foreclosure proceeding used in some states that is handled as
a civil lawsuit and conducted entirely under the auspices of a court.


Jumbo Loans


Jumbo, or non-conforming, is a term used to describe a loan that does
not conform to Fannie Mae or Freddie Mac guidelines.


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– K –

(empty)


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– L –

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.


Legal description


A property description, recognized by law that is sufficient to locate
and identify the property without oral testimony.


Lender


An institution that makes loans to borrowers on real estate.


Liabilities


A person’s financial obligations. Liabilities include long-term and
short-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 when the property is
sold.


Lifetime Cap


A provision of an ARM that limits the total increase in interest rates
over the life of the loan.


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.


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.


Liquid asset


A cash asset or an asset that is easily converted into cash.


Loan


A sum of borrowed money (principal) that is generally repaid with
interest.


Loan Commitment


Formal offer by a lender stating the terms under which it agrees to
loan money to a homebuyer.


Loan origination


The process by which a mortgage lender brings into existence a mortgage
secured by real property.


Loan Servicing


The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.


Loan -To-Value


(LTV). The loan-to-value ratio (LTV) is the original loan amount
divided by the lower of the sales price or the appraised value.


Lock


The period, expressed in days, during which a lender will guarantee a
rate.


Lock-in period


The time period during which the lender has guaranteed an interest rate
to a borrower.


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– 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.


Master association


A homeowners’ association in a large condominium or planned unit
development (PUD) project that is made up of representatives from
associations covering specific areas within the project. In effect, it is
a “second-level” association that handles matters affecting the entire
development, while the “first-level” associations handle matters affecting
their particular portions of the project.


Maturity


The date on which the principal balance of a loan, bond, or other
financial instrument becomes due and payable.


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. Any duplicates are combined to provide a summary of a
your credit.


Margin


(Also called “Spread”). The amount the lender adds to the index to
determine the Fully Indexed Accrual Rate.


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 Housing Expense


Total principal, interest, taxes, and insurance paid by the borrower on
a monthly basis. Used with gross income to determine affordability.


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
a payment of a debt.


Mortgage Banker


A company that originates mortgages exclusively for resale in the
secondary market.


Mortgage Broker


A company that for a fee matches borrowers with lenders.


Mortgagee


The lender in a mortgage agreement.


Mortgage Commitment


A written notice from the bank or other lending institution saying it
will advance mortgage funds in a specified amount to enable a buyer to
purchase a house.


Mortgage Insurance Premium


The payment made by a borrower to the lender for transmittal to HUD to
help defray the cost of the FHA mortgage insurance program and to provide
a reserve fund to protect lenders against loss in insured mortgage
transactions. In FHA insured mortgages this represents an annual rate of
one-half of one percent paid by the mortgagor on a monthly basis.


Mortgage 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.


Mortgage Note


A written agreement to repay a loan. The agreement is secured by a
mortgage, serves as proof of 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.


Mortgagor


The borrower in a mortgage agreement.


Multi-dwelling units


Properties that provide separate housing units for more than one
family, although they secure only a single mortgage.


Multifamily mortgage


A residential mortgage on a dwelling that is designed to house more
than four families, such as a high-rise apartment complex.


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– N –

Negative Amortization


(Also called “Deferred Interest”). 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 Effective Income


Gross income less federal income tax.


Net Worth


The value of all assets, including cash, less total liabilities.


No cash-out refinance


A refinance transaction in which the new mortgage amount is limited to
the sum of the remaining balance of the existing first mortgage, closing
costs (including prepaid 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 other 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 easily be 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 a default has occurred and
that legal action may be taken.


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– O –

Original principal balance


The total amount of principal owed on a mortgage before any payments
are made.


Origination Fee


A fee paid to a lender for processing a loan Application.


OTC


(The Office of Thrift Supervision). Charters federal thrifts, serves as
the primary federal examiner and regulator of federal and state-chartered
savings associations, and administers laws governing savings and loan
holding companies.


Owner financing


A property purchase transaction in which the property seller provides
all or part of the financing.


Owner Occupied


“Owner Occupied” means the property is the owner’s primary
residence.


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– P –

Payment Adjustment Period



The length of time (typically a year) between changes to the
borrower’s P&I (Principal & Interest) payment.

Payment Buy down


Payment buy downs occur when a third party, typically a builder, pays
part of the initial P&I payments for a year or two, so that the
borrower has smaller payments and can qualify for the loan.


Payment Cap


A limit on the amount the payment can be changed at the end of each
Payment Adjustment Period.


Payment Discount


In a payment discount, the lender reduces the first year’s interest
rate to make the mortgagor more attractive to borrowers.


Periodic payment cap


A limit on the amount that payments can increase or decrease during any
one-adjustment period.


Periodic rate cap


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.


Personal property


Any property that is not real property.


PITI


Principal, Interest, Taxes and Insurance are components of a mortgage
payment.


Plat


A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and
easements.


Points


A one-time charge by the lender to increase the yield of the loan; a
point is 1 percent of the amount of the mortgage.


Power of attorney


A legal document that authorizes another person to act on one’s behalf.
A power of attorney can grant complete authority or can be limited to
certain acts and/or certain periods of time.


Prepayment


Payment of mortgage loan, or part of it, before due date.


Pre-qualification


The process of determining how much money a prospective homebuyer will
be eligible to borrow before application.


Prime rate


The interest rates that banks charge to their preferred customers.


Principal


The amount borrowed or remaining unpaid, also, that part of the monthly
payment that reduces the outstanding balance of a mortgage.


Private Mortgage Insurance


Insurance provided by nongovernmental insurers that protect lenders
against loss if a borrower defaults.


Promissory note


A written promise to repay a specified amount over a specified period
of time.


Public auction


A meeting in an announced public location to sell property to repay a
mortgage that is in default.


Planned Unit Development (PUD)


A project or subdivision that includes common property that is owned
and maintained by a homeowners’ association for the benefit and use of the
individual PUD unit owners.


Purchase Agreement


See Agreement of Sale.


Purchase money transaction


The acquisition of property through the payment of money or its
equivalent.


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– Q –

Qualifying Ratios


Guidelines applied by lenders to determine how large a loan to grant a
homebuyer.


Quitclaim Deed


A deed, which transfers whatever interest, the maker of the deed may
have in the particular parcel of land. A quitclaim deed is often given to
clear the title when the grantor’s interest in a property is questionable.
By accepting such a deed the buyer assumes all the risks. Such a deed
makes no warranties as to the title, but simply transfers to the buyer
whatever interest the grantor has. (See Deed.)


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– R –

Radon


A radioactive gas found in some homes that in sufficient concentrations
could cause health problems.


Rate Caps


(Also called “Interest Rate Caps”). A limit on the amount of which the
interest rate charged to the borrower can be changed.


Rate lock


A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate for a specified period
of time.


Real Estate Broker


A middleman or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have title
to the property, but generally represents the owner.


Real Estate Owned


(REO). A term frequently used by lending institution as applied to
ownership of real property acquired for investment or as a result of
foreclosure.


RESPA


(Real Estate Settlement Procedures Act). A Federal law that requires
lenders to provide home mortgage borrowers with information about known or
estimated settlement costs.


Real
property  


Land and appurtenances, including anything of a permanent nature such
as structures, 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.


Recission


The cancellation or annulment of a transaction or contract by the
operation of a law or by mutual consent.


Recorder


The public official who keeps records of transactions that affects real
property in the area.


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.


The process of the same mortgagor paying off one loan with the proceeds
from another loan.


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.


Remaining term


The original amortization term minus the number of payments that have
been applied.


Repayment plan


An arrangement made to repay delinquent installments or advances.
Lenders’ formal repayment plans are called “relief provisions.”


Replacement reserve fund


A fund set aside for replacement of common property in a condominium,
PUD, or cooperative project — particularly that which has a short life
expectancy, such as carpeting, furniture, etc.


Restrictive Covenants


Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may “run with the land,” binding all
subsequent purchasers of the land, or may be “personal” and binding only
between the original seller and buyer. The determination whether a
covenant runs with the land or is personal is governed by the language of
the covenant, the intent of the parties, and the law in the State where
the land is situated. Restrictive covenants that run with the land are
encumbrances and may affect the value and marketability of title.
Restrictive covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from owning or
occupying homes in a given area. (This latter discriminatory covenant is
unconstitutional and has been declared unenforceable by the U.S. Supreme
Court.)


Revolving liability


A credit arrangement, such as a credit card, that allows a customer to
borrow against a pre-approved line of credit when purchasing goods and
services. The borrower is billed for the amount that is actually borrowed
plus any interest due.


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 designated premises.


Right of survivorship


In joint tenancy, the right of survivors to acquire the interest of a
deceased joint tenant.


RTC


(Resolution Trust Corporation). Formed to resolve thrift failures over
the next three years and dispose of their assets and liabilities.


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– S –

Sales Agreement


See Agreement of sale.


Second Mortgage


A mortgage that has rights that are subordinate to the rights of the
first mortgage holders.


Secondary Mortgage Market


The buying and selling of existing mortgages.


Seller-Provided Funds


(Also called “Seller Contributions”). Seller-provided funds include all
transaction cost paid by the seller except the real estate agent’s (or
brokers) fee.


Servicer


The party who has entered into an agreement with the insured to service
a loan.


Settlement Costs


See Closing Costs.


Single Premium


A premium, which provides coverage for more than a year.


Special
Assessments  


A special tax imposed on property, individual lots or all property in
the immediate area, for road construction, sidewalks, sewers,
streetlights, 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.


Survey


A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries, and its
relationship to surrounding tracts of land. A survey is often required by
the lender to assure him that a building is actually sited on the land
according to its legal description.


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– 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 Lien


A claim against real estate for the amount of its unpaid taxes.


Teaser Rate


Similar to a Payment Discount, but implies either an unusually large
initial rate discount or an attempt by the lender to lure an otherwise
unqualified borrower into the mortgage.


Tenancy by the entirety


A type of joint tenancy of property that provides right of survivorship
and is available only to a 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.


Tenant-stockholder


The obligee for a cooperative share loan, who is both a stockholder in
a cooperative corporation and a tenant of the unit under a proprietary
lease or occupancy agreement.


Third-party origination


A process by which a 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.


Title


As generally used, the rights of ownership and possession of particular
property. In real estate usage, title may refer to the instruments or
documents by which a right of ownership is established (title documents),
or it may refer to the ownership interest one has in the real estate.


Title Company


A company that specializes in examining and insuring titles to real
estate.


Title Insurance


Protects lenders or homeowners against loss of their interest in
property due to legal defects in title. Title insurance may be issued to a
“mortgagee’s title policy.” Insurance benefits will be paid only to the
“named insured” in the title policy, so it is important that an owner
purchase an “owner’s title policy”, if he desires the protection of title
insurance.


Title Search or Examination


A check of the title records, generally at the local courthouse, to
make sure the buyer is purchasing a house from the legal owner and there
are no liens, overdue special assessments, or other claims or outstanding
restrictive covenants filed in the record, which would adversely affect
the marketability or value of title.


Total Debt Ratio


Monthly debt and housing payments divided by gross monthly income. Also
known as Back-End Ratio.


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 as all or
part of the down payment for the property that is being purchased.


Transfer of ownership


Any means by which the ownership of a 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 inter vivos 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.


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.


Truth-In-Lending


(TIL). A federal law that requires lenders to fully disclose, in
writing, the terms and conditions of a mortgage, including the 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.


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– U –


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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– V –

Government Loans FHA / VA


Government loans are loans that are guaranteed or purchased by
government organizations. Two of the most popular Government Loans are the
Federal Housing Administration (FHA) and the Department of Veterans
Affairs (VA).


Vested


Having the right to use a portion of a fund such as an individual
retirement fund.


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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– W –


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 mortgages are made to the wraparound mortgagee, who then
forwards the payments on the first mortgage to the first mortgagee.



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– X –

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– Y –

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– Z –

Zoning Ordinances


The acts of an authorized local government establishing building codes,
and setting forth


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