A B C D E F
G H I
J L M
N O P
Q R S
T U V
W - Z
Abstract of title
A summary of recorded transactions
concerning a particular property.
Acceleration
clause
Condition in a mortgage that gives the lender the
right to require immediate repayment of the loan balance if
regular mortgage payments are not made or for breach of
other conditions of the mortgage.
Accrued interest
Interest earned but not yet paid.
Adjustable rate
An interest rate that changes periodically according to an
index.
Adjustable-rate mortgage (ARM)
A mortgage
with an interest rate that adjusts periodically based on a
preselected index, causing interest rates and payments to
rise and fall with the market.
Adjustment interval
The time between changes in the interest rate and monthly
payments on an ARM.
Agent
One that acts for or
represents another.
Agreement of sale
Also known
as a "sales contract," a written document in which a
purchaser agrees to buy property under certain given
conditions, and the seller agrees to sell under certain
given conditions.
Alternative documentation
A
method of documenting a loan file that relies on
information the borrower is likely to be able to provide,
instead of waiting on verification sent to third parties
for confirmation of statements made in the application.
Amortization
A monthly repayment schedule in which a
loan is repaid in fixed payments of principal and interest.
Annual percentage rate (APR)
The annual cost of a
loan, expressed as a yearly rate. APR takes into account
interest, discount points, lender fees and mortgage
insurance, so it will be slightly higher than the interest
rate on the loan.
Application
Often referred to
as a 1003, an initial statement of personal and financial
information required to approve your loan.
Application Fee
A fee charged by a lender to cover
initial costs of processing a loan application, often
including charges for property appraisal and a credit
report.
Appraisal
A written estimate of a
property's current market value, based on recent sales
information for similar properties, the current condition
of the property and how the neighborhood might affect
future property value.
Appraisal fee
A fee
charged by a licensed, certified appraiser to render an
opinion of market value as of a specific date.
APR
Annual Percentage Rate.
ARM
Adjustable-Rate
Mortgage.
ARM assumbility
Some ARM products
feature "assumability" to a qualified applicant. The
assumability of an ARM loan may make it more attractive to
an applicant who envisions selling their home at a later
date. By incorporating an assumable mortgage product, they
may be able to make their home more attractive to potential
buyers.
ARM disclosure
An additional disclosure
specific to adjustable-rate mortgages that must be prepared
and presented to the consumer within three days of
application whenever an adjustable-rate mortgage
transaction is contemplated (Note: home equity lines have
their own unique disclosure).
ARM handbook
The
Consumer Handbook to Adjustable-Rate Mortgages ("CHARM"
booklet) must be presented to the consumer within three
days of applying for an ARM loan (in addition to the ARM
disclosure referenced above).
Amortization re-cast
period
Pre-determined period of time (expressed either
in a number of months and/or a percent of increase from
original principal balance) after which any/all accumulated
"negative amortization" (aka "deferred interest") is
accounted for in a re-amortization of the loan balance over
the remaining term of the mortgage at the then prevailing
rate of interest. Amortization is also re-casted at each
adjustment even if no negative amortization. Typically, any
payment cap that would otherwise factor in is disregarded
in the event of re-casting.
Amortization re-cast
limitation
Amortization is most often "capped" at 110 or
125 percent of the original principal balance.
Re-amortization typically occurs every 60 months and/or at
such time as the balance reaches the pre-determined "cap."
Assessment
A local tax levied against properties
that have benefited from civil improvements such as road or
sidewalk construction, a sewer or street lights.
Asset
Anything of monetary value that a person owns.
Assets include real property, personal property and
enforceable claims against others (including bank accounts,
stocks, mutual funds and so on).
Assignment
The
transfer of property rights from one person to another.
Assumability
A feature of a loan allowing it to be
transferred to the new purchaser of a home. Assumable
mortgages can help attract buyers because assumption of a
loan requires lower fees and/or qualifying standards than a
new loan.
Assumption
Agreement between buyer and
seller for the buyer to take over the payments on an
existing mortgage.
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B
Balance sheet
A document showing the financial
situation-assets, liabilities and net worth of a person at
a specific point in time.
Bank check
Cashier's
check.
Bankruptcy
Proclamation by a court of an
individual's (or organization's) state of insolvency, or
inability, to pay debts. Petition may be brought by an
individual or his creditors, with a goal of orderly and
equitable settlement of obligations.
Basis point
A unit of measure: 1/100th of one percent. For example, the
difference between a 9.0 percent loan and a 9.5 percent
loan is 50 basis points.
Bearer
The legal owner
of a piece of property.
Bequest
A gift of
personal property by will.
Bill of sale
A
document that transfers ownership of goods from one person
to another.
Biweekly mortgage
A payment plan
under which one pays one-half of a monthly payment every
two weeks, saving interest substantially over the life of
the loan.
Bona fide
In good faith.
Bond
A document representing a right to certain payments on
underlying collateral.
Borrower (Mortgagor)
An
individual 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 who assists in
arranging funding or negotiating contracts for a client,
but does not loan money himself.
Buy-down
A
situation in which the seller contributes money that allows
the lender to give the buyer a lower rate and payment,
usually in exchange for an increase in sales price. With a
refinance, this could be paid by the borrower.
Buyer's broker
An agent hired by a buyer to locate a
property for purchase and to represent the buyer in
negotiations with the seller's broker for the best possible
deal for the buyer.
Buyer's market
Market
conditions that favor buyers. With more sellers than buyers
in the market, buyers have ample choice of properties and
can negotiate lower prices.
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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.
Caps
Limits on changes in
ARM interest rates or monthly payments, either in an
adjustment period or over the life of the loan.
Caps
(Payment)
Consumer safeguards may limit the amount
monthly payments on an adjustable-rate mortgage may change.
Because they do not limit the amount of interest the lender
is earning, they may cause negative amortization.
Cash-out
A refinance for more than the balance of the
original mortgage, with the extra money is taken out of the
equity in the property.
Cashier's check (or bank
check)
A check whose payment is guaranteed because it
was paid for in advance and is drawn on the bank's account
instead of the customer's.
CC&Rs
Covenants,
Conditions and Restrictions.
Ceiling
The maximum
allowable interest rate of an adjustable-rate mortgage.
Certificate of eligibility
Document issued by the
Veterans' Administration to qualified veterans that
entitles them to VA guaranteed loans. This certificate can
be obtained through local VA office by submitting form
DD-214 (Separation Papers) and VA form 1880 (request for
Certificate of Eligibility).
Certificate of
Occupancy
Document issued by local government agency
stating that a property meets the requirements of health
and building codes.
Certificate of reasonable value
(CRV)
A property appraisal performed by a VA-approved
appraiser that establishes the limit on the principal of
the VA loan.
Certificate of Title
Written opinion
of the status of title to a property, given by an attorney
or title company. This certificate does not offer the
protection given by title insurance.
Certificate of
veteran status
Document given to veterans or reservists
who have served 90 days of continuous active duty
(including training time) which enables them to obtain
lower down payments on certain FHA-insured loans.
Obtainable through local VA office by submitting form
DD-214 (Separation Paper) with form 26-8261A (request for
Certificate of Veteran Status).
Certified Check
A
check drawn on the issuer's account for funds that have
been segregated by the bank, guaranteeing payment.
CFPB
See Consumer Financial Protection Bureau.
Chain of title
The chronological order of conveyance of
a property from the original owner to the present owner.
Clear title
A marketable title, free of clouds and
disputes.
Closing (or settlement)
Meeting between
the buyer, seller and lender or their agents at which
property and funds legally change hands.
Closing
costs
Fees incurred in a real estate or mortgage
transaction and paid by borrower and/or seller during a
mortgage loan closing. These typically include a loan
origination fee, discount points, attorney's fees, title
insurance, appraisal, survey and any items that must be
prepaid, such as taxes and insurance escrow payments. The
cost of closing is usually about 3 to 6 percent of the
mortgage amount.
Closing statement
A financial
disclosure statement that lists the funds received and
expected at the closing.
Cloud on title
An
outstanding claim or encumbrance that, if valid, would
affect or impair the owner's title.
CLTV
See
Combined loan-to-value.
COFI
See Cost of funds
index.
Collateral
Assets that back a mortgage
loan.
Combined loan-to-value (CLTV)
The ratio of
the total mortgage liens against the subject property to
the lesser of either the appraised value or the sales
price.
Commission
Money paid to a real estate
agent or broker by the seller (usually 6 to 7 percent of a
home's sale price).
Commitment
A formal offer by
a lender to make a loan under certain terms or conditions
to a borrower.
Condominium
A form of property
ownership in which the homeowner holds title to an
individual dwelling unit and an interest in common areas
and facilities of a multi-unit project.
Conforming
loan
A mortgage loan under the maximum amount of loans
that FNMA and FHLMC are legally allowed to buy. Maximum
loan amount varies by county.
Consumer Financial
Protection Bureau (CFPB)
A federal agency that enforces
laws that protect consumers of financial products and
services such as mortgages, credit cards and deposit
accounts.
Contingency
A condition that must be
satisfied before a contract is legally binding before a
sale can close.
Contract of sale
The agreement
between the buyer and seller on the purchase price, terms
and conditions of a sale.
Conventional loan
A
mortgage not insured by the FHA or guaranteed by the VA.
Conversion clause
A provision in some ARMs allowing
you to change an ARM to a fixed-rate loan, usually after
the first adjustment period. The new fixed rate is set at
current rates, and there may be a charge for the conversion
feature.
Conversion option
Many "short-term" ARM
products feature a conversion option. This option allows a
consumer, subject to certain restrictions, to convert the
loan from an adjustable to a fixed-rate mortgage.
Convertible ARMs
ARMs with the option of conversion to a
fixed loan during a given time period.
Conveyance
The
transfer of a deed or possibly a lease or mortgage.
Cost of funds index (COFI)
An index of the weighted-average
interest rate paid by savings institutions for sources of
funds, usually by members of the 11th Federal Home Loan
Bank District.
Covenants, conditions and
restrictions (CC&Rs)
A document defining the use, requirements and restrictions
of a property.
Credit report
A report detailing the
credit history of a prospective borrower, used when
determining creditworthiness.
Credit risk
The
possibility that the borrower may default on financial
obligations.
CRV
Certificate of reasonable value.
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D
Debt-to-income
ratio
The ratio,
expressed as a percentage, that results when a borrower's
monthly payment obligation on long-term debts is divided by
monthly income.
Deed
A legal document that transfers
a property from one owner to another. The deed contains a
description of the property, and is signed, witnessed and
delivered to the buyer at closing.
Deed of trust
Agreement to pledge property as security for a loan, used
in many states in place of a mortgage. In this arrangement,
the borrower transfers legal title to a trustee who holds
the property in trust as security for the repayment of the
debt. The deed of trust becomes void if the debt is repaid,
but if the borrower defaults on the loan, the trustee may
sell the property to pay the debt.
Default
Failure to
meet legal obligations in a contract, including failure to
make payments on a loan. A mortgage is generally considered
to be in default when a payment is 30 or more days past
due.
Deferred interest
Interest added to the balance
of a loan when monthly payments are not sufficient to cover
it. (See Negative amortization.)
Delinquency
Failure
to make payments on time.
Deposit
Cash paid when a
formal sales contract is signed. The deposit is usually
held by a third party until the sale is complete.
Depreciation
When the value of property declines.
Discount points (or Points)
Money paid to a lender at
closing in exchange for lower interest rates. Each point is
equal to 1 percent of the loan amount.
Documentary
stamps
A state tax, in the forms of stamps, required on
deeds and mortgages when a real estate title passes from
one owner to another.
Down payment
Money paid for a
house from one's own funds at closing. The down payment
will be the difference between the purchase price and
mortgage amount.
Due-on-sale clause
Provision in a
mortgage or deed of trust allowing the lender to demand
immediate payment of the loan balance upon sale of the
property.
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E
Earnest money
Deposit
made by a buyer in evidence of good faith when the purchase
agreement is signed.
ECOA
Equal Credit Opportunity
Act.
Effective interest rate
The cost of a mortgage
expressed as a yearly rate, usually higher than the
interest rate on the mortgage since this figure includes
up-front costs.
Encumbrance
A legal right or interest
in a property that affects title and lessens the property
value. Encumbrances can take the form of claims, liens,
unpaid taxes and so on. These will usually have to be taken
care of before a buyer may purchase a property.
Equal
Credit Opportunity Act (ECOA)
Federal law requiring
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 percentage of
property value held by the owner; the difference between
the current market value of a property and the outstanding
mortgage balance.
Equity loan
A loan based on the
borrower's equity in his home.
Escrow
The neutral
third party that holds money and/or documents until the
escrow instructions are fulfilled and escrow can be a title
company or an attorney, depending on state regulations.
Escrow account
Account held by a lender containing funds
collected as part of mortgage payments for annual expenses
such as taxes and insurance, so that the homeowner does not
have to pay a large sum when these fall due.
Escrow
waiver
Escrow Waiver is waiver of the requirement to
fund an escrow account with lender and instead pay
insurance and taxes separately. This waiver may require a
fee and is not available with all loan programs.
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F
Fannie Mae
Federal National Mortgage
Association.
FHAct
Fair Housing Act
Fair Housing
Act (FHAct)
Prohibits discrimination in real estate
transactions because of race, color, religion, sex,
handicap, familial status (families with children), or
national origin. It applies to mortgage lending as well as
other aspects of real estate transcations, including sales
and rentals, real estate brokerage, and appraisals.
Farmer's Home Administration (FMHA)
An agency within the
U.S. Department of Agricultur that provides financing for
homes and farms in small towns and rural areas.
Federal
Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
Quasi-governmental agency that purchases conventional
mortgages from insured depository institutions and
HUD-approved mortgage bankers.
Federal Housing
Administration (FHA)
A government agency, division of
the Department of Housing and Urban Development, that
insures residential mortgage loans made by private lenders
and sets standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA or Fannie Mae)
A quasi government agency created by Congress that buys and
sells residential loans.
Federal Reserve
The central
bank of the United States and major regulatory agency for
many commercial banks.
Fee simple
Absolute ownership
of real property.
FHA
Federal Housing Administration.
FHA Loan
A loan insured by the FHA open to all qualified
home purchasers.
FHLMC
Federal Home Loan Mortgage
Corporation..
FIAR
Fully Indexed Accrual Rate (Index
+ Margin).
First mortgage
A mortgage that is in first
lien position, taking priority over all other liens. In the
case of foreclosure, the first mortgage will be repaid
before any other mortgages.
Fixed rate
An interest
rate that is fixed for the term of the loan.
Fixed-rate
mortgage
A mortgage with an interest rate that doesn't
change for the life of the loan, guaranteeing fixed
payments.
Flood insurance
A form of hazard insurance
required by lenders to cover properties in flood zones.
Floor
The minimum rate of interest payable on an
adjustable-rate mortgage.
Floor (Interest - ARM)
A
pre-determined amount that establishes the minimum interest
rate life of a loan. This can be expressed as a percentage
below the start rate, as a rate of interest independent of
the start rate, or, quite typically, the "Floor" may be
established as being equal to the Margin.
FMHA
Farmer's Home Administration.
FNMA
Federal National
Mortgage Association.
Forbearance
Grace period given
when a lender postpones foreclosure to give the borrower
time to catch up on overdue payments.
Foreclosure (or
repossession)
Legal process by which the lender forces
the sale of a property because the borrower has not met the
mortgage terms.
Freddie Mac
Federal Home Loan
Mortgage Corporation.
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G
Ginnie Mae
Government National Mortgage Association.
GNMA
Government National Mortgage Association.
Good faith
estimate
This document sets out the costs associated
with a mortgage, including the interest rate, lender fees,
title charges, pre-paid interest and insurance. The
government requires that your lender give you a GFE within
three days of receiving your loan application. The GFE is
only an estimate; some fees can change before closing.
Lender fees and the interest rate (if you have locked your
rate) may not increase, and certain other costs may not
increase by more than 10 percent.
Government National
Mortgage Association (GNMA or Ginnie Mae)
A government
agency that provides funds for VA and FHA loans.
GPM
Graduated Payment mortgage.
Graduated Payment Mortgage (GPM)
A mortgage with initial low payments (with potential
negative amortization) that increase regularly for several
years and then level off.
Grace period
Period of time
during which a loan payment may be made after its due date
without incurring a late penalty.
Gross
Before taxes.
Gross income
Total income before taxes or expenses are
deducted.
Gross monthly income
The total amount
earned by a borrower each month.
Guarantee
To assume
liability for another's debts in the event of default.
Guaranty
A promise by one party to pay a debt or perform
an obligation contracted by another in case of that
person's default.
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H
Hazard insurance
Protects the insured against loss due to fire or other
natural disaster in exchange for a premium paid to the
insurer.
Home equity loan
A loan secured by equity in
a property. These are sought for a variety of purposes,
including home improvements, major purchases or expenses
and debt consolidation. Interest paid is usually
tax-deductible.
Homeowners warranty
A type of
insurance that covers repairs to specified parts of a house
for a specific period of time.
Housing and Urban
Development (HUD)
A U.S. government agency established
to implement federal housing and community development
programs; oversees the Federal Housing Administration.
Housing code
Local government ordinance that sets
minimum standards of safety and sanitation for existing
residential buildings.
Housing expense-to-income ratio
The ratio, expressed as a percentage, that results when a
borrower's housing expenses are divided by his/her monthly
income.
HUD
Housing and Urban Development.
HUD-I
settlement statement
A form that itemizes the closing
costs associated with purchasing a home.
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I
Impound (or reserves)
A portion of a borrower's
monthly payments held by the lender to pay for taxes,
insurance and other items as they become due.
Impound
account
Savings account for accumulating that portion of
a borrowers monthly payments designated for future payments
of taxes and insurance. (Required by certain lenders or
with certain types of financing.)
Index
A published
rate used by lenders to calculate interest adjustments on
ARMs (Index + Margin = Interest Rate). Some indexes are
more volatile than others.
Index (ARM)
Established at
loan origination, the index is a widely published financial
indicator that, combined with the Margin, works to
establish the effective rate of an adjustable-rate mortgage
("Index + Margin = Rate").
Initial rate
The rate
charged during the first interval of an ARM.
Insolvency
Condition of a person who is unable to pay his debts as
they fall due.
Interest
Charge paid for borrowing
money, calculated as a percentage of the amount borrowed.
Interest rate
The periodic charge, expressed as a
percentage, for use of credit.
Interest rate cap
A
safeguard built into ARMs to prevent drastic changes in
interest rates.
Interest rate change date
Dates upon
which the rate of interest is subject to change. Initial
change date and subsequent change dates may feature
different terms.
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J
Joint liability
Liability shared among two or more people, each of whom is
liable for the full debt.
Joint tenancy
The ownership
of property by two or more persons with the survivor taking
the share of the deceased.
Jumbo loan
A mortgage
larger 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.
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L
Late charge
Penalty paid by a borrower when a
payment is made after the due date.
Lender
The bank,
mortgage company or mortgage broker offering a loan.
LIBOR (London Interbank Offered Rate)
The interest rate
charged among banks for short-term Eurodollar loans, and a
common index for ARMs.
Lien
A claim by one person on
the property of another for payment of a debt.
Life cap
(Interest)
A pre-determined amount that establishes the
maximum interest rate life of loan. This can be expressed
as a percentage above the start rate or as a rate of
interest independent of the start rate.
Loan
administration
The collection of mortgage payments from
borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on
defaulted loans and remitting payments to investors).
Loan application
A document required by lenders prior to
loan approval containing detailed information about the
borrower and property.
Loan application fee
A fee a
prospective buyer pays a lender when applying for a
mortgage.
Loan origination fee
A fee a lender charges
to process a mortgage, usually expressed as a percentage of
the loan (or points), which pays for the work in evaluating
and processing the loan.
Loan servicing
Loan
administration.
Loan to value ratio (LTV)
The
percentage of the property value borrowed. (Loan
amount/property value=LTV)
Lock or lock-in
A lender's
guarantee of an interest rate for a set period of time,
usually between loan application and loan closing. This
protects borrowers against rate increases during that time.
LTV
Loan to Value Ratio.
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M
Margin
The number of percentage points added to an index to
calculate the interest rate on an ARM at each adjustment.
Marketable title
A title free and clear of liens, clouds
or other defects that would prevent the sale of the
property.
Market rate
The average rate charged by
lenders for a loan.
Market value
The highest price
that a buyer would pay for a property and the lowest price
a seller would accept.
Monthly housing expense
Total
monthly expense of principal, interest, taxes and
insurance.
Mortgage
A document that creates a lien on
a property as security for the payment of a debt.
Mortgage banker
A professional that originates mortgage
loans, funding them with his own money.
Mortgage broker
A specialist that arranges financing for borrowers, but
places loans with lenders rather than funding them with
their own money.
Mortgagee
The lender in a mortgage
loan transaction.
MIP (Mortgage insurance premium)
Insurance purchased by borrower to insure against default
on a FHA loans.
Mortgage loan
A loan for which real
estate serves as collateral to provide for repayment in
case of default.
Mortgage note
A legal document that
obligates a borrower to repay a loan at a stated interest
rate during a specified period of time. The agreement is
secured by a mortgage.
Mortgagor
The borrower in a
mortgage loan transaction.
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N
Negative
amortization
An increase in principal balance that
occurs when monthly payments are not large enough to pay
all interest due on a loan, usually caused when payment
caps prevent sufficient payment increases. Unpaid deferred
interest is added to the loan balance, causing the borrower
to owe more than the loan's original amount.
Net
After taxes.
Net effective income
Gross income minus
estimated federal income tax.
Non-assumption clause
A
statement in a mortgage contract forbidding the assumption
of the mortgage by another borrower without the prior
approval of the lender.
Non-conforming loan
A
conventional loan that can not be sold to Fannie and
Freddie Mac. Often, these loans are larger than the
conforming loan amount.
Non-dischargeable debt
Debt,
such as taxes, that cannot be forgiven in a bankruptcy
liquidation.
Note
Legal document stating the terms of
a debt and a promise to repay it.
Notice of default
Written notice to a borrower that a default has occurred
and that legal action may be taken.
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O
Office of Comptroller Currency
The federal financial
regulatory body that oversees the nation's federally
chartered banks and savings institutions.
Origination
fee
A fee that a lender charges, usually expressed as a
percentage of the loan (or points) for evaluating and
processing the loan.
Owner financing
A purchase in
which the seller provides all or part of the financing.
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P
Payment cap
Limit on the amount by
which a borrower's ARM payments may increase, regardless of
rise in interest rates. This may result in negative
amortization.
Payment cap (ARM)
A pre-determined
amount that establishes the maximum by which the payment
can increase, irrespective of increases to the interest
rate.
Payment change date
Dates upon which the
payment amount is subject to change. Products featuring
"negative amortization" typically will include a payment
change date which differs from the interest rate change
date in frequency.
Per diem interest
Interest
calculated per day. Depending on the day of the month on
which closing takes place, you'll have to pay interest from
the date of closing to the end of the month.
Periodic
interest cap
An interest cap that restricts how much
adjustable-rate mortgage rates may increase or decrease on
pre-determined change dates.
Permanent loan
A
long-term mortgage of 10 years or more.
PITI
Also
called "monthly housing expenses," principal, interest,
taxes and insurance are the components of a monthly
mortgage payment.
PMI
Private Mortgage Insurance.
Points (or Discount points)
Interest prepaid to the
lender at closing. Each point is equal to 1 percent of the
loan amount. Paying more points at closing generally
reduces a loan's interest rate and monthly payments.
Power of attorney
Legal document authorizing one person
to act on behalf of another.
Prepaid expenses
Taxes,
insurance and assessments paid in advance of their due
dates, including at closing.
Prepaid interest
Charged
to a borrower at closing to cover interest on the loan
between the closing date and the end of that month.
Prepayment
A full or partial payment of the principal
before the due date. This might occur if the borrower makes
extra payments, sells the property or refinances the
existing loan.
Pre-payment penalty
Some ARM loans
contain a provision against pre-payment without penalty.
Terms of pre-payment penalty clauses vary from product to
product, investor to investor, and state to state. Many
states and even local municipalities have, or are
contemplating, enacting legislation against pre-payment
penalties.
Prequalification
The process of
determining how much money a prospective homebuyer may
borrow, prior to application for a loan.
Primary
mortgage market
Includes banks, savings and loans,
credit unions, and mortgage bankers who make mortgage loans
directly to borrowers. These lenders sometimes sell their
mortgages to lenders such as FNMA in the secondary mortgage
market.
Prime rate
Lowest commercial interest rate
charged by a bank on short-term loans to its most
credit-worthy customers.
Principal
The amount of
debt, not counting interest, left on a loan.
Private
Mortgage Insurance (PMI)
Insurance purchased by a buyer
on a conventional loan when a down payment is less than 20
percent of the purchase price to protect the lender against
default.
Profit and loss statement
A financial
statement showing revenue, expenses and profits over a
period of time.
Property tax
A government tax based
on the market value of a property.
Purchase agreement
A contract signed by buyer and seller stating the terms and
conditions of a home sale.
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Q
Qualifying rate
Adjustable-rate mortgages often employ a
"qualifying fate" that differs from the "start rate." The
qualifying rate may be a pre-determined percentage of
interest (i.e. "8 percent"), expressed as the "highest
possible rate of interest at the beginning of the 2nd
year", based on the start rate (i.e. "start rate + 2
percent), expressed as the "Fully Indexed Accrual Rate" ("FIAR")
or another amount.
Qualifying ratio
A comparison of a
borrower's expenses (housing or total debt) to his income.
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R
Real Estate Agent
A real estate
professional who is a member of the National Association of
Realtors.
Real estate broker
An agent representing a
buyer or seller in a real estate transaction.
Real
Estate Settlement Procedures Act
A law that governs
acceptable practices and fees in real estate transactions.
Real property
Land and everything that is permanently
affixed to it.
Reclamation
The right of the person
with title to a property to recover it from the debtor in
case of a bankruptcy.
Reconveyance
The transfer of
property back to the owner when a mortgage is fully repaid.
Recording
The act of entering documents concerning title
to a property into public records.
Recording fee
Money paid to an agent for entering the sale of a property
into the public records.
Refinancing
The process of
paying off one loan with the proceeds from a new loan
secured by the same property.
Rent with option to buy
Lease-purchase mortgage loan.
Repossession (or
foreclosure)
Legal process by which the lender forces
the sale of a property because the borrower has not met the
mortgage terms.
Rescission
The cancellation of a
contract, permitted by law within three days of signing a
mortgage not used to purchase a home.
Reserves
Impound.
RESPA
Real Estate Settlement Procedures Act.
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S
Sale agreement
A contract signed by
buyer and seller stating the terms and conditions under
which a property will be sold.
Satisfaction
The
payment of a debt that satisfies an obligation.
Secondary mortgage market
The market into which primary
mortgage lenders sell the mortgages they make to obtain
funds to originate more new loans. This includes investors
such as Fannie Mae and Freddie Mac.
Second mortgage
A
subordinate mortgage made in addition to a first mortgage.
Seller's broker
An agent hired by a seller to represent
him/her in negotiations to sell property.
Seller's
market
Market conditions that favor sellers. With more
buyers than sellers in the market, sellers have the
negotiating power as demand exceeds supply.
Servicing
(or Loan administration)
The collection of mortgage
payments from borrowers and related responsibilities (such
as handling escrows for property tax and insurance,
foreclosing on defaulted loans and remitting payments to
investors).
Settlement (or Closing)
A meeting between
the buyer, seller and lender (or their agents) where
property and funds legally change hands.
Settlement cost
(HUD guide)
A booklet given to consumers after applying
for a loan that provides an overview of the lending
process.
Settlement costs
Closing costs.
Settlement sheet (HUD-1)
The computation of costs
payable at closing that determines the seller's net
proceeds and the buyer's net payment.
Simple interest
Interest that is computed only on the principal balance.
Start rate
A pre-determined rate of interest that will
be applied to the loan until the date of the first interest
rate change.
Subsidized second mortgage
Alternative
financing option for low- and moderate-income households
that also includes a down payment and a first mortgage,
with funds for the second mortgage provided by city, county
or state housing agencies, foundations or nonprofit
corporations. Payment on the second mortgage is often
deferred and carries low interest rates (if any). Part of
the debt may be forgiven for each year the family remains
in the home.
Survey
A measurement of land, prepared
by a licensed surveyor, showing a property's boundaries,
elevations, improvements and relationship to surrounding
tracts.
Sweat equity
Value added to a property by
improvements made by the owner.
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T
Tax
impound
Money paid to and held by a lender for annual
tax payments. See Impound Account.
Tax lien
Claim
against a property for unpaid taxes.
Tax sale
Public
sale of property by a government authority as a result of
nonpayment of taxes.
Term
The number of years until a
loan is due to be paid in full.
Title
A document that
gives evidence of ownership of a property, as well as
rights of ownership and possession.
Title company
A
company that insures the title to a property.
Title
insurance
Insurance that protects the lender (lender's
policy) or buyer (owner's policy) against loss due to
disputes over property ownership.
Title search
Examination of municipal records to ensure that the seller
is the legal owner of a property and that there are no
liens other claims against the property.
Transfer tax
Tax paid when a title passes from one owner to another.
Trust account
An account maintained by a broker or
escrow company to handle all money collected for clients.
Trustee
Someone given legal responsibility to hold
property in the best interest of another.
Truth-in-Lending Act
A federal law requiring written
disclosure of the terms of a mortgage (including APR and
other charges) by a lender to a borrower after application.
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U
Underwriting
The process of
verifying data and evaluating a loan application. The
underwriter gives the final loan approval.
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V
VA Loan
A home loan available to veterans with
little or no down payment and guaranteed by the U.S.
Veterans' Administration.
Variable rate mortgage
See
Adjustable-rate mortgage.
Variable rate
An interest
rate that changes periodically in relation to an index.
Verification of deposit (VOD)
A document signed by the
borrower's bank or other financial institution that
verifies the borrower's account balance and history.
Verification of employment (VOE)
A document signed by
the borrower's employer that verifies the borrower's
position and salary.
VOD
Verification of deposit.
VOE
Verification of employment.
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W-Z
Waiver
Voluntary relinquishment or surrender of some
right or privilege.
Walk-through
A final inspection
of a home to check for problems that may need to be
corrected before closing.
Warehouse fee
Mortgage
firms often borrow funds from a warehouse lender on a
short-term basis in order to originate loans that will
later be sold to investors in the secondary mortgage
market. Lenders may charge a warehouse fee to cover an
expense charged by the warehouse lender.
Zoning ordinances
Local laws that establish building
codes and usage regulations for properties in a specified
area. This creation of districts specifies different types
of property uses, such as commercial or residential.
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