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- acceleration clause
A clause in your mortgage which allows the lender to demand payment of the
outstanding loan balance for various reasons. The most common reasons for
accelerating a loan are if the borrower defaults on the loan or transfers
title to another individual without informing the lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to indexes.
adjustment dateThe date the interest rate changes on an adjustable-rate mortgage
The loan payment consists of a portion which will be applied to pay the accruing
interest on a loan, with the remainder being applied to the principal. Over
time, the interest portion decreases as the loan balance decreases, and the
amount applied to principal increases so that the loan is paid off (amortized)
in the specified time.
A table which shows how much of each payment will be applied toward principal
and how much toward interest over the life of the loan. It also shows the
gradual decrease of the loan balance until it reaches zero.
annual percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a
government formula intended to reflect the true annual cost of borrowing,
expressed as a percentage. It works sort of like this, but not exactly, so only
use this as a guideline: deduct the closing costs from your loan amount, then
using your actual loan payment, calculate what the interest rate would be on
this amount instead of your actual loan amount. You will come up with a number
close to the APR. Because you are using the same payment on a smaller amount,
the APR is always higher than the actual not rate on your loan.
The form used to apply for a mortgage loan, containing information about a
borrower’s income, savings, assets, debts, and more.
A written justification of the price paid for a property, primarily based on an
analysis of comparable sales of similar homes nearby.
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property. Since an appraisal is based primarily
on comparable sales, and the most recent sale is the one on the property in
question, the appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience to estimate the
value of real property and personal property. Although some appraisers work
directly for mortgage lenders, most are independent.
The increase in the value of a property due to changes in market conditions,
inflation, or other causes.
The valuation placed on property by a public tax assessor for purposes of
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation purposes.
Items of value owned by an individual. Assets that can be quickly converted into
cash are considered "liquid assets." These include bank accounts,
stocks, bonds, mutual funds, and so on. Other assets include real estate,
personal property, and debts owed to an individual by others.
When ownership of your mortgage is transferred from one company or individual to
another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually, the
borrower must "qualify" in order to assume the loan.
assumptionThe term applied when a buyer assumes the seller’s mortgage.
A mortgage loan that requires the remaining principal balance be paid at a
specific point in time. For example, a loan may be amortized as if it would be
paid over a thirty year period, but requires that at the end of the tenth year
the entire remaining balance must be paid.
The final lump sum payment that is due at the termination of a balloon mortgage.
By filing in federal bankruptcy court, an individual or individuals can
restructure or relieve themselves of debts and liabilities. Bankruptcies are of
various types, but the most common for an individual seem to be a "Chapter
7 No Asset" bankruptcy which relieves the borrower of most types of debts.
A borrower cannot usually qualify for an "A" paper loan for a period
of two years after the bankruptcy has been discharged and requires the
re-establishment of an ability to repay debt.
bill of sale
A written document that transfers title to personal property. For example, when
selling an automobile to acquire funds which will be used as a source of down
payment or for closing costs, the lender will usually require the bill of sale
(in addition to other items) to help document this source of funds.
A mortgage in which you make payments every two weeks instead of once a month.
The basic result is that instead of making twelve monthly payments during the
year, you make thirteen. The extra payment reduces the principal, substantially
reducing the time it takes to pay off a thirty year mortgage. Note:
there are independent companies that encourage you to set up bi-weekly payment
schedules with them on your thirty year mortgage. They charge a set-up fee and a
transfer fee for every payment. Your funds are deposited into a trust account
from which your monthly payment is then made, and the excess funds then remain
in the trust account until enough has accrued to make the additional payment
which will then be paid to reduce your principle. You could save money by doing
the same thing yourself, plus you have to have faith that once you transfer
money to them that they will actually transfer your funds to your lender.
Usually refers to the daily buying and selling of thirty year treasury bonds.
Lenders follow this market intensely because as the yields of bonds go up and
down, fixed rate mortgages do approximately the same thing. The same factors
that affect the Treasury Bond market also affect mortgage rates at the same
time. That is why rates change daily, and in a volatile market can and do change
during the day as well.
Not used much anymore, bridge loans are obtained by those who have not yet sold
their previous property, but must close on a purchase property. The bridge loan
becomes the source of their funds for the down payment. One reason for their
fall from favor is that there are more and more second mortgage lenders now that
will lend at a high loan to value. In addition, sellers often prefer to accept
offers from buyers who have already sold their property.
Broker has several meanings in different situations. Most Realtors are
"agents" who work under a "broker." Some agents are brokers
as well, either working form themselves or under another broker. In the mortgage
industry, broker usually refers to a company or individual that does not lend
the money for the loans themselves, but broker loans to larger lenders or
investors. (See the Home Loan Library that discusses the different types of
lenders). As a normal definition, a broker is anyone who acts as an agent,
bringing two parties together for any type of transaction and earns a fee for
Usually refers to a fixed rate mortgage where the interest rate is "bought
down" for a temporary period, usually one to three years. After that time
and for the remainder of the term, the borrower’s payment is calculated at the
note rate. In order to buy down the initial rate for the temporary payment, a
lump sum is paid and held in an account used to supplement the borrower’s
monthly payment. These funds usually come from the seller (or some other source)
as a financial incentive to induce someone to buy their property. A "lender
funded buydown" is when the lender pays the initial lump sum. They can
accomplish this because the note rate on the loan (after the buydown
adjustments) will be higher than the current market rate. One reason for doing
this is because the borrower may get to "qualify" at the start rate
and can qualify for a higher loan amount. Another reason is that a borrower may
expect his earnings to go up substantially in the near future, but wants a lower
payment right now.
Similar to the acceleration clause.
Adjustable Rate Mortgages have fluctuating interest rates, but those
fluctuations are usually limited to a certain amount. Those limitations may
apply to how much the loan may adjust over a six month period, an annual period,
and over the life of the loan, and are referred to as "caps." Some
ARMs, although they may have a life cap, allow the interest rate to fluctuate
freely, but require a certain minimum payment which can change once a year.
There is a limit on how much that payment can change each year, and that limit
is also referred to as a cap.
When a borrower refinances his mortgage at a higher amount than the current loan
balance with the intention of pulling out money for personal use, it is referred
to as a "cash out refinance."
certificate of deposit
A time deposit held in a bank which pays a certain amount of interest to the
certificate of deposit index
One of the indexes used for determining interest rate changes on some adjustable
rate mortgages. It is an average of what banks are paying on certificates of
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s
eligibility for a VA loan.
Certificate of Reasonable
Once the appraisal has been performed on a property being bought with a VA loan,
the Veterans Administration issues a CRV.
chain of title
An analysis of the transfers of title to a piece of property over the years.
A title that is free of liens or legal questions as to ownership of the
This has different meanings in different states. In some states a real estate
transaction is not consider "closed" until the documents record at the
local recorders office. In others, the "closing" is a meeting where
all of the documents are signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing
costs" and "pre-paid items." Non-recurring closing costs are any
items which are paid just once as a result of buying the property or obtaining a
loan. "Pre-paids" are items which recur over time, such as property
taxes and homeowners insurance. A lender makes an attempt to estimate the amount
of non-recurring closing costs and prepaid items on the Good Faith Estimate
which they must issue to the borrower within three days of receiving a home loan
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely affect the title to
real estate. Usually clouds on title cannot be removed except by deed, release,
or court action.
An additional individual who is both obligated on the loan and is on title to
In a home loan, the property is the collateral. The borrower risks losing the
property if the loan is not repaid according to the terms of the mortgage or
deed of trust.
When a borrower falls behind, the lender contacts them in an effort to bring the
loan current. The loan goes to "collection." As part of the collection
effort, the lender must mail and record certain documents in case they are
eventually required to foreclose on the property.
Most salespeople earn commissions for the work that they do and there are many
sales professionals involved in each transaction, including Realtors, loan
officers, title representatives, attorneys, escrow representative, and
representatives for pest companies, home warranty companies, home inspection
companies, insurance agents, and more. The commissions are paid out of the
charges paid by the seller or buyer in the purchase transaction. Realtors
generally earn the largest commissions, followed by lenders, then the others.
common area assessments
In some areas they are called Homeowners Association Fees. They are charges paid
to the Homeowners Association by the owners of the individual units in a
condominium or planned unit development (PUD) and are generally used to maintain
the property and 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.
An unwritten body of law based on general custom in England and used to an
extent in some states.
In some states, especially the southwest, property acquired by a married couple
during their marriage is considered to be owned jointly, except under special
circumstances. This is an outgrowth of the Spanish and Mexican heritage of the
Recent sales of similar properties in nearby areas and used to help determine
the market value of a property. Also referred to as "comps."
A type of ownership in real property where all of the owners own the property,
common areas and buildings together, with the exception of the interior of the
unit to which they have title. Often mistakenly referred to as a type of
construction or development, it actually refers to the type of ownership.
Changing the ownership of an existing building (usually a rental project) to the
condominium form of ownership.
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.
These are often found in resort areas like Hawaii.
A short-term, interim loan for financing the cost of construction. The lender
makes payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. For example,
home purchasers often include a contingency that specifies that the contract is
not binding until the purchaser obtains a satisfactory home inspection report
from a qualified home inspector.
An oral or written agreement to do or not to do a certain thing.
Refers to home loans other than government loans (VA and FHA).
An adjustable-rate mortgage that allows the borrower to change the ARM to a
fixed-rate mortgage within a specific time.
A type of multiple ownership in which the residents of a multiunit housing
complex own shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit.
cost of funds index (COFI)
One of the indexes that is used to determine interest rate changes for certain
adjustable-rate mortgages. It represents the weighted-average cost of savings,
borrowings, and advances of the financial institutions such as banks and savings
& loans, in the 11th District of the Federal Home Loan Bank.
An agreement in which a borrower receives something of value in exchange for a
promise to repay the lender at a later date.
A record of an individual's repayment of debt. Credit histories are reviewed my
mortgage lenders as one of the underwriting criteria in determining credit risk.
A person to whom money is owed.
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.
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.
An amount owed to another.
The legal document conveying title to a property.
Short for "deed in lieu of foreclosure," this conveys title to the
lender when the borrower is in default and wants to avoid foreclosure. The
lender may or may not cease foreclosure activities if a borrower asks to provide
a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the
avoidance and non-repayment of debt will most likely show on a credit history.
What a deed-in-lieu may prevent is having the documents preparatory to a
foreclosure being recorded and become a matter of public record.
deed of trust
Some states, like California, do not record mortgages. Instead, they record a
deed of trust which is essentially the same thing.
Failure to make the mortgage payment within a specified period of time. For
first mortgages or first trust deeds, if a payment has still not been made
within 30 days of the due date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments are due. For most
mortgages, payments are due on the first day of the month. Even though they may
not charge a "late fee" for a number of days, the payment is still
considered to be late and the loan delinquent. When a loan payment is more than
30 days late, most lenders report the late payment to one or more credit
A sum of money given in advance of a larger amount being expected in the future.
Often called in real estate as an "earnest money deposit."
A decline in the value of property; the opposite of appreciation. Depreciation
is also an accounting term which shows the declining monetary value of an asset
and is used as an expense to reduce taxable income. Since this is not a true
expense where money is actually paid, lenders will add back depreciation expense
for self-employed borrowers and count it as income.
In the mortgage industry, this term is usually used in only in reference to
government loans, meaning FHA and VA loans. Discount points refer to any
"points" paid in addition to the one percent loan origination fee. A
"point" is one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in cash and
does not finance with a mortgage.
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.
earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious
about buying the house.
A right of way giving persons other than the owner access to or over a property.
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.
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
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to a property, such as
mortgages, leases, easements, or restrictions.
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
A homeowner's financial interest in a property. Equity is the difference between
the fair market value of the property and the amount still owed on its mortgage
and other liens.
An item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the earnest money
deposit is put into escrow until delivered to the seller when the transaction is
Once you close your purchase transaction, you may have an escrow account or
impound account with your lender. This means the amount you pay each month
includes an amount above what would be required if you were only paying your
principal and interest. The extra money is held in your impound account (escrow
account) for the payment of items like property taxes and homeowner’s
insurance when they come due. The lender pays them with your money instead of
you paying them yourself.
Once each year your lender will perform an "escrow analysis" to make
sure they are collecting the correct amount of money for the anticipated
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due.
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.
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
A written contract that gives a licensed real estate agent the exclusive right
to sell a property for a specified time.
A person named in a will to administer an estate. The court will appoint an
administrator if no executor is named. "Executrix" is the feminine
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.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered,
shareholder-owned company that is the nation's largest supplier of home mortgage
funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and
Ginnie Mae (GNMA),
Fannie Mae's Community
Home Buyer's Program
An income-based community lending model, under which mortgage insurers and
Fannie Mae offer flexible underwriting guidelines to increase a low- or
moderate-income family's buying power and to decrease the total amount of cash
needed to purchase a home. Borrowers who participate in this model are required
to attend pre-purchase home-buyer education sessions.
Federal Housing Administration
An agency of the U.S. Department of Housing and Urban Development (HUD). Its
main activity is the insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and underwriting but does not
lend money or plan or construct housing.
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.
A mortgage that is insured by the Federal Housing Administration (FHA). Along
with VA loans, an FHA loan will often be referred to as a government loan.
A lender’s agreement to make a loan to a specific borrower on a specific
The mortgage that is in first place among any loans recorded against a property.
Usually refers to the date in which loans are recorded, but there are
A mortgage in which the interest rate does not change during the entire term of
Personal property that becomes real property when attached in a permanent manner
to real estate.
Insurance that compensates for physical property damage resulting from flooding.
It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of
his or her interest in the mortgaged property. This usually involves a forced
sale of the property at public auction with the proceeds of the sale being
applied to the mortgage debt.
An employer-sponsored investment plan that allows individuals to set aside
tax-deferred income for retirement or emergency purposes. 401(k) plans are
provided by employers that are private corporations. 403(b) plans are provided
by employers that are not for profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans against the monies
you have accumulated in these plans. Loans against 401K plans are an acceptable
source of down payment for most types of loans.
government loan (mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or
guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing
Service (RHS). Mortgages that are not government loans are classified as
National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban
Development (HUD). Created by Congress on September 1, 1968, GNMA performs the
same role as Fannie Mae and Freddie Mac in providing funds to lenders for making
home loans. The difference is that Ginnie Mae provides funds for government
loans (FHA and VA)
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
H to N
Insurance coverage that in the event of physical damage to a property from
fire, wind, vandalism, or other hazards.
Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of
mortgage unique is that instead of making payments to a lender, the lender makes
payments to you. It enables older home owners to convert the equity they have in
their homes into cash, usually in the form of monthly payments. Unlike
traditional home equity loans, a borrower does not qualify on the basis of
income but on the value of his or her home. In addition, the loan does not have
to be repaid until the borrower no longer occupies the property.
home equity line of
A mortgage loan, usually in second position, that allows the borrower to
obtain cash drawn against the equity of his home, up to a predetermined amount.
A thorough inspection by a professional that evaluates the structural and
mechanical condition of a property. A satisfactory home inspection is often
included as a contingency by the purchaser.
A nonprofit association that manages the common areas of a planned unit
development (PUD) or condominium project. In a condominium project, it has no
ownership interest in the common elements. In a PUD project, it holds title to
the common elements.
An insurance policy that combines personal liability insurance and hazard
insurance coverage for a dwelling and its contents.
A type of insurance often purchased by homebuyers that will cover repairs to
certain items, such as heating or air conditioning, should they break down
within the coverage period. The buyer often requests the seller to pay for this
coverage as a condition of the sale, but either party can pay.
HUD median income
Median family income for a particular county or metropolitan statistical
area (MSA), as estimated by the Department of Housing and Urban Development
A document that provides an itemized listing of the funds that were paid at
closing. Items that appear on the statement include real estate commissions,
loan fees, points, and initial escrow (impound) amounts. Each type of expense
goes on a specific numbered line on the sheet. The totals at the bottom of the
HUD-1 statement define the seller's net proceeds and the buyer's net payment at
closing. It is called a HUD1 because the form is printed by the Department of
Housing and Urban Development (HUD). The HUD1 statement is also known as the
"closing statement" or "settlement sheet."
A form of ownership or taking title to property which means each party owns
the whole property and that ownership is not separate. In the event of the death
of one party, the survivor owns the property in its entirety.
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.
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. Other states
use non-judicial foreclosure.
A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits,
currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie
Mae loans are referred to as conforming loans.
The penalty a borrower must pay when a payment is made a stated number of
days. On a first trust deed or mortgage, this is usually fifteen days.
A written agreement between the property owner and a tenant that stipulates
the payment and conditions under which the tenant may possess the real estate
for a specified period of time.
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.
An alternative financing option that allows home buyers to lease a home with
an option to buy. Each month's rent payment may consist of not only the rent,
but an additional amount which can be applied toward the down payment on an
already specified price.
A property description, recognized by law, that is sufficient to locate and
identify the property without oral testimony.
A term which can refer to the institution making the loan or to the
individual representing the firm. For example, loan officers are often referred
to as "lenders."
A person's financial obligations. Liabilities include long-term and
short-term debt, as well as any other
amounts that are owed to others.
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. It is usually part of a homeowner’s
A legal claim against a property that must be paid off when the property is
sold. A mortgage or first trust deed is considered a lien.
For an adjustable-rate mortgage (ARM), a limit on the amount that the
interest rate 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.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
Also referred to by a variety of other terms, such as lender, loan
representative, loan "rep," account executive, and others. The loan
officer serves several functions and has various responsibilities: they solicit
loans, they are the representative of the lending institution, and they
represent the borrower to the lending institution.
How a lender refers to the process of obtaining new loans.
After you obtain a loan, the company you make the payments to is
"servicing" your loan. They process payments, send statements, manage
the escrow/impound account, provide collection efforts on delinquent loans,
ensure that insurance and property taxes are made on the property, handle
pay-offs and assumptions, and provide a variety of other services.
The percentage relationship between the amount of the loan and the appraised
value or sales price (whichever is lower).
An agreement in which the lender guarantees a specified interest rate for a
certain amount of time at a certain cost.
The time period during which the lender has guaranteed an interest rate to a
The difference between the interest rate and the index on an adjustable rate
mortgage. The margin remains stable over the life of the loan. It is the index
which moves up and down.
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 which reports the raw data pulled from two or more of the
major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR)
or a standard factual credit report.
Occasionally, a lender will agree to modify the terms of your mortgage
without requiring you t refinance. If any changes are made, it is called a
A legal document that pledges a property to the lender as security for
payment of a debt. Instead of mortgages, some states use First Trust Deeds.[
For a more complete discussion of mortgage banker, see "Types of
Lenders." A mortgage banker is generally assumed to originate and fund
their own loans, which are then sold on the secondary market, usually to Fannie
Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term
to themselves, whether they are true mortgage bankers or simply mortgage brokers
A mortgage company that originates loans, then places those loans with a
variety of other lending institutions with whom they usually have
The lender in a mortgage agreement.
mortgage insurance (MI)
Insurance that covers the lender against some of the losses incurred as a
result of a default on a home loan. Often mistakenly referred to as PMI, which
is actually the name of one of the larger mortgage insurers. Mortgage insurance
is usually required in one form or another on all loans that have a
loan-to-value higher than eighty percent. Mortgages above 80% LTV that call
themselves "No MI" are usually a made at a higher interest rate.
Instead of the borrower paying the mortgage insurance premiums directly, they
pay a higher interest rate to the lender, which then pays the mortgage insurance
themselves. Also, FHA loans and certain first-time homebuyer programs require
mortgage insurance regardless of the loan-to-value.
insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a
government agency such as the Federal Housing Administration (FHA) or to a
private mortgage insurance (MI) company.
life and disability insurance
A type of term life insurance often bought by borrowers. The amount of
coverage decreases as the principal balance declines. Some policies also cover
the borrower in the event of disability. In the event that the borrower dies
while the policy is in force, the debt is automatically satisfied by insurance
proceeds. In the case of disability insurance, the insurance will make the
mortgage payment for a specified amount of time during the disability. Be
careful to read the terms of coverage, however, because often the coverage does
not start immediately upon the disability, but after a specified period,
sometime forty-five days.
The borrower in a mortgage agreement.
Properties that provide separate housing units for more than one family,
although they secure only a single mortgage.
Some adjustable rate mortgages allow the interest rate to fluctuate
independently of a required minimum payment. If a borrower makes the minimum
payment it may not cover all of the interest that would normally be due at the
current interest rate. In essence, the borrower is deferring the interest
payment, which is why this is called "deferred interest." The deferred
interest is added to the balance of the loan and the loan balance grows larger
instead of smaller, which is called negative amortization.
no cash-out refinance
A refinance transaction which is not intended to put cash in the hand of the
borrower. Instead, the new balance is calculated to cover the balance due on the
current loan and any costs associated with obtaining the new mortgage. Often
referred to as a "rate and term refinance."
Many lenders offer loans that you can obtain at "no cost." You
should inquire whether this means there are no "lender" costs
associated with the loan, or if it also covers the other costs you would
normally have in a purchase or refinance transactions, such as title insurance,
escrow fees, settlement fees, appraisal, recording fees, notary fees, and
others. These are fees and costs which may be associated with buying a home or
obtaining a loan, but not charged directly by the lender. Keep in mind that,
like a "no-point" loan, the interest rate will be higher than if you
obtain a loan that has costs associated with it.
A legal document that obligates a borrower to repay a mortgage loan at a
stated interest rate during a specified period of time.
The interest rate stated on a mortgage note.
Almost all lenders offer loans at "no points." You will find the
interest rate on a "no points" loan is approximately a quarter percent
higher than on a loan where you pay one point.
A formal written notice to a borrower that a default has occurred and that
legal action may be taken.
O to Z
The total amount of principal owed on a mortgage before any
payments are made.
On a government loan the loan origination fee is one percent of the
loan amount, but additional points may be charged which are called
"discount points." One point equals one percent of the loan amount. On
a conventional loan, the loan origination fee refers to the total number of
points a borrower pays.
A property purchase transaction in which the property seller
provides all or part of the financing.
A payment that is not sufficient to cover the scheduled monthly
payment on a mortgage loan. Normally, a lender will not accept a partial
payment, but in times of hardship you can make this request of the loan
servicing collection department.
payment change date
The date when a new monthly payment amount takes effect on an
adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally,
the payment change date occurs in the month immediately after the interest rate
periodic payment capFor an adjustable-rate mortgage where the
interest rate and the minimum payment amount fluctuate independently of one
another, this is a limit on the amount that payments can increase or decrease
during any one adjustment period.
periodic rate capFor an adjustable-rate mortgage, 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.
Any property that is not real property.
This stands for principal, interest, taxes and insurance. If you
have an "impounded" loan, then your monthly payment to the lender
includes all of these and probably includes mortgage insurance as well. If you
do not have an impounded account, then the lender still calculates this amount
and uses it as part of determining your debt-to-income ratio.
A cash amount that a borrower must have on hand after making a down
payment and paying all closing costs for the purchase of a home. The principal,
interest, taxes, and insurance (PITI) reserves must equal the amount that the
borrower would have to pay for PITI for a predefined number of months.
development (PUD)A type of ownership where individuals
actually own the building or unit they live in, but common areas are owned
jointly with the other members of the development or association. Contrast with
condominium, where an individual actually owns the airspace of his unit, but the
buildings and common areas are owned jointly with the others in the development
pointA point is 1 percent of the amount of the
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.
pre-approvalA loosely used term which is generally
taken to mean that a borrower has completed a loan application and provided
debt, income, and savings documentation which an underwriter has reviewed and
approved. A pre-approval is usually done at a certain loan amount and making
assumptions about what the interest rate will actually be at the time the loan
is actually made, as well as estimates for the amount that will be paid for
property taxes, insurance and others. A pre-approval applies only to the
borrower. Once a property is chosen, it must also meet the underwriting guidelines
of the lender. Contrast with pre-qualification
prepaymentAny amount paid to reduce the principal
balance of a loan before the due date. Payment in full on a mortgage that may
result from a sale of the property, the owner's decision to pay off the loan in
full, or a foreclosure. In each case, prepayment means payment occurs before the
loan has been fully amortized.
prepayment penaltyA fee that may be charged to a borrower
who pays off a loan before it is due.
This usually refers to the loan officer’s written opinion of the
ability of a borrower to qualify for a home loan, after the loan officer has
made inquiries about debt, income, and savings. The information provided to the
loan officer may have been presented verbally or in the form of documentation,
and the loan officer may or may not have reviewed a credit report on the
The interest rate that banks charge to their preferred customers.
Changes in the prime rate are widely publicized in the news media and are used
as the indexes in some adjustable rate mortgages, especially home equity lines
of credit. Changes in the prime rate do not directly affect other types of
mortgages, but the same factors that influence the prime rate also affect the
interest rates of mortgage loans.
principalThe amount borrowed or remaining unpaid. The
part of the monthly payment that reduces the remaining balance of a mortgage.
principal balanceThe outstanding balance of principal on a
mortgage. The principal balance does not include interest or any other charges.
See remaining balance.
interest, taxes, and insurance (PITI)The four components of a monthly mortgage
payment on impounded loans. Principal refers to the part of the monthly payment
that reduces the remaining balance of the mortgage. Interest is the fee charged
for borrowing money. Taxes and insurance refer to the amounts that are paid into
an escrow account each month for property taxes and mortgage and hazard
insurance (MI)Mortgage insurance that is provided by a
private mortgage insurance company to protect lenders against loss if a borrower
defaults. Most lenders generally require MI for a loan with a loan-to-value
(LTV) percentage in excess of 80 percent.
promissory noteA written promise to repay a specified
amount over a specified period of time.
A meeting in an announced public location to sell property to repay
a mortgage that is in default.
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.
A written contract signed by the buyer and seller stating the terms
and conditions under which a property will be sold.
transactionThe acquisition of property through the
payment of money or its equivalent.
Calculations that are used in determining whether a borrower can qualify for
a mortgage. There are two ratios. The "top" or "front" ratio
is a calculation of the borrower’s monthly housing costs (principle, taxes,
insurance, mortgage insurance, homeowner’s association fees) as a percentage
of monthly income. The "back" or "bottom" ratio includes
housing costs as will as all other monthly debt.
A deed that transfers without warranty whatever interest or title a grantor
may have at the time the conveyance is made.
A commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a specified period of time at a
real estate agent
A person licensed to negotiate and transact the sale of real estate.
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance
notice of closing costs.
Land and appurtenances, including anything of a permanent nature such as
structures, trees, minerals, and the interest, benefits, and inherent rights
A real estate agent, broker or an associate who holds active membership in a
local real estate board that is affiliated with the National Association of
The public official who keeps records of transactions that affect real
property in the area. Sometimes known as a "Registrar of Deeds" or
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 paying off one loan with the proceeds from a new loan using
the same property as security.
The amount of principal that has not yet been repaid. See principal balance.
The original amortization term minus the number of payments that have been
rent loss insurance
Insurance that protects a landlord against loss of rent or rental value due
to fire or other casualty that renders the leased premises unavailable for use
and as a result of which the tenant is excused from paying rent.
An arrangement made to repay delinquent installments or advances.
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.
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
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
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.
A technique in which a seller deeds property to a buyer for a consideration,
and the buyer simultaneously leases the property back to the seller.
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages, usually as part of a
"pool" of mortgages.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage.
An organization that collects principal and interest payments from borrowers
and manages borrowers’ escrow accounts. The servicer often services mortgages
that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract of land into
individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that of
the first mortgage.
A drawing or map showing the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachments, and other
Contribution to the construction or rehabilitation of a property in the form
of labor or services rather than cash.
tenancy in common
As opposed to joint tenancy, when there are two or more individuals on title
to a piece of property, this type of ownership does not pass ownership to the
others in the event of death.
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.
A legal document evidencing a person's right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of
the property and that there are no liens or other claims outstanding.
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.
State or local tax payable when title passes from one owner to another.
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It is based on the results of auctions
that the U.S. Treasury holds for its Treasury bills and securities or is derived
from the U.S. Treasury's daily yield curve, which is based on the closing market
bid yields on actively traded Treasury securities in the over-the-counter
A federal law that requires lenders to fully disclose, in writing, the terms
and conditions of a mortgage, including the annual percentage rate (APR) and
An adjustable-rate mortgage (ARM) that has one interest rate for the first
five or seven years of its mortgage term and a different interest rate for the
remainder of the amortization term.
two- to four-family
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.
A fiduciary who holds or controls property for the benefit of another.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Having the right to use a portion of a fund such as an individual retirement
fund. For example, individuals who are 100 percent vested can withdraw all of
the funds that are set aside for them in a retirement fund. However, taxes may
be due on any funds that are actually withdrawn.
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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