A
abstract
of title
A condensed version of the title history to a piece of land or
property. Lists any transfers in ownership and any liabilities
attached to it, such as mortgages.
abutting
Bordering upon or next to; the joining or touching of adjoining
land; sharing a common boundary.
acceleration
clause
Allows the lender (mortgage company) to demand immediate payment
of the outstanding loan balance (interest and principal) if the
borrower (mortgager) defaults, misses payment(s), or when/if the
home is sold (in this case, also know as the due-on-sale clause).
accretion
An addition to or expansion of land through natural causes. An
increase of land along the shore of a body of water through
water-borne sediment.
acre
A measurement of land equal to 4,840 square yards or 43,560
square feet.
additional
principal payment
Monies paid by the borrower in addition to the principal amount
due, usually monthly. If you have extra money occasional months,
it's a good idea to make additional principal payments in order
to more quickly reduce your remaining balance.
adjustable
rate mortgage (ARM)
Mortgage loans in which the interest rate is adjusted
periodically based on predetermined factors such as an assigned
index or designated market factor (such as the weekly average of
US Treasury Bills over a one-year period). There is typically a
limit to how often and by how much the interest rate can
fluctuate. Also known as renegotiable rate mortgages or variable
rate mortgages. The adjustment date is the date the
interest rate changes. The adjustment interval (or
adjustment period) is the time between changes in the
interest rate and/or the monthly payment (typically one, three or
five years).
adjusted
basis
Original cost of the property plus capital expenditures for
improvements minus depreciation.
adjustments
Any money that the buyer and seller "credit" each other
at closing, such as taxes, down payments, etc.
ad
valorem
In proportion to the value, according to value.
amortization
The loan payment is made up of two parts: one portion will be
applied to pay the accruing interest on a loan and the other
portion is 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. Typical amortization periods
are 15 or 30 years. Therefore, an amortized mortgage is
one that requires periodic payments that include both interest
and principal. An amortization schedule is a table that
provides a breakdown of the principal and interest payments and
the amount owed at any given point during the amortization
period.
annual
percentage rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly
rate. Because it takes into account points and other credit
costs, the APR is likely to be higher than the mortgage rate. It
is a basis of comparison for mortgage loan costs.
affordability
analysis
A detailed analysis of the borrower's ability to buy a home, made
up of factors such as: income, holdings, debts, the type of
mortgage that will be used, the location of the home, and closing
costs.
amenity
A feature of a home (like a pool or a garage) which isn't crucial
to the home's existence. Things like a roof and doors are not
amenities.
appraisal,
appraised value
An appraiser's estimate of the value of the property. Banks
require appraisals to determine how much money it will lend you.
appreciation
An increase in the value of a property due to changes in market
conditions or for other reasons, such as additions and
renovations. Opposite of depreciation.
assessment
A local tax levied against a property for a specific purpose,
such as a sewer or streetlights. An assessor is a public
official who establishes the value of a property for taxation.
asset
Anything with a dollar value that you own. Banks consider your
assets when determining how much you can borrow.
assignment
The transfer of a mortgage from one person to another.
assumable
mortgage
A mortgage that can be taken over by the next buyer of the home.
The agreement between buyer and seller in which the buyer takes
over the payments on an existing mortgage from the seller is
called an assumption. Assuming a loan is usually
beneficial to both seller and buyer. Because it is an existing
mortgage debt, it lessens the costs and red tape involved, unlike
a new mortgage where closing costs and new (possibly higher)
interest rates may apply. However, the lender usually charges the
buyer an assumption fee if the buyer assumes an existing
mortgage.
B
back-end
ratio, or debt ratio
The amount you pay in monthly debt (car payments, credit cards,
student loans, etc.) divided by your gross monthly income.
balloon
payment mortgage, term mortgage
A short-term fixed-rate loan which involves small payments for a
certain time period and then one large payment (the balloon
payment, for the remainder of the loan) at a predetermined
date.
betterment
An improvement (such as renovations and additions) that increases
a property's value, different from routine home maintenance and
repairs.
bill of
sale
A written document that attests the transfer of the ownership
(title) of personal property.
biweekly
payment mortgage
A mortgage in which you make payments every two weeks instead of
once a month. The result is that instead of making 12 monthly
payments during the year, you make 13. The total amount you pay
equals the amount of 13 payments, because you pay a total of 26
half-payments (one every other week) rather than 12 whole
payments (one every four weeks or so, depending on the month).
The extra payment helps you reduce the principal, substantially
reducing the time it takes to pay off a 30-year mortgage.
blanket
mortgage
A mortgage covering two or more pieces of real estate.
blended
payments
A repayment method by which the same amount is paid each month,
but the composition of the interest and principal changes with
each payment. With each payment, the amount allocated to the
principal increases as the amount allocated to interest
decreases. Most mortgages use blended payments because it
provides a consistent monthly payment amount for the borrower.
bona
fide
Authentic; made or carried out in good faith; real; sincere;
genuine.
borrower
(mortgager)
One that mortgages property; a person who applies for and
receives a mortgage loan.
breach
To break or violate an agreement.
broker
A mortgage broker is an individual whose business is to
help arrange funds or negotiate contracts for a client but who
doesn't loan money himself. A real estate broker (real
estate agent) helps you find a house. See realtor.
building
codes
Local regulations regarding the design and construction
buildings.
buy
down
A fixed-rate mortgage where the interest rate is "bought
down" for a temporary period, usually one to three years.
After that time, the borrower's payment is calculated at the note
rate. In order to temporarily buy down the initial rate, a lump
sum is paid to the lender and held in an account used to
supplement the borrower's monthly payment. These funds usually
come from the seller as an incentive to induce someone to buy
their property.
C
call
option
A clause in the mortgage that gives the lender the right to
"call" the mortgage due and payable at the end of a
given length of time, for whatever reason.
capital
expenditure
The cost of an improvement made either to extend the life of a
property or to increase its value.
capital
improvement
Any item, structure or addition which is a permanent improvement
to the property.
caps
(interest)
Limits on the amount that the interest rate on an ARM can change
per year and/or during the life of the loan. Payment caps limit
the amount that monthly payments for an ARM may change.
cash
flow
The amount of cash gained over a period of time from an
income-producing property. It should be enough to pay the
expenses for that property (mortgage payment , maintenance,
utilities, etc.)
certificate
of deposit
A certificate from a bank stating that the named party has a
specified sum on deposit, usually for a given period of time at a
fixed rate of interest.
certificate
of eligibility
A document given to qualified veterans entitling them to VA loans
for homes or businesses.
certificate
of reasonable value (CRV)
An appraisal issued by the VA showing a property's current market
value.
certificate
of title
A document which confirms that the title to a property is legally
held by the current owner.
certificate
of veteran status
The document given to veterans or reservists who have served 90
days of continuous active duty (including training time). This
document enables veterans to obtain lower down payments on
certain FHA-insured loans.
chain
of title
The history of all of the title transfers (conveyances and
encumbrances) to a piece of real estate.
change
frequency
The frequency of payment and/or interest rate changes in an ARM,
usually expressed in months.
chattel
Personal property.
clear
title
A title that is free of liens and mortgages.
closing
The final meeting between the buyer, seller and lender (or their
agents) at which the property and funds legally change hands.
closing
costs
Expenses incurred by buyers and sellers in transferring ownership
of a property, such as an origination fee, taxes, title
insurance, transfer fees , points, title charges, credit report
fee, document preparation fee, mortgage insurance premium,
inspections, appraisals, prepayments for property taxes, deed
recording fee, and homeowners insurance.
closing
statement
A detailed written summary of the financial settlement of a real
estate transaction, showing all charges and credits made, all
cash received and paid.
cloud
on title
Anything found by the title search which indicates that a
property is not owned free and clear by the purported owner.
collateral
Something of value (such as a car or a home) deposited with a
lender to guarantee the repayment of a loan. The borrower risks
losing the asset if the loan is not repaid properly.
collection
Forcing a borrower to pay what he owes on a loan.
commission
The compensation paid to a real estate broker (or by the broker
to the salesman) for services rendered. It is usually a
predetermined percentage of the selling price.
commitment
A promise by a lender to make a loan to a borrower or builder, or
a promise by an investor to purchase mortgages from a lender.
comps,
comparables
Comparable properties; properties in close proximity which have
sold recently that are about the same size with similar
amenities, used to determine value of a property by comparison.
compound
interest
Interest computed on the principal and the unpaid accumulated
interest of a loan.
condominium
A building (or group of buildings) in which individuals own
separate portions of the building(s) and possibly share common
areas.
construction
loan (interim loan)
A loan to provide the funds necessary to pay for the construction
of buildings or homes. The lender advances funds to the builder
at periodic intervals as the work progresses.
contingency
A specific condition that must be met before a contract is
legally binding. Usually that the house must pass the home
inspection and the borrower must get a loan.
contract
for deed (conditional sales contract, installment contract)
A contract for the sale of real estate where the deed (title) of
the property is transferred only after all payments have been
made. This is a risky contract, because buyers can lose their
entire investment if the owner declares bankruptcy before the
deed has been transferred.
contract
of sale
Agreement between the buyer and seller which conveys title after
certain conditions are met, outlining purchase price, terms, etc.
conventional
loan
A mortgage loan not insured by the FHA or guaranteed by the VA.
convertibility
clause
A clause in some ARMs which allows the buyer (borrower) to change
to a fixed-rate mortgage at a specified time.
conveyance
A written document (such as a deed or lease) that transfers
ownership interest in a property from one person to another.
cooperative
(co-op)
Residents of co-op housing complexes own shares in the
cooperative corporation that owns the property. Each resident has
the right to occupy a specific dwelling, but they don't actually
own it--they own shares in the corporation that owns it.
creditor
A person or entity (a bank or other lender) who funded the loan
and to whom a debt is owed.
cul-de-sac
A dead-end street with a turn-around space at the end. These are
attractive to some homeowners because the ending street cuts down
on 'thru' traffic, speeding, etc.
D
debt-to-income
ratio
The ratio (expressed as a percentage) which describes a
borrower's monthly payments on long-term debts divided by their
"net effective income" (for FHA and VA loans) or gross
monthly income (for conventional loans).
deed of
trust
Used in place of a mortgage to secure the payment of a note (not
in every state).
default
Failure to make your monthly payments.
deferred
interest
Unpaid interest added to the loan balance.
delinquency
Failure to make payments on time.
Department
of Veterans Affairs (VA)
An independent governmental agency which guarantees long-term,
low- or no-money-down mortgages to eligible veterans.
depreciation
A decline in a property's value.
discrimination
in advertising
HUD does not allow the use of words of a discriminatory nature in
any printed or published material. For example, adult building,
Jewish home, restricted, private, integrated and traditional.
down
payment
Usually 10-20 percent of the sales price (on conventional loans)
paid by the buyer at the time of purchase. Comprises the
difference between the purchase price and the mortgaged amount.
due-on-interest
A mortgage clause that allows a lender to call a loan due and
payable upon the transfer of the property. Known as
"paragraph 17" in FNMA/FHLMC mortgages.
due-on-sale
clause
A provision that allows a lender to demand the immediate
repayment of the mortgage balance if the borrower sells the home.
E
earnest
money
Money given by a buyer to a seller as a form of deposit (part of
the purchase price) in order to bind a transaction or to ensure
payment.
easement
A right of way which gives people other than the owner
access to a property.
encroachment
An illegal intrusion on someone else's property.
encumbrance
A lien or claim on a property.
entitlement
VA home loan benefit are known as entitlement and/or eligibility.
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 value an owner has in real estate over and above the debt of
the property. For example, if a homeowner owns a house valued at
$100,000 and has a mortgage balance of $20,000, the homeowner's
equity is $80,000 (the value minus the mortgage balance). The
homeowner's equity increases or decreases accordingly as the
value of the house increases or decreases. The lender's equity is
equal to the value of the outstanding loan.
escrow
Funds that are set aside and held in trust. Usually used for
payment of taxes, insurance, etc.
F
Fannie
Mae, Federal National Mortgage Association (FNMA)
A corporation created by Congress that purchases and sells
conventional, FHA and VA residential mortgages. Makes mortgage
money more available and affordable.
Farmers
Home Administration (FmHA)
An organization that finances loans for farmers and other
qualified borrowers who are unable to obtain loans elsewhere.
Federal
Housing Administration (FHA)
A division of the Department of Housing and Urban Development
(HUD) which insures residential mortgage loans made by private
lenders and sets standards for underwriting mortgages. FHA
loans are insured by the FHA and open to all qualified
homebuyers for moderately priced homes almost anywhere in the
country. Borrowers need to be able to put 3-4 percent down, and
higher qualifying ratios make it easier to qualify for FHA loans.
FHA mortgage insurance is a way of insuring an FHA loan.
It requires a small fee (up to 3.8 percent of the loan amount )
paid at closing or a portion of the fee added to each monthly
payment. Also requires an annual fee of 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.
first
mortgage
The mortgage which is the primary lien against a property.
fixed-rate
mortgage
A mortgage with a set interest rate for the entire loan,
regardless of interest rate fluctuations. This creates
consistent, predictable payments, but it's not always the
cheapest option.
foreclosure
A legal process through which the lender forces the sale (or
repossession ) of a mortgaged property because the borrower has
defaulted on (not met the terms of) the mortgage.
Freddie
Mac, Federal Home Loan Mortgage Corporation (FHLMC)
A quasi-governmental agency that purchases conventional mortgage
loans from insured depository institutions (savings and loans)
and HUD-approved mortgage bankers.
front-end
ratio
Your prospective monthly mortgage payments divided by your gross
monthly income. This comes out to a percentage, and a lender uses
this percentage to get an idea of how much of your income will be
going to pay your loan. If they like the number (say, below 29%)
then they will be more inclined to sell you the loan.
H
hazard
insurance
A form of insurance that protects the insured from specified
losses due to hazards such as fire, flood, wind damage, etc.
home
equity line of credit
A loan against the amount of equity you have in a property. The
equity serves as security for the new loan.
home
inspection
A complete and thorough inspection of the physical condition of a
property, including all major systems and structural elements,
conducted by someone who knows what to look for and who will
disclose the findings to you.
homeowner's
insurance
An insurance policy required by many lenders when you take
ownership that combines personal liability insurance and hazard
insurance for the home as well as its contents.
homeowner's
warranty
A warranty provided by the seller (or the builder on new homes)
as a condition of the sale. Covers repairs to specified parts of
a house for a specific period of time.
hot
market
A market in which houses are selling fast. Also known as a
seller's market, because the seller will benefit by selling
their house at or above their asking price because,
theoretically, high demand drives the price up.
housing
expenses-to-income ratio
A borrower's housing expenses divided by his /her net effective
income (for FHA/VA loans) or gross monthly income (for
conventional loans). Expressed as a percentage.
HUD-1
statement, closing statement, settlement sheet
An itemized listing of whatever costs must be paid at closing,
such as real estate commissions, loan fees, points, and initial
escrow amounts.
I
impound,
reserves
A portion of the monthly payment held by the lender to pay for
things like taxes, hazard insurance and mortgage insurance as
they become due.
index
A published interest rate against which lenders measure the
difference between the current interest rate on an ARM 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).
initial
interest rate, start rate, teaser
The interest rate of the mortgage at the time of closing.
interest
The amount of money charged for the use of the money borrowed.
interest
adjustment
If the closing (the date on which the buyer takes possession of
the property) occurs at a time of the month other than the date
on which the mortgage payment is due, the borrower will pay an
amount to cover interest from the interest adjustment date.
interest
rate ceiling
The maximum interest rate for an ARM loan.
interest
rate floor
The minimum interest rate for an ARM loan.
interim
financing
A construction loan made during completion of a building or a
project which is replaced by a permanent loan once the building
is completed.
investor
A source of money for a lender to loan.
P
permanent
loan
A long-term mortgage (10 years or more).
PITI
Principal, interest, taxes and insurance.
pledged
account mortgage (PAM)
When the borrower places money in a pledged savings account, and
these funds, plus interest earned, are gradually used to reduce
mortgage payments.
points
Prepaid interest assessed at closing by the lender. Each point
equals 1 percent of the loan amount. (2 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
Money 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 which allows the borrower to make
payments before they are due.
prepayment
penalty
Fees for early repayment of debt, allowed in 36 states and the
District of Columbia.
primary
mortgage market
Lenders making mortgage loans directly to borrowers such as
savings and loan associations, commercial banks, and mortgage
companies. These lenders sometimes sell their mortgages into the
secondary mortgage markets such as FNMA or GNMA, etc.
principal
The amount of debt, not counting interest, left on a loan.
private
mortgage insurance (PMI)
Default insurance for conventional loans, normally required with
smaller down-payment loans.
S
sale
price
The price at which the house actually sold. The difference
between a home's sale price and the listing price is useful for
buyers in making offers on comparable homes.
satisfaction
of mortgage, release of mortgage
The document issued by the mortgagee when the mortgage loan is
paid in full.
second
mortgage
A mortgage made subsequent to the primary mortgage.
secondary
mortgage market
The market in which primary mortgage lenders sell their loans to
obtain more funds to originate more new loans.
security
interest
Interest that a lender takes in the borrower's property to assure
repayment of a debt.
servicing
The operations a lender performs to keep a loan in good standing,
such as collection of payments and payment of taxes, insurance,
property inspections, etc.
shared
appreciation mortgage (SAM)
A mortgage in which a borrower receives a below-market interest
rate and, in return, the lender (or other investor) receives a
portion of the future appreciation in the value of the property.
simple
interest
Interest which is computed only on the principal balance.
soft
market
A market where houses aren't selling much or quickly, so the
sales price is likely to be significantly lower than the asking
(listing) price. It's a good time for buyers to buy, but not the
best time for prospective sellers to sell.
survey
A detailed measurement of a property, including the location of
the land in reference to known points, its dimensions, and the
location and dimensions of any structures on the land. Prepared
by a registered land surveyor.
sweat
equity
Equity created by a purchaser performing work on a property being
mortgaged.
Home
