Abstract of title A history of ownership of a property and any documents that
affect the title during that ownership.
A clause in a mortgage that allows the lender to demand payment of the
outstanding loan balance. The most common reasons are if the borrower defaults
on the loan or transfers title to another individual without informing the
lender.
Acceptance of sale/sales
contract An offer of purchase that has
been signed by both buyer and seller. A firm contract that outlines all details
of the property transaction. (Same as "offer to purchase/contract of
sale/sales contract.")
Adjustable Rate Mortgage (ARM) A loan with an interest rate that fluctuates
according to the movements of a predetermined index. All ARMs are tied to
indexes.
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Agent/sales associate
A person licensed by the state to sell real estate through a real estate
broker. Amortization The
loan payment consists of a portion which will be applied to pay the 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(usually 5 to 40 years). Amortization
schedule 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 note rate on your loan. Application The form used to apply for a
mortgage loan, containing information about a borrower's income, savings,
assets, debts, and more. Appraisal
An opinion by a licensed real estate appraiser about the fair market value of
a home. This opinion is based on recent past sales of similar properties and
in close proximity to the subject property. 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. Appreciation
The increase in value of a home, this can be from improvements or from other
homes in the area selling for more. |
Assumable loan An existing mortgage that can be taken over by
the buyer -- usually on the same terms given to the original buyer.
Assumption Taking over responsibility for payments on a
mortgage and meeting any of the other requirements. Typically, a buyer assumes
a mortgage from the seller.
Appraiser
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.
Appreciation
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 taxation.
Assessment
The value on property for the purpose of taxation.
Assessor
The public official who establishes the value of a property
for taxation purposes.
Asset
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.
Assignment
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.
Assumption
The 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.
Bankruptcy
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.
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
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 doing so.
Buy down
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.
Cap
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."
A time deposit held in a bank which pays a certain amount of
interest to the depositor.
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 deposit.
A document issued by the Veterans Administration that
certifies a veteran's eligibility for a VA loan.
Certificate
of Reasonable Value (CRV)
Once the appraisal has been performed on a property being
bought with a VA loan, the Veterans Administration issues a CRV.
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 property.
Closing
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 application.
See Settlement Statement.
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.
Co-borrower
IAn additional individual who is both obligated on the loan
and is on title to the property.
Collateral
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.
Collection
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.
Commission
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.
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 area.
Recent sales of similar properties in nearby areas and used
to help determine the market value of a property. Also referred to as
"comps."
Condominium
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.
Contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a contingency that
specifies that the contract is not binding until the purchaser obtains a
satisfactory home inspection report from a qualified home inspector.
Contract
An oral or written agreement to do or 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.
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.
Credit
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.
Creditor
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.
Debt
An amount owed to another.
Deed
The legal document conveying title to a property.
Deed-in-lieu
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.
Some states, like California, do not record mortgages.
Instead, they record a deed of trust which is essentially the same thing.
Default
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.
Delinquency
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 bureaus.
Deposit
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."
Depreciation
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.
A deposit made by the potential home buyer to show that he
or she is serious about buying the house.
Easement
A right of way giving persons other than the owner access to
or 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 proceedings.
Encroachment
An improvement that intrudes illegally on another's
property.
Encumbrance
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 programs.
Equity
A homeowner's financial interest in a property. Equity is
the difference between the fair market value of the property and the amount
still owed on its mortgage and other liens.
Escrow
An item of value, money, or documents deposited with a third
party to be delivered upon the fulfillment of a condition. For example, the
earnest money deposit is put into escrow until delivered to the seller when the
transaction is closed.
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 expenditures.
The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses as they become due.
Estate
The ownership interest of an individual in real property.
The sum total of all the real property and personal property owned by an
individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
The report on the title of a property from the public
records or an abstract of the title.
A written contract that gives a licensed real estate agent
the exclusive right to sell a property for a specified time.
Executor
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 form.
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.
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.
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), see the Library.
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 (FHA)
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.
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 property.
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 exceptions.
A mortgage in which the interest rate does not change during
the entire term of the loan.
Fixture
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.
Foreclosure
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.
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 conventional loans.
Government 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)
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
