| A B C D E F G H I J K L M N O P Q R S T U V W Y Z | |
| Select the first letter of the word from the above list to jump to appropriate section of glossary. | |
when a lender demands immediate repayment of the mortgage loan balance upon the default of the borrower.
Acceleration clause
Part of an agreement that gives a lender permission, under
certain conditions, to demand all the money owed on a loan.
Most loans
have an acceleration clause and it usually takes effect when a buyer
assumes a seller's mortgage or when a homeowner misses payments or breaks
a term that was agreed to in the contract.
Adjustable Rate
An
interest rate that changes periodically in relation to an index. Payments
may increase or decrease accordingly.
Amortization
A
repayment method in which the amount you borrow is repaid gradually
through regular monthly payments of principal and interest. During the
first few years, the most out of each payment is adjusted towards the
interest owed. During the final years of the loan repayment, payment
amounts are applied almost exclusively to the remaining principal.
Annual Percentage Rate
(APR)
The cost of credit on a yearly basis, expressed as a
percentage. It is mandatory to be disclosed by the lender under the
federal Truth in Lending Act, Regulation Z. Includes up-front costs paid
to obtain the loan, and is, therefore, usually a higher amount than the
interest rate stipulated in the mortgage note. Does not include title
insurance, appraisal, and credit report.
Application
An initial statement of personal and financial
information, which is required to approve your loan.
Application Fee
Fees that are paid upon application.
An application fee may frequently include charges for property appraisal
($200-$400) and a credit report ($30-50).
Appraisal
A
fee charged by an appraiser to render an opinion of market value as on a
specific date. Required by most lenders to obtain a loan.
An increase in value of the property. Assignment
Transferring contract right or other asset to another party.
Assumption of Mortgage
The agreement of a purchaser to become primarily liable for
the payments on a mortgage loan. Unless otherwise specified by the lender,
the seller may remain secondarily liable for payments. 
Back-End Debt
Ratio
This refers to the borrower's debt ratio and is
calculated using a borrower's total of monthly payments due on credit
obligations divided by the borrower's gross monthly income. This is
expressed as a percentage.
Balloon Payment
A
large payment due at the end of a loan contract. This is equal to the
remaining principal balance plus any interest and charges due.
This term is common among mortgage brokers and is used to describe the mortgage yield, one basis point equals one 100th of 1% or 0.01%.
Example: a mortgage yield increase from 9.50 to 9.75% is an increase of 25 basis points. Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage loan. Bridge Loan
Usually a second mortgage that is secured by the borrowers present home (which is in most cases for sale.) Broker
One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them. A mortgage broker is one who brings the borrower to the investor to secure a mortgage loan and negotiate the contracts between those two parties. Broker Fee
The fee charged by a mortgage broker for securing the loan for the borrower from an investor. Broker Fee Agreement
A disclosure given to the borrower disclosing the amount of the fee being charged by a broker.
Buy-down
The
reduction of monthly mortgage payments for a specified amount of time due
to monies advanced up front by the seller, buyer or by any other third
party.
Cash-Out
Refinance
A refinance transaction in which the borrower
receives additional cash that can be used for any purpose.
Ceiling
The highest
interest rate that may be assessed or an adjustable-rate loan during the
life of the loan based on the start rate and lifetime cap.
Certificate of Eligibility
A document issued by the Veteran's Administration, that
verifies a Veteran’s eligibility for a VA Loan Guarantee.
Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited.
Certificate of Reasonable Value
(CVR)
A document issued by the Veteran's
Administration, that establishes the maximum value and loan amount
for a VA Guarantee Mortgage.
Child Support
Court
ordered periodic payments that are made under a Divorce Decree or a
written Separation Agreement for the support of the children.
Closing
A meeting
between the lender and the borrower or buyer, seller and lender or
their agents, when the loan documents are signed and the funds legally
change hands. Also known as settlement.
Closing
Costs
Expenses (over and above the Sale Price of the property)
incurred by buyers and sellers to effect the closing of a mortgage loan.
Also known as Settlement Costs.
Closing Statement
A
statement, as required by the Federal law (the Real Estate Settlement
Procedures Act), that itemizes all charges imposed on the borrower and
seller (if any) in connection with a mortgage secured loan transaction.
Also known as a Settlement Statement, HUD-1 or HUD-1A.
Property pledged as security for a debt. Consumer Handbook on Adjustable Rate Mortgages (Charm Booklet)
A disclosure required by the federal government to be given to any applicant applying for an adjustable rate mortgage. Consumer Price Index
A government index that measures changes in the price of typical consumer goods. Contingency
A condition that must be met before a contract is binding. Contract For Sale
Also known as a purchase contract, or sales contract, a contract between a purchaser and a seller of real property to convey title after conditions have been met and payments have been made. Convertible Mortgage
An adjustable rate mortgage that allows a borrower to switch to a fixed rate mortgage during a specified time period. Co-Op (Cooperative)
A form of ownership where a corporation or business holds title to a property and grants occupancy rights by means of a lease or similar type arrangement.
A loan granted for a co-op is collateralized by an assignment of the lease and pledge of the shares of stock allocated to the unit.
Co-Borrower
A
second borrower on a loan, who shares equal responsibility for re-payment
of the loan.
Combined Loan to Value
(CLTV)
The total of all liens tied to the subject property,
divided by the lower of the appraised value or sales price of the
property.
Combined Monthly Housing
Expense
Monthly expenses for the customer's primary residence,
which include rent or mortgage payments, other financing, hazard
insurance, flood insurance, mortgage insurance, real estate taxes,
utilities and homeowner association dues.
Condominium
(Condo)
A form of property ownership in which the homeowner
holds title to an individual dwelling unit plus a fractional interest in
the common areas of the multi-unit project.
A rating given to an individual to establish willingness to pay obligations based on their past payment history with creditors. Credit Report
A report given to a prospective lender on the credit standing of a prospective borrower.Used to determine credit worthiness.
D
Date of last
delinquency
The date of last delinquency shows up on your credit report, the document that outlines your credit history and current credit. Even if you make a partial payment of a debt, the creditor can still report you to a credit bureau as delinquent
Debt
The money you
owe to a person or company.
Combining all outstanding debts into one total monthly obligation. Debt To Income Ratio
Debt expenses as a percentage of monthly income, used by lenders to qualify borrowers for a mortgage loan
Deed
A legal
document that transfers ownership (title) of a property.
Deed of trust
A
document that gives a lender the right to sell your property if you can’t
repay your loan.
A deed of trust is similar to a mortgage contract
except that a deed of trust involves a third party called a trustee,
usually a title insurance company, who acts on behalf of the lender. When
you sign a deed of trust, you are in effect giving the trustee title
(ownership) of the property, but holding on to the right to use and live
in it. The lender or trustee holds the original deed of trust until you
repay the loan on your home. Unlike a mortgage, a deed of trust also gives
the lender the right to foreclose on your property without taking you to
court first.
Default
When a home
owner fails to comply with the terms of the note and mortgage such as
failing to make payments on the mortgage or keep the property
insured.
Deficiency
judgment
Legal action sought by a lender who wants to recover
any losses on a foreclosure.
If you default on a mortgage, the lender
can not only sell your property to get their money back, but they may also
be able to sue you if the money from the sale isn't enough to cover the
loan and any costs. Keep in mind that only some states give the lender the
right to a deficiency judgment.
Delayed adjustable rate
mortgage
A loan that first has a fixed interest rate followed
by a fluctuating rate.
Delayed adjustable rate mortgages (Delayed ARMs)
have a fixed initial interest rate, then adjust, usually annually, for the
life of the loan. A 5/1 ARM is an example of a delayed ARM, since the
interest rate stays the same for the first 5 years and then changes on the
sixth year and every year after that. A delayed ARM gives you the
opportunity to enjoy fixed monthly payments for a longer period of time.
Often people opt for this type of loan because they plan to sell their
homes before the ARM starts to fluctuate. Delayed ARMs are also called
intermediate ARMs.
Delinquency
When
you miss a payment to a creditor.
If you’ve missed one or more payments
on your mortgage, Visa bill, car loan, or utilities bill, your account is
considered delinquent.
Deposit
A sum of
money that a buyer gives to the seller when making an offer on a
home.
A deposit is normally given to a seller to show that you're
serious about buying the property, even though it's not required by law.
It's a good idea to put down as little as possible. If the deal works out,
your deposit is then applied to your total closing costs to purchase the
home. If the deal falls through and you're at fault, you can lose your
deposit. The deposit is also called earnest money.
Deposit
receipt
A document that can act as both the receipt for a
buyer’s deposit and the purchase agreement.
Some states use a deposit
receipt to outline a buyer’s offer on a home, including the description of
the property and how it will be financed, and how the deposit money is
handled in the event the deal breaks down. If the seller accepts the offer
and signs the document, the deposit receipt becomes the legal purchase
agreement for the deal. The deposit receipt is also called a sales
contract.
The lender gives up a number of percentage points in interest to give the borrower a lower rate and lower payments for part of the term (usually a year or less), seen in ARMS (Adjustable Rate Mortgage)
Discount point
A
fee added to your closing costs in exchange for a lower interest rate on a
loan.
The basic idea of discount points is to pay up-front in order to
save over the life of the loan. One discount point equals one percent of
the loan amount. So, if you pay 2 discount points on a $200,000 loan you
would pay $4,000 up-front at closing. Each discount point you pay will
typically lower your loan's rate by .25% but can vary based on term, loan
amount, fixed or ARM etc. Discount points may be a good idea if you plan
to hold onto your home for a long period of time. This allows you to
offset the costs of paying for the points. Some sellers will pay some of
the discount points as a way to make their homes more attractive to
buyers.
| Discount Points | ||||
| Total Cost | Over 2 Years | Total Cost | Over 5 Years | Monthly Payment |
| 0.0 | 7.625% | $98,987 | $45,467 | $690.40 |
| 1.0 | 7.375% | $19,576 | $44,441 | $674.52 |
| 2.0 | 7.125% | $19,169 | $43,423 | $658.77 |
| 3.0 | 6.875% | $18,766 | $42,416 | $643.12 |
Discount points lower your interest rate. The longer that you hold a mortgage, the longer you will enjoy the savings of the lower interest rate. Here, if you hold onto the mortgage for five years, it makes sense to opt for the 3 point loan rather than the 0 point loan.
Disposable
income
The money that you have left from your salary after
taxes are taken out and you pay your regular monthly bills.
Down payment
The portion of a
property’s purchase price that buyers must pay up-front with their own
money.
Many lenders prefer that you make at least a 20% down payment
when buying a home. If you can't make the 20% cash down payment, there are
financing options that can cut down the amount. Three common choices are:
(1) mortgage insurance, where you pay a fixed monthly premium in return
for a lower down payment; (2) government-insured loans that let you put
down less, but limit how much you can borrow; and (3) piggyback loans,
which require a 10% down payment. You get 2 loans, one for 80% of the
purchase price and the other, usually at higher rate, for 10% of the
purchase price.
Contains information verifying certain facts pertinent to process a mortgage loan.
Due-on-sale clause
Part of a loan
agreement that gives a lender the right to demand repayment of a loan when
the property is sold.
Lenders include a due-on-sale clause in a
mortgage to prevent buyers from taking over a seller's existing mortgage.
A due-on-sale clause is a type of acceleration clause.
E
A sum of money that a buyer gives to the seller when contracting to buy a home. Easement
The right to enter or use another person’s land for a specific purpose.
Utility companies commonly get easements to install poles and string wire across private land. An easement is also called right-of-way. Effective age
A building’s age based on its condition and use.
The effective age of a building is not its actual age. Effective age takes into account major renovations made on the building and how it has been maintained. Eminent domain
The government's right of condemnation. Encroachment
When a permanent object from your next door neighbor’s property crosses over onto your property.
A preliminary title report or a survey, a physical inspection of the home and grounds, can tell you if there’s an encroachment on a property that you want to buy. The most common kinds of encroachments are fences, garages, driveways, shrubs and trees, all which can intrude, usually not on purpose, into a neighbor’s property - even if by just a few inches. Encumbrance
An interest in or right to a property by someone other than the home owner.
Before you buy a home, you’ll receive a preliminary title report that details any encumbrances on the property. There are two types of encumbrances: (1) a money encumbrance, which affects a property’s ownership. Money encumbrances include any lien placed on a property, such as a mortgage, mechanic’s lien, or tax lien. (2) A non-money encumbrance, such as an encroachment, affects how a property is used. Equity
The difference between a home’s market value and the amount the owner owes on the mortgage.
Equity is the amount of money you'd have if you sold your home today and paid off your mortgage. As the market value of your home increases, so does your equity. Similarly, if your home's value decreases, your equity does too. Example: How much equity do you have after three years?
| Your Down payment | $20,000 |
| Your home's appreciation in the first year | $110,000 x .03+ 3,300 |
| Appreciation in the second years | $113,300 x .03+ 3,399 |
| Appreciation in the third years | $116,699 x .03+ 3,500 |
| Amount paid towards your mortgage principal | +4,574 |
| Equity | =$34,773 |
You bought your home 3 years ago for $110,000 with a $20,000 down payment. Your property's value went up by 3% every year and you've paid off $4,574 of your principal. If you add the down payment, total appreciation and the amount paid off on your principal, your total equity after 3 years is $34,773.
Equal Credit Opportunity ActA federal law that prohibits lenders and other creditors to discriminate based on race, color, sex, religion, national origin, age, marital status, or public assistance or because an applicant has exercised their rights under the Consumer Protection Act. Escrow
A way of closing on a home that requires the buyer and seller to transfer fees and documents to a neutral third party.
You may complete your home’s purchase/sale in escrow, depending on where the property is located. How escrow works varies, but in general: (1) the buyer and seller sign an agreement requiring them both to hand over all the closing fees and documents to a neutral third party, called an escrow agent; (2) the escrow agent distributes the money and documents to the proper party, such as the lender or title company; and (3) the escrow is considered "closed.
Escrow doesn’t require any meeting between the buyer and seller. However, if any change needs to be made to how escrow is handled, it must be mutually agreed on. Escrow account
Lenders often set up a type of escrow account, called an impound account, for you to prepay certain recurring costs: such as property taxes, hazard insurance and mortgage insurance, if required. Escrow agent/officer
An escrow agent oversees escrow, the process that some states use to complete a home’s sale or purchase. The buyer and seller sign an agreement that gives the escrow agent a detailed list of instructions on how escrow should be carried out, which includes how much money to collect, what documents to prepare and when to order a title search. The escrow agent is a neutral party who fairly represents both the seller and buyer. The escrow agent can be a lender, title company or real estate attorney. Estate
A term that describes a person’s ownership of a property.
Estates show the kind of ownership arrangement that you have. In general, each type of estate specifies your claim on a property, how long the claim will last and the rights that go along with the claim. The two major types of estates are (1) freehold estates, which refer to property owners; and (2) leasehold estates, which are for tenants.
Example: What are the types of estates?Estate in remainder
Freehold Estates
Fee Simple (absolute)
An owner has unrestricted rights to a property. This is the most common kind of ownership.
Fee Simple Qualified
An owner holds title to a property under certain conditions. For example: Susan can hold a property's title unless she gets married before age 35.
Life Estate
An owner can hold onto a property until death, must maintain and pay taxes on the property, but cannot put it in a will.
The person who receives a property after the owner of a life estate dies. Estate in reversion
When a property returns to the person (or heirs) who originally handed over a life estate property. Leasehold estates (also called less-than-freehold or lease). Estate for years
A tenant that has a lease for a set period of time. The rent must remain the same until the lease. Estate from period
A tenant with a lease that lasts month to month. The lease is automatically renewed at the end of each month. The tenant has to give 30 days notice.
Estate at
will
When there's no lease between the
tenant and the landlord.
Estate at
sufferance
When a tenant lives on a
property without the landlord's permission or paying rent.
A person named in a will to handle the affairs of the person who has died .
The executor carries out the terms of the deceased's will. A female executor is called an executrix.
F
Fair market
valueThe price for a property in a fair and competitive market.
The sale price of your home is a true value if it’s freely available on the open market. This means that all potential buyers know that a home is up for sale and have an equal opportunity to bid for it. Farmers Home Administration(FmHa)
A government agency that guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers with less income than HUD’s local median income for the particular area where they reside. Federal Home Loan Mortgage Corporation (Freddie Mac)
A government sponsored corporation agency created by the federal government that buys and sells mortgages in the secondary market.
Freddie Mac buys loans from lenders and then sells them to other lenders and investors in the secondary market. Federal Housing Administration (FHA)
A federal agency that insures loans offered by certain lenders.
FHA was created by the Department of Housing and Urban Development (HUD) and offers a variety of financing options to help families qualify for a mortgage.
Federal National
Mortgage Association (Fannie Mae)
A
government-sponsored corporation that buys and sells loans in the
secondary market.
Fannie Mae buys loans from
lenders and sells them to investors and other lenders in the secondary
market. Fannie Mae only buys loans that conform to their borrowing
guidelines.
America’s independent central bank. Established in 1913, the system is governed by the Federal Reserve Board, whose seven members are appointed to stagger 14 year terms. Fee Simple
The maximum form of ownership, with the right to occupy a property and sell it at anytime. Upon the death of the owner the property goes to the owner’s designated heirs. FHA mortgage
A loan with certain restrictions that is guaranteed by the Federal Housing Administration.
FHA mortgages may be easier to qualify for since they require a low down payment, usually about 3% of the loan amount, and may offer low interest rates. The catch is you can only borrow up to a certain amount, and you have to pay both an up-front and monthly premium for insurance. The up-front cost, usually 1.5 - 2% of the loan amount, can be lumped onto the loan and paid off over time. To be eligible you must plan to live in the home that you purchase. FHLMC- (Federal Home Loan Mortgage Corp)
Private corporation created by Congress to support the secondary market, which sells participation certificates secured by pools of conventional mortgage loans, their principle and interest guaranteed by the Federal government through the FHLMC, also known as Freddie Mac Fixed rate mortgage
A loan with the same interest rate and payment for the life of the loan.
When you lock in the interest rate for a fixed rate loan, you’ll have the same rate and monthly payment for the loan’s full term. The main benefit is that you always know what your housing costs are, which takes out the guesswork when planning ahead. Fixture
Personal property that becomes a permanent part of a property.
Custom-made drapes or appliances made to fit a home, like a built-in microwave, are fixtures. Free standing appliances, like laundry machines, dryers and refrigerators are not fixtures. Stoves, though, are considered fixtures. Even when you sell your home, a fixture must remain in the home unless you inform the buyer in writing that you plan to take it with you. Otherwise, the new owners automatically get to keep items like your treasured antique chandelier. FNMA-(Federal National Mortgage Association)
A private corporation created by Congress to support the secondary market.FNMA sells mortgage backed securities backed by pools of conventional loans. Payment of principle and interest on these securities is backed by the US Government. Also known as Fannie Mae.
Front-End Fee simple
A term used to describe the most
complete ownership that a person can have over a property.
Fee simple is the most common type of ownership that
allows you to have unlimited control over a property – most homes are held
in fee simple. You can find this term written on the deed to your home.
When a lender takes possession of a home and sells it in order to repay a loan in default.
This process varies from state to state, but in general, a foreclosure is an auction either with or without court action. The highest bidder wins the home. Front ratio
A calculation of your total monthly housing expenses divided by your gross monthly income.
Lenders use a front ratio as a guideline to see if you qualify for a loan. Acceptable front ratios vary from lender to lender. You can calculate the total monthly housing costs for a single family home by adding up the loan's principal and interest, property taxes, property insurance and if applicable mortgage insurance. For condominiums, cooperatives and PUDs, also add the cost of Home Owners' Association dues. Then divide the total by your gross monthly income. Example: How to calculate front ratio?
| Total monthly
housing expenses loan principal + loan interest + property taxes + property insurance + Home Owners' Association dues) |
$1,000 |
| Gross monthly
income annual income ÷ 12 months |
÷ 5,000 |
| Front ratio | = 20% |
This refers to the debt ratio calculation using only principal, interest, tax and insurance, divided by the gross monthly income. It is expressed as a percentage. Full disclosure
When all the facts are revealed about a property’s condition, sale or financing.
There are both federal and state laws that require that the broker, seller and lender make certain information readily available to the buyer - anything that can affect the buying decision.
For example, (1) a seller should tell a home buyer if there are any problems with a property; and (2) before a broker can charge a commission, the buyer/seller must be informed and agree to the terms. Functional obsolescence
When a property’s value decreases due to its poor design, style or lack of modern facilities.
Functional obsolescence is one reason why a home might drop in value. For example, the market value of a home that doesn’t have enough electrical power to run a dishwasher, microwave and hair dryer at the same time will steadily fall. Other than functional obsolescence, a property can also lose value due to poor maintenance or a slump in the economy.
GiftA sum of money given to a home buyer as a present.
If relatives or a friend give you a helping hand towards your down payment, a lender will require that you complete and sign a form, called a gift letter, proving that the money doesn’t have to be repaid. A lender will then request a copy of the gift-giver’s bank statements to prove that he/she actually has the sum of money stated in the gift letter. When the funds are transferred into your banking account, you also need to give the lender a receipt of the transaction. Gift deed
A document that is used to give someone ownership of a property as a present. GNMA(Government National Mortgage Association)
A government agency that participates in the secondary market, buying, selling and guaranteeing FHA and VA loans. Good Faith Estimate
An estimate of the total costs to get a loan when buying or refinancing a home.
After you apply for a loan, a lender or broker is required by law to send you a Good Faith Estimate within 3 days. The costs may include lender and broker fees, loan-related fees, and third-party fees, such as the title insurance and appraisal. Most of these fees must be paid on the closing date, the day when the sale or purchase of a home is completed. Government mortgage
Any loan that is guaranteed by the government.
Government loans may be easier to qualify for since they normally require a fraction of the down payment needed for non-government loans - in some cases no down payment may be needed at all. Government agencies, such as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) only insure loans. This means if you default on the loan, the government will pay the lender part of the money that is owed on the home, making the loan less risky for lenders. Graduated Payment Mortgage (GPM)
A mortgage that has initial monthly payments set at a lower than required for full amortization of the debt. The payments are then increased by a specific percentage each year during the graduated payment period. At the end of the term, payments are in the amount needed to fully amortize the mortgage Grant deed
A document that is used to transfer a property's ownership. Grantee
A term for a person who becomes the new owner of a property.
When you buy a home, you become the grantee when you receive a property’s deed, signaling that you are the new owner. If you use decides to add a family member or spouse onto your property’s title, they also become grantees. Grantor
A term for a person who hands over ownership of a property to someone else.
When you sell your home, you become the grantor since you transfer the rights to your property to the buyer. Gross Monthly Income
The amount of consistent and stable income that an individual receives each month, averaged over a period of time. Guarantee mortgage
A loan guaranteed by someone other than the lender or borrower.
H
Hazard
insuranceAn insurance policy to protect home owners against property damage.
Lenders require that you get hazard insurance policy before you buy or refinance a home. Hazard insurance shields you against property damage caused by a fire or a severe storm. If you live in an area that’s prone to natural disasters, like earthquakes and floods, you might need a separate policy. If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home. Home equity line of credit
A line of credit, secured by a property, that allows owners to tap into their home’s equity.
You may be able to get a line of credit that works like your checking account or credit card. Equity is the difference between the value of your home and the amount you owe on your mortgage. It's flexible, so, if your equity is $20,000, you can withdraw at will simply by writing a check. Note that you'll have restrictions on how much you can withdraw at one time. You only pay interest on what you borrow and your credit limit is restored as you pay back what you owe. A home equity line of credit typically stays open for 10 years. Once it closes, you normally have 10 to 15 years to pay back what you owe. The added bonus is that the interest you pay may be deductible from your taxes. Consult your tax advisor. Home equity loan
A loan that allows home owners to borrow against the equity in their property.
A home equity loan lets you use your equity, the value of your home minus what you owe, as a security that you'll repay the loan. Depending on the lender, you could borrow between 80% to 100% of your home's equity, and sometimes more. Home owners often apply for home equity loans to pay college tuition, to make major renovations on a home, or to pay off credit card debt. Home equity loans have a fixed interest rate and payment for usually 10 to 15 years. Home inspection
A thorough examination of a property by a professional.
Before or after you make an offer on a home, it's a good idea to cover all your bases by requesting a property inspection. Make sure that you hire an experienced professional who has nothing to gain from finding a problem with a property. You might also want to watch the inspection to fully understand the property's condition and to find out what, if any, repairs need to be made. If the property doesn't pass the inspection with flying colors, you can either ask the seller to make the needed improvements or you can withdraw your offer - that is, if you included a contingency clause in the purchase agreement. HELOC(Home Equity Line Of Credit)
A mortgage loan, usually in a subordinate position that allows a borrower to borrow against equity in real property owned with specific limitations. An open end mortgage that allows the borrower to repay and borrow the funds available Home Owner's Association
The association that manages a condominium or a planned unit development.
A Home Owners’ Association oversees how the common areas of a building are maintained and regulated, including everything from paying hazard insurance to cleaning the pool to collecting the garbage. The association also decides how to spend your monthly Home Owners’ Association dues. Home Owner's Association Dues
Monthly fees paid to maintain a condominium or planned unit development.
Your monthly Home Owners’ Association dues cover the costs of maintaining the parts of the building that are shared with everyone else - everything from the lighting in the hallways to the artwork in the lobby. A portion of your dues is also put aside for high-cost repairs or future emergencies, such as replacing an elevator or giving the building a coat of fresh paint. Home Owner’s Insurance
An insurance policy that protects home owners against theft and property damage.
Lenders require that you open a hazard insurance policy when you buy a home. Buyers and owners, though, often opt for the extended policy called home owner’s insurance. This policy protects you not only against property damage caused by a fire or a severe rainstorm, but can also shield you against theft, vandalism, as well as for stolen cash and personal items.
Basically, the more coverage you want, the higher your monthly premium will be. If a catastrophe does happen, home owner’s insurance should cover the costs to rebuild your home. If you live in an area that’s prone to natural disasters, like earthquakes and floods, you’ll need a separate policy. Home owner’s insurance can extend to personal liability, which covers any damage that either you or your family might cause someone. It also protects you against any accident that happens around your home, like the postman getting nipped by your guard dog. HUD-1
A document that gives a breakdown of the costs that the buyer and seller pay at closing.
A HUD-1 gives you the final record of the fees paid at closing. The lender, broker, escrow agent or attorney can prepare the HUD-1, which is also called a closing statement and settlement statement.
I
Impound
accountAn account used to pay your hazard insurance, mortgage insurance and property taxes.
An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as property taxes, hazard insurance, and mortgage insurance, if required. An impound account is also called an escrow account. Income property
Any property, including land, which earns you money.
Renting out a home that is not your primary residence is one way to use property to make money. An income property, like an apartment building with more than 4 living units, is normally appraised, mortgaged and taxed differently than a primary, owner-occupied residence. Index
An economic indicator that lenders use to set an adjustable rate mortgage’s (ARM) interest rate.
Each ARM is tied to a specific index. Since some indices move up and down faster than others, it's wise to find out which index is connected to your ARM. Inflation
A decrease in the value of money.
Inflation is a measure of the increase in the price of goods. Inflation generally affects your buying power - If you buy 10 candy bars with $10 one day, and inflation rockets up 10% the next day, you'll only be able to buy 9 candy bars with your $10. Inflation usually causes interest rates to rise. This is when it pays to have a fixed rate loan, rather than an adjustable rate loan since the interest rate doesn't increase to match the market rates. Inflation can also affect property values. An appraiser, though, usually adjusts their calculations to account for inflation when figuring out the market value of a property. Also, there are many factors that work together to influence property values that may offset inflation, such as supply and demand and a location. Initial interest rate
The starting interest rate of an adjustable rate mortgage (ARM).
The initial interest rate on an ARM is fixed for a certain period then adjusts to reflect overall market rates. Fixed rate loans, on the other hand, always have the same interest rate for the life a loan, and the rate is usually higher than an ARM's initial interest rate. Installment
Regular payments given to a lender to repay a mortgage.
You usually pay off a mortgage in monthly or biweekly installments. If you have an escrow or impound account, your installment can be broken down into four parts, often referred to as PITI: loan principal, loan interest, property taxes and hazard insurance. So, every month, lenders collect one-twelfth of your annual property taxes and hazard insurance to place into the account. So, when these bills become due, the lender can readily pay them off. Interim Financing
A construction loan made during completion of a building or project.A permanent loan usually replaces this loan upon completion. Interest/Interest rate
The cost for borrowing a lender’s money.
Interest takes into account the lender's risk and how much it costs the lender to get the money for a loan. Interest rate cap
The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down.
Most ARMs have two types of interest rate caps: (1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate; and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor. Introductory rate
An adjustable rate mortgage’s (ARM) starting interest rate, which stays fixed for a certain time then adjusts to reflect overall market interest rates. Investment property
Any property that you buy to make a profit - either from renting or selling it that will not be used as your primary residence.
Investing in real estate can be extremely profitable venture - it's considered a long-term investment and the way to make money is to have equity, which is the money that you keep after the mortgage is paid off. The 3 main ways to build equity are: (1) your down payment when you purchase; (2) paying off the loan's principal, which may take several years since your first years' payments go primarily towards the interest; and (3) the increase in the home's value when the property appreciates.
J
Joint
tenancyA type of ownership where two or more people equally share ownership of a property.
The most important feature of joint tenancy is the right of survivorship, which means if one of the co-owners dies, the survivors automatically become the sole owners. So, for example, if Jim, Jake and Chris own a home in joint tenancy, and Jake dies, Chris and Jim take ownership of the home, regardless of any heirs written into Jake's will. Probate court isn't required, and Chris and Jim also aren't responsible for any claims placed on the property due to Jake's unpaid debts Judgment
The final decision made by the court in a lawsuit.
A court may award money judgments, which are payments for damages or claims that were presented in court. A creditor can also sue you and get a judgment that puts a lien on your property, so it can be sold to pay your debt. A judgment can be partially or completely reversed on appeal. Judgment lien
A court decision that allows certain creditors to place a claim on a property.
Creditors can sue to have a lien placed on your home to guarantee repayment of your debt. The judgment lien isn't official until it's recorded. Judicial foreclosure
When a lender uses court action to sell a property in order to pay a mortgage in default.
If a deed of trust or mortgage doesn't have a power of sale clause, the lender needs to take you to court in order to foreclose on your property. Judicial foreclosure varies from state to state, but in general, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.
Jumbo loan
Any loan that allows you to borrow more than an amount set by Fannie Mae and Freddie Mac.
Lease
A rental agreement between a landlord and a tenant
that lasts for an agreed period of time.
A lease
must include a property's description, the date the lease expires, the
price of the rent, and the landlord's signature. A landlord can take back
a property when the lease ends.
A tenant’s right to use a property for a fixed period of time.
If you pay rent, you hold a leasehold estate, commonly called a lease or leasehold. This means that you can freely live and use the facilities of a rented property, which can be an apartment, house or condo, under the terms of a lease until it expires.
| Leasehold Estate | ||
| Estate for Years | A tenant that has a lease for a set period of time. The rent must remain the same until the lease expires. | |
| Estate from period to period | A tenant with a lease that lasts month to month. The lease is automatically renewed at the end of each month. The tenant has to give 30 days notice. | |
| Estate at will | When there's no lease between the tenant and the landlord. | |
| Estate at sufferance | When a tenant lives on a property without the landlord's permission or paying rent. | |
A person or institution that provides money to a borrower. Liability
Any debt that you are responsible to (re)pay.
Lenders want to know what liabilities you have. Liabilities include car and student loans, credit card debt, child support, insurance premiums and alimony. Lien
A claim placed on a property to secure a debt.
The mortgage on your home is a voluntary lien - you agree to put up your home as security that you'll repay the loan. Creditors, like the IRS or someone who has won a civil court suit against you, can also have a lien put on your home, but without your permission. All liens must be paid off before you can transfer the your property to someone. Lifetime Rate Cap
A limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan.
So, for example, if your initial interest rate is 6% and the lifetime rate cap is +5%, your rate can't go beyond 11% over the loan's term. The maximum lifetime rate cap is often called the ceiling, similarly, the minimum lifetime rate cap is called the floor. Liquid Asset
Any item of value that can be quickly turned into cash.
Your liquid assets are the easiest to cash, which is especially helpful when you're gathering money for a down payment on a home. Examples of liquid assets are certificate of deposits (CDs) and money market accounts. Antique furniture, real estate, boats and star-studded baseball card collections are not liquid assets since they take time to sell. Loan
A sum of money that a lender gives to a borrower that must be repaid along with interest.
There are many types of loans to choose from when you’re looking to buy a home. Each loan will have a different interest rate and term, which will affect how much you have to pay each month. How much you put towards a down payment will also affect your monthly payment. The 3 most common types of loans are fixed rate, adjustable rate, and balloons. A home loan is also called a mortgage. Loan origination fee
A service fee charged by a lender and broker that the borrower pays on the closing date Loan processor
The person who collects and organizes all the documents required by the lender to approve a loan.
The loan processor has the important task of making sure that a lender has all the information needed to approve your loan, including your credit report, income and asset documentation and signed loan application. The loan processor may also order your title insurance and arrange the property's appraisal. The processor works for either a lender or a broker. Loan-to-value ratio (LTV)
A percentage that shows how much equity a borrower will have in a home.
LTV compares how much a person plans to borrow versus the property's value. For example, a 90% LTV loan that means you want to borrow 90% of the home's price and will have a 10% down payment (or equity if you're refinancing). This gives you 10% equity in your property. All lenders use LTV as a guideline. If your LTV is over 80%, the lender usually requires that you buy Mortgage Insurance (MI). The LTV cut-off will vary depending on the lender and the type of loan that you want. Currently, CitiMortgage's maximum LTV for certain loan programs to buy a home that you intend to live in is 100%. From time to time, CitiMortgage offers home purchase programs that slightly exceed 100% LTV. These programs may allow some portion of closing costs, mortgage insurance, and prepaid items to be added into the total amount financed. Please email or phone us for details.
Example: How do you calculate your LTV?
Lock-in rateStep 1
Property's purchase price $350,000
Your down payment - 30,000
Your loan amount = $320,000
Step 2
Your loan amount $320,000
Property's purchase price ÷ 350,000
LTV = 91%
A lender’s guarantee for a specific interest rate on a loan.
Until you request a rate lock, a loan’s interest rate quoted by either a lender or broker is apt to change due to market fluctuations. The rules on how to do this will vary from lender to lender and broker to broker, but typically you can request a rate lock after you submit your signed loan application/1003 and other requested forms. Don’t let a low rate slip through your fingers. Once you’ve settled on a rate, the lender usually guarantees the rate for 30, 45 or 60 days.
Lock
period
The amount of time that a lender
will guarantee a loan’s interest rate.
Once you’ve
locked in an interest on a loan, the lender will guarantee that rate for a
certain period of time, usually for 30, 45 or 60 days (Normally, the
longer the lock period, the more points that you have to pay up-front
since the lender is taking a greater risk when they guarantee a rate for a
long time).
You’ll need to complete your home’s
purchase or refinance within the lock period. If you need extra time, you
may have to pay up to 1 point (1% of the loan amount) or more, and there’s
no guarantee that you can keep your original interest rate after the
expiration date. M
Margin
A margin refers to an adjustable rate's mortgage's
(ARM) interest rate, which is made up of the margin plus the index, a
value that represents overall market rates.
Unlike the index, the margin on a loan never changes.
If you are comparing two loans with the same index, choose the loan with
the lower margin. To find out the margin on a loan, simply ask the lender.
The highest price that a willing buyer would pay and the lowest price that a willing seller would accept. Maturity
When a loan completes its term
A 30-year loan reaches maturity in 30 years, similarly, a 15-year loan matures in 15 years. A balloon mortgage usually matures in 5 to 7 years, and when it does, you have to pay the full amount that’s due. Mechanic’s lien
A claim placed on a home by someone who didn’t receive payment for construction work completed on the property.
Almost all states allow workers who make improvements on a property, including contractors, painters, architects, carpenters, plumbers and even the gardener who works on your rose bushes, to put a lien against your home if you don’t pay them. This lien will appear on a preliminary title report and you can’t sell the property until you pay it.
Though not common, a mechanic’s lien can lead to a foreclosure, which is when the creditor gets a court order to have your home sold to pay off the debt. Mortage
An interest in real property given as security for payment of an obligation. Mortgage Backed Securities
A security backed by a mortgage debt.Mortgage loans are collected into groups called pools, which improves the liquidity and reduces the risks associated with trading mortgages individually. Mortgage
A document that pledges your property as security for a loan’s repayment.
If you can’t repay the loan on your home, a mortgage gives the lender the right to foreclose on the property and sell it to get back their money. A deed of trust serves the same purpose as a mortgage, however some states traditionally use one or the other - in some cases both, depending on the custom in each county. With a mortgage, the lender must go to court to foreclose on a property. Mortgage banker
A company (or person) that lends money to home buyers
Mortgage bankers take on all the tasks related to lending money, such as gathering the funds for the loan, approving the borrower and closing the loan. A mortgage company can be both a mortgage banker and a mortgage broker. Mortgage broker
A company or person that helps a borrower get a loan in return for a fee.
Mortgage brokers don't lend money - they help you shop for a loan from a selection of lenders. Once you apply for the loan, the mortgage broker handles all the documents and works with the lender. Mortgagee
A lender for whom property is conveyed as security for a loan. Mortgage insurance (MI)
An insurance contract that protects the lender against loss if a borrower can’t repay a loan
If your down payment (or equity) is less than 20%, a lender may require you to buy MI. This is a lender's safety net in case you default on the loan and the lender forecloses on your property. The lender will use the money collected from MI to help offset any losses. How much you need to pay each month in insurance depends on the loan amount, the term, the type of loan and the down payment. You might also have to pay one or two months worth of payments when you close on your home. Mortgage Insurance Premium (MIP)
A one-time fee required for insurance on a FHA mortgage.
If you apply for a FHA mortgage, you have to pay MIP, which is about 1.5% of the loan amount, on the closing date. Since this is a chunk of money to be paid at one time, you do have the option to add this cost to your loan and pay it off over time. Mortgage life insurance
An insurance policy to repay your home loan in case you die.
It makes the lender the beneficiary of the policy. Some life insurance companies continue to make monthly mortgage payments instead of paying off the mortgage in full. The premiums for mortgage life insurance are based on your age and the mortgage balance. Mortgagor
One who borrows money given as security a mortgage or deed of trust on real property.
Mutual Mortgage
Insurance (MMI)
A contract that protects
a lender in case a borrower defaults on a FHA mortgage.
If you have a loan that's insured by the Federal
Housing Administration (FHA), you'll be required to give monthly payments
for MMI. On top of MMI, you have to pay a one-time fee, about 2¼% of the
loan amount, on the closing date. You can also choose to tack this fee
onto the loan amount and pay it over time.
Negative
amortization/Deferred interestWhen a borrower chooses the minimum payment option on a loan with a payment cap, interest is deferred and added to the balance of the loan.
An Adjustable Rate Mortgage (ARM) with a low initial rate and deferred interest option gives you flexible payment options. You can make the minimum monthly payment and defer interest, pay interest only, or pay an amount to amortize the loan over 15 or 30 years.
Although the minimum payment amount changes, typically once every 12 months, interest rate changes may occur each month and are limited only by the lifetime rate cap of the loan. After the initial interest rate expires, interest accrues at the fully indexed rate. Any difference between the actual payment you make and the interest accrued is added to the loan balance. This is known as negative amortization. Net cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments. Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan . Net Effective Income
The borrower's gross income minus federal income tax. Net rental income
The total annual earnings from a rental property.
If you rent out a home or part of your home, lenders will include how much money you receive from your tenants as part as of your yearly income. Normally, lenders will only apply 75% of this amount to your income - the remaining 25% is deducted to account for any possible vacancies that year. Net Worth
Net worth is the difference between an individuals assets and liabilities. Net worth takes into consideration all assets and liabilities liquid or not and can be a positive or negative number. Non-conforming loans
Any loan that allows you to borrow over a certain amount set by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) or A loan that has many ‘disqualifying’ characteristics, this could be the loan amount, property type, credit problems, etc… Non-institutional lender
Any non-traditional lender.
Banks and savings and loan associations aren't the only companies that offer loans to buy a home. There's a whole range of non-institutional lenders, such as mortgage companies, title companies, universities, pension funds and individual investors. Non-liquid asset
Any item of value that can’t be converted easily into cash.
Investments such as real estate, cars or boats, are examples of non-liquid assets since they can take a long time to sell. Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note. Note
A written promise to pay back money at a specific time. No Cash Out Refinance:
Also known as a "Rate and Term" refinance, this is a loan in which a lender simply refinances the existing first mortgage and no other bills are paid off and the borrower receives no cash as part of the transaction. These loans are usually done to improve the borrower's interest rate and to lower their mortgage payment. Origination fee
A service fee charged by a lender and broker that the borrower pays on the closing date.
P
Payment
Adjustment PeriodThe length of time (typically a year) between changes to the AML borrower's P&I payment. Payment Buy down
Payment buy downs occur when a third party, typically a builder, pays part of the initial P&I payments for a year or two, so that the borrower has smaller payments and can qualify for the loan. Payment cap
A limit on how much monthly payments can fluctuate on an Adjustable Rate Mortgage (ARM).
The benefit is very low minimum payments in the first year, followed by moderate payment increases in subsequent years. One potential disadvantage of a payment cap is that interest accrues at the higher, fully indexed rate after the low initial rate expires. Any difference between the payment you make and the interest accrued is added to the loan balance. As a result, the mortgage balance can increase over time. This is called negative amortization. Payment Discount
In a payment discount, the lender reduces the first year's interest rate to make the mortgagor more attractive to borrowers. Periodic payment cap
A limit on the amount that payments can increase or decrease during any one-adjustment period. Periodic rate cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. Permanent loan
A long-term loan taken out upon completion of a new building.
Permanent loans work together with construction loans. Personal property
Anything that you can own that is considered movable.
Money, furniture, cars, clothes as well as your cat and dog are examples of personal property. Land and anything attached to it is not personal property, but real property. You can move personal property from one place to another, though your cat may not like it. Piggyback loan
A second loan on a home, usually up to 15% of the property’s purchase price.
If you can make a 10% down payment on a home, one way to avoid paying for Mortgage Insurance (MI) is to get two loans. Here's how it works: you get a loan for 80% of a property's purchase price at a standard interest rate and then get a second, "piggy back" loan at 10% of the purchase price. This type of financing is commonly called 80-10-10. To figure out if getting a second loan makes sense for you, compare your monthly costs with a piggy back loan versus MI. Planned Unit Development (PUD)
A type of housing project that has five or more individually owned homes and each owner has a share of the common areas.
PUDs are generally found in suburban areas. You own your home and the land it’s on, as well as a part of the areas that you share with other home owners, like the grounds and swimming pool. Similar to a condominium, you have to pay an owner’s association monthly fees to maintain the common areas.
Point
One percent of the total loan amount.
Loan rate points can be either positive (discount
points) or negative (rebate points). The more positive points you choose
to pay up-front, the lower your interest rate may be. For every point you
pay, your rate will usually go down by about .25%. On the other hand, you
can opt for a loan with a higher interest rate in exchange for a rebate,
which will give you a credit towards paying some of your non-recurring
closing costs, such as title insurance, appraisal and origination fee. You
can't get any cash back from rebate points.
A state’s right to control private activity, including land, for the good of society.
State governments use police power to set up a variety of real estate laws, such as (1) street zoning ordinances, which restrict, for example, cemeteries and slaughter houses to certain areas in a city (2) building and health codes and (3) rent control, which limits how much a landlord can raise the monthly rent. Portfolio loan
A loan that a lender holds onto instead of selling on the secondary market.
Lenders pool and sell most loans to the secondary market in order to create money for more loans. Power Of Attorney
A legal document authorizing one person to act on behalf of another. Preapproval
When a lender commits to a loan before the borrower finds a property to buy.
Even if you haven't found a property, some lenders will give you a written preapproval on a loan. The benefits to getting a preapproval are: (1) you know exactly what you can afford to offer for a home; (2) you show a seller and your realtor how serious you are about buying a home; and (3) you'll sleep better at night. To get a preapproval, you have to fill out a standard loan application called a 1003. Preliminary title report
The results of a title search on a property.
Before you go to closing, you’ll receive a preliminary title report from a title company. This report proves that the seller is the rightful owner of the property that you want to buy, and lists any claims against the property for unpaid debts, such as property and income taxes. Be sure to bring any claims that need to be cleared to the seller’s attention. Premium
Regular payments made on an insurance policy.
Insurance companies usually charge an annual premium when you open a home owner's insurance policy. For example, if you live in an area that is prone to earthquakes or floods, your premium may be higher to offset the extra risk that an insurance company takes. Prepaid items
Fees paid on the closing date to cover future costs like property taxes, interest, mortgage insurance and hazard insurance.
The lender also collects the interest you owe for the period between the closing date and the end of the month. So, if September 3 is your closing date and you make your first monthly loan payment on November 1, you have to prepay the interest that's due through the end of September. Prepayment
A clause that allows a borrower to make larger (or additional) payments than the amount stated in the loan agreement.
It’s in your best interest to make extra or bigger monthly payments on your loan since this will reduce your loan balance quicker than if you only paid the amount that’s due. You’ll also cut down the interest that you need to pay. Prepayment is also called the "or more clause." Prepayment Penalty
A fee that lenders charge if you either pay more than is required on your monthly loan payment, or pay off the loan before its term ends (usually within the first three years of buying your home).
Loans with a prepayment penalty may have a lower interest rate. . The penalty may also apply if you pay more than 20% of your unpaid loan balance in any year during this time. Prequalification
When a lender or broker figures out how much you qualify to borrow.
Also, you'll get a rough idea of the price range that you can afford on a home. Principal
The amount borrowed on a loan.
If you take out a loan for $100,000, the principal on the loan is $100,000. You repay the principal plus the interest and fees over the life of the loan. As you continue to pay off your loan, more and more of your payment goes to the principal, and slowly but surely the amount due shrinks away. Principal Balance
How much the borrower has left to pay on the loan principal.
It’s takes a while to make a big dent on the loan’s principal because for many years most of your monthly payment goes towards the loan’s interest. But it’s worth the wait since the more of the principal you pay, the more equity you have in your property. You can find your principal balance on your loan statement from your lender. Principal, Interest, Taxes and Insurance (PITI)
The four major costs that a home owner’s mortgage payment covers.
Lenders use PITI in two ways: (1) With most mortgage plans, the lender collects your monthly mortgage payment, which covers the loan principal and interest, as well as one-twelfth of your property taxes and hazard insurance. The lender puts the taxes and insurance into a separate escrow account, and pays off these bills when they become due as a way to protect the loan. (2) Before you apply for a home loan, lenders use a ball park estimate of your expected PITI to calculate your back ratio and front ratio. Lenders use these ratios as guidelines to find out if you qualify for a loan. Prime Interest Rate
Interest charged by banks to their most credit worthy customers. Private Lender
A person who lends his or her own money to a home buyer.
Ordinary people, similar to a bank, can lend money to home buyers as a way to invest in real estate. As a private lender, you can profit from offering a loan at a high interest rate. One way to find a borrower is to work with a mortgage broker who will do the leg work for you. Promissory Note
A written promise to pay back a sum of money at a specific time.
When you borrow money to buy a home, you must sign a promissory note, which outlines the loan's terms and sets the due date. The promissory note states that your monthly payment must be applied to both the loan's principal and interest. The promissory note enforces the document that secures the property as repayment for the loan, either called a deed of trust or mortgage depending on where your home is. Promissory notes are commonly called notes or IOUs. Public Auction
A public sale of land or goods, where the highest bidder wins.
If you hit a financial crisis and default on a mortgage, a lender may be forced to foreclose on your home and put it up for sale at a public auction. The rules for a public auction vary from state to state.
Q
Qualifying Ratios
Guidelines used by lenders to evaluate a
home.
Quit Claim Deed
A document that can be used to transfer
whatever interest a person has in property without any assurance as to the
status of that interest.
R
Rate Lock
A lender’s guarantee on a specific interest rate.
Until you request a rate lock, a loan’s interest rate
quoted by either a lender or broker is apt to change due to market
fluctuations. The rules on how to do this will vary from lender to lender
and broker to broker, but typically you can request a rate lock after you
submit your signed loan application (1003) and other requested forms.
Don’t let a low rate slip through your fingers. Once you’ve settled on a
rate, the lender usually guarantees the rate for 30, 45 or 60 days. Rate
lock is also called lock-in rate.
Real
Property
Land and anything permanently
attached to it.
Your home, your backyard and your
gardenias planted in the yard are examples of real property. Real property
can’t be moved or taken away without lawful permission. If you want to
give or sell someone real property, you must use a document called a deed.
Rebate Point
A credit towards your closing costs in
exchange for a higher interest on your loan.
You
can change your loan's interest rate based on how many points you either
pay (called discount points) or receive (rebate points). Each rebate
point, which is equal to 1% of the loan amount, will generally increase
your interest rate by about .25% but will fluctuate based on product,
term, loan amount etc.. So, if you opt for one rebate point on a $100,000
loan with an 8% market rate, you'd get $1,000 towards your closing costs
and your new interest rate would be 8.25%. Note that you can't pocket the
cash from rebate points. You can only use them towards your non-recurring
closing costs, including your appraisal, property inspection, title
insurance and lender/broker origination fees. Rebate points don't cover
your prepaid interest, hazard insurance, mortgage insurance (MI) and
impounds.
Record
To make a document available to the public.
Your home’s purchase is official the moment that you
record the deed at the county courthouse. Usually, the title company or
escrow agent is responsible for recording the deed and you’ll need to pay
a small fee. So, if you wanted to do a little investigating into the
former owners of your home, you could go to the county clerk’s office and
check the files - this list of owners is called the chain of title. Any
claims on your home, including a mortgage and liens for unpaid debts, are
also recorded there. The county clerk who records a deed can be called the
county recorder or the registrar of deeds.
Refinance
When a home owner replaces their current mortgage
with a new one.
Refinancing to a lower rate can
shave several hundred dollars off your monthly mortgage payment.
Refinancing may make sense when market interest rates drop 1 or more
percentage points lower than your present rate. Also, consider how long
you need to stay in your home to break even on the costs to refinance. The
steps to refinance are almost the same for a home purchase: (1) you fill
out a standard loan application; (2) the lender approves the loan based on
your income, debt and credit history; and (3) you pay closing costs, such
as the appraisal and processing fee.
Remaining
Balance
The total amount that a borrower
owes on a loan at any given time.
Remaining
Term
The amount of time until a loan is
completely paid off.
If you are in your fifth year
of paying off a 30-year loan, the remaining term is 25 years.
Rent
Payment in exchange for the temporary use of
something.
When you pay rent for an apartment or
house, you’re not building equity unless your rent payments are going
towards a down payment to own the home in the future. The owner of the
property is called a landlord and the renter is called a tenant. The rent
is mutually agreed upon by both the landlord and the tenant, and is
written into a rental agreement or lease.
The amount of liquid assets the borrower has remaining after completion of the mortgage loan transaction and payment of any other debts that had to be satisfied in order for the borrower to qualify for the loan
Residential Loan
Application Form (1003)
The name of the
standard loan application that lenders require a borrower to complete when
applying for a loan.
Real Estate Settlement Procedures Act, a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.
Reverse Mortgage
A loan for home owners who have already paid
off their mortgage but want to tap into their home’s equity.
Reverse mortgages come in handy for older home owners
who might have a financial hardship or who just want some extra cash
without having to uproot and sell their homes. You can either receive a
lump-sum loan, a line of credit or a monthly check based on the amount of
equity in your home. This money is also tax-free, since it’s a loan. When
you sell your home, you use your home’s equity to pay off the loan and
interest. Keep in mind that you need to pay closing costs, such as a loan
origination and processing fees.
Revolving
Credit
A credit line that is restored as
the borrower pays off what’s owed.
Credit cards
and home equity credit lines have revolving credit. Loans, such as
mortgages and student loans don't have revolving credit.
S
Sale-leasebackAn agreement where a home buyer allows the seller to stay in the property in exchange for ren
In a sale-leaseback, the homeowner gives up ownership of a home and becomes a renter. People commonly use a sale-leaseback in these situations: (1) when the seller is buying or building another home and isn’t ready to move out on the sale date; or (2) when parents sell their home to a son or daughter and remain in the house, keeping the property in the family Sales Comparable
A recent sale of a property that is used to estimate the value of a similar property.
Comps come in handy when you’re trying to set the best sale price on your home – they provide a good reference point, so you accurately price your home’s value. Appraisers, certified professionals who estimate the fair market value on homes, also use comps to help them evaluate properties.
When attempting to set a price, you should use comps that were sold in the last six months and are similar to your home in age, style, size, condition and location. Real estate agents also have easy access to comps via an online network. Keep in mind that other factors, such as market conditions, also affect a home’s selling price. Seasoning
The length of time required for monies to be held in an account to be used as a down payment towards the purchase of real property. It can also be defined as a specific length of time of ownership that is required before real property can be used as collateral for a mortgage Seasonal Income
Any income that you receive on a cyclical basis.
Here are a few examples of seasonal income: (1) you're not a full-time accountant, but you make money preparing income taxes during tax season, from February to April; (2) you work on a farm only during the spring. Second Mortgage
A loan that is second in priority after a first mortgage.
You can have one or more mortgages on your property.
Secondary
Market
A term to describe the sale of
closed mortgage loans
Collateral for a loan.
The institution that collects payments, manages escrow accounts, pays taxes and insurance and manages delinquent accounts.
Servicing A
Loan
The company that collects monthly
mortgage payments, handles customer service inquiries and manages the loan
on a day-to-day basis.
When a property’s sale or purchase is completed.
Depending on where you live, settlement can either be in escrow, or a sit-down meeting between the buyer and seller. The rules for settlement vary from state to state, as well as from county to county, but typically here’s what takes place: (1) the buyer pays for the home and closing costs in one lump-sum; (2) the buyer and seller sign the closing documents; (3) the deed is recorded; and (4) the mortgage officially begins. If settlement is a meeting, the buyer and seller are often joined by mortgage brokers, attorneys, a lender representative or title officer. Settlement is also called closing. Settlement Statement
A document that gives a breakdown of the costs that the buyer and seller are responsible for on the closing date.
The settlement statement, unlike the Good Faith Estimate, shows the final paid closing costs. The settlement statement is also called HUD-1 or closing statement.
Simple Interest
Interest computed on the principle balance
of a mortgage
Super Jumbo Loan
Any
mortgage for $1 million or more.
T
Take-out
LoanA long-term loan taken out upon completion of a new building.
Take-out loans work together with construction loans. Take-out loans are also called permanent end loans. Teaser Rate
A below market initial interest rate on an adjustable rate mortgage (ARM). Tenancy In Common
A type of ownership where two or more people share ownership of a property, but not necessarily equally.
Even though the owners of a tenancy in common property can have unequal shares of the property, they all have the right to use the entire property. Unlike joint tenancy, tenancy in common doesn’t have right of survivorship. So, if one of the co-owners dies, his/her interest passes to an heir(s), not the surviving co-owners.
Title
Ownership of a property.
If
you have title to a property, that means you have the right to own it.
Sometimes title can refer to the documents, such as a deed, which prove
you own a property. Title documents are on public record at the county
courthouse.
An insurance policy that protects a lender and/or home owner against any loss resulting from a title error or dispute.
Most lenders require that you buy title insurance for them to protect against future problems that might arise with the title (ownership). For example, a long lost uncle may show up out of the blue to refute your right to a property, claiming that the property's deed is a forgery. Depending on where you live, you may have to pay for both your policy and the lender's policy. You pay this one-time fee on your home's closing date. Title insurance may also cover the charge to oversee closing, conduct the title search and the premium. If you refinance your mortgage, you only have to buy the lender's title insurance. The owner's policy protects you and your heirs until you sell your property. Title (insurance) Company
A company that confirms the legal owner of a property, as well as insures a home owner and lender against a loss that could result from a title dispute.
Before the closing date of your home's purchase or sale, a title company will search and collect all the public records of a property's ownership. The title company checks these records to find out who the legal owner is and to see if there any claims against the property, such as mortgages, liens for unpaid property taxes, judgments and wills - anything that can effect the title (ownership). If there aren't any problems (clouds) that need to be cleared up, the title company will provide the buyer and/or lender with title insurance. Title Report
The results from a title search.
In some states, the title insurance company conducts a second title search a couple of days before closing and gives a title report. This report makes sure that there are no claims on the property and that the seller is the legal owner of the property. If there are any claims, they must be cleared before you can buy it.
Title
Search
A search of public records
conducted by a title company to confirm a property’s owner and to find out
what claims are on the property.
Before you close
on your home, a title company will search public records on the property's
ownership. The title company wants to make sure that the seller is the
actual owner of the property and that the property is free from any
claims, such as liens for unpaid taxes and mortgages. Example: What are some common title problems?
| Type | You're buying a home from... |
| Marriage | A single woman or man, but the title search reveals that there are two names on the deed and it says that they're married. |
| Death | The children of a widowed woman who recently passed away, but there's no will on file that shows what she wanted done with the property. |
| Money liens | A seller who hasn't paid property taxes for the last 6 months. The search shows that the county government placed a lien on the property. |
| Divorce | A man who had bought a home before he got married and then later gets divorced. In some states the woman is entitled to 50% of the property, even if she doesn't file suit. |
| Mechanic's liens | An owner who refused to pay the company that installed the new air conditioning system. The search shows the company put a lien on the property. |
| Trailing Spouse Income | You or your spouse's expected income when changing jobs or relocating to a new location which is used to qualify for a mortgage loan. |
| Transfer of Ownership | When a property is handed over from the seller to a buyer. |
| Transfer Tax | A state or local tax that a buyer or seller
has to pay when property changes ownership. The rules on how it's calculated vary from state to state, but usually it's based on the property's purchase price. Some cities will also add a tax on top of the transfer tax. |
| Trustee’s sale | When a lender sells your property to pay
for a mortgage in default. Most deed of trusts have a "power of sale" clause, giving the trustee, a neutral party who acts on behalf of the lender, the right to a trustee's sale. A trustee's sale varies from state to state, but in general the trustee advertises the property's sale and then auctions off the property to the highest bidder. Note that some mortgages contain a power of sale clause, giving the lender the right to foreclose without taking you to court first. |
U
Underwriting
A lender’s process to evaluate whether or
not to give a borrower a loan.
When lenders
underwrite a loan, they look at your income, debt, credit history and
assets to see if you're qualified for the loan amount requested.
Unsecured Loan
A debt that isn’t backed by collateral.
Unsecured loans, like credit card debt, doctor bills
and student loans, don’t require you to sign an agreement pledging
collateral, such as property, to secure the loan.
Uniform Settlement
Statement(HUD1)
Standard document
prescribed by RESPA disclosing all costs paid in connection with the
settlement of a real estate transaction.
V
VA loan
A low-cost loan for U.S. veterans that is partially
guaranteed by the Department of Veterans Affairs (VA).
If you're a veteran, you can get some VA loans
without a down payment. The loan amount cannot be more than the VA's
appraisal. If it is, you have to pay the difference in cash. You still
need to pay closing costs, including appraisal and title insurance fees,
as well as one-time funding fee for about 2% of the loan amount. Usually,
to be eligible for VA loan, you must have served at least 181 days of
active duty or at least 6 years in the National Guard. If you need
information contact your regional VA office or call 1-800-827-1000.
Value
How much something is worth.
Variable Rate
Mortgage
See Adjustable Rate Mortgage.
Verification Of
Deposit (VOD)
A document from a bank or
deposit taking institution verifying the balance of a person's checking
and savings accounts.
A lender may ask for a VOD
when you’re applying for a loan to make sure that you actually have the
money stated on your loan application.
A document signed by borrower which is in turn sent to his/her employer verifying his/her date of hire and continued or past employment. Verification Of Mortgage
A document signed by borrower authorizing his current mortgage holder to provide lender with current and past payment history.This usually covers the last 12 months. Verification Of Rent
A document signed by borrower sent to his landlord verifying his rent payment history.
W
Warranty
DeedA document protecting the home buyer against any and all claims to the property conveyed.
Wraparound
Mortgage
When an existing assumable loan
is combined with a new loan, resulting in the interest rate being between
the old rate and the current market rate. The payments are made to a
second lender or the previous homeowner and are then forwarded to the
first lender after taking their portion.
A figure given to an investment based on it’s current price.
Yield Spread
Premium
An incremental increase in the
interest rate for a home mortgage loan brought to a lender by a mortgage
broker, or the portion of such an incremental increase which is paid
to a mortgage broker for having brought the loan to a lender.
A form of housing where individual units are on separate lots, but are attached to one another. Example : PUD, townhouse
Zero Percent
Financing
A loan with no interest in the
contract. The IRS imputes 10 percent for both borrower and lender.
The division of land into residential, commercial, industrial and rural districts.
Zoning laws, which came about in the 1920s, serve to protect the public’s safety. Zoning laws restrict the size of a lot, a building’s height and how a property can be used. In general, a residential zone is broken down into single-family, multifamily and mobile home districts. Commercial areas are divided into retail, office and wholesale space.
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