203(b):
FHA's single family program which provides mortgage
insurance to lenders to protect against the
borrower defaulting; 203(b) is used to finance
the purchase of new or existing one to four
family housing; 203(b) insured loans are known
for requiring a low down payment, flexible qualifying
guidelines, limited fees, and a limit on maximum
loan amount.
203(k): this FHA mortgage
insurance program enables homebuyers to finance
both the purchase of a house and the cost of
its rehabilitation through a single mortgage
loan.
A
"A" Loan
or "A" Paper: a credit
rating where the FICO score is 660 or above.
There have been no late mortgage payments within
a 12-month period. This is the best credit rating
to have when entering into a new loan.
ARM:
Adjustable Rate Mortgage; a mortgage loan subject
to changes in interest rates; when rates change,
ARM monthly payments increase or decrease at
intervals determined by the lender; the change
in monthly payment amount, however, is usually
subject to a cap.
Abstract of Title:
documents recording the ownership of property
throughout time.
Acceleration:
the right of the lender to demand payment on
the outstanding balance of a loan.
Acceptance:
the written approval of the buyer's offer by
the seller.
Additional Principal Payment: money
paid to the lender in addition to the established
payment amount used directly against the loan
principal to shorten the length of the loan.
Adjustable-Rate
Mortgage (ARM): a mortgage loan that
does not have a fixed interest rate. During
the life of the loan the interest rate will
change based on the index rate. Also referred
to as adjustable mortgage loans (AMLs) or variable-rate
mortgages (VRMs).
Adjustment Date:
the actual date that the interest rate is changed
for an ARM.
Adjustment Index: the published market
index used to calculate the interest rate of
an ARM at the time of origination or adjustment.
Adjustment Interval:
the time between the interest rate change and
the monthly payment for an ARM. The interval
is usually every one, three or five years depending
on the index.
Affidavit:
a signed, sworn statement made by the buyer
or seller regarding the truth of information
provided.
Amenity:
a feature of the home or property that serves
as a benefit to the buyer but that is not necessary
to its use; may be natural (like location, woods,
water) or man-made (like a swimming pool or
garden).
American
Society of Home Inspectors: the American
Society of Home Inspectors is a professional
association of independent home inspectors.
Phone: (800) 743-2744
Amortization:
a payment plan that enables you to reduce your
debt gradually through monthly payments. The
payments may be principal and interest, or interest-only.
The monthly amount is based on the schedule
for the entire term or length of the loan.
Annual Mortgagor
Statement: yearly statement to borrowers
detailing the remaining principal and amounts
paid for taxes and interest.
Annual Percentage Rate
(APR): a measure of the cost of credit,
expressed as a yearly rate. It includes interest
as well as other charges. Because all lenders,
by federal law, follow the same rules to ensure
the accuracy of the annual percentage rate,
it provides consumers with a good basis for
comparing the cost of loans, including mortgage
plans. APR is a higher rate than the simple
interest of the mortgage.
Application:
the first step in the official loan approval
process; this form is used to record important
information about the potential borrower necessary
to the underwriting process.
Application Fee:
a fee charged by lenders to process
a loan application.
Appraisal:
a document from a professional that gives an
estimate of a property's fair market value based
on the sales of comparable homes in the area
and the features of a property; an appraisal
is generally required by a lender before loan
approval to ensure that the mortgage loan amount
is not more than the value of the property.
Appraisal Fee:
fee charged by an appraiser to estimate
the market value of a property.
Appraised Value:
an estimation of the current market value of
a property.
Appraiser: a qualified individual
who uses his or her experience and knowledge
to prepare the appraisal estimate.
Appreciation:
an increase in property value.
Arbitration:
a legal method of resolving a dispute without
going to court.
As-is Condition:
the purchase or sale of a property
in its existing condition without repairs.
Asking Price:
a seller's stated price for a property.
Assessed Value:
the value that a public official has placed
on any asset (used to determine taxes).
Assessments:
the method of placing value on an
asset for taxation purposes.
Assessor: a
government official who is responsible for determining
the value of a property for the purpose of taxation.
Assets:
any item with measurable value.
Assumable Mortgage:
when a home is sold, the seller may be able
to transfer the mortgage to the new buyer. This
means the mortgage is assumable. Lenders generally
require a credit review of the new borrower
and may charge a fee for the assumption. Some
mortgages contain a due-on-sale clause, which
means that the mortgage may not be transferable
to a new buyer. Instead, the lender may make
you pay the entire balance that is due when
you sell the home. An assumable mortgage can
help you attract buyers if you sell your home.
Assumption Clause:
a provision in the terms of a loan that allows
the buyer to take legal responsibility for the
mortgage from the seller.
Automated Underwriting:
loan processing completed through
a computer-based system that evaluates past
credit history to determine if a loan should
be approved. This system removes the possibility
of personal bias against the buyer.
Average
Price: determining the cost of a home by totaling
the cost of all houses sold in one area and
dividing by the number of homes sold.
B
"B" Loan
or "B" Paper: FICO scores
from 620 - 659. Factors include two 30 day late
mortgage payments and two to three 30 day late
installment loan payments in the last 12 months.
No delinquencies over 60 days are allowed. Should
be two to four years since a bankruptcy. Also
referred to as Sub-Prime.
Back End Ratio (debt ratio):
a ratio that compares the total of
all monthly debt payments (mortgage, real estate
taxes and insurance, car loans, and other consumer
loans) to gross monthly income.
Back to Back Escrow:
arrangements that an owner makes
to oversee the sale of one property and the
purchase of another at the same time.
Balance Sheet:
a financial statement that shows the assets,
liabilities and net worth of an individual or
company.
Balloon
Loan or Mortgage: a mortgage that
typically offers low rates for an initial period
of time (usually 5, 7, or 10) years; after that
time period elapses, the balance is due or is
refinanced by the borrower.
Balloon Payment:
the final lump sum payment due at
the end of a balloon mortgage.
Bankruptcy:
a federal law whereby a person's assets are
turned over to a trustee and used to pay off
outstanding debts; this usually occurs when
someone owes more than they have the ability
to repay.
Biweekly
Payment Mortgage: a mortgage paid
twice a month instead of once a month, reducing
the amount of interest to be paid on the loan.
Borrower:
a person who has been approved to receive a
loan and is then obligated to repay it and any
additional fees according to the loan terms.
Bridge Loan:
a short-term loan paid back relatively fast.
Normally used until a long-term loan can be
processed.
Broker:
a licensed individual or firm that charges a
fee to serve as the mediator between the buyer
and seller. Mortgage brokers are individuals
in the business of arranging funding or negotiating
contracts for a client, but who does not loan
the money. A real estate broker is someone who
helps find a house.
Building Code:
based on agreed upon safety standards within
a specific area, a building code is a regulation
that determines the design, construction, and
materials used in building.
Budget: a
detailed record of all income earned and spent
during a specific period of time.
Buy Down: the
seller pays an amount to the lender so the lender
provides a lower rate and lower payments many
times for an ARM. The seller may increase the
sales price to cover the cost of the buy down.
C
"C" Loan
or "C" Paper: FICO scores
typically from 580 to 619. Factors include three
to four 30 day late mortgage payments and four
to six 30 day late installment loan payments
or two to four 60 day late payments. Should
be one to two years since bankruptcy. Also referred
to as Sub - Prime.
Callable Debt:
a debt security whose issuer has the right to
redeem the security at a specified price on
or after a specified date, but prior to its
stated final maturity.
Cap: a limit,
such as one placed on an adjustable rate mortgage,
on how much a monthly payment or interest rate
can increase or decrease, either at each adjustment
period or during the life of the mortgage. Payment
caps do not limit the amount of interest the
lender is earning, so they may cause negative
amortization.
Capacity: The
ability to make mortgage payments on time, dependant
on assets and the amount of income each month
after paying housing costs, debts and other
obligations.
Capital Gain:
the profit received based on the difference
of the original purchase price and the total
sale price.
Capital Improvements: property improvements
that either will enhance the property value
or will increase the useful life of the property.
Capital or Cash
Reserves: an individual's savings,
investments, or assets.
Cash-Out Refinance:
when a borrower refinances a mortgage
at a higher principal amount to get additional
money. Usually this occurs when the property
has appreciated in value. For example, if a
home has a current value of $100,000 and an
outstanding mortgage of $60,000, the owner could
refinance $80,000 and have additional $20,000
in cash.
Cash
Reserves: a cash amount sometimes
required of the buyer to be held in reserve
in addition to the down payment and closing
costs; the amount is determined by the lender.
Casualty Protection:
property insurance that covers any damage to
the home and personal property either inside
or outside the home.
Certificate of Title:
a document provided by a qualified source, such
as a title company, that shows the property
legally belongs to the current owner; before
the title is transferred at closing, it should
be clear and free of all liens or other claims.
Chapter 7 Bankruptcy:
a bankruptcy that requires assets
be liquidated in exchange for the cancellation
of debt.
Chapter
13 Bankruptcy: this type of bankruptcy
sets a payment plan between the borrower and
the creditor monitored by the court. The homeowner
can keep the property, but must make payments
according to the court's terms within a 3 to
5 year period.
Charge-Off:
the portion of principal and interest due on
a loan that is written off when deemed to be
uncollectible.
Clear Title:
a property title that has no defects. Properties
with clear titles are marketable for sale.
Closing:
the final step in property purchase where the
title is transferred from the seller to the
buyer. Closing occurs at a meeting between the
buyer, seller, settlement agent, and other agents.
At the closing the seller receives payment for
the property. Also known as settlement.
Closing Costs:
fees for final property transfer
not included in the price of the property. Typical
closing costs include charges for the mortgage
loan such as origination fees, discount points,
appraisal fee, survey, title insurance, legal
fees, real estate professional fees, prepayment
of taxes and insurance, and real estate transfer
taxes. A common estimate of a Buyer's closing
costs is 2 to 4 percent of the purchase price
of the home. A common estimate for Seller's
closing costs is 3 to 9 percent.
Cloud On The Title:
any condition which affects the clear
title to real property.
Co-Borrower:
an additional person that is responsible for
loan repayment and is listed on the title.
Co-Signed Account:
an account signed by someone in addition to
the primary borrower, making both people responsible
for the amount borrowed.
Co-Signer:
a person that signs a credit application with
another person, agreeing to be equally responsible
for the repayment of the loan.
Collateral:
security in the form of money or property pledged
for the payment of a loan. For example, on a
home loan, the home is the collateral and can
be taken away from the borrower if mortgage
payments are not made.
Collection Account:
an unpaid debt referred to a collection agency
to collect on the bad debt. This type of account
is reported to the credit bureau and will show
on the borrower's credit report.
Commission:
an amount, usually a percentage of the property
sales price that is collected by a real estate
professional as a fee for negotiating the transaction.
Traditionally the home seller pays the commission.
The amount of commission is determined by the
real estate professional and the seller and
can be as much as 6% of the sales price.
Common Stock:
a security that provides voting rights in a
corporation and pays a dividend after preferred
stock holders have been paid. This is the most
common stock held within a company.
Comparative Market
Analysis (COMPS): a property evaluation
that determines property value by comparing
similar properties sold within the last year.
Compensating Factors:
factors that show the ability to repay a loan
based on less traditional criteria, such as
employment, rent, and utility payment history.
Condominium:
a form of ownership in which individuals purchase
and own a unit of housing in a multi-unit complex.
The owner also shares financial responsibility
for common areas.
Conforming loan:
is a loan that does not exceed Fannie Mae's
and Freddie Mac's loan limits. Freddie Mac and
Fannie Mae loans are referred to as conforming
loans.
Consideration:
an item of value given in exchange for a promise
or act.
Construction
Loan: a short-term, to finance the
cost of building a new home. The lender pays
the builder based on milestones accomplished
during the building process. For example, once
a sub-contractor pours the foundation and it
is approved by inspectors the lender will pay
for their service.
Contingency:
a clause in a purchase contract outlining conditions
that must be fulfilled before the contract is
executed. Both, buyer or seller may include
contingencies in a contract, but both parties
must accept the contingency.
Conventional Loan:
a private sector loan, one that is not guaranteed
or insured by the U.S. government.
Conversion Clause:
a provision in some ARMs allowing it to change
to a fixed-rate loan at some point during the
term. Usually conversions are allowed at the
end of the first adjustment period. At the time
of the conversion, the new fixed rate is generally
set at one of the rates then prevailing for
fixed rate mortgages. There may be additional
cost for this clause.
Convertible ARM:
an adjustable-rate mortgage that provides the
borrower the ability to convert to a fixed-rate
within a specified time.
Cooperative (Co-op):
residents purchase stock in a cooperative corporation
that owns a structure; each stockholder is then
entitled to live in a specific unit of the structure
and is responsible for paying a portion of the
loan.
Cost of
Funds Index (COFI): an index used
to determine interest rate changes for some
adjustable-rate mortgages.
Counter Offer:
a rejection to all or part of a purchase offer
that negotiates different terms to reach an
acceptable sales contract.
Covenants:
legally enforceable terms that govern the use
of property. These terms are transferred with
the property deed. Discriminatory covenants
are illegal and unenforceable. Also known as
a condition, restriction, deed restriction or
restrictive covenant.
Credit: an
agreement that a person will borrow money and
repay it to the lender over time.
Credit Bureau:
an agency that provides financial information
and payment history to lenders about potential
borrowers. Also known as a National Credit Repository.
Credit Counseling: education on how to improve
bad credit and how to avoid having more debt
than can be repaid.
Credit Enhancement:
a method used by a lender to reduce default
of a loan by requiring collateral, mortgage
insurance, or other agreements.
Credit Grantor:
the lender that provides a loan or credit.
Credit History:
a record of an individual that lists all debts
and the payment history for each. The report
that is generated from the history is called
a credit report. Lenders use this information
to gauge a potential borrower's ability to repay
a loan.
Credit
Loss Ratio: the ratio of credit-related
losses to the dollar amount of MBS outstanding
and total mortgages owned by the corporation.
Credit Related
Expenses: foreclosed property expenses
plus the provision for losses.
Credit Related Losses:
foreclosed property expenses combined
with charge-offs.
Credit Repair Companies:
Private, for-profit businesses that claim to
offer consumers credit and debt repayment difficulties
assistance with their credit problems and a
bad credit report.
Credit Report:
a report generated by the credit bureau that
contains the borrower's credit history for the
past seven years. Lenders use this information
to determine if a loan will be granted.
Credit Risk:
a term used to describe the possibility of default
on a loan by a borrower.
Credit Score:
a score calculated by using a person's credit
report to determine the likelihood of a loan
being repaid on time. Scores range from about
360 - 840: a lower score meaning a person is
a higher risk, while a higher score means that
there is less risk.
Credit Union:
a non-profit financial institution federally
regulated and owned by the members or people
who use their services. Credit unions serve
groups that hold a common interest and you have
to become a member to use the available services.
Creditor:
the lending institution providing a loan or
credit.
Creditworthiness:
the way a lender measures the ability of a person
to qualify and repay a loan.
D
Debtor:
The person or entity that borrows money. The
term debtor may be used interchangeably with
the term borrower.
Debt-to-Income Ratio:
a comparison or ratio of gross income to housing
and non-housing expenses; With the FHA, the-monthly
mortgage payment should be no more than 29%
of monthly gross income (before taxes) and the
mortgage payment combined with non-housing debts
should not exceed 41% of income.
Debt Security:
a security that represents a loan from an investor
to an issuer. The issuer in turn agrees to pay
interest in addition to the principal amount
borrowed.
Deductible:
the amount of cash payment that is made by the
insured (the homeowner) to cover a portion of
a damage or loss. Sometimes also called "out-of-pocket
expenses." For example, out of a total
damage claim of $1,000, the homeowner might
pay a $250 deductible toward the loss, while
the insurance company pays $750 toward the loss.
Typically, the higher the deductible, the lower
the cost of the policy.
Deed: a document
that legally transfers ownership of property
from one person to another. The deed is recorded
on public record with the property description
and the owner's signature. Also known as the
title.
Deed-in-Lieu:
to avoid foreclosure ("in lieu" of
foreclosure), a deed is given to the lender
to fulfill the obligation to repay the debt;
this process does not allow the borrower to
remain in the house but helps avoid the costs,
time, and effort associated with foreclosure.
Default:
the inability to make timely monthly mortgage
payments or otherwise comply with mortgage terms.
A loan is considered in default when payment
has not been paid after 60 to 90 days. Once
in default the lender can exercise legal rights
defined in the contract to begin foreclosure
proceedings
Delinquency: failure of a borrower
to make timely mortgage payments under a loan
agreement. Generally after fifteen days a late
fee may be assessed.
Deposit (Earnest Money):
money put down by a potential buyer
to show that they are serious about purchasing
the home; it becomes part of the down payment
if the offer is accepted, is returned if the
offer is rejected, or is forfeited if the buyer
pulls out of the deal. During the contingency
period the money may be returned to the buyer
if the contingencies are not met to the buyer's
satisfaction.
Depreciation:
a decrease in the value or price of a property
due to changes in market conditions, wear and
tear on the property, or other factors.
Derivative:
a contract between two or more parties
where the security is dependent on the price
of another investment.
Disclosures:
the release of relevant information about a
property that may influence the final sale,
especially if it represents defects or problems. "Full
disclosure" usually refers to the responsibility
of the seller to voluntarily provide all known
information about the property. Some disclosures
may be required by law, such as the federal
requirement to warn of potential lead-based
paint hazards in pre-1978 housing. A seller
found to have knowingly lied about a defect
may face legal penalties.
Discount Point:
normally paid at closing and generally calculated
to be equivalent to 1% of the total loan amount,
discount points are paid to reduce the interest
rate on a loan. In an ARM with an initial rate
discount, the lender gives up a number of percentage
points in interest to give you a lower rate
and lower payments for part of the mortgage
term (usually for one year or less). After the
discount period, the ARM rate will probably
go up depending on the index rate.
Down Payment:
the portion of a home's purchase price that
is paid in cash and is not part of the mortgage
loan. This amount varies based on the loan type,
but is determined by taking the difference of
the sale price and the actual mortgage loan
amount. Mortgage insurance is required when
a down payment less than 20 percent is made.
Document Recording:
after closing on a loan, certain documents are
filed and made public record. Discharges for
the prior mortgage holder are filed first. Then
the deed is filed with the new owner's and mortgage
company's names.
Due on Sale Clause:
a provision of a loan allowing the lender to
demand full repayment of the loan if the property
is sold.
Duration:
the number of years it will take
to receive the present value of all future payments
on a security to include both principal and
interest.
E
Earnest Money (Deposit):
money put down by a potential buyer to show
that they are serious about purchasing the home;
it becomes part of the down payment if the offer
is accepted, is returned if the offer is rejected,
or is forfeited if the buyer pulls out of the
deal. During the contingency period the money
may be returned to the buyer if the contingencies
are not met to the buyer's satisfaction.
Earnings Per Share
(EPS): a corporation's profit that
is divided among each share of common stock.
It is determined by taking the net earnings
divided by the number of outstanding common
stocks held. This is a way that a company reports
profitability.
Easements:
the legal rights that give someone other than
the owner access to use property for a specific
purpose. Easements may affect property values
and are sometimes a part of the deed.
EEM:
Energy Efficient Mortgage; an FHA program
that helps homebuyers save money on utility
bills by enabling them to finance the cost of
adding energy efficiency features to a new or
existing home as part of the home purchase
Eminent Domain:
when a government takes private property for
public use. The owner receives payment for its
fair market value. The property can then proceed
to condemnation proceedings.
Encroachments:
a structure that extends over the legal
property line on to another individual's property.
The property surveyor will note any encroachment
on the lot survey done before property transfer.
The person who owns the structure will be asked
to remove it to prevent future problems.
Encumbrance:
anything that affects title to a property, such
as loans, leases, easements, or restrictions.
Equal Credit Opportunity
Act (ECOA): a federal law requiring
lenders to make credit available equally without
discrimination based on race, color, religion,
national origin, age, sex, marital status, or
receipt of income from public assistance programs.
Equity:
an owner's financial interest in a property;
calculated by subtracting the amount still owed
on the mortgage loon(s)from the fair market
value of the property.
Escape Clause:
a provision in a purchase contract that allows
either party to cancel part or the entire contract
if the other does not respond to changes to
the sale within a set period. The most common
use of the escape clause is if the buyer makes
the purchase offer contingent on the sale of
another house.
Escrow: funds
held in an account to be used by the lender
to pay for home insurance and property taxes.
The funds may also be held by a third party
until contractual conditions are met and then
paid out.
Escrow
Account: a separate account into
which the lender puts a portion of each monthly
mortgage payment; an escrow account provides
the funds needed for such expenses as property
taxes, homeowners insurance, mortgage insurance,
etc.
Estate:
the ownership interest of a person in real property.
The sum total of all property, real and personal,
owned by a person.
Exclusive Listing:
a written contract giving a real estate agent
the exclusive right to sell a property for a
specific timeframe.
F
FICO Score:
FICO is an abbreviation for Fair Isaac Corporation
and refers to a person's credit score based
on credit history. Lenders and credit card companies
use the number to decide if the person is likely
to pay his or her bills. A credit score is evaluated
using information from the three major credit
bureaus and is usually between 300 and 850.
FSBO (For Sale
by Owner): a home that is offered
for sale by the owner without the benefit of
a real estate professional.
Fair Credit Reporting
Act: federal act to ensure that credit
bureaus are fair and accurate protecting the
individual's privacy rights enacted in 1971
and revised in October 1997.
Fair Housing Act:
a law that prohibits discrimination in all facets
of the home buying process on the basis of race,
color, national origin, religion, sex, familial
status, or disability.
Fair Market Value:
the hypothetical price that a willing buyer
and seller will agree upon when they are acting
freely, carefully, and with complete knowledge
of the situation.
Familial Status:
HUD uses this term to describe a single person,
a pregnant woman or a household with children
under 18 living with parents or legal custodians
who might experience housing discrimination.
Fannie Mae:
Federal National Mortgage Association (FNMA);
a federally-chartered enterprise owned by private
stockholders that purchases residential mortgages
and converts them into securities for sale to
investors; by purchasing mortgages, Fannie Mae
supplies funds that lenders may loan to potential
homebuyers. Also known as a Government Sponsored
Enterprise (GSE).
FHA: Federal
Housing Administration; established in 1934
to advance homeownership opportunities for all
Americans; assists homebuyers by providing mortgage
insurance to lenders to cover most losses that
may occur when a borrower defaults; this encourages
lenders to make loans to borrowers who might
not qualify for conventional mortgages.
First Mortgage:
the mortgage with first priority
if the loan is not paid.
Fixed Expenses:
payments that do not vary from month to
month.
Fixed-Rate
Mortgage: a mortgage with payments
that remain the same throughout the life of
the loan because the interest rate and other
terms are fixed and do not change.
Fixture:
personal property permanently attached to real
estate or real property that becomes a part
of the real estate.
Float: the
act of allowing an interest rate and discount
points to fluctuate with changes in the market.
Flood Insurance:
insurance that protects homeowners against losses
from a flood; if a home is located in a flood
plain, the lender will require flood insurance
before approving a loan.
Forbearance:
a lender may decide not to take legal action
when a borrower is late in making a payment.
Usually this occurs when a borrower sets up
a plan that both sides agree will bring overdue
mortgage payments up to date.
Foreclosure:
a legal process in which mortgaged property
is sold to pay the loan of the defaulting borrower.
Foreclosure laws are based on the statutes of
each state.
Freddie Mac: Federal Home Loan Mortgage
Corporation (FHLM); a federally chartered corporation
that purchases residential mortgages, securitizes
them, and sells them to investors; this provides
lenders with funds for new homebuyers. Also
known as a Government Sponsored Enterprise (GSE).
Front End Ratio:
a percentage comparing a borrower's total monthly
cost to buy a house (mortgage principal and
interest, insurance, and real estate taxes)
to monthly income before deductions.
G
GSE: abbreviation
for government sponsored enterprises: a collection
of financial services corporations formed by
the United States Congress to reduce interest
rates for farmers and homeowners. Examples include
Fannie Mae and Freddie Mac.
Ginnie Mae:
Government National Mortgage Association (GNMA);
a government-owned corporation overseen by the
U.S. Department of Housing and Urban Development,
Ginnie Mae pools FHA-insured and VA-guaranteed
loans to back securities for private investment;
as With Fannie Mae and Freddie Mac, the investment
income provides funding that may then be lent
to eligible borrowers by lenders.
Global Debt Facility:
designed to allow investors all over the world
to purchase debt (loans) of U.S. dollar and
foreign currency through a variety of clearing
systems.
Good
Faith Estimate: an estimate of all
closing fees including pre-paid and escrow items
as well as lender charges; must be given to
the borrower within three days after submission
of a loan application.
Graduated Payment Mortgages:
mortgages that begin with lower monthly
payments that get slowly larger over a period
of years, eventually reaching a fixed level
and remaining there for the life of the loan.
Graduated payment loans may be good if you expect
your annual income to increase.
Grantee: an
individual to whom an interest in real property
is conveyed.
Grantor: an
individual conveying an interest in real property.
Gross Income:
money earned before taxes and other deductions.
Sometimes it may include income from self-employment,
rental property, alimony, child support, public
assistance payments, and retirement benefits.
Guaranty Fee:
payment to FannieMae from a lender for the assurance
of timely principal and interest payments to
MBS (Mortgage Backed Security) security holders.
H
HECM (Reverse
Mortgage): the reverse mortgage is used by senior
homeowners age 62 and older to convert the equity
in their home into monthly streams of income
and/or a line of credit to be repaid when they
no longer occupy the home. A lending institution
such as a mortgage lender, bank, credit union
or savings and loan association funds the FHA
insured loan, commonly known as HECM.
Hazard Insurance:
protection against a specific loss, such as
fire, wind etc., over a period of time that
is secured by the payment of a regularly scheduled
premium.
HELP:
Homebuyer Education Learning Program; an educational
program from the FHA that counsels people about
the home buying process; HELP covers topics
like budgeting, finding a home, getting a loan,
and home maintenance; in most cases, completion
of the program may entitle the homebuyer to
a reduced initial FHA mortgage insurance premium-from
2.25% to 1.75% of the home purchase price.
Home Equity Line
of Credit: a mortgage loan, usually
in second mortgage, allowing a borrower to obtain
cash against the equity of a home, up to a predetermined
amount.
Home
Equity Loan: a loan backed by the
value of a home (real estate). If the borrower
defaults or does not pay the loan, the lender
has some rights to the property. The borrower
can usually claim a home equity loan as a tax
deduction. Home Inspection: an examination
of the structure and mechanical systems to determine
a home's quality, soundness and safety; makes
the potential homebuyer aware of any repairs
that may be needed. The homebuyer generally
pays inspection fees.
Home Warranty:
offers protection for mechanical systems and
attached appliances against unexpected repairs
not covered by homeowner's insurance; coverage
extends over a specific time period and does
not cover the home's structure.
Homeowner's Insurance:
an insurance policy, also called hazard insurance,
that combines protection against damage to a
dwelling and its contents including fire, storms
or other damages with protection against claims
of negligence or inappropriate action that result
in someone's injury or property damage. Most
lenders require homeowners insurance and may
escrow the cost. Flood insurance is generally
not included in standard policies and must be
purchased separately.
Homeownership Education
Classes: classes that stress the
need to develop a strong credit history and
offer information about how to get a mortgage
approved, qualify for a loan, choose an affordable
home, go through financing and closing processes,
and avoid mortgage problems that cause people
to lose their homes.
Homestead Credit:
property tax credit program, offered by some
state governments, that provides reductions
in property taxes to eligible households.
Housing Counseling
Agency: provides counseling and assistance
to individuals on a variety of issues, including
loan default, fair housing, and home buying.
HUD:
the U.S. Department of Housing and Urban
Development; established in 1965, HUD works
to create a decent home and suitable living
environment for all Americans; it does this
by addressing housing needs, improving and developing
American communities, and enforcing fair housing
laws.
HUD1
Statement: also known as the "settlement
sheet," or "closing statement"
it itemizes all closing costs; must be given
to the borrower at or before closing. Items
that appear on the statement include real estate
commissions, loan fees, points, and escrow amounts.
HVAC:
Heating, Ventilation and Air Conditioning; a
home's heating and cooling system.
I
Indemnification:
to secure against any loss or damage, compensate
or give security for reimbursement for loss
or damage incurred. A homeowner should negotiate
for inclusion of an indemnification provision
in a contract with a general contractor or for
a separate indemnity agreement protecting the
homeowner from harm, loss or damage caused by
actions or omissions of the general (and all
sub) contractor.
Index: the
measure of interest rate changes that the lender
uses to decide how much the interest rate of
an ARM will change over time. No one can be
sure when an index rate will go up or down.
If a lender bases interest rate adjustments
on the average value of an index over time,
your interest rate would not be as volatile.
You should ask your lender how the index for
any ARM you are considering has changed in recent
years, and where it is reported.
Inflation:
the number of dollars in circulation exceeds
the amount of goods and services available for
purchase; inflation results in a decrease in
the dollar's value.
Inflation Coverage:
endorsement to a homeowner's policy that automatically
adjusts the amount of insurance to compensate
for inflationary rises in the home's value.
This type of coverage does not adjust for increases
in the home's value due to improvements.
Inquiry:
a credit report request. Each time a credit
application is completed or more credit is requested
counts as an inquiry. A large number of inquiries
on a credit report can sometimes make a credit
score lower.
Interest: a
fee charged for the use of borrowing money.
Interest Rate:
the amount of interest charged on
a monthly loan payment, expressed as a percentage.
Interest Rate Swap:
a transaction between two parties where each
agrees to exchange payments tied to different
interest rates for a specified period of time,
generally based on a notional principal amount.
Intermediate Term
Mortgage: a mortgage loan with a
contractual maturity from the time of purchase
equal to or less than 20 years.
Insurance:
protection against a specific loss, such as
fire, wind etc., over a period of time that
is secured by the payment of a regularly scheduled
premium.
J
Joint Tenancy (with
Rights of Survivorship): two or more
owners share equal ownership and rights to the
property. If a joint owner dies, his or her
share of the property passes to the other owners,
without probate. In joint tenancy, ownership
of the property cannot be willed to someone
who is not a joint owner.
Judgment: a
legal decision; when requiring debt repayment,
a judgment may include a property lien that
secures the creditor's claim by providing a
collateral source.
Jumbo Loan:
or non-conforming loan, is a loan that exceeds
Fannie Mae's and Freddie Mac's loan limits.
Freddie Mac and Fannie Mae loans are referred
to as conforming loans.
K
L
Late Payment Charges:
the penalty the homeowner must pay when a mortgage
payment is made after the due date grace period.
Lease:
a written agreement between a property owner
and a tenant (resident) that stipulates the
payment and conditions under which the tenant
may occupy a home or apartment and states a
specified period of time.
Lease Purchase (Lease
Option): assists low to moderate
income homebuyers in purchasing a home by allowing
them to lease a home with an option to buy;
the rent payment is made up of the monthly rental
payment plus an additional amount that is credited
to an account for use as a down payment.
Lender:
A term referring to an person or company
that makes loans for real estate purchases.
Sometimes referred to as a loan officer or lender.
Lender Option Commitments:
an agreement giving a lender the option to deliver
loans or securities by a certain date at agreed
upon terms.
Liabilities: a person's financial
obligations such as long-term / short-term debt,
and other financial obligations to be paid.
Liability Insurance:
insurance coverage that protects against claims
alleging a property owner's negligence or action
resulted in bodily injury or damage to another
person. It is normally included in homeowner's
insurance policies.
Lien: a legal
claim against property that must be satisfied
when the property is sold. A claim of money
against a property, wherein the value of the
property is used as security in repayment of
a debt. Examples include a mechanic's lien,
which might be for the unpaid cost of building
supplies, or a tax lien for unpaid property
taxes. A lien is a defect on the title and needs
to be settled before transfer of ownership.
A lien release is a written report of the settlement
of a lien and is recorded in the public record
as evidence of payment.
Lien Waiver:
A document that releases a consumer (homeowner)
from any further obligation for payment of a
debt once it has been paid in full. Lien waivers
typically are used by homeowners who hire a
contractor to provide work and materials to
prevent any subcontractors or suppliers of materials
from filing a lien against the homeowner for
nonpayment.
Life Cap: a limit on the range interest
rates can increase or decrease over the life
of an adjustable-rate mortgage (ARM).
Line of Credit:
an agreement by a financial institution
such as a bank to extend credit up to a certain
amount for a certain time to a specified borrower.
Liquid Asset:
a cash asset or an asset that is
easily converted into cash.
Listing Agreement:
a contract between a seller and a real estate
professional to market and sell a home. A listing
agreement obligates the real estate professional
(or his or her agent) to seek qualified buyers,
report all purchase offers and help negotiate
the highest possible price and most favorable
terms for the property seller.
Loan: money
borrowed that is usually repaid with interest.
Loan Acceleration:
an acceleration clause in a loan
document is a statement in a mortgage that gives
the lender the right to demand payment of the
entire outstanding balance if a monthly payment
is missed.
Loan
Fraud: purposely giving incorrect
information on a loan application in order to
better qualify for a loan; may result in civil
liability or criminal penalties.
Loan Officer:
a representative of a lending or mortgage company
who is responsible for soliciting homebuyers,
qualifying and processing of loans. They may
also be called lender, loan representative,
account executive or loan rep.
Loan Origination Fee:
a charge by the lender to cover the administrative
costs of making the mortgage. This charge is
paid at the closing and varies with the lender
and type of loan. A loan origination fee of
1 to 2 percent of the mortgage amount is common.
Loan Servicer:
the company that collects monthly mortgage payments
and disperses property taxes and insurance payments.
Loan Service also monitor nonperforming loans,
contact delinquent borrowers, and notify insurers
and investors of potential problems. Loan Service
may be the lender or a specialized company that
just handles loan servicing under contract with
the lender or the investor who owns the loan.
Loan to Value (LTV)
Ratio: a percentage calculated by
dividing the amount borrowed by the price or
appraised value of the home to be purchased;
the higher the LTV, the less cash a borrower
is required to pay as down payment.
Lock-In:
since interest rates can change frequently,
many lenders offer an interest rate lock-in
that guarantees a specific interest rate if
the loan is closed within a specific time.
Lock-in Period:
the length of time that the lender has guaranteed
a specific interest rate to a borrower.
Loss Mitigation:
a process to avoid foreclosure; the lender tries
to help a borrower who has been unable to make
loan payments and is in danger of defaulting
on his or her loan
M
Mandatory Delivery
Commitment: an agreement that a lender
will deliver loans or securities by a certain
date at agreed-upon terms.
Margin: the
number of percentage points the lender adds
to the index rate to calculate the ARM interest
rate at each adjustment.
Market Value:
the amount a willing buyer would pay a willing
seller for a home. An appraised value is an
estimate of the current fair market value.
Maturity:
the date when the principal balance of a loan
becomes due and payable.
Median Price:
the price of the house that falls in the middle
of the total number of homes for sale in that
area.
Medium
Term Notes: unsecured general obligations
of Fannie Mae with maturities of one day or
more and with principal and interest payable
in U.S. dollars.
Merged Credit Report:
raw data pulled from two or more of the major
credit-reporting firms.
Mitigation:
term usually used to refer to various changes
or improvements made in a home; for instance,
to reduce the average level of radon.
Modification:
when a lender agrees to modify the terms of
a mortgage without refinancing the loan.
Mortgage:
a lien on the property that secures
the Promise to repay a loan. A security agreement
between the lender and the buyer in which the
property is collateral for the loan. The mortgage
gives the lender the right to collect payment
on the loan and to foreclose if the loan obligations
are not met.
Mortgage Acceleration
Clause: a clause allowing a lender,
under certain circumstances, demand the entire
balance of a loan is repaid in a lump sum. The
acceleration clause is usually triggered if
the home is sold, title to the property is changed,
the loan is refinanced or the borrower defaults
on a scheduled payment.
Mortgage-Backed Security
(MBS): a Fannie Mae security that
represents an undivided interest in a group
of mortgages. Principal and interest payments
from the individual mortgage loans are grouped
and paid out to the MBS holders.
Mortgage Banker:
a company that originates loans and resells
them to secondary mortgage lenders like Fannie
Mae or Freddie Mac.
Mortgage Broker:
a firm that originates and processes
loans for a number of lenders.
Mortgage Life and Disability
Insurance: term life insurance bought
by borrowers to pay off a mortgage in the event
of death or make monthly payments in the case
of disability. The amount of coverage decreases
as the principal balance declines. There are
many different terms of coverage determining
amounts of payments and when payments begin
and end.
Mortgage
Insurance: a policy that protects
lenders against some or most of the losses that
can occur when a borrower defaults on a mortgage
loan; mortgage insurance is required primarily
for borrowers with a down payment of less than
20% of the home's purchase price. Insurance
purchased by the buyer to protect the lender
in the event of default. Typically purchased
for loans with less than 20 percent down payment.
The cost of mortgage insurance is usually added
to the monthly payment. Mortgage insurance is
maintained on conventional loans until the outstanding
amount of the loan is less than 80 percent of
the value of the house or for a set period of
time (7 years is common). Mortgage insurance
also is available through a government agency,
such as the Federal Housing Administration (FHA)
or through companies (Private Mortgage Insurance
or PMI).
Mortgage
Insurance Premium (MIP): a monthly
payment -usually part of the mortgage payment
- paid by a borrower for mortgage insurance.
Mortgage Interest
Deduction: the interest cost of a
mortgage, which is a tax - deductible expense.
The interest reduces the taxable income of taxpayers.
Mortgage Modification:
a loss mitigation option that allows
a borrower to refinance and/or extend the term
of the mortgage loan and thus reduce the monthly
payments.
Mortgage
Note: a legal document obligating
a borrower to repay a loan at a stated interest
rate during a specified period; the agreement
is secured by a mortgage that is recorded in
the public records along with the deed.
Mortgage Qualifying
Ratio: Used to calculate the maximum
amount of funds that an individual traditionally
may be able to afford. A typical mortgage qualifying
ratio is 28: 36.
Mortgage Score:
a score based on a combination of information
about the borrower that is obtained from the
loan application, the credit report, and property
value information. The score is a comprehensive
analysis of the borrower's ability to repay
a mortgage loan and manage credit.
Mortgagee:
the lender in a mortgage agreement. Mortgagor
- The borrower in a mortgage agreement.
Mortgagor:
the borrower in a mortgage agreement
Multifamily Housing:
a building with more than four residential
rental units.
Multiple Listing Service
(MLS): within the Metro Columbus
area, Realtors submit listings and agree to
attempt to sell all properties in the MLS. The
MLS is a service of the local Columbus Board
of Realtors?. The local MLS has a protocol for
updating listings and sharing commissions. The
MLS offers the advantage of more timely information,
availability, and access to houses and other
types of property on the market.
N
National Credit Repositories:
currently, there are three companies that maintain
national credit - reporting databases. These
are Equifax, Experian, and Trans Union, referred
to as Credit Bureaus.
Negative Amortization:
amortization means that monthly payments are
large enough to pay the interest and reduce
the principal on your mortgage. Negative amortization
occurs when the monthly payments do not cover
all of the interest cost. The interest cost
that isn't covered is added to the unpaid principal
balance. This means that even after making many
payments, you could owe more than you did at
the beginning of the loan. Negative amortization
can occur when an ARM has a payment cap that
results in monthly payments not high enough
to cover the interest due.
Net Income:
Your take-home pay, the amount of money that
you receive in your paycheck after taxes and
deductions.
No Cash Out Refinance: a refinance
of an existing loan only for the amount remaining
on the mortgage. The borrower does not get any
cash against the equity of the home. Also called
a "rate and term refinance."
No Cost Loan:
there are many variations of a no
cost loan. Generally, it is a loan that does
not charge for items such as title insurance,
escrow fees, settlement fees, appraisal, recording
fees or notary fees. It may also offer no points.
This lessens the need for upfront cash during
the buying process however no cost loans have
a higher interest rate.
Nonperforming Asset:
an asset such as a mortgage that is not currently
accruing interest or which interest is not being
paid.
Note:
a legal document obligating a borrower to repay
a mortgage loan at a stated interest rate over
a specified period of time.
Note Rate:
the interest rate stated on a mortgage note.
Notice of Default:
a formal written notice to a borrower that there
is a default on a loan and that legal action
is possible.
Notional Principal Amount:
the proposed amount which interest rate swap
payments are based but generally not paid or
received by either party.
Non-Conforming loan:
is a loan that exceeds Fannie Mae's and
Freddie Mac's loan limits. Freddie Mac and Fannie
Mae loans are referred to as conforming loans.
Notary Public:
a person who serves as a public official and
certifies the authenticity of required signatures
on a document by signing and stamping the document.
O
Offer:
indication by a potential buyer of a willingness
to purchase a home at a specific price; generally
put forth in writing.
Original Principal Balance:
the total principal owed on a mortgage prior
to any payments being made.
Origination:
the process of preparing, submitting, and evaluating
a loan application; generally includes a credit
check, verification of employment, and a property
appraisal.
Origination
Fee: the charge for originating a
loan; is usually calculated in the form of points
and paid at closing. One point equals one percent
of the loan amount. On a conventional loan,
the loan origination fee is the number of points
a borrower pays.
Owner Financing:
a home purchase where the seller provides all
or part of the financing, acting as a lender.
Ownership:
ownership is documented by the deed to a property.
The type or form of ownership is important if
there is a change in the status of the owners
or if the property changes ownership.
Owner's Policy:
the insurance policy that protects the buyer
from title defects.
P
PITI: Principal,
Interest, Taxes, and Insurance: the four elements
of a monthly mortgage payment; payments of principal
and interest go directly towards repaying the
loan while the portion that covers taxes and
insurance (homeowner's and mortgage, if applicable)
goes into an escrow account to cover the fees
when they are due.
PITI Reserves:
a cash amount that a borrower must have
on hand after making a down payment and paying
all closing costs for the purchase of a home.
The principal, interest, taxes, and insurance
(PITI) reserves must equal the amount that the
borrower would have to pay for PITI for a predefined
number of months.
PMI: Private
Mortgage Insurance; privately-owned companies
that offer standard and special affordable mortgage
insurance programs for qualified borrowers with
down payments of less than 20% of a purchase
price.
Partial
Claim: a loss mitigation option offered
by the FHA that allows a borrower, with help
from a lender, to get an interest-free loan
from HUD to bring their mortgage payments up
to date.
Partial
Payment: a payment that is less than
the total amount owed on a monthly mortgage
payment. Normally, lenders do not accept partial
payments. The lender may make exceptions during
times of difficulty. Contact your lender prior
to the due date if a partial payment is needed.
Payment Cap:
a limit on how much an ARM's payment may increase,
regardless of how much the interest rate increases.
Payment Change
Date: the date when a new monthly
payment amount takes effect on an adjustable-rate
mortgage (ARM) or a graduated-payment mortgage
(GPM). Generally, the payment change date occurs
in the month immediately after the interest
rate adjustment date.
Payment Due Date:
Contract language specifying when payments are
due on money borrowed. The due date is always
indicated and means that the payment must be
received on or before the specified date. Grace
periods prior to assessing a late fee or additional
interest do not eliminate the responsibility
of making payments on time.
Perils: for
homeowner's insurance, an event that can damage
the property. Homeowner's insurance may cover
the property for a wide variety of perils caused
by accidents, nature, or people.
Personal Property:
any property that is not real property
or attached to real property. For example furniture
is not attached however a new light fixture
would be considered attached and part of the
real property.
Planned Unit Development
(PUD): a development that is planned,
and constructed as one entity. Generally, there
are common features in the homes or lots governed
by covenants attached to the deed. Most planned
developments have common land and facilities
owned and managed by the owner's or neighborhood
association. Homeowners usually are required
to participate in the association via a payment
of annual dues.
Points:
a point is equal to one percent of the principal
amount of your mortgage. For example, if you
get a mortgage for $95,000, one point means
you pay $950 to the lender. Lenders frequently
charge points in both fixed-rate and adjustable-rate
mortgages in order to increase the yield on
the mortgage and to cover loan closing costs.
These points usually are collected at closing
and may be paid by the borrower or the home
seller, or may be split between them.
Power of Attorney:
a legal document that authorizes
another person to act on your behalf. A power
of attorney can grant complete authority or
can be limited to certain acts or certain periods
of time or both.
Pre-Approval:
a lender commits to lend to a potential borrower
a fixed loan amount based on a completed loan
application, credit reports, debt, savings and
has been reviewed by an underwriter. The commitment
remains as long as the borrower still meets
the qualification requirements at the time of
purchase. This does not guaranty a loan until
the property has passed inspections underwriting
guidelines.
Predatory Lending: abusive lending
practices that include a mortgage loan to someone
who does not have the ability to repay. It also
pertains to repeated refinancing of a loan charging
high interest and fees each time.
Predictive Variables:
The variables that are part of the formula comprising
elements of a credit-scoring model. These variables
are used to predict a borrower's future credit
performance.
Preferred Stock:
stock that takes priority over common stock
with regard to dividends and liquidation rights.
Preferred stockholders typically have no voting
rights.
Pre-foreclosure
Sale: a procedure in which the borrower
is allowed to sell a property for an amount
less than what is owed on it to avoid a foreclosure.
This sale fully satisfies the borrower's debt.
Prepayment:
any amount paid to reduce the principal balance
of a loan before the due date or payment in
full of a mortgage. This can occur with the
sale of the property, the pay off the loan in
full, or a foreclosure. In each case, full payment
occurs before the loan has been fully amortized.
Prepayment Penalty:
a provision in some loans that charge a fee
to a borrower who pays off a loan before it
is due.
Pre-Foreclosure
sale: allows a defaulting borrower
to sell the mortgaged property to satisfy the
loan and avoid foreclosure.
Pre-Qualify:
a lender informally determines the maximum amount
an individual is eligible to borrow. This is
not a guaranty of a loan.
Premium: an
amount paid on a regular schedule by a policyholder
that maintains insurance coverage.
Prepayment:
payment of the mortgage loan before the scheduled
due date; may be Subject to a prepayment penalty.
Prepayment Penalty:
a fee charged to a homeowner who pays one or
more monthly payments before the due date. It
can also apply to principal reduction payments.
Prepayment Penalty
Mortgage (PPM): a type of mortgage
that requires the borrower to pay a penalty
for prepayment, partial payment of principal
or for repaying the entire loan within a certain
time period. A partial payment is generally
defined as an amount exceeding 20% of the original
principal balance.
Price Range:
the high and low amount a buyer is willing to
pay for a home.
Prime Rate:
the interest rate that banks charge to preferred
customers. Changes in the prime rate are publicized
in the business media. Prime rate can be used
as the basis for adjustable rate mortgages (ARMs)
or home equity lines of credit. The prime rate
also affects the current interest rates being
offered at a particular point in time on fixed
mortgages. Changes in the prime rate do not
affect the interest on a fixed mortgage.
Principal:
the amount of money borrowed to buy a house
or the amount of the loan that has not been
paid back to the lender. This does not include
the interest paid to borrow that money. The
principal balance is the amount owed on a loan
at any given time. It is the original loan amount
minus the total repayments of principal made.
Principal, Interest,
Taxes, and Insurance (PITI): the
four elements of a monthly mortgage payment;
payments of principal and interest go directly
towards repaying the loan while the portion
that covers taxes and insurance (homeowner's
and mortgage, if applicable) goes into an escrow
account to cover the fees when they are due.
Private Mortgage
Insurance (PMI): insurance purchased
by a buyer to protect the lender in the event
of default. The cost of mortgage insurance is
usually added to the monthly payment. Mortgage
insurance is generally maintained until over
20 Percent of the outstanding amount of the
loan is paid or for a set period of time, seven
years is normal. Mortgage insurance may be available
through a government agency, such as the Federal
Housing Administration (FHA) or through private
mortgage insurance companies (PMI).
Promissory Note:
a written promise to repay a specified amount
over a specified period of time.
Property (Fixture and
Non-Fixture): in a real estate contract,
the property is the land within the legally
described boundaries and all permanent structures
and fixtures. Ownership of the property confers
the legal right to use the property as allowed
within the law and within the restrictions of
zoning or easements. Fixture property refers
to those items permanently attached to the structure,
such as carpeting or a ceiling fan, which transfers
with the property.
Property Tax:
a tax charged by local government and used to
fund municipal services such as schools, police,
or street maintenance. The amount of property
tax is determined locally by a formula, usually
based on a percent per $1,000 of assessed value
of the property.
Property Tax Deduction:
the U.S. tax code allows homeowners to deduct
the amount they have paid in property taxes
from there total income.
Public Record Information:
Court records of events that are a matter of
public interest such as credit, bankruptcy,
foreclosure and tax liens. The presence of public
record information on a credit report is regarded
negatively by creditors.
Punch List:
a list of items that have not been completed
at the time of the final walk through of a newly
constructed home.
Purchase Offer:
A detailed, written document that makes an offer
to purchase a property, and that may be amended
several times in the process of negotiations.
When signed by all parties involved in the sale,
the purchase offer becomes a legally binding
contract, sometimes called the Sales Contract.
Q
Qualifying Ratios:
guidelines utilized by lenders to determine
how much money a homebuyer is qualified to borrow.
Lending guidelines typically include a maximum
housing expense to income ratio and a maximum
monthly expense to income ratio.
Quitclaim Deed:
a deed transferring ownership of a property
but does not make any guarantee of clear title.
R
RESPA: Real
Estate Settlement Procedures Act; a law protecting
consumers from abuses during the residential
real estate purchase and loan process by requiring
lenders to disclose all settlement costs, practices,
and relationships
Radon: a radioactive
gas found in some homes that, if occurring in
strong enough concentrations, can cause health
problems.
Rate
Cap: a limit on an ARM on how much
the interest rate or mortgage payment may change.
Rate caps limit how much the interest rates
can rise or fall on the adjustment dates and
over the life of the loan.
Rate Lock:
a commitment by a lender to a borrower guaranteeing
a specific interest rate over a period of time
at a set cost.
Real Estate Agent:
an individual who is licensed to negotiate and
arrange real estate sales; works for a real
estate broker.
Real Estate Mortgage Investment
Conduit (REMIC): a security representing
an interest in a trust having multiple classes
of securities. The securities of each class
entitle investors to cash payments structured
differently from the payments on the underlying
mortgages.
Real
Estate Property Tax Deduction: a
tax deductible expense reducing a taxpayer's
taxable income.
Real Estate Settlement
Procedures Act (RESPA): a law protecting
consumers from abuses during the residential
real estate purchase and loan process by requiring
lenders to disclose all settlement costs, practices,
and relationships
Real Property:
land, including all the natural resources and
permanent buildings on it.
REALTOR?: a
real estate agent or broker who is a member
of the NATIONAL ASSOCIATION OF REALTORS, and
its local and state associations. Recorder:
the public official who keeps records of transactions
concerning real property. Sometimes known as
a "Registrar of Deeds" or "County
Clerk."
Recording:
the recording in a registrar's office of an
executed legal document. These include deeds,
mortgages, satisfaction of a mortgage, or an
extension of a mortgage making it a part of
the public record.
Recording Fees:
charges for recording a deed with the appropriate
government agency.
Refinancing:
paying off one loan by obtaining another; refinancing
is generally done to secure better loan terms
(like a lower interest rate).
Rehabilitation Mortgage:
a mortgage that covers the costs of rehabilitating
(repairing or Improving) a property; some rehabilitation
mortgages - like the FHA's 203(k) - allow a
borrower to roll the costs of rehabilitation
and home purchase into one mortgage loan.
Reinstatement Period:
a phase of the foreclosure process where the
homeowner has an opportunity to stop the foreclosure
by paying money that is owed to the lender.
Remaining Balance:
the amount of principal that has not yet been
repaid.
Remaining
Term: the original amortization term
minus the number of payments that have been
applied.
Repayment
plan: an agreement between a lender
and a delinquent borrower where the borrower
agrees to make additional payments to pay down
past due amounts while making regularly scheduled
payments.
Return
On Average Common Equity: net income
available to common stockholders, as a percentage
of average common stockholder equity.
Reverse Mortgage
(HECM): the reverse mortgage is used
by senior homeowners age 62 and older to convert
the equity in their home into monthly streams
of income and/or a line of credit to be repaid
when they no longer occupy the home. A lending
institution such as a mortgage lender, bank,
credit union or savings and loan association
funds the FHA insured loan, commonly known as
HECM.
Right
of First Refusal: a provision in
an agreement that requires the owner of a property
to give one party an opportunity to purchase
or lease a property before it is offered for
sale or lease to others.
Risk Based Capital:
an amount of capital needed to offset
losses during a ten-year period with adverse
circumstances.
Risk Based Pricing:
Fee structure used by creditors based on risks
of granting credit to a borrower with a poor
credit history.
Risk Scoring:
an automated way to analyze a credit report
verses a manual review. It takes into account
late payments, outstanding debt, credit experience,
and number of inquiries in an unbiased manner.
S
Sale Leaseback:
when a seller deeds property to a
buyer for a payment, and the buyer simultaneously
leases the property back to the seller.
Second Mortgage:
an additional mortgage on property. In case
of a default the first mortgage must be paid
before the second mortgage. Second loans are
more risky for the lender and usually carry
a higher interest rate.
Secondary Mortgage Market:
the buying and selling of mortgage
loans. Investors purchase residential mortgages
originated by lenders, which in turn provides
the lenders with capital for additional lending.
Secured Loan:
a loan backed by collateral such
as property.
Security: the
property that will be pledged as collateral
for a loan.
Seller Take Back: an agreement where
the owner of a property provides second mortgage
financing. These are often combined with an
assumed mortgage instead of a portion of the
seller's equity.
Serious Delinquency:
a mortgage that is 90 days or more
past due.
Servicer:
a business that collects mortgage payments from
borrowers and manages the borrower's escrow
accounts.
Servicing:
the collection of mortgage payments from borrowers
and related responsibilities of a loan servicer.
Setback:
the distance between a property line and
the area where building can take place. Setbacks
are used to assure space between buildings and
from roads for a many of purposes including
drainage and utilities.
Settlement:
another name for closing.
Settlement Statement:
a document required by the Real Estate Settlement
Procedures Act (RESPA). It is an itemized statement
of services and charges relating to the closing
of a property transfer. The buyer has the right
to examine the settlement statement 1 day before
the closing. This is called the HUD 1 Settlement
Statement.
Special
Forbearance: a loss mitigation option
where the lender arranges a revised repayment
plan for the borrower that may include a temporary
reduction or suspension of monthly loan payments.
Stockholders' Equity:
the sum of proceeds from the issuance of stock
and retained earnings less amounts paid to repurchase
common shares.
Stripped MBS (SMBS):
securities created by "stripping"
or separating the principal and interest payments
from the underlying pool of mortgages into two
classes of securities, with each receiving a
different proportion of the principal and interest
payments.
Sub-Prime
Loan: "B" Loan or "B"
paper with FICO scores from 620 - 659. "C"
Loan or "C" Paper with FICO scores
typically from 580 to 619. An industry term
to used to describe loans with less stringent
lending and underwriting terms and conditions.
Due to the higher risk, sub-prime loans charge
higher interest rates and fees.
Subordinate:
to place in a rank of lesser importance or to
make one claim secondary to another.
Survey:
a property diagram that indicates legal boundaries,
easements, encroachments, rights of way, improvement
locations, etc. Surveys are conducted by licensed
surveyors and are normally required by the lender
in order to confirm that the property boundaries
and features such as buildings, and easements
are correctly described in the legal description
of the property.
Sweat Equity:
using labor to build or improve a property as
part of the down payment
T
Third Party Origination:
a process by which a lender uses another party
to completely or partially originate, process,
underwrite, close, fund, or package the mortgages
it plans to deliver to the secondary mortgage
market.
Terms:
The period of time and the interest rate agreed
upon by the lender and the borrower to repay
a loan.
Title:
a legal document establishing the right of ownership
and is recorded to make it part of the public
record. Also known as a Deed.
Title 1: an
FHA-insured loan that allows a borrower to make
non-luxury improvements (like renovations or
repairs) to their home; Title I loans less than
$7,500 don't require a property lien.
Title Company:
a company that specializes in examining and
insuring titles to real estate.
Title Defect:
an outstanding claim on a property that limits
the ability to sell the property. Also referred
to as a cloud on the title.
Title Insurance:
insurance that protects the lender
against any claims that arise from arguments
about ownership of the property; also available
for homebuyers. An insurance policy guaranteeing
the accuracy of a title search protecting against
errors. Most lenders require the buyer to purchase
title insurance protecting the lender against
loss in the event of a title defect. This charge
is included in the closing costs. A policy that
protects the buyer from title defects is known
as an owner's policy and requires an additional
charge.
Title
Search: a check of public records
to be sure that the seller is the recognized
owner of the real estate and that there are
no unsettled liens or other claims against the
property.
Transfer
Agent: a bank or trust company charged
with keeping a record of a company's stockholders
and canceling and issuing certificates as shares
are bought and sold.
Transfer of Ownership:
any means by which ownership of a property changes
hands. These include purchase of a property,
assumption of mortgage debt, exchange of possession
of a property via a land sales contract or any
other land trust device.
Transfer Taxes:
State and local taxes charged for the transfer
of real estate. Usually equal to a percentage
of the sales price.
Treasury Index:
can be used as the basis for adjustable rate
mortgages (ARMs) It is based on the results
of auctions that the U.S. Treasury holds for
its Treasury bills and securities.
Truth-in-Lending:
a federal law obligating a lender to give full
written disclosure of all fees, terms, and conditions
associated with the loan initial period and
then adjusts to another rate that lasts for
the term of the loan.
Two Step Mortgage:
an adjustable-rate mortgage (ARM)
that has one interest rate for the first five
to seven years of its term and a different interest
rate for the remainder of the term.
Trustee:
a person who holds or controls property for
the benefit of another.
U
Underwriting:
the process of analyzing a loan application
to determine the amount of risk involved in
making the loan; it includes a review of the
potential borrower's credit history and a judgment
of the property value.
Up Front Charges:
the fees charged to homeowners by the lender
at the time of closing a mortgage loan. This
includes points, broker's fees, insurance, and
other charges.
V
Variable Expenses:
Costs or payments that may vary from
month to month, for example, gasoline or food.
Variance:
a special exemption of a zoning law to allow
the property to be used in a manner different
from an existing law.
Vested: a point
in time when you may withdraw funds from an
investment account, such as a retirement account,
without penalty.
W
Walk Through:
the final inspection of a property being sold
by the buyer to confirm that any contingencies
specified in the purchase agreement such as
repairs have been completed, fixture and non-fixture
property is in place and confirm the electrical,
mechanical, and plumbing systems are in working
order.
Warranty
Deed: a legal document that includes
the guarantee the seller is the true owner of
the property, has the right to sell the property
and there are no claims against the property.
X
Y
Z
Zoning:
local laws established to control the uses
of land within a particular area. Zoning laws
are used to separate residential land from areas
of non-residential use, such as industry or
businesses. Zoning ordinances include many provisions
governing such things as type of structure,
setbacks, lot size, and uses of a building.
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