The
FHA Mortgage Glossary
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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
VA (Department of Veterans
Affairs): a federal agency, which guarantees
loans made to veterans; similar to mortgage insurance,
a loan guarantee protects lenders against loss that
may result from a borrower default.
VA Mortgage: a
mortgage guaranteed by the Department of Veterans
Affairs (VA).
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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