adjustable-rate mortgage (ARM)
A mortgage that changes interest rate periodically based upon the changes in
a specified index.adjustment date
The date on which the interest rate changes for an adjustable-rate
mortgage (ARM).
adjustment period
The period that elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).
amortization
The repayment of a mortgage loan by installments with regular payments to
cover the principal and interest.
amortization term
The amount of time required to amortize the mortgage loan. The amortization
term is expressed as a number of months. For example, for a 30-year
fixed-rate mortgage, the amortization term is 360 months.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as
interest, mortgage insurance, and loan origination fee (points).
application
A form, commonly referred to as a 1003 form, used to apply for a mortgage
and to provide information regarding a prospective mortgagor and the
proposed security.
appraisal
A written analysis of the estimated value of a property prepared by a
qualified appraiser.
appraiser
A person qualified by education, training, and experience to estimate the
value of real property and personal property.
appreciation
An increase in the value of a property due to changes in market conditions
or other causes. The opposite of depreciation.
asset
Anything of monetary value that is owned by a person. Assets include real
property, personal property, and enforceable claims against others
(including bank accounts, stocks, mutual funds, and so on).
assignment
The transfer of a mortgage from one person to another.
assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is
sold.
assumption
The transfer of the seller's existing mortgage to the buyer.
assumption clause
A provision in an assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan does not need to
be paid in full by the original borrower upon sale or transfer of the
property.
assumption fee
The fee paid to a lender (usually by the purchaser of real property)
resulting from the assumption of an existing mortgage.
balance sheet (return to top)
A financial statement that shows assets, liabilities, and net worth as of a
specific date.
balloon mortgage
A mortgage that has level monthly payments that will amortize it over a
stated term but that provides for a lump sum payment to be due at the end of
an earlier specified term.
balloon payment
The final lump sum payment that is made at the maturity date of a balloon
mortgage.
bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved
from the payment of all debts after the surrender of all assets to a
court-appointed trustee.
bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or
her assets can relieve the debts by transferring his or her assets to a
trustee.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust, estate, or a deed
of trust.
binder
A preliminary agreement, secured by the payment of an earnest money deposit,
under which a buyer offers to purchase real estate.
biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks
(instead of the standard monthly payment schedule). The 26 (or possibly 27)
biweekly payments are each equal to one-half of the monthly payment that
would be required if the loan were a standard 30-year fixed-rate mortgage,
and they are usually drafted from the borrower's bank account. The result
for the borrower is a substantial savings in interest.
blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the
share loans on individual units within the project.
bond
An interest-bearing certificate of debt with a maturity date. An obligation
of a government or business corporation. A real estate bond is a written
obligation usually secured by a mortgage or a deed of trust.
breach
A violation of any legal obligation.
bridge loan
A form of second trust that is collateralized by the borrower's present home
(which is usually for sale) in a manner that allows the proceeds to be used
for closing on a new house before the present home is sold. Also known as
"swing loan."
broker
A person who, for a commission or a fee, brings parties together and assists
in negotiating contracts between them.
buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is
made by any party to reduce a borrower's monthly payments during the first
few years of a mortgage. A permanent buydown reduces the interest rate over
the entire life of a mortgage.
call option (return to top)
A provision in the mortgage that gives the mortgagee the right to call the
mortgage due and payable at the end of a specified period for whatever
reason.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or mortgage payments may increase or decrease.
capital improvement
Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life.
cash-out refinance
A refinance transaction in which the amount of money received from the new
loan exceeds the total of the money needed to repay the existing first
mortgage, closing costs, points, and the amount required to satisfy any
outstanding subordinate mortgage liens. In other words, a refinance
transaction in which the borrower receives additional cash that can be used
for any purpose.
Certificate of Eligibility
A document issued by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
certificate of title
A statement provided by an abstract company, title company, or attorney
stating that the title to real estate is legally held by the current owner.
chain of title
The history of all of the documents that transfer title to a parcel of real
property, starting with the earliest existing document and ending with the
most recent.
change frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
clear title
A title that is free of liens or legal questions as to ownership of the
property.
closing
A meeting at which a sale of a property is finalized by the buyer signing
the mortgage documents and paying closing costs. Also called "settlement."
closing cost item
A fee or amount that a home buyer must pay at closing for a single service,
tax, or product. Closing costs are made up of individual closing cost items
such as origination fees and attorney's fees. Many closing cost items are
included as numbered items on the HUD-1 statement.
closing costs
Expenses (over and above the price of the property) incurred by buyers and
sellers in transferring ownership of a property. Closing costs normally
include an origination fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance and a survey. Closing
costs percentage will vary according to the area of the country.
closing statement
Also referred to as the HUD1. The final statement of costs incurred to close
on a loan or to purchase a home.
cloud on title
Any conditions revealed by a title search that adversely affect the title to
real estate. Usually clouds on title cannot be removed except by a quitclaim
deed, release, or court action.
collateral
An asset (such as a car or a home) that guarantees the repayment of a loan.
The borrower risks losing the asset if the loan is not repaid according to
the terms of the loan contract.
collection
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when necessary.
co-maker
A person who signs a promissory note along with the borrower. A co-maker's
signature guarantees that the loan will be repaid, because the borrower and
the co-maker are equally responsible for the repayment. See endorser.
commission
The fee charged by a broker or agent for negotiating a real estate or loan
transaction. A commission is generally a percentage of the price of the
property or loan.
commitment letter
A formal offer by a lender stating the terms under which it agrees to lend
money to a home buyer. Also known as a "loan commitment."
common areas
Those portions of a building, land, and amenities owned (or managed) by a
planned unit development (PUD) or condominium project's homeowners'
association (or a cooperative project's cooperative corporation) that are
used by all of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools, tennis
courts, and other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
Community Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home
buyers to obtain 95 percent financing for the purchase and improvement of a
home in need of modest repairs. The repair work can account for as much as
30 percent of the appraised value.
community property
In some western and southwestern states, a form of ownership under which
property acquired during a marriage is presumed to be owned jointly unless
acquired as separate property of either spouse.
comparables
An abbreviation for "comparable properties"; used for comparative purposes
in the appraisal process. Comparables are properties like the property under
consideration; they have reasonably the same size, location , and amenities
and have recently been sold. Comparables help the appraiser determine the
approximate fair market value of the subject property.
condominium
A real estate project in which each unit owner has title to a unit in a
building, an undivided interest in the common areas of the project, and
sometimes the exclusive use of certain limited common areas.
condominium conversion
Changing the ownership of an existing building (usually a rental project) to
the condominium form of ownership.
construction loan
A short-term, interim loan for financing the cost of construction. The
lender makes payments to the builder at periodic intervals as the work
progresses.
consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine
a potential borrower's credit history. The agency obtains data for these
reports from a credit repository as well as from other sources.
contingency
A condition that must be met before a contract is legally binding. For
example, home purchasers often include a contingency that specifies that the
contract is not binding until the purchaser obtains a satisfactory home
inspection report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed-rate mortgage at specified timeframes
after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate
mortgage under specified conditions.
cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing
complex own shares in the cooperative corporation that owns the property,
giving each resident the right to occupy a specific apartment or unit.
corporate relocation
Arrangements under which an employer moves an employee to another area as
part of the employer's normal course of business or under which it transfers
a substantial part or all of its operations and employees to another area
because it is relocating its headquarters or expanding its office capacity.
cost of funds index (COFI)
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weighted-average
cost of savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
covenant
A clause in a mortgage that obligates or restricts the borrower and that, if
violated, can result in foreclosure.
credit
An agreement in which a borrower receives something of value in exchange for
a promise to repay the lender at a later date.
credit history
A record of an individual's open and fully repaid debts. A credit history
helps a lender to determine whether a potential borrower has a history of
repaying debts in a timely manner.
credit report
A report of an individual's credit history prepared by a credit bureau and
used by a lender in determining a loan applicant's creditworthiness. See
merged credit report.
credit repository
An organization that gathers, records, updates, and stores financial and
public records information about the payment records of individuals who are
being considered for credit.
debt (return to top)
An amount owed to another.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid
foreclosure.
deed of trust
The document used in some states instead of a mortgage; title is conveyed to
a trustee.
default
Failure to make mortgage payments on a timely basis or to comply with other
requirements of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments are due.
deposit
A sum of money given to bind the sale of real estate, or a sum of money
given to ensure payment or an advance of funds in the processing of a loan.
depreciation
A decline in the value of property; the opposite of appreciation.
down payment
The part of the purchase price of a property that the buyer pays in cash and
does not finance with a mortgage.
due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full
if the borrower sells the property that serves as security for the mortgage.
earnest money deposit (return to
top)
A deposit made by the potential home buyer to show that he or she is serious
about buying the house.
easement
A right of way giving persons other than the owner access to or over a
property.
effective age
An appraiser's estimate of the physical condition of a building. The actual
age of a building may be shorter or longer than its effective age.
effective gross income
Normal annual income including overtime that is regular or guaranteed. The
income may be from more than one source. Salary is generally the principal
source, but other income may qualify if it is significant and stable.
encumbrance
Anything that affects or limits the fee simple title to a property, such as
mortgages, leases, easements, or restrictions.
endorser
A person who signs ownership interest over to another party. Contrast with
co-maker.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from public
assistance programs.
equity
A homeowner's financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed on
its mortgage.
escrow
An item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the deposit by a
borrower with the lender of funds to pay taxes and insurance premiums when
they become due, or the deposit of funds or documents with an attorney or
escrow agent to be disbursed upon the closing of a sale of real estate.
escrow account
The account in which a mortgage servicer holds the borrower's escrow
payments prior to paying property expenses.
escrow analysis
The periodic examination of escrow accounts to determine if current monthly
deposits will provide sufficient funds to pay taxes, insurance, and other
bills when due.
escrow collections
Funds collected by the servicer and set aside in an escrow account to pay
the borrower's property taxes, mortgage insurance, and hazard insurance.
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due.
escrow payment
The portion of a mortgagor's monthly payment that is held by the servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and
other items as they become due. Known as "impounds" or "reserves" in some
states.
estate
The ownership interest of an individual in real property. The sum total of
all the real property and personal property owned by an individual at time
of death.
eviction
The lawful expulsion of an occupant from real property.
examination of title
The report on the title of a property from the public records or an abstract
of the title.
Fair Credit Reporting Act (return
to top)
A consumer protection law that regulates the disclosure of consumer credit
reports by consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one's credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay,
and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation's
largest supplier of home mortgage funds.
Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers and
Fannie Mae offer flexible underwriting guidelines to increase a low- or
moderate-income family's buying power and to decrease the total amount of
cash needed to purchase a home. Borrowers who participate in this model are
required to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its
main activity is the insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and underwriting but does
not lend money or plan or construct housing.
fee simple
The greatest possible interest a person can have in real estate.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also
known as a government mortgage.
finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan
for a prospective borrower.
first mortgage
A mortgage that is the primary lien against a property.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term
of the loan.
flood insurance
Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated
flood areas.
foreclosure
The legal process by which a borrower in default under a mortgage is
deprived of his or her interest in the mortgaged property. This usually
involves a forced sale of the property at public auction with the proceeds
of the sale being applied to the mrotgage debt.
fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient
to amortize the remaining balance, at the interest accrual rate, over the
amortization term.
good faith estimate (return
to top)
An estimate of charges which a borrower is likely to incur in connection
with a settlement.
hazard insurance
Insurance protecting against loss to real estate caused by fire, some
natural causes, vandalism, etc., depending upon the terms of the policy.
housing ratio
The ratio of the monthly housing payment in total (PITI - Principal,
Interest, Taxes, and Insurance) divided by the gross monthly income. This
ratio is sometimes referred to as the top ratio or front end ratio.
HUD
The U.S. Department of Housing and Urban Development.
index (return to top)
A published interest rate to which the interest rate on an Adjustable
Rate Mortgage (ARM) is tied. Some commonly used indeces include the 1 Year
Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
lien (return to top)
An encumbrance against property for money due, either voluntary or
involuntary.
lifetime cap
A provision of an ARM that limits the highest rate that can occur over
the life of the loan.
loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home.
The LTV will affect programs available to the borrower and generally, the
lower the LTV the more favorable the terms of the programs offered by
lenders.
lock-in
A written agreement guaranteeing the home buyer a specified interest
rate provided the loan is closed within a set period of time. The lock-in
also usually specifies the number of points to be paid at closing.
margin (return to top)
The number of percentage points a lender adds to the index value to
calculate the ARM interest rate at each adjustment period. A representative
margin would be 2.75%.
mortgage
A legal document that pledges a property to the lender as security for
payment of a debt
mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage
payment in the event of a covered disability of an insured borrower for a
specified period of time.
mortgage insurance (MI)
Insurance written by an independent mortgage insurance company
protecting the mortgage lender against loss incurred by a mortgage default.
Usually required for loans with an LTV of 80.01% or higher.
mortgagee
The person or company who receives the mortgage as a pledge for
repayment of the loan. The mortgage lender.
mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.
non-conforming loan (return
to top)
Also called a jumbo loan. Conventional home mortgages not eligible for
sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because
of various reasons, including loan amount, loan characteristics or
underwriting guidelines. Non-conforming loans usually incur a rate and
origination fee premium.The current non-conforming loan limit is ,601 and
above.
note
A written agreement containing a promise of the signer to pay to a named
person, or order, or bearer, a definite sum of money at a specified date or
on demand.
origination fee
A fee imposed by a lender to cover certain processing expenses in
connection with making a real estate loan. Usually a percentage of the
amount loaned, such as one percent.
owner financing (return to top)
A property purchase transaction in which the property seller provides
all or part of the financing.
Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more
other parcels owned in common or with reciprocal rights in one or more other
parcels.
PITI
Principal, interest, taxes and insurance--the components of a monthly
mortgage payment.
points
Charges levied by the mortgage lender and usually payable at closing.
One point represents 1% of the face value of the mortgage loan.
prepaids
Those expenses of property which are paid in advance of their due date
and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off
part or all of a mortgage loan in advance of schedule.
principal
Amount of debt, not including interest. The face value of a note or
mortgage.
private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders
against loss if a borrower defaults. Fannie Mae generally requires private
mortgage insurance for loans with loan-to-value (LTV) percentages greater
than 80%.
qualifying ratios (return
to top)
The ratio of your fixed monthly expenses to your gross monthly income,
used to determine how much you can afford to borrow. The fixed monthly
expenses would include PITI along with other obligations such as student
loans, car loans, or credit card payments.
rate cap
A limit on how much the interest rate can change, either at each
adjustment period or over the life of the loan.
rate lock-in (return to top)
A written agreement in which the lender guarantees the borrower a specified
interest rate, provided the loan closes within a set period of time.
rebate
Compensation received from a wholesale lender which can be used to cover
closing costs or as a refund to the borrower. Loans with rebates often carry
higher interest rates than loans with "points" (see above).
refinancing
The process of paying off one loan with the proceeds from a new loan using
the same property as security.
residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from at least
two of the three national credit bureaus and information provided on your
loan application.
seller carry back (return
to top)
An agreement in which the owner of a property provides financing, often in
combination with an assumed mortgage.
survey
A print showing the measurements of the boundaries of a parcel of land,
together with the location of all improvements on the land and sometimes its
area and topography.
tenants-in-common (return
to top)
An undivided interest in property taken by two or more persons. The interest
need not be equal. Upon death of one or more persons, there is no right of
survivorship.
title
The evidence one has of right to possession of land.
title insurance
Insurance against loss resulting from defects of title to a specifically
described parcel of real property.
title search
An investigation into the history of ownership of a property to check for
liens, unpaid claims, restrictions or problems, to prove that the seller can
transfer free and clear ownership.
total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as Obligations-to-Income Ratio or Back-End Ratio.
Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the lending terms
of different financial institutions.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to
qualified veterans.
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