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Glossary of Real Estate & Mortgage Terminology |
Acceleration Clause
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.
Acquisition Cost
Under an FHA loan, the purchase price or appraised value of the property plus the estimated costing costs.
Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re- negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjustment Date
The date the interest rate changes on an ARM (adjustable rate mortgage).
Adjusted Book Basis
The purchase price of a property plus any capital improvements less accrued depreciation, if any, to the date of the sale.
Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Amortization
Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortization Schedule
A schedule which shows how much of each payment is applied to the principal and how much is applied to the interest during the term of the loan, showing the balance until it reaches zero.
Annual Percentage Rate (A.P.R.)
Is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. A rough formula that you can use to figure out your APR is this:
(Loan amount - closing costs) * interest rate = Estimated APR
The estimated APR is always going to be higher than your note rate, as you are using the same payment on a smaller amount.
Annuity
A series of income payments of receipts over a period of years.
Application
A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more.
Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser."
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.
Appreciation
Increases in property value due to fluctuations in the market, inflation, et al.
Asset
Valuable items, encumbered or not, owned by a person, corporation, or entity.
Assumable Mortgage
A mortgage that provides for a buyer to "assume" all outstanding payments when a home is sold. The buyer usually must meet qualification standards to assume a loan.
Balloon (payment) Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Balloon Payment
The final lump sum that is paid at the end of the balloon mortgage.
Bankruptcy
A legal process that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for "A" paper loans until after two years after declaration and a re-establishment of credit.
Best Faith Estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.
Bill of Sale
A written document that transfers a title to personal property.
Biweekly Mortgage
Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Book Value
Acquisition costs less any accrued depreciation.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Bridge Loan
An equity loan secured to solve short-term financing problem.
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Budget Mortgage
A mortgage that /includes a portion for taxes and insurance as well as principal and interest.
Buy-down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
Callable Debt
A debt security in where the 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 date.
Cash Flow
The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)
Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
Caps (payment)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.
Carry-back Loan
A loan in which a seller agrees to finance a buyer in order to complete a property sale.
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.
Certificate of veteran status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.
Clear Title
A title that is free of liens or any legal question as to the ownership of the property.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the mortgage amount.
Closing Costs
Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into "non-recurring," and "pre-paid." Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Cloud
An outstanding claim or encumbrance, that, if valid, would affect or impair the owner's property title.
Collateral
Property, real or personal, pledged as a security to back up a promise. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust.
Commitment
A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date, subject to the completion of paperwork or compliance with stated conditions.
CMA
(Comparative Market Analysis) A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style and amenities.
Conforming loan
A New Home loan with a set of standards that must be met for the loan amount and the down payment amount. The maximum you can borrow with a conforming loan is $240,000 for a single-family house in the continental U.S. The benefit to applying for a conforming loan is that you will qualify for lower interest rates and better financing options. If you need to borrow more than the conforming loan standard allows you to, you should apply for a non-conforming or jumbo loan.
Construction loan
A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
Contract sale or deed
A contract between a purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Mortgage
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio.
Credit Loan
A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.
Credit-Loss Ratio
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Credit Rating
Used by lenders to assess borrowers' credit-worthiness or risk profile. A credit rating is expressed as letter grades, such as A, B+, or C-, etc. Ratings are based on factors such as payment history, bankruptcies, and charge-offs.
Credit-Related Expenses
The sum of foreclosed property expenses plus the provision for losses.
Credit-Related Losses
The sum of foreclosed property expenses plus charge-offs.
Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
CSV
Comma separated values. Usually a text file that was exported by Outlook or another contact manager program.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.
Deed
The written document conveying real property. Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.
Deed of Trust
A voluntary lien to secure a debt deeding the property to Trustees who foreclose, sell the property at public auction, in the event of default on the Note the Deed of Trust secures. In many states, this document is used in place of a mortgage to secure the payment of a note.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Deferred interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See "negative amortization".
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
Deposit
A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the "earnest money deposit."
Depreciation
In real estate and mortgage terms, the decline in the property value.
Discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
Discount Point
(Same as "points", below.) Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Earnest Money Deposit
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Easement
Giving other persons, other than the owner, access to a property.
Eminent Domain
The government right to take private property for public use depended on the payment of its fair market value.
Encumbrance
Any lien against a property or any restriction it its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
Entitlement
The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.
Equal Credit Opportunity Act (ECOA)
Is 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
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.
Escalator Clause
A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index.
Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
Escrow Account (impound account)
An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner's insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.
Escrow Analysis
An analysis performed by a lender each year to escrow accountholders to ensure that the correct amount of money is being collected to cover anticipated payments.
Estate
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.
Eviction
The legal removal of real property occupants for unlawful actions carried out by those occupants.
Fair Credit Reporting Act
A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.
Fannie Mae
Federal National Mortgage Association (FNMA) also know as "Fannie Mae". A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
Fannie Mae's Community Home Buyer's Program
A program that offers flexible underwriting guidelines to subsidize a low- to moderate-income family's purchase of a home. The program usually decreases the total amount of cash needed to purchase a home.
Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally chartered savings institutions. The agency is now called the "Office of Thrift Supervision".
Federal Home Loan Mortgage Corporation (FHLMC) also called "Freddie Mac"
A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
Fee Simple
The best title that one can obtain; unqualified and conveys the highest bundle of rights.
FHA loan
A loan insured by the Federal Housing Administration (FHA) open to all qualified home purchasers. While there are limits to the size of FHA loans ($208,800 maximum, depending on location), they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA mortgage insurance
Federal Housing Administration (FHA) insurance requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Firm Commitment
A promise by Federal Housing Administration (FHA) to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Mortgage
A mortgage that has priority over other mortgages.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on this type of mortgage throughout the term of the mortgage for the original borrower.
FNMA
The Federal National Mortgage Association (FNMA) is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
Forbearance
The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent.
Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.
401(k)/403(b)
An investment plan sponsored by employers that allows individuals to set aside tax-deferred income for retirement or emergency purposes. A 401(k) applies to private corporations, while a 403(b) applies to non-profit organizations.
401(k)/403(b) Loan
A loan that can be taken against the amount accumulated in the 401(k)/403(b) plans, if so allowed by the plan administrator. Loans against these plans are an acceptable source of down payment for most types of other loans.
Freddie Mac
Federal Home Loan Mortgage Corporation (FHLMC) also known as "Freddie Mac". A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Ginnie Mae
See Government National Mortgage Association (GNMA), below.
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing.
Government Loan
A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran's Administration), or RHS (Rural Housing Authority).
Government National Mortgage Association (GNMA)
Also known as "Ginnie Mae"; provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Grace Period
A time allowed, usually 15 days, for making late payments without a penalty.
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Hard-Money Mortgage
Cash loan to a borrower.
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Home Equity Conversion Mortgage (HECM)
Also known as the reverse annuity mortgage. This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Borrowers don't qualify on the basis of income, but on the value of his or her home. Such a loan does not have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit
A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount.
Home Inspection
A thorough assessment by a professional regarding the structural and mechanical condition of a property.
Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.
Homeowner's Warranty
An insurance policy that is purchased by a buyer that covers certain repairs, should they be necessary over a certain period.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
HUD
Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.
Hybrid Financing
The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property.
Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Interest
Money ("rent") paid for the use of money.
Interest Only
A term loan arrangement calling for payments of interest only, not to include any amount for principal.
Interest Rate Swap
A transaction between two parties, in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time.
Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Intermediate-term mortgage
A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.
Investor
A money source for a lender.
Judicial Foreclosure
A court procedure used by lenders to secure clear title to a property under a defaulted real estate loan.
Jumbo Loan
A loan which is larger (more than $240,000) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Lease
A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold Estate
An estate for a fixed length of time, established when a landlord gives up possession of real estate to a tenant, giving the tenant an equitable interest in the property, as defined by lease terms.
Lease Option
A rental agreement indicating a tenant's option to purchase a property. Monthly payments consists not only of rent, but an overage that can be applied towards a down payment on an already established amount.
Leverage
Using someone else's money for the purchase of property.
Liability Insurance
Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.
Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Life Cap
A limit on the amount that an interest rate can be increased or decreased in an adjustable rate mortgage (ARM).
Loan
The principal, or amount of total borrowed money, that is repaid with interest.
Loan Officer
An intermediary between lending institutions and borrowers, loan officers solicit loans, represent creditors to borrowers, and represent borrowers to creditors.
Loan Origination
What the process of obtaining new loans is called.
Loan Servicing
A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Lock-In Clause
Clause in a loan agreement that states that the borrower cannot repay a loan prior to a specified date.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Maturity
Due date of a loan.
Merged Credit Report
A credit report that reports data from two or more major credit repositories.
MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.
Modification
Any change to the original terms of a mortgage.
Mortgage
A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagee
The lender in a mortgage agreement.
Mortgage Banker
A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is a banker funds their own loans and sell them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.
Mortgage Broker
A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.
Mortgage Constant
The factor used for rapid computation of the annual payment needed to amortize a loan.
Mortgage Insurance
Insurance that covers the lender against losses incurred as a result of a default on a home loan. This is usually required on all loans that have a loan-to-value higher than eighty percent. Mortgages that have an 80% LTV that do not require mortgage insurance have higher interest rates. The lenders then pay the mortgage insurance themselves. In addition, FHA loans and some first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.
Mortgagor
The borrower or homeowner acquiring a loan to purchase property.
Multi-dwelling Units
Properties that provide separate housing units for more than one family, although only a single mortgage is secured.
Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Effective Income
The borrower's gross income minus federal income tax.
No Cash-Out Refinance
A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage.
No-Cost Loan
A no-cost loan can either be: (1) a loan that has no "lender costs" associated with it or, (2) a loan that also covers purchases or refinancing costs, which may be incurred in buying a home, obtaining and/or refinancing a loan, but are not directly charged by the lender. The interest rate on this type of loan is higher.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.
Non Conforming Loan
New Home loans that allows you to borrow over a certain amount set by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate
The stated interest rate on a mortgage note.
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.
Origination Fee
The fee charged by a lender to prepare loan documents, run credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Owner Financing
A property purchase that is partly or wholly financed by the seller.
Owner's Title Policy
A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.
Package Mortgage
A mortgage that /includes equipment and appliances located on the premises in addition to the real property itself.
Partial Entitlement
Under VA loans, the amount of guarantee still available to an eligible veteran who has used his previous entitlement.
Partial Payment
A payment that is not sufficient enough to cover the month payment. During times of economic hardship, a borrower can make this request of the loan servicing collection department.
Participation Financing
A loan in which more than one mortgagee or more than one mortgagor harbors an interest. It can also be a loan in which the mortgagee receives partial ownership of the property being financed.
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). The payment change date occurs the month immediately after the interest rate adjustment date.
Periodic Payment Cap
The limit on the amount that payments can increase or decrease during any one adjustment period for an adjustable-rate mortgage (ARM) where the interest rate and principal fluctuate independently of one another.
Periodic Rate Cap
The limit on the amount that payments can increase or decrease during any one adjustment period in an ARM (adjustable rate mortgage), regardless of how high or low the index fluctuates.
Permanent Loan
A long term mortgage, usually ten years or more. Also called an "end loan."
Personal Property
Movable property that does not fit the definition of realty.
PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
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 PITI (principal, interest, taxes, and insurance) must equal the amount that the borrower would have to pay for PITI for a determined number of months.
Planned Unit Development (PUD)
A type of ownership where individuals actually own the building or unit they reside in, but shared areas are owned jointly with the other members of the development or established association.
Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Pre-Approval
A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.
Pre-Foreclosure Sale
A procedure in which the borrower is allowed to sell his or her property for an amount less that what is owed on it to avoid foreclosure, fully satisfying the borrower's debt.
Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Pre-Qualification
After a loan officer has made inquiries about a borrower's debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower's chances for qualifying for a home loan.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.
Prime Rate
Interest charged by financial institutions to top-rate borrowers.|
Principal
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.
Pro-rations
The allocation of charges and credits to the appropriate parties at a real estate sale and/or loan closing at a real-estate sale and/or loan closing.
Promissory Note
A written promise to repay a specified amount over a specified period of time.
Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase-Money Mortgage
Mortgage given by a borrower to the seller as part of the purchase price of the property.
Purchase-Money Transaction
The acquisition of property through the payment of money or its equivalent.
Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. The front-end ratio is the percentage of a borrower's gross monthly income before taxes that would cover the cost of PITI (property, interest, taxes, and insurance). The back-end ratio is the percentage of a borrower's gross monthly income that would cover the cost of PITI plus any other monthly debt payments, such as car or student loans.
Quitclaim Deed
A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.
Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Real Estate
A portion of the earth's surface extending downward to the center to the earth and upward into space, including all things permanently attached thereto by nature or man and all legal rights therein.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
An act requiring the revelation of all costs involved in a real estate closing to all participants.
Real Property
See real estate.
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Recast
To redesign an existing loan balance into a new loan for the same period or longer, to reduce payments and help a distressed borrower.
Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Reconciliation
Determining the final estimate of value by weighing the results of the various approaches in an appraisal.
Reconveyance Clause
The clause in a trust deed that gives the title back to the borrower when the loan is paid in full.
Recording
The formal filing of documents affecting a property's title.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Refinancing
The process of paying off one loan with the proceeds from a new loan, using the same property as security.
Regulation Z
A truth-in-lending provision that requires lenders to reveal the actual costs of borrowing.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
Rent-Loss Insurance
Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty, resulting in the tenant being excused from paying rent.
Repayment Plan
An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.
Residual Qualifying
Under a VA loan, using specified housing expenses to qualify for a loan payment.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
Restrictions
Rules imposed on the use of real estate in an effort to preserve property values.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
Revolving Debt
A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due.
Right-Of-First Refusal
A provision that states that a property to be first offered to a specific person before it can be offered for sale or lease to other parties.
Rollover Loan
A loan that /includes a call date earlier than its normal amortization period.
Rule of 78
Calculates proportionate amount of interest due on a loan being paid in full before its maturity.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
Sale-Buyback
A financing arrangement in which an investor buys property from a developer and immediately sells it back under a long-term sales agreement, wherein the investor retains legal title.
Sale-Leaseback
A financing arrangement whereby an investor purchases real estate owned and used by a business corporation, then leases the property back to the business.
Secondary Mortgage Market
A market where mortgage originators may sell them, freeing up funds for continued lending and distributes mortgage funds nationally from money-rich to money poor areas.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders security.
Secured Loan
A loan that is backed by collateral.
Security
Something given, deposited, or pledged to make secure the fulfillment of an obligation, usually the repayment of a debt.
Seller Carry-Back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Senior Loan
A real estate loan in first priority position.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
Settlement/Settlement Costs
Same as "Closing". The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called closing. Settlement costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the mortgage amount.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
Simple Interest
Interest which is computed only on the principle balance.
Sinking Fund
Monies deposited in advance in anticipation of satisfying a debt in the future.
Stop Date
Date on a term loan when the balloon payment is due.
Subordinate Financing
Any mortgage or other lien that has a priority lower than that of the first mortgage, or senior loan. See second mortgage.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.
Sweat Equity
Equity created by a purchaser performing work on a property being purchased.
Takeout Mortgage
A permanent mortgage, obtained by pre-arrangement between a builder and a financial institution, to repay the interim mortgagee at the completion of construction.
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.
Title
A document that gives evidence of an individual's ownership of property.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Transfer Of Ownership
The means by which the ownership of a property changes hands. Examples of such include the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchases, and any exchange of possession of the property under a land sales contract or any other land trust device.
Transfer Tax
State or local tax payable when the title passes from one owner to another.
Truth-In-Lending Law
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate and term or loan amount.
USURY
Interest charged in excess of the legal rate established by law.
VA Loan
A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage
A mortgage guaranteed by the Department of Veterans Affairs (VA).
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
Variable Rate Mortgage (VRM)
Same as "adjustable rate mortgage". Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re- negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.
Vested
Means that one has a right to use a portion of a fund, such as an individual's retirement fund.
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.
Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
Zero Percent Financing
A loan with no interest in the contract. The IRS imputes 10 percent for both borrower and lender.
Zoning
The right of a community, under its police power, to dictate the use of property within its boundaries.