Glossary of mortgage and real estate terms:
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Abstract of Title
A summary of public records relating to the title of a particular parcel of land.
Acceleration
The right of the mortgage (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgager (borrower), or by using the right vested in the Due-on-Sale Clause.
Acknowledgement
A formal declaration, usually before a notary, that the person has executed a document.
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 renegotiable rate mortgage, the variable mortgage or the Canadian roll over mortgage.
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.
Administrator
Person appointed by the court to take possession of a person who died intestate, without leaving a will, pay their debts and distribute the balance of the property to those entitled to it by law.
Adverse Possession
Physical possession of real estate inconsistent with the rights of the true owner. In many states, a party in adverse possession, after satisfying the requirements of the statutes, can then acquire the title to the land. These requirements may include the payment of property taxes on the real estate as well as the passing of a number of years.
Affiant
One who swears to or affirms the statement in an affidavit.
Affirmative Coverage
Provision in title policy where the title insurer insures against risks and losses not usually covered. For example: insurance against loss caused by violation of truth in lending laws. As you may imagine, title insurers very rarely offer this coverage.
All Inclusive Rate
A quote for title insurance that includes the cost of title search, title examination and the policy.
ALTA
American Land Title Association.
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. Comes from the French word, "mort", literally to kill the loan owing.
Annual Percentage Rate (APR)
Is a 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 points and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser". There are different types of qualified appraisers. The highest qualification is considered to be the MAI.
Approved Attorney
An attorney approved by a title insurance company as one whose opinion of title will be accepted and relied upon by the company for the issuance of title insurance policies.
Appurtenances
Rights that pass with the title to the land. These rights may affect other, usually adjoining lands, such as a access easement.
Assessment
A local tax levied the County usually against a property for a specific purpose, such as a sewer or street lights. Also can mean the assessed value of the property. Similar, but not the same as an "appraisal" see above. Typically the property tax assessment amount is less than the fair market value.
Assignment
A transfer of a right and/or interest in land. Often used for transferring the rights of a lender, buyer or tenant. The person who assigns rights is the Assignor, the person who acquires those rights is the Assignee.
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. Most mortgages today are unassumable as Lenders have found that assumed loans tend to have a far higher rate of default.
FHA loans closed before 12/15/89 and VA loans closed before 3/1/88 are freely assumable with no qualifying.
Note that the original borrower is still just as liable for the loan as the new home buyer unless the previous borrower gets a release from the Lender. This is called "novation".
Attorney in Fact
A person who holds a power of attorney from another to execute documents on behalf of the giver (or grantor) of that power. A power of attorney can be restricted or unrestricted. All powers of attorney can be withdrawn by notice in writing.
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Balloon payment
A balloon mortgage is one where a lump sum, the balance of the loan principal, becomes payable at the end of the term. A mortgage can be interest only with the whole principal due at the end of the term or it may be calculated to amortize over a longer period, say 30 years, but with the outstanding principal balance payable at the end of, say, 10 years.
Base Title or Basic Title
Title to an area or tract of land out of which other parts are later conveyed or a subdivision is made.
Binder or commitment
An enforacable agreement from a title company that states that if the requirements outlined are satisfied, the title company will issue title insurance subject to any named exceptions.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage. This provides greater security for the Lender. It may be possible to get a "partial" release so the Borrower can sell one of the properties provided a suitable principal reduction is made.
Bond
An insurance agreement under which the insurer agrees to pay, subject to agreed limits, compensation for financial loss caused to another by specified acts or defaults of a third party OR a long term interest bearing security instrument, issued by a goverment or corporation.
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. The mortgage is not actually the loan, it just creates the security interest in the property. It is the promissory note that spells out the repayment terms and interest.
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.
Building setback
An invisible line from the front, sides and rear of the outside boundries of the property beyond which no permanent structure may extend. This could be found in city zoning ordinances, the subdivision deed or other restrictive covenants.
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Caps (interest)
A limit on the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan. For example a 4/1 cap would mean a maximum interest increase of 4% over the life of the loan and no more than 1% each year.
Caps (payments)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change. Mortgage may change per year and/or the life of the loan.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally changes hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording, credit report charge and other costs assessed at settlement. The cost of closing usually are about three to six percent of the mortgage amount. Commitment and 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.
Credit Report
A report documenting the credit history and current status of a borrower's credit standing. Credit is rated for mortgage purposes from A, excellent, down to D, very poor. To obtain a conforming loan that can be resold to Fannie Mae, the Borrower usually needs A grade credit.
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. Construction loan (interim loan) - A loan to provide the funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as it progresses.
Contract sale or deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Construction Loan
A short term interim loan for financing the cost of construction. The lender advance funds to the builder at periodic intervals as the work progresses.
Conventional Loan
A mortgage not insured by FHA or guaranteed by the VA.
Cross Default
Language often in a second mortgage that states that a failure to pay or a default on the first mortgage is a default on the second mortgage.
Also that if the borrower has more than one mortgage with the same lender, then a default on just one of the mortgages puts ALL the other mortgages into default.
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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 net effective income (FHA/VA) or gross monthly income (conventional). See Housing expenses-to-income ratio.
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note. It involves a third party, the trustee, who holds the deed to the property.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage. This can also mean failure to pay property taxes, maintain insurance on the property or even to maintain the interior and exterior of the property.
Deferred Interest
see Negative Amortization
Delinquency
Failure to make payments on time. This can lead to foreclosure. See default.
Discount Point
see Point
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 to 20 percent of the sales price on a conventional loan. VA loans have no downpayment but are only available to Veterans who have not used up their VA entitlement. FHA loans are often as low as 3% downpayment.
When the down payment is less than 20% the Lender will usually require PMI (Private Mortgage Insurance) on a conventional loan, or MIP (Mortgage Insurance Premium) on an FHA loan.
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.
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Earnest Money
Money given by a buyer when making an offer to a seller as part of the purchase price to bind a transaction or assure payment. It should be held in escrow by the real estate company, a title company or an attorney. This is usually returnable if the contract does not go through for valid reasons. It may not be returnable if the buyer just changes his mind.
Escrow
Refers to a neutral third party who carries out the instruction of both the buyer and seller to handle all the paperwork of settlement or closing. Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.
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, sex, marital status, handicap status or receipt income from public assistance programs.
Equity
The difference between the fair market value and current indebtedness, also referred to as the owner's interest.
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FHLMC
The federal Home Loan Mortgage Corporation provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
FNMA
The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FHMA buys VA, FHA and conventional mortgages from primary lenders. Also known as "Fannie Mae."
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.
Fannie Mae
see Federal National Mortgage Association.
Federal Home Loan Bank Board (FHLBB)
A regulatory and supervisory agency for federally chartered savings institutions.
Federal Home Loan Mortgage Corporation (FHLMC)
also referred to as "Freddie Mac", is a quasi-government agency that purchases conventional mortgages from insured depository institutions and HUD approved mortgage bankers.
Federal National Mortgage Association (FNMA)
also know as "Fannie Mae" a taxpaying 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.
Freddie Mac
see Federal Home Loan Mortgage Corporation
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Ginnie Mae
see Government National Mortgage Association
Government National Mortgage Association (GNMA)
also known as "Ginnie Mae", provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM)
A type of flexible-payment where the payments increase for a specified period of time and then level off. This type of mortgage may have negative amortization built into it.
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.
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Hard Money Lender
Equity lenders who base their funding decisions on the unencumbered property value and its salability. They do not calculate debt ratio and usually do not take into account the borrower's credit and income. The combined loan-to-value ratio is usually less than 65%. Funding can be very fast. Sometime in 2 days or less.
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire windstorm and the like.
Housing Expenses-to-Income Ratio
The ratio expressed as a percentage, which results when a borrower's housing expenses are divided by his and/or her net effective income (FHA / VA loans) or gross monthly income (conventional loans). Also see Debt-to-Income Ratio.
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Impound
That portion of a borrower's monthly payment 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. The rate must be one that is outside the influence of the lender.
Investor
A money source for a lender.
Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
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Jumbo Loan
A loan which is larger (more than $203,250) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans can not be funded by these two agencies, they usually carry a higher interest rate.
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Lien
A claim upon a piece of property for the payment of a debt or obligation.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and appraised value of the property expressed as a percentage.
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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.
MIP: Mortgage Insurance Premium
MIP is the one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss due to the borrower's default. On September 1, 1983 the MIP was changed to a one time charge to the borrowers.
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.
Mortgagor
The borrower or home owner.
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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 principal 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 tax.
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.
Negotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. see Adjustable Rate Mortgage.
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Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
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Payment Constant
The total annual payments divided by the mortgage balance expressed as a percentage.
Permanent Loan
A long term mortgage, usually ten years or more.
PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
Points (Loan Discount Points)
Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount.
Power of Attorney
A legal document authorizing one person to act on behalf of another. It does not mean that the other person IS an attorney or that they can represent them in court as an attorney.
Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing 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. This can enable the mortgage to be paid off much more quickly, with a major savings in total interest costs.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form in 36 states and the District of Columbia.
Prepayment Risk
This is the risk to the Lender that the loan will be paid off before the end of the term. It is considered to be a risk because loans are often refinanced when interest rates drop. This means the Lender gets their capital back but have to lend it out at a lower rate.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks and mortgage companies. These lenders usually sell their mortgages into the secondary mortgage markets such as FNMA of GNMA, etc. The original lender will usually still service the loan, that is, send the payment coupons or statements to the Borrower.
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 five percent in some cases). With the smaller down payment loans, however, borrower's are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of one to five percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure.
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Quit Claim Deed
Type of deed that transfers all the rights that grantor (giver) may have, which might be none. Example, you could legally give someone a quit claim deed of your rights in the Brooklyn Bridge. That does not mean that the person you give the deed to now owns the Brooklyn Bridge.
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Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Recession
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. This means the money for refinance is not disbursed till after the 3 days are up. The only exception would be an emergency.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. The record is given a official records book and page number making it easy to find.
Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information 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.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using 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.
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Seasoned Mortgage
A mortgage that payments have been made on. The longer the seasoning and payment history of the mortgage, the greater the likelihood it will be paid in the future.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one. If the borrower does not make payments on the first mortgage, they can foreclose it and wipe out the interest of the second mortgage holder.
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.
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
see Closing / Closing Costs
Simple Interest
Interest which is computed only on the principal balance.
Survey
A measure of land, land prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any buildings.
Sweat Equity
Equity created by a purchasers work on a property purchased.
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Title
A document that gives evidence of an individual's ownership of property.
Title Insurance
A policy, usually issued by a title insurance company which insures a home buyer or lender against errors in the title search. The cost of the policy is usually a function of the value of property, and is often borne by the purchaser and /or seller.
Title Search
An examination of municipal records to determine the legal ownership of the property. Usually is performed by a title company.
Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for a the loan.
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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.
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Variable Rate Mortgage
see Adjustable Rate Mortgage
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his or her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his or her position and salary.
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