Abstract Title A written history of the ownership of a parcel of land.
Acceleration Clause Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.
Adjustable Rate Mortgage (ARM) Adjustable Rate Mortgages (ARM) are loans whose interest rate can vary during the loan’s term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions.
Affidavit A sworn statement in writing.
Amortization refers to the loan payment schedule by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance. A fully amortized loan will be completely paid off at the end of the loan term.
Annual Percentage Rate (APR) 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 points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal An estimate of the value of real property, made by a qualified professional called an “appraiser.” An appraisal will be needed to determine the value of your property.
Assumption The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. This must be approved by the lender and be allowed by the note, which was originally signed by the seller.
Bolloon Mortgage A balloon mortgage has an interest rate that is fixed for an initial amount of time. At the end of the term, the remaining principal balance is due. At this time, the borrower has a choice to either refinance or pay off the remaining balance.
Certificate of Occupancy A certificate issued by local city government to a builder, stating that the building is in proper condition to be occupied.
Clear-to-close Loan is ready to be closed with no additional conditions.
Closing The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.
Commitment 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.
Community Property Property owned in common by a husband and wife. In community property states, assets may be owned in part by a spouse even if their name does not appear on the title.
Conversion Clause A provision in some ARMs, (Adjustable Rate Mortgage) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.
Credit Score The score given to an individual to determine the credit worthiness. These scores come from Experian, Equifax and Trans Union.
Debt-to-income (DTI) Ratio This refers to the ratio calculated using principal, interest, taxes, insurance, HOA fee and other consumer credit recurring obligations divided by gross monthly income. It is also called as Back End Ratio and it is expressed as a percentage.
Deed Legal document which conveys the title to a property.
Deed of Trust A document used which pledges real property to secure a debt. In some cases a deed of trust can replace a mortgage.
Delinquency Failure to make payments on time. This can lead to foreclosure.
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).
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 Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Easements An interest in property, owned by another that entitles the holder to a specific limited use or privilege, such as the right to cross or to build adjoining structures on the property.
Encroachment A fixture of a piece of property which intrudes on another’s property.
Equity The difference between the fair market value and current indebtedness.
Escrow Waiver Request for a borrower to pay their own taxes and insurance. Escrow wavers are rarely granted with less than a 20% equity position.
Escrow Refers to a neutral third party who carries out the instructions 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 homebuyer pays money for tax or insurance payments.
Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is 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 standard for underwriting mortgages.
Federal National Mortgage Association (FNMA) Also known 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 most common form of ownership where the vestee owns both the land and the structures.
FHA Loan FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn’t issue loans or set interest rates, it just guarantees against default. FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements. However FHA loans require an upfront mortgage insurance premium (UFMIP) which currently is 1.75 percent of the loan amount in addition to lifetime monthly mortgage insurance premium.
Fixed Rate Mortgage (FRM) The most common and typical type of loan option. The rate is fixed for whole term of the loan and monthly payment which includes principal and interest will never change during the loan’s lifetime.
Flood Insurance A mandatory insurance for some homeowners whose property is built in a designated flood zone.
Foreclosure A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower’s debt.
Free and Clear This means the property is completely paid for and has no liens attached.
Functional Obsolescence A detraction from the property value due to the design or material being less functional than the norm.
Government National Mortgage Association (GNMA) Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Grant Deed A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.
Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like, it would not cover earthquake, riot, or flood damage.
Homestead The dwelling (house and contiguous land) of the head of the family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.
Hybrid ARMs (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM) Hybrid ARM mortgages combine features of both fixed-rate and adjustable rate mortgages and are also known as fixed-period ARMs. The rate for these hybrid ARMs is fixed for initial 3, 5. 7 or 10 years. After initial fixed rate period, rate will start to adjust once a year.
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.
Interest Only Mortgage A mortgage is called “Interest Only” when its monthly payment does not include the repayment of principal for a certain period of time. Interest Only loans are offered on fixed rate or adjustable rate mortgages as wells as on option ARMs. At the end of the interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends.
Joint Tenants A form of holding title where the owners have 100% rights of survivorship unless redirected by a will.
Leasehold Estate A kind of real estate ownership where the lessor does not hold title to the property but has use of the property subject to the terms of the lease.
LIBOR London Inter Bank Offered Rate. LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market.
Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan-To-Value Ratio (LTV) The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance
Mortgagee The lender.
Mortgagor The borrower
Negative Amortization Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when
the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.
Note Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.
Obligations Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.
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 face value of the loan.
Owners Policy A policy of the title insurance which protects the buyer against problems with the title.
P & L / Profit and Loss A statement of a business’s gross income, cost of goods, operating costs and net profit or loss.
P.I.T.I. Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.
P.U.D. Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.
Points A point is equal to one percent of the principal amount of a mortgage.
Power of Attorney An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.
Prelim. / Preliminary Title Report The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.
Prepaid Interest The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.
Prepaids 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 Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Pre-Qualified Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers’ information. PRE-Qualification is only an indication of what the buyer should qualify for.
Principal The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI) An insurance policy that a mortgage holder buys on behalf of a lender, protecting the lender in the event of default on the mortgage. Most lenders require their mortgage borrowers to purchase PMIs if the mortgage’s loan-to-value ratio is more than 80%.
Purchase Agreement The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.
Quit Claim A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.
Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement.
Rescission The cancellation of a contract. With respect to mortgage refinancing, the law 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.
Reconveyance A release of lien filed with the county recorder by the trustee.
Reverse Mortgage A reverse mortgage is a type of home equity loan that allows you to convert some of the existing equity in your home into cash while you retain ownership of the property. Equity is the current cash value of a home minus the current loan balance.
A reverse mortgage works much like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner. As long as the homeowner continues to live in the home, no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.
Second Mortgage A mortgage which is entered after the primary loan. Called a second due to it being in second lien position to the first mortgage. See also Secondary Financing.
Subordination Agreement A written agreement in which a lender who has secured a loan by a mortgage or deed of trust with the property owner to subordinate the loan to a new loan thus giving the new loan priority in any foreclosure or payoff.
Survey A measurement of 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 building.
Tenants in Common A percentage interest in a property by two or more individuals without rights of survivorship.
Title Insurance The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.
Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Title A document that gives evidence of an individual’s ownership of property.
Underwriting The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA Loan The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families. The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.
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.