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A
ABSTRACT (OF TITLE)
A historical summary of all the recorded transactions that affect the title to
the property. An attorney or a title company will review an abstract of title
to determine if there are any problems affecting the title to the property. All
problems must be cleared before the buyer can be issued a clear and insurable
title.
ACKNOWLEDGMENT
Formal declaration before a public official (typically a Notary Public)
certifying that one has signed a document. Required before recording real
estate legal documents, such as deeds of trust.
ACRE
A measure of land equal to 43,560 square feet.
ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage in which the interest rate is adjusted periodically based on an
index. Also called a variable rate mortgage.
ADJUSTMENT INTERVAL
For an adjustable rate mortgage, the time between changes in the interest rate
charged. The most common adjustment intervals are one, three or five years.
AGGREGATE ADJUSTMENT
The adjustment made as a credit to the borrower at closing to avoid an overage
in the borrower's escrow account.
AMORTIZATION
Payment of debt in regular, periodic payments of principal and interest.
ANNUAL PERCENTAGE RATE (A.P.R.)
The cost of credit on yearly basis, expressed as a percentage. Required to be
disclosed by the lender under the federal Truth in Lending Act, Regulation Z.
Includes up-front costs paid to obtain the loan, and is therefore, usually a
higher amount than the interest rate stipulated in the mortgage note. Does not
include title insurance, appraisal, and credit report.
APPLICATION
An initial statement of personal and financial information which is required to
approve your loan.
APPRAISAL
The determination of property value based on recent sales information of
similar properties.
ASSUMABLE LOAN
These loans may be passed on from a seller of a home to the buyer. The buyer
"assumes" all outstanding payments.
ATTORNEY IN FACT
One who is authorized to act for another under a power of attorney which may be
general or limited in scope. An example of this would be if Paul wanted to sell
his house but has to be out of the country for six months for various reasons.
Paul may give authorization to Irene to sign the grant deed to sell the
property in his absence. Irene becomes Paul's Attorney in Fact.
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B
BALLOON MORTGAGE
Behaves like a fixed-rate mortgage for a set number of years (usually five or
seven) and then must be paid off in full in a single "balloon" payment. Balloon
loans are popular with those expecting to sell or refinance their property
within a definite period of time.
BRIDGE LOAN
An interim loan typically used when the buyer is unable to sell his/her house
but needs money to close the transaction on the house he/she is buying. The
bridge loan is made on the buyer's current residence to finance the buyer's new
residence. The loan is paid off when the buyer's current residence is sold.
BROKER'S PRICE OPINION (BPO)
Prior to the listing a home, real estate brokers research comparables in the
area to determine the appropriate listing price for the home.
BUY DOWN
Obtaining a lower interest rate ("buying down the rate") by paying additional
points to the lender. The lower rate may apply for the full duration of the
loan (permanent) or just the first few years (temporary).
BUY OUT
The purchase of a home by a third party company to alleviate the original
owners from the responsibility of selling the home themselves. The home is then
sold by the third party company.
BUYERS MARKET
When the sellers exceed buyers in the market. As a result buyers have ample
choice of properties and may negotiate lower prices. Buyers markets may be
caused by an economic slump or overbuilding.
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C
CAPS
An established percentage amount by which an adjustable rate mortgage may
change each adjustment period. For adjustable loans, caps are usually quoted as
two numbers as in 2/6. The first number indicates how much a loan may adjust at
each adjustment period while the second number indicates how much a loan may
adjust over its lifetime.
CC&R's- Covenants, Conditions, and Restrictions
The basic rules establishing the rights and obligations of owners of real
property within a condominium, townhouse, PUD, subdivision or other tract of
land. An association is organized for the purpose of operating and maintaining
property commonly owned by the individual owners. The association is normally
made up of property owners.
CLOSING
1. The act of transferring ownership of a property from seller to buyer in
accordance with sales contract. 2. The time when a closing takes place.
CLOSING COST
Any fees paid by the borrowers or sellers during the closing of the mortgage
loan. This normally includes an origination fee, discount points, attorney's
fees, title insurance, survey, and any items which must be prepaid, such as
taxes and insurance escrow payments.
COMMITMENT
A written letter of agreement detailing the terms and conditions by which the
lender will lend and the borrower will borrow funds to finance a home.
CONDOMINIUM
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities that serve the multi-unit project.
CONFORMING LOAN
A mortgage loan for $300,700.00 or lower.
CONSTRUCTION LOAN
A short term loan to pay for the construction of buildings or homes. These
loans typically provide periodic disbursements to the builder as each stage of
the building is completed. When construction is completed a take-out or
permanent loan is used to pay off the construction loan.
CONTINGENCY
Conditions that must be satisfied before the buyer can close the purchase of a
property. Contingencies are generally outlined in the purchase contract between
the buyer and seller.
CONTRACT OF SALE
The agreement between the buyer and seller on the purchase price, terms, and
conditions necessary to both parties to convey the title to the buyer.
CONVERTIBLE ARMs
Some variable loans come with options to convert to a fixed loan based on a
pre-determined formula, during a given time period.
CREDIT REPORT
A report detailing a borrowers credit history including payment history on
revolving accounts (e.g. credit cards) and installment accounts (e.g..car
loan). A credit report also includes information found from public records
including tax liens and judgments.
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D
DEED
A legal document which affects the transfer of ownership of real estate from
the seller to the buyer.
DEFAULT
The failure to make payments on a loan.
DEPRECIATION
Decline in the value of a house due to wear and tear, obsolescence, adverse
changes in the neighborhood, or any other reason.
DESKTOP UNDERWRITER (DU)
The FNMA automated underwriting system that allows the loan processor to obtain
a decision within minutes of submission.
DIRECT BILL
The portion of the closing costs which are covered by a borrower's employer
that are paid directly from the employer to the lender. This reduces the use of
expensing and reimbursement between the borrowers and their employers.
DISCOUNT POINTS
Fees paid to a lender to reduce the interest rate.
DOCUMENTARY TAX STAMPS
Stamps affixed to a deed showing the amount of transfer tax.
DOMESTIC PARTNER
Persons who share a committed relationship showing financial interdependence
and joint responsibility for each other's common welfare, are not related by
blood, reside in the same household and intend to reside together indefinitely.
DOWER
The right of a spouse or child to the interest in a deceased spouse's or
parent's property.
DOWN PAYMENT
The difference between the sales price and the mortgage amount, but not
including any closing costs and/or prepaids.
DUE ON SALE CLAUSE
A clause in the Deed of Trust or Mortgage that states that the entire loan is
due upon the sale of the property.
DUPLICATE HOUSING
The corporate client will pay either the old or new mortgage payment, usually
the lesser of the two payments according to their corporate policy.
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E
EARNEST MONEY
A deposit made by a buyer of real estate towards the down payment to evidence
good faith. This money is typically held by the real estate brokers or the
escrow company.
EASEMENT
The right to use the land of another for a specific purpose. Easements may be
temporary or permanent. An example of this would be if the utility company
needs an easement to run electric lines.
EE
Abbreviation used in place of "The transferee."
ENCROACHMENT
A building, a part of a building, or an obstruction (e.g.. a fence or a wall)
that physically intrudes upon or overlaps onto the property of another.
EQUITY
The difference between the fair market value (appraised value) of your home and
your outstanding mortgage balance.
EQUITY ADVANCE
Funds advanced to the transferee based on the available equity in the home the
transferee is selling in order to purchase the new home. This will be done
either in the form of a bridge loan or an advance.
EQUITY STATEMENT
Equivalent to a HUD-1 for underwriting purposes. The statement reflects the net
equity from a buy out or third party purchase of a previous residence.
ESCROW HOLDBACK
Funds held by the closing agent to ensure completion or repair of specific
items such as a driveway or landscaping.
ESCROWS
Funds held in an account with the investor to pay future hazard insurance,
taxes and private mortgage insurance bills when due.
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F
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA, FANNIE MAE)
Purchase loans from lenders, securitizes them and sells FNMA mortgage backed
securities on Wall Street.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC, Freddie Mac)
Purchase loans from members of the Federal Reserve and the Federal Home Loan
Bank Systems, securitizes them and sells FHLMC mortgage backed securities on
Wall Street.
FEE SIMPLE
Absolute ownership of real property; owner is entitled to the entire property
with unconditional power of disposition during the owners life and upon his/her
death the property descends to the owner's designated heirs.
FINANCE CHARGE
The total dollar amount your loan will cost you. It includes all interest
payments for the life of the loan; any interest paid at closing, your
origination fee and any other charge paid to the lender and /or broker.
Appraisal, credit report and title search fees are not included in the finance
charge calculation.
FIXED-RATE MORTGAGE
A mortgage where the interest rate does not change for the life of the loan.
FIRST MORTGAGE
A mortgage that has priority as a lien over all other mortgages. In the case of
a foreclosure the first mortgage will be satisfied before other mortgages.
FLOAT
Between the time of application and closing, a borrower may elect to not lock
into an interest rate. Since it is the borrower's responsibility to lock his or
her rate before closing, choosing a float is considered risky and may result in
an interest rate that differs from the original loan application. Request
further information from your lender regarding lock procedures.
FLOOD INSURANCE
An insurance policy that covers property damage due to natural flooding. Flood
insurance may be required on properties in a flood zone.
FORECLOSURE
A legal process by which the lender forces a sale of a property because the
borrower has not met the terms of the mortgage.
FSBO
For sale by owner. A property for sale that is not listed with a real estate
broker.
FULLY INDEXED RATE
The fully indexed rate = value of the index + margin.
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G
GOOD FAITH ESTIMATE
An estimate of charges a borrower is likely to incur in connection with a loan
closing.
GRACE PERIOD
A period of time during which a loan payment may be paid after its due date but
not incur a late penalty.
GROSS INCOME
For qualifying purposes, the income of the borrower before taxes or expenses
are deducted.
GUARANTEED PURCHASE OFFER (GPO)
Used as the first step of a buyout. At least two appraisals are completed to
determine the value of a home so that an offer can be presented to a third
party company to purchase the home.
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H
HAZARD INSURANCE (Fire Insurance, Homeowner's Insurance)
Insurance on a property against fire and other risks. A homeowner's policy may
have additional coverage for theft, liability, etc. that a fire insurance
policy may not cover.
HUD -1 SETTLEMENT STATEMENT
A form utilized at loan closing to itemize the costs associated with purchasing
the home. Used universally by mandate of HUD, the Department of Housing and
Urban Development.
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I
IMPOUND ACCOUNT
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 or escrows.
INDEX
A published interest rate not controlled by the lender to which the interest
rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest
rate linked to it may increase or decrease.
INTEREST RATE
The percentage of an amount of money which is paid for its use for a specified
time.
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J
JOINT TENANCY
Ownership of a property by 2 or more people, each of whom has an undivided
interest with the right of survivorship.
JUDGMENT
The decision of a court of law stating that one individual is indebted to
another and setting the amount of indebtedness. Judgments, when recorded,
become a lien on real property owned by the defendant.
JUMBO LOAN (Non-Conforming Loan)
Loan size that is larger than the limit established by Fannie Mae or Freddie
Mac. Currently, loans above $300,700.00 are considered Jumbos.
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K
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L
LIFE OF LOAN CAP
The maximum interest rate that can be charged during the life of the loan. Also
called lifetime Cap. This value is often expressed as an increment above the
initial loan rate.
LOAN ORIGINATION FEE OR POINTS
Fees paid to a lender to reduce the interest rate.
LOAN SERVICING
The act of collecting loan payments, handling property tax and insurance
escrows, foreclosing on defaulted loans and remitting payments to the
investors.
LOAN TO VALUE RATIO (LTV)
A ratio determined by dividing the loan amount by the sales price or appraised
value (whichever is less), expressed as a percentage. For example, with a sales
price of $100,000.00 and a mortgage loan of $80,000.00, your loan to value
ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage
Insurance.
LOCK (Noun)
The period, expressed in days, during which a lender will guarantee a rate.
Request information from your lender regarding lock procedures.
LOCK (Verb)
The act of committing to a mortgage rate. This action is taken by a borrower
sometime between the application and the closing dates. Opposite of float. This
can be done during the initial loan application process.
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M
MARGIN
The amount a lender adds to the quoted index rate for an adjustable rate loan
to determine the new 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.
MECHANICS LIEN
The right of an unpaid contractor or subcontractor to file a lien against
property to recover the amount due to him/her.
MORTGAGE
A written instrument that creates a lien upon real estate as security for the
payment of a specified debt.
MORTGAGE BANKER
A Mortgage Banker controls the entire mortgage process from origination through
funding. Mortgage Bankers fund loans with their own resources and generally
sell their closed loans on the secondary market to investors.
MORTGAGE BROKER
Arranges financing for a borrower by placing loans with lenders. Mortgage
brokers are paid a fee by the borrower or the lender when a loan closes.
MORTGAGEE
The lender.
MORTGAGOR
The borrower.
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N
NON-CONFORMING LOAN
Loans that do not comply with Fannie Mae or Freddie Mac guidelines. This
includes Jumbo and Sub-Prime loans.
NOTE
A written instrument that acknowledges a debt and promises to pay.
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O
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P
PERMANENT LOAN OR MORTGAGE
A mortgage for a long period of time. Often referred to as the mortgage that
pays off a construction loan on a completed property.
PITI
Abbreviation for principal, interest, taxes and insurance, which may be
combined in a single monthly mortgage payment.
PLANNED UNIT DEVELOPMENT (PUD)
A zoning classification that allows flexibility in the design of a subdivision.
PUDs include individually owned units as well as some common space that is
jointly owned.
PLAT
A plan or map of a specific land area.
PORTFOLIO LOAN
A loan that is held as an investment by a bank or savings and loan, and not
sold on the secondary market to investors.
POWER OF ATTORNEY
A written document authorizing a person to act on the behalf of another person.
That person does not have to be an attorney.
PREPAYMENT
The ability to pay off the remaining balance of a loan.
PREPAYMENT PENALTY
Fees paid by the borrower if they pay the loan before its due date. Confirm
with your lender on the presents of a prepayment penalty prior to locking.
PRIMARY MORTGAGE MARKET
Companies that originate mortgage loans (banks, savings & loans, credit
union, mortgage bankers, institutional lenders) make up the primary mortgage
market.
PRIME RATE
The lowest commercial interest rate charge by a bank on short term loans to
their most credit worthy customers.
PRINCIPAL
The outstanding balance on a loan.
PRIVATE MORTGAGE INSURANCE (PMI)
Paid by a borrower to protect the lender in case of default. PMI is typically
charged to the borrower when the Loan-to-Value Ratio is greater than 80%.
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Q
QUALIFYING RATIOS
Comparisons of a borrower's debts and gross monthly income.
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R
RECONVEYANCE
When a mortgage is paid off in full, the lender conveys the property back to
the borrower.
RECORDING
The act of entering into a book of public records instruments affecting title
to the real property. A lender requires that a deed of trust or a mortgage be
recorded to evidence the debt against the property.
REFINANCING
Repaying an existing loan from the proceeds of a new loan on the same property.
REGULATION Z (REG Z)
A federal regulation requiring creditors to provide full disclosure of the
terms of a loan including the terms of the loan and the annual percentage rate
(A.P.R.).
RELOCATION LOAN
Underwriters consider a move a relocation if the following are present: 1) The
distance between the borrower's new employment location and former employment
location is at least 50 miles. 2) The new income for the transferee must either
be greater than the previous or the employer must provide a satisfactory
explanation for the difference. 3) The employer makes a significant investment
in the relocation expenses of the borrower.
RESTRICTIVE COVENANTS
Private restrictions limiting the use of real property. Restrictive covenants
are created by deed and may "run with the land," binding all subsequent
purchasers of the land, or may be "personal" and binding only between the
original seller and buyer.
RIGHT OF RESCISSION
The legal rights to void or cancel your mortgage contract in such a way as to
treat the contract as if it never existed. Right of rescission is not
applicable to mortgages made to purchase a home, however they may be applicable
to other mortgages such as refinances or home equity loans.
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S
SECONDARY MORTGAGE MARKET
The market where banks, savings & loans and mortgage bankers can sell
mortgages to investors like Fannie Mae or Freddie Mac.
SECOND HOME
Also known as a vacation home. This home is different from an investment
property as it is not rented, but used occasionally by the owners.
SECOND MORTGAGE
A subordinated lien, created by a mortgage loan, over the amount of a first
mortgage. Second mortgages generally carry a higher rate than a first mortgage
since they represent a higher risk for an investor.
SERVICING A LOAN
The ongoing process of collecting your monthly mortgage payment, including
accounting for and payment of your yearly tax and/or homeowners insurance
bills.
SETTLEMENT COST (HUD Guide)
A booklet that provides an overview of the lending process and is a requirement
to be given to consumers after the loan application is completed.
SINGLE FAMILY HOUSING (SFR)
A type of residential structure designed to include one dwelling.
SPEC HOUSE
A single-family dwelling constructed by a builder in anticipation of finding a
buyer.
SPECIAL ASSESSMENT
A special tax imposed on property, individual lots or all property in the
neighborhood to pay for improvements - street lights, sidewalks, etc.
SUB PRIME LOAN
Loans where in the credit or lending criteria do not meeting conforming
guidelines. This includes derogatory credit references as well as loans secured
by unique collateral (property).
SUBDIVISION
A tract of land divided into lots suitable for home building purposes.
SUBORDINATION
A loan in a lower priority, for example a second mortgage is subordinate to a
first.
SURVEY
Map made by a licensed survey or who measures land and charts its boundaries,
improvements and relationship to the property surrounding it.
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T
TENANCY AT SUFFERANCE
Tenancy established when a person who had been a lawful tenant wrongfully
remains in possession of property after expiration of a lease.
TENANCY AT WILL
A license to use or occupy land and buildings at the will of the owner. The
tenant may decide to leave the property at any time or must leave at the
landlords' will.
TENANCY BY THE ENTIRETY
A form of ownership by husband and wife whereby each owns the entire property.
In event of the death of one, the survivor owns the property without probate.
TENANCY FOR YEARS
Created by a lease for a fixed term, such as 6 months, 2 years, etc.
TENANCY IN COMMON
Ownership of a property by 2 or more persons, each of whom has an undivided
interest, without the right of survivorship. Upon the death of one of the
owners, the beneficiary designated on the owner's will inherits the ownership
share of the deceased.
TENANCY IN SEVERALTY
Ownership of property by one person.
TITLE
The written evidence that proves the right of ownership of a specific piece of
property.
TITLE INSURANCE
Insurance against loss resulting from defects of title to a specifically
described parcel of real estate.
TITLE REPORT
A document indicating the current state of title. The report includes
information on the current ownership, outstanding deeds of trust or mortgages,
liens, easements, convenants, restrictions, and any defects.
TITLE SEARCH
An examination of city, town, or county records to determine the legal
ownership of real estate.
TOWN HOUSE
Residence, which normally has 2 or more floors and is attached to other similar
units. Town houses are commonly found in planned unit developments (PUDs) and
condominiums.
TRACT
A parcel of land generally held for subdividing.
TRAILING SPOUSE INCOME
Income used from a secondary wage earner. Loan must be a corporate relocation
and the secondary wage earner must be a relative or domestic partner of the
primary wage earner. The "trailing spouse" does not have to be working in the
new location at the time of loan closing as long as the previous income and the
potential for new income in the same field can be documented.
TRANSFER TAX
Tax paid to the city, county, state or other government entity upon sale of a
property.
TRUST
The right in property held by one person, called a trustee, for the benefit of
another, called the beneficiary.
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U
UNDERWRITING
The decision whether to make a loan to a potential home buyer based on credit,
income, employment history, assets, etc.
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V
VERIFICATION OF DEPOSIT (VOD)
A document signed by the borrower's bank or other financial institution
verifying the account balance and history.
VERIFICATION OF EMPLOYMENT (VOE)
A document signed by the borrower's employer verifying his/her starting date,
job title, salary and probability of continued employment.
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W
WAIVER
The voluntary renunciation, abandonment, or surrender of some claim, right, or
privilege.
WAREHOUSING
Mortgage bankers and other financial institutions make loans that are then
periodically sold on the secondary market. After the loan is made but before it
is sold - the loan is said to be in the lender warehouse.
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X
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Y
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Z
ZONING
Areas may be zoned to specify use of a property i.e. residential, commercial,
agricultural. These zoning ordinances are normally enforced by the city or the
county.
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