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Acceleration
Clause
A provision in a mortgage that gives the lender the right
to demand payment of the entire principal balance if any monthly
payments are missed.
Acceptance
An offer's consent to enter into a contract and be bound
by the terms of the offer.
Additional
Principal Payment
A payment by a borrower of more than the scheduled
principal amount due in order to reduce the remaining balance on
the loan.
Adjustable
Rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest
rate periodically on the basis of changes in a specified index.
Adjustment
Date
The date on which the interest rate changes for an
adjustable-rate mortgage (ARM).
Adjustment
Period
The period that elapses between the adjustment dates for
an adjustable-rate mortgage (ARM).
Amortization
The gradual repayment of a mortgage loan by installments.
Amortization
Schedule
A timetable for payment of a mortgage loan. An
amortization schedule shows the amount of each payment applied
to interest and principal and shows the remaining balance after
each payment is made.
Amortize
To repay a mortgage with regular payments that cover both
principal and interest.
Annual
Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; includes
such items as interest, mortgage insurance, and loan origination
fees (points).
Application
A form used to apply for a mortgage loan and to record
pertinent information concerning a prospective mortgagor and the
proposed security.
Appraisal
A written analysis of the estimated value of a property
prepared by a qualified appraiser. Contrast with home
inspection.
Appraised
Value
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
Appraiser
A person qualified by education, training, and experience
to estimate the value of real property and personal property.
Appreciation
An increase in the value of a property due to changes in
market conditions or other causes. The opposite of depreciation.
Assessed
Value
The valuation placed on property by a public tax assessor
for purposes of taxation.
Asset
Anything of monetary value that is owned by a person.
Assets include real property, personal property, and enforceable
claims against others (including bank accounts, stocks, mutual
funds, and so on).
Assignment
The transfer of a mortgage from one person to another.
Assumable
Mortgage
A mortgage that can be taken over ("assumed")
by the buyer when the home is sold.
Assumption
Clause
A provision in an assumable mortgage that allows a buyer
to assume responsibility for the mortgage from the seller. The
loan does not need to be paid in full by the original borrower
upon sale or transfer of the property.
Assumption
Fee
The fee paid to a lender (usually by the purchaser of
real property) resulting from the assumption of an existing
mortgage.
Attorney-In-Fact
Fee
One who holds a power of attorney from another to execute
documents on behalf of the grantor of the power.
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Balance
Sheet
A financial statement that shows assets, liabilities, and
net worth as of a specific date.
Balloon
Mortgage
A mortgage that has level monthly payments that will
amortize over a stated term but that provides for a lump sum
payment to be due at the end of an earlier specified term.
Bankruptcy
A proceeding in the federal courts in which a debtor, who
owes more that his or her assets can repay, can relieve those
debts by transferring his or her assets to a trustee.
Beneficiary
The person designated to receive the income from a trust,
estate, or a deed of trust.
Binder
A preliminary agreement secured by the payment of an
earnest money deposit, under which a buyer offers to purchase
real estate.
Blanket
Insurance Policy
A single policy that covers more than one piece of
property (or more than one person).
Bridge
Loan
A form of second trust that is collateralized by the
borrower's present home (which is usually for sale) in a manner
that allows the proceeds to be used for closing on a new house
before the present home is sold. Also known as "swing
loan".
Broker
A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between them. See mortgage
broker.
Buydown
Account
An account in which funds are held so that they can be
applied as part of the monthly mortgage payment as each payment
comes due during the period that an interest rate buydown plan
is in effect.
Buydown
Mortgage
A temporary buydown is a mortgage on which an initial
lump sum payment is made by any party to reduce a borrower's
monthly payments during the first few years of a mortgage. A
permanent buydown reduces the interest rate over the entire life
of a mortgage.
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Call
Option
A provision in the mortgage that gives the mortgagee the
right to call the mortgage due and payable at the end of a
specified period for whatever reason.
Cap
A provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or mortgage payments may
increase or decrease. See lifetime
payment cap, lifetime rate cap,
periodic payment cap, and periodic
rate cap.
Cash-Out-Refinance
A refinance transaction in which the amount of money
received from the new loan exceeds the total of the money needed
to repay the existing mortgages, closing cost, points, and the
amount required to satisfy any outstanding subordinate mortgage
liens. In other words, a refinance transaction in which the
borrower receives additional cash that can be used for other
purposes.
Certificate
of Deposit
A document written by a bank or other financial
institution that is evidence of a deposit, with the issuer's
promise to return the deposit plus earnings at a specified
interest rate within a specified time period.
Certificate
of Deposit Index
An index that is used to determine interest rate changes
for certain ARM plans. It represents the weekly average of
secondary market interest rates on six-month negotiable
certificates of deposit. See adjustable-rate
mortgage (ARM).
Certificate
of Eligibility
A document issued by the federal government certifying a
veteran's eligibility for a Department of Veterans Affairs (VA)
mortgage.
Certificate
of Reasonable Value
A document issued by the Department of Veterans Affairs
(VA) that establishes the maximum value and loan amount for a VA
mortgage.
Chain
of Title
The history of all of the documents that transfer title
to a parcel of real property, starting with the earliest
existing document and ending with the most recent.
Change
Frequency
The frequency (in months) of payment and/or interest rate
changes in an adjustable-rate mortgage (ARM).
Clear
Title
A title that is free of liens or legal questions as to
ownership of the property.
Closing
A meeting at which the sale of a property is finalized
when the buyer signs the mortgage documents and pays the closing
costs. Also called "settlement".
Closing
Cost Item
A fee or amount that a homebuyer must pay at closing for
a single service, tax, or product. Closing costs are made up of
individual closing cost items such as origination fees and
attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
Closing
Costs
Expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership of a
property. Closing costs normally include an origination fee, an
attorney's fee, taxes, an amount placed in escrow, and charges
for obtaining title insurance and a survey. The closing cost
percentage will vary according to the area of the country;
lenders or realtors often provide estimates of closing costs to
prospective homebuyers.
Closing
Statement
See HUD-1 statement.
Cloud
on Title
Any conditions revealed by a title search that adversely
affects the title to real estate. Usually clouds on title cannot
be removed except by a quitclaim deed, release, or court action.
Collateral
An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the asset if the
loan is not repaid according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage current
and to file the necessary notices to proceed with foreclosure
when necessary.
Co-Maker
A person who signs a promissory note along with the
borrower. A co-maker's signature guarantees that the loan will
be repaid, because the borrower and the co-maker are equally
responsible for the repayment. See endorser.
Commission
The fee charged by a broker or agent for negotiating a
real estate or loan transaction. The commission fee is generally
a percentage of the price of the property or loan.
Commitment
Letter
A formal offer by the lender stating the terms under
which it agrees to lend money to the homebuyer. Also known as a
"loan commitment".
Common
Area Assessments
Levies against individual unit owners in a condominium or
planned unit development (PUD) project for additional capital to
defray homeowner's association costs and expenses and to repair,
replace, maintain, improve, or operate the common areas of the
project.
Common
Areas
Those portions of a building, land, and amenities owned
(or managed) by a planned unit development (PUD) or condominium
project's homeowner's association (or a cooperative project's
cooperative corporation) that are used by all of the unit
owners, who share in the common expenses of their operation and
maintenance. Common areas include swimming pools, tennis courts,
and other recreational facilities, as well as common corridors
of buildings, parking areas, means of ingress and egress, etc.
Common
Law
An unwritten body of law based on general custom in
England and used to an extent in the United States.
Community
Property
In some western and southwestern states, a form of
ownership under which property acquired during a marriage is
presumed to be owned jointly unless acquired as separate
property of either spouse.
Comparable
An abbreviation for "comparable properties";
used for comparative purposes in the appraisal process.
Comparables are properties like the property under
consideration; they have reasonably the same size, location,
amenities, and have recently been sold. Comparables help the
appraiser to determine the approximate fair market value of the
subject property.
Compound
Interest
Interest paid on the original principal balance and on
the accrued and unpaid interest.
Condemnation
The determination that a building is not fit for use or
is dangerous and must be destroyed; the taking of private
property for a public purpose through an exercise of the right
of eminent domain.
Condominium
A real estate project in which each unit owner has title
to a unit in a building, undivided interest in the common areas
of the project, and sometimes the exclusive use of certain
limited common areas.
Condominium
Conversion
Changing the ownership of an existing building (usually a
rental project) to the condominium form of ownership.
Construction
Loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder at
periodic intervals as the work progresses.
Consumer
Reporting Agency (or Bureau)
An organization that prepares reports that are used by
lenders to determine a potential borrower's credit history. The
agency obtains data for these reports from a credit repository
as well as from other sources.
Contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a
contingency that specifies that the contract is not binding
until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector.
Contract
An oral or written agreement to do or to not do a certain
thing.
Conventional
Mortgage
A mortgage that is not insured or guaranteed by the
federal government. Contrast with government mortgage.
Convertibility
Clause
A provision in some adjustable-rate mortgages (ARMs) that
allows the borrower to change the ARM to a fixed-rate mortgage
at specified timeframes after loan origination.
Convertible
ARM
An adjustable-rate mortgage (ARM) that can be converted
to a fixed-rate mortgage under specified conditions.
Cooperative
(Co-Op)
A type of multiple ownership in which the residents of a
multiunit housing complex own shares in the cooperative
corporation that owns the property, giving each resident the
right to occupy a specific apartment or unit.
Cost
Of Funds Index (COFI)
An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It represents
the weighted average cost of savings, borrowings, and advances
of the 11th District members of the Federal Home Loan Bank of
San Francisco. See adjustable-rate
mortgage (ARM).
Credit
An agreement in which a borrower receives something of
value in exchange or a promise to repay the lender at a later
date.
Credit
History
A record of an individual's open and fully repaid debts.
A credit history helps the lender to determine whether a
potential borrower has a history of repaying debts in a timely
manner.
Creditor
A person to whom money is owed.
Credit
Report
A report of an individual's credit history prepared by a
credit bureau and used by a lender in determining the loan
applicant's creditworthiness. See merged
credit report.
Credit
Repository
An organization that gathers, records, updates, and
stores financial and public records information about the
payment records of individuals who are being considered for
credit.
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Debt
An amount owed to another. See installment
loan and revolving liability.
Deed
The legal document conveying title to a property.
Deed-In-Lieu
A deed given by a mortgagor to the mortgagee to satisfy a
debt and avoid foreclosure. Also called a "voluntary
conveyance".
Deed
Of Trust
The document used in some states instead of a mortgage;
title is conveyed to a trustee.
Default
Failure to make mortgage payments on a timely basis or to
comply with other requirements of a mortgage.
Delinquency
Failure to make mortgage payments when mortgage payments
are due.
Deposit
A sum of money given to bind the sale of real estate, or
a sum of money given to ensure payment or an advance of funds in
the processing of a loan. See earnest
money deposit.
Depreciation
A decline in the value of a property; the opposite of
appreciation.
Discount
Points
See point.
Down
Payment
The part of the purchase price of a property that the
buyer pays in cash and does not finance with a mortgage.
Due-On-Sale
Provision
A provision in a mortgage that allows the lender to
demand repayment in full if the borrower sells the property that
serves as a security for the mortgage.
Due-On-Transfer
Provision
This terminology is usually used for second mortgages.
See due-on-sale provision.
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Earnest
Money Deposit
A deposit made by the potential homebuyer to show that he
or she is serious about buying the house.
Easement
A right of way giving persons other than the owner access
to or through a property.
Eminent
Domain
The right of a government to take private property for
public use upon payment of its fair market value. Eminent domain
is the basis for condemnation proceedings.
Encroachment
An improvement that intrudes illegally onto another's
property.
Encumbrance
Anything that affects or limits the fee simple title to a
property, such as mortgages, leases, easements, or restrictions.
Endorser
A person who signs their ownership interest over to
another party. Contrast with co-maker.
Equal
Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors
to make credit equally available without discrimination based on
race, color, religion, national origin, age, sex, marital
status, or receipt of income from public assistance programs.
Equity
A homeowner's financial interest in a property. Equity is
the difference between the fair market value of the property and
the amount still owed on its mortgage.
Escrow
An item of value, money, or documents deposited with a
third party to be delivered upon the fulfillment of a condition.
For example, the deposit by a borrower with the lender of funds
to pay taxes and insurance premiums when they become due, or the
deposit of funds or documents with an attorney or escrow agent
to be disbursed upon the closing of a sale of real estate.
Escrow
Account
The account in which a mortgage servicer holds the
borrower's escrow payments prior to paying property expenses.
Escrow
Analysis
The periodic examination of an escrow account to
determine if current monthly deposits will provide sufficient
funds to pay taxes, insurance, and other bills when due.
Escrow
Collections
Funds collected by the servicer and set-aside in an
escrow account to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become
due.
Escrow
Payment
The portion of a mortgagor's monthly payment that is held
by the servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due.
Known as "impounds" or "reserves" in some
states.
Estate
The ownership interest of an individual in real property.
The sum total of all the real property and personal
property owned by an individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
Examination
Of Title
The report on the title of a property from the public
records or an abstract of the title.
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Government
Mortgage
A mortgage that is insured by the Federal Housing
Administration (FHA) or guaranteed by the Department of Veterans
Affairs (VA) or the Rural Housing Service (RHS). Contrast with
conventional mortgage.
Grantee
The person to whom an interest in real property is
conveyed.
Grantor
The person conveying an interest in real property.
Guaranteed
Loan
Also known as a government
mortgage.
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Hazard
Insurance
Insurance coverage that compensates for physical damage
to a property from fire, wind, vandalism, or other hazards.
Home
Equity Line Of Credit
A mortgage loan, which is usually in a subordinate
position, that allows the borrower to obtain multiple advances
of the loan proceeds at his or her own discretion, up to an
amount that represents a specified percentage.
Home
Inspection
A thorough inspection that evaluates the structural and
mechanical condition of a property. A satisfactory home
inspection is often included as a contingency by the purchaser.
Contrast with appraisal.
Homeowner's
Association
A nonprofit association that manages the common areas of
a planned unit development (PUD) or condominium project. In the
case of a condominium project, the homeowner's association has
no ownership interest in the common elements. In a PUD project,
the homeowner's association holds title to the common elements.
Homeowner's
Insurance
An insurance policy that combines personal liability
insurance and hazard insurance coverage for a dwelling and its
contents.
Housing
Expense Ratio
The percentage of gross monthly income that goes toward
paying housing expenses.
HUD-1
Statement
A document that provides an itemized listing of the funds
that are payable at closing. Items that appear on this statement
include real estate commissions, loan fee points, and initial
escrow amounts. Each item on the statement is represented by a
separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's
net proceeds and buyer's net payment at closing. The blank form
for the statement is published by the Department of Housing and
Urban Development (HUD). The HUD-1 statement is also known as
the "closing statement" or "settlement
sheet".
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Income
Property
Real estate developed or improved to produce income.
Index
A number used to compute the interest rate for an
adjustable-rate mortgage (ARM). The index is generally a
published number or percentage, such as the average interest
rate or yield on Treasury bills. A margin is added to the index
to determine the interest rate that will be charged on the ARM.
This interest rate is subject to any caps that are associated
with the mortgage.
In-File
Credit Report
An objective account, normally computer generated, of
credit and legal information obtained from a credit repository.
Initial
Interest Rate
The original interest rate of the mortgage at the time of
closing. These rate changes for an adjustable-rate mortgage
(ARM). Sometimes known as "start rate" or
"teaser".
Installment
The regular periodic payment that a borrower agrees to
make to a lender.
Installment
Loan
Borrowed money that is repaid in equal payments, known as
installments. A furniture loan is often paid for as an
installment loan.
Insurance
A contract that provides compensation for specific losses
in exchange for a periodic payment. An individual contract is
known as an insurance policy and the periodic payment is known
as an insurance premium.
Insurance
Holder
A document stating that insurance is temporarily in
effect. Because the coverage will expire by a specified date, a
permanent policy must be obtained before the expiration date.
Insured
Mortgage
A mortgage that is protected by the federal Housing
Administration (FHA) or by private mortgage insurance (PMI). If
the borrower defaults on the loan, the insurer must pay the
lender the lesser of the loss incurred or the insured amount.
Interest
The fee charged for borrowing money.
Interest
Accrual Rate
The percentage rate at which interest accrues on the
mortgage. In most cases, it is also the rate used to calculate
the monthly payments, although it is not used for an adjustable-
rate mortgage (ARM) with payment change limitations.
Interest
Rate
The rate of interest in effect for monthly payment due.
Interest
Rate Buydown Plan
An arrangement wherein the property seller (or any other
party) deposits money to an account so that it can be released
each month to reduce the mortgagor's monthly payments during the
early years of a mortgage. During the specified period, the
mortgagor's effective interest rate is "bought down"
below the actual interest rate.
Interest
Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum
interest rate, as specified in the mortgage note.
Interest
Rate Floor
For an adjustable-rate mortgage (ARM), the minimum
interest rate, as specified in the mortgage note.
Investment
Property
A property that is not occupied by the owner.
IRA
(Individual Retirement Account)
A retirement account that allows individuals to make
tax-deferred contributions to a personal retirement fund.
Individuals can place IRA funds in bank accounts or in other
forms of investment such as stocks, bonds or mutual funds.
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Joint
Tenancy
A form of co-ownership that gives each tenant equal
rights in the property, including the right of survivorship.
Judgment
A decision made by a court of law. In judgments that
require the repayment of a debt, the court may place a lien
against the debtor's real property as collateral for the
judgment's creditor.
Judgment
Lien
A lien on the property of a debtor resulting from the
decree of a court.
Jumbo
Loan
A loan that exceeds Fannie Mae's legislated mortgage
amount limits. Also called a nonconforming loan.
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Late
Charge
The penalty a borrower must pay when a payment is made a
stated number of days (usually 15) after the due date.
Lease
A written agreement between the property owner and a
tenant that stipulates the conditions under which the tenant may
possess the real estate for a specified period of time and rent.
Leasehold
Estate
A way of holding title to a property wherein the
mortgagor does not actually own the property but rather has a
recorded long-term lease on it.
Lease
Purchase Mortgage Loan
An alternative financing option that allows for
low-and moderate- income homebuyers to lease a home from a
non-profit organization with an option to buy. Each months rent
payment consists of principal, interest, taxes, and insurance (PITI)
payments on the first mortgage plus an extra amount that is
earmarked for deposit to a savings account in which money for a
down payment will accumulate.
Legal
Description
A property description recognized by law that is
sufficient to locate and identify the property without oral
testimony.
Liabilities
A person's financial obligations. Liabilities include
long-term and sort-term debt, as well as any other amounts that
are owed to others.
Liability
Insurance
Insurance coverage that offers protection against
claims alleging that a property owner's negligence or
inappropriate action resulted in bodily injury or property
damage to another party.
Lien
A legal claim against a property that must be paid
off when property is sold.
Lifetime
Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the
amount that payments can increase or decrease over the life of
the mortgage. See cap.
Lifetime
Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the
amount that the interest rate can increase or decrease over the
life of the loan. See cap.
Line
Of Credit
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a
certain time to a specified borrower. See home equity line of
credit. An asset that is easily converted into cash.
Loan
A sum of borrowed money (principal) that is generally
repaid with interest.
Loan
Commitment
See commitment letter.
Loan
Origination
The process by which a mortgage lender brings into
existence a mortgage secured by real property.
Loan-To-Value
(LTV) Percentage
The relationship between the principal balance of the
mortgage and the appraised value (or sales price if it is lower)
of the property. For example, a $100,000 home with an $80,000
mortgage has a LTV percentage of 80 percent.
Lock-In
A written agreement in which the lender guarantees a
specified interest rate if a mortgage goes to closing within a
set period of time. The lock-in also usually specifies the
number of points to be paid at closing.
Lock-In
Period
The time period during which the lender has guaranteed an
interest rate to a borrower. See lock-in.
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Margin
For an adjustable-rate mortgage (ARM), the amount that is
added to the index to establish the interest rate on each
adjustment date, subject to any limitations on the interest rate
change.
Maturity
The date on which the principal balance of a loan,
bond, or other financial instrument becomes due and payable.
Maximum
Financing
A mortgage amount that is within 5 percent of the
highest loan-to-value (LTV) percentage allowed for a specific
product. Thus, maximum financing on a fixed rate mortgage would
be 90 percent or higher, because 95 percent is the maximum
allowable LTV percentage for that product.
Merged
Credit Report
A credit report that contains information from three
credit repositories. When the report is created, the information
is compared for duplicate entries.
Modification
The act of changing any of the terms of the mortgage.
Money
Market Account
A savings account that provides bank depositors with
many of the advantages of a money market fund. Certain
regulatory restrictions apply to the withdrawal of funds from a
money market account.
Money
Market Fund
A mutual fund that allows individuals to participate
in managed investments in short-term debt securities, such as
certificates of deposit and Treasury bills.
Monthly
Fixed Installment
That portion of the total monthly payment that is
applied toward principal and interest. When a mortgage
negatively amortizes, the monthly fixed installment does not
include any amount for principal reduction.
Monthly
Payment Mortgage
A mortgage that requires payments to reduce the debt
once a month.
Mortgage
A legal document that pledges a property to the
lender as security for payment of a debt.
Mortgage
Banker
A company that originates mortgages exclusively for
resale in the secondary mortgage market.
Mortgage
Broker
An individual or company that brings borrowers and
lenders together for the purpose of loan origination. Mortgage
brokers typically require a fee or a commission for their
services.
Mortgagee
The lender in a mortgage agreement.
Mortgage
Insurance
A contract that insures the lender against loss
caused by a mortgagor's default on a government mortgage or
conventional mortgage. Mortgage insurance can be issued by a
private company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of mortgage
insurance, the insurance may cover a percentage of or virtually
the entire mortgage loan. See Private
Mortgage Insurance (PMI).
Mortgage
Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage
insurance, either to a government agency such as Federal Housing
Administration (FHA) or to a private mortgage insurance (PMI)
company.
Mortgage
Life Insurance
A type of term life insurance often bought by
mortgagors. The amount of coverage decreases as the principal
balance declines. In the event that the borrower dies while the
policy is in force, the debt is automatically satisfied by
insurance proceeds.
Mortgagor
The borrower in a mortgage agreement.
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Negative
Amortization
A gradual increase in mortgage debt that occurs when
the monthly payment is not large enough to cover the entire
principal and interest due. The amount of the shortfall is added
to the remaining balance to create "negative"
amortization.
Net
Cash Flow
The income that remains for an investment property
after the monthly operating income is reduced by the monthly
housing expense, which includes principal, interest, taxes, and
insurance (PITI) for the mortgage, homeowners' association dues,
leasehold payments, and subordinate financing payments.
Net Worth
The value of all of a person's assets, including
cash, minus all liabilities.
No
Cash-Out Refinance
A refinance transaction where the new mortgage amount
is limited to the sum of the remaining balance of the existing
first mortgage, closing costs (including pre-paid items),
points, the amount required to satisfy any mortgage liens that
are more than one year old (if the borrower chooses to satisfy
them), and others funds for the borrower's use (as long as the
amount does not exceed 1 percent of the principal amount of the
new mortgage).
Non-Liquid
Asset
An asset that cannot be easily converted into cash.
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 interest rate stated on a mortgage note.
Notice
of Default
A formal written notice to a borrower that their loan
is in default and that legal action may be taken.
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Original
Principal Balance
The total amount of principal owned on a mortgage
before any payments are made.
Origination
Fee
A fee paid to originator of the loan. The origination
fee is stated in the form of points. One point is 1 percent of
the mortgage amount.
Owner
Financing
A property purchase transaction in which the property
seller provides all or part of the financing.
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Partial
Payment
A payment that is not sufficient to cover the
scheduled monthly payment on a mortgage loan.
Payment
Change Date
The date when a new monthly payment amount takes
effect on an adjustable-rate (ARM), or a graduated-payment
adjustable period. See cap.
Periodic
Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the
amount that the interest can increase or decrease during any one
adjustment period. See cap.
Periodic
Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the
amount that the interest rate can increase or decrease during
any one-adjustment period, regardless of how high or low the
index might be. See cap.
Personal
Property
Any property that is not real property.
PITI
See principal,
interest, taxes, and insurance (PITI).
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 principal, interest taxes, and insurance
(PITI) reserves must equal the amount that the borrower would
have to pay for PITI for a predefined number of months.
Planned
Unit Development
See PUD.
Point
One-time charge by the lender for originating a loan.
A point is 1 percent of the amount of the mortgage.
Power
of Attorney
A legal document that authorizes one person to act on
another's behalf. A power of attorney can grant complete
authority or can be limited to certain acts/or certain periods
of time.
Prepayment
Any amount paid to reduce the principal balance of a
loan before the due date. Payment in full on a mortgage that may
result from a sale of the property, the owner's decision to pay
off the loan in full, or a foreclosure. In each case, prepayment
means payment occurs before the loan has been fully amortized.
Prepayment
Penalty
A fee that may be charged to a borrower who pays off
a loan before it is due.
Pre-Qualification
The process of determining how much a prospective
homebuyer will be eligible to borrower before he or she applies
for a loan.
Prime
Rate
The interest rate that banks charge to their
preferred customers. Changes in the prime rate influence changes
in other rates, including mortgage interest rates.
Principal
The amount borrowed or remaining unpaid. The part of
the monthly payment that reduces the remaining balance of a
mortgage.
Principal
Balance
The outstanding balance of principal on a mortgage.
The principal balance does not include interest or any other
charges. See remaining balance.
Principal,
Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment.
Principal refers to the part of the monthly payment that reduces
the remaining balance of the mortgage. Interest is the fee
charged for borrowing money. Taxes and insurance refer too the
amounts that are paid into an escrow account each month for
property taxes, mortgage insurance, and hazard insurance.
Private
Mortgage Insurance (PMI)
Mortgage insurance that is provided by a private
mortgage insurance company to protect lenders against loss if a
borrower defaults. Most lenders generally require PMI for a loan
with loan-to-value (LTV) percentage in excess of 80 percent.
Promissory
Note
A written promise to repay a specified amount over a
specified period of time.
Planned
Unit Development (PUD)
A project or subdivision that includes common
property that is owned and maintained by a homeowner's
association for the benefit and use of the individual PUD unit
owners.
Purchase
Money Transaction
The acquisition of property through the payment of
money or it's equivalent.
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Qualifying
Ratios
Calculations that are used in determining whether a
borrower can qualify for a mortgage. They consist of two
separate calculations: housing expense as a percentage of income
ratio and total debt obligations as a percentage of income
ratio.
Quitclaim
Deed
A deed that transfers without warranty whatever
interest or title a grantor may have at the time the conveyance
is made.
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Rate Lock
A commitment issued by the lender to a borrower or
other mortgage originator guaranteeing a specified interest rate
for a specified period of time. See lock-in.
Real
Estate Agent
A person licensed to negotiate and transact the sale
of estate on behalf of the property owner.
Real
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to
give borrowers advance notice of closing costs.
Real
Property
Land and appurtenances, including anything of a
permanent nature such as trees, minerals, and the interest,
benefits, and inherent rights thereof.
Realtor
A real estate broker or an associate who holds active
membership in a local real estate board that is affiliated with
the National Association of Realtors.
Recession
The cancellation or annulment of a transaction or
contract by the operation of a law or by mutual consent.
Borrowers usually have the option to cancel a refinance
transaction within three business days after it has closed.
Recording
The noting in the registrar's office of the details
of a properly executed legal document, such as a deed, a
mortgage note, a satisfaction of mortgage, or an extension of
mortgage, thereby making it a part of the public record.
Refinance
Transaction
The process of paying off one loan with the proceeds
from a new loan using the same property as security.
Rehabilitation
Mortgage
A mortgage created to cover the costs of repairing,
improving, and sometimes acquiring an existing property.
Remaining
Balance
The amount of principal that has not yet been repaid.
See principal balance.
Rent
with Option to Buy
See lease-purchase
mortgage loan.
Repayment
Plan
An arrangement made to repay delinquent installments
or advances. Lenders' formal repayment plans are called
"relief provisions".
Right
of First Refusal
A provision in an agreement that requires the owner
of a property to give another party the first opportunity to
purchase or lease the property before he or she offers it for
sale or lease to others.
Right
of Ingress or Egress
The right to enter or leave a designated premises.
Right
of Survivorship
In joint tenancy, the right of survivors to acquire
the interest of a deceased joint tenant.
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Second
Mortgage
A mortgage that has a lien position subordinate to
the first mortgage.
Secondary
Mortgage Market
The buying and selling of existing mortgage.
Secured
Loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a
loan.
Seller
Take-Back
An agreement in which the owner of the property
provides financing, often in combination with an assumable
mortgage. See owner financing.
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
The collection of mortgage payments from borrowers
and related responsibilities of the loan servicer.
Settlement
See closing.
Settlement
Sheet
See HUD-1 statement.
Standard
Payment Calculation
The method used to determine the monthly payment
required to repay the remaining balance of a mortgage in
substantially equal installments over the remaining term of the
mortgage at the current interest rate.
Subdivision
A housing development that is created by dividing a
tract of land into individual lots for sale or lease.
Subordinate
Financing
Any mortgage or other lien that has a priority that
is lower than that of the first mortgage.
Survey
A drawing or map showing the precise legal boundaries
of a property, the location of improvements, easements, rights
of way, encroachments, and other physical features.
Sweat
Equity
Contribution to the construction or rehabilitation of
a property using labor or services rather than cash.
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Tenancy
by the Entirety
A type of joint tenancy in a property that provides
right of survivorship and is available only to the husband and
wife. Contrast with tenancy in common.
Tenancy
in Common
A type of joint tenancy in a property without right
of survivorship. Contrast with tenancy by the entirety and with
joint tenancy.
Third-Party
Organization
A process by which another 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. See mortgage
broker.
Title
A legal document evidencing a person's right to or
ownership of a property.
Title
Company
A company that specializes in examining and insuring
titles to real estate.
Title
Insurance
Insurance that protects the lender (lender's policy)
or the buyer (owner's policy) against loss arising from disputes
over ownership of a property.
Title
Search
A check of the title records to ensure that the
seller is the legal owner of the property and that there are no
liens or other claims outstanding.
Total
Expense Ratio
Total obligations as a percentage of gross monthly
income. The total expense ratio includes monthly housing
expenses plus other monthly debts.
Trade
Equity
Equity that results from a property purchaser giving
his or her existing property (or an asset other than real
estate) as trade for all or part of the down payment for the
property that is being purchased.
Transfer
of Ownership
Any means by which the ownership or property changes
hands. Lenders consider all of the following situations to be a
transfer of ownership: the purchase of a property "subject
to" the mortgage, the assumption of the mortgage debt by
the property purchaser, and any exchange of possession of the
property under a land sales contract or any other land trust
device. In cases in which an intervivos revocable trust is the
borrower, lenders also consider any transfer of a beneficial
interest in the trust to be a transfer of ownership.
Transfer
Tax
State or local tax payable when title passes from one
owner to another.
Treasury
Index
An index that is used to determine interest rate
changes for certain adjustable-rate mortgage (ARM) plans. It is
based on the results of auctions that the U.S. treasury holds
for its Treasury bills and securities or is derived from the
U.S. Treasury's daily yield curve, which is based on the closing
market bid yields on actively traded Treasury securities in the
over-the-counter market. See adjustable-rate
mortgage (ARM).
Truth-In-Lending
A federal law that requires lenders to fully
disclose, in writing, the terms and conditions of a mortgage,
including the annual percentage rate (APR) and other charges.
Two
to Four Family Property
A property that consists of a structure that provides
living space (dwelling units) for two to four families, although
ownership of the structure is evidenced by a single deed.
Trustee
A fiduciary who holds or controls property for the
benefit of another.
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Underwriting
The process of evaluating a loan application to
determine the risk involved for the lender. Underwriting
involves an analysis of the borrower's creditworthiness and the
quality of the property itself.
Unsecured
Loan
A loan that is not backed by collateral.
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VA
Mortgage
A mortgage that is guaranteed by the Department of
Veterans Affairs (VA), also known as a government mortgage.
Vested
Having the right to use a portion of a fund as an
individual retirement fund. For example, individuals who are 100
percent vested can withdraw all of the funds that are set aside
for them in a retirement fund. However, taxes may be due on any
funds that are actually withdrawn.
Department
of Veterans Affairs (VA)
An agency of the federal government that guarantees
residential mortgages made to eligible veterans of the military
services. The guarantee protects the lender against loss and
thus encourages lenders to make mortgages to veterans.
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What-if-scenario
A change in the amounts that is used as the basis of
an affordability analysis. What-if scenarios can include changes
to monthly income, debts, or down payment funds or to the
qualifying ratios or down payment expenses that are used in the
analysis. You can use a what-if scenario to explore different
ways to improve your ability to afford a house.
Wraparound
Mortgage
A mortgage that includes the remaining balance on an
existing first mortgage plus an additional amount requested by
the mortgagor. Full payments on both are made to the wraparound
mortgagee, who then forwards the payments on the first mortgage
to the first mortgagee.
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