| adjustable-rate
mortgage (ARM) |
| A mortgage
whose interest rate changes periodically based on the 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 repayment
of a mortgage loan by installments with regular payments to cover the
principal and interest. |
|
| amortization
term |
| The amount
of time required to amortize the mortgage loan. The amortization term
is expressed as a number of months. For example, for a 30-year fixed-rate
mortgage, the amortization term is 360 months. |
|
| annual percentage
rate (APR) |
| The cost
of a mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points). |
|
| application |
| A form,
commonly referred to as a 1003 form, used to apply for a mortgage and
to provide information regarding a prospective mortgagor and the proposed
security. |
|
| appraisal |
| A written
analysis of the estimated value of a property prepared by a qualified
appraiser. |
|
| 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. |
|
| 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 a home
is sold. |
|
| assumption |
| The transfer
of the seller's existing mortgage to the buyer. |
|
| 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. |
|
| 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 it over a stated term
but that provides for a lump sum payment to be due at the end of an earlier
specified term. |
|
| balloon
payment |
| The final
lump sum payment that is made at the maturity date of a balloon mortgage. |
|
| bankrupt |
| A person,
firm, or corporation that, through a court proceeding, is relieved from
the payment of all debts after the surrender of all assets to a court-appointed
trustee. |
|
| bankruptcy |
| A proceeding
in a federal court in which a debtor who owes more than his or her assets
can relieve the debts by transferring his or her assets to a trustee. |
|
| basis point |
| A basis
point is 1/100th of a percentage point. For example, a fee calculated
as 50 basis points of a loan amount of $100,000 would be 0.50% or $500. |
|
| before-tax
income |
| Income
before taxes are deducted. |
|
| 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. |
|
| biweekly
payment mortgage |
| A
mortgage that requires payments to reduce the debt every two weeks (instead
of the standard monthly payment schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the monthly payment that would
be required if the loan were a standard 30-year fixed-rate mortgage, and
they are usually drafted from the borrower's bank account. The result
for the borrower is a substantial savings in interest. |
|
| blanket
mortgage |
| The mortgage
that is secured by a cooperative project, as opposed to the share loans
on individual units within the project. |
|
| bond |
| An interest-bearing
certificate of debt with a maturity date. An obligation of a government
or business corporation. A real estate bond is a written obligation usually
secured by a mortgage or a deed of trust. |
|
| breach |
| A violation
of any legal obligation. |
|
| 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. |
|
| 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. |
|
| 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. |
|
| capital
improvement |
| Any structure
or component erected as a permanent improvement to real property that
adds to its value and useful life. |
|
| 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 first
mortgage, closing costs, 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 any
purpose. |
|
| 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 (CRV) |
| A document
issued by the Department of Veterans Affairs (VA) that establishes the
maximum value and loan amount for a VA mortgage. |
|
| certificate
of title |
| A statement
provided by an abstract company, title company, or attorney stating that
the title to real estate is legally held by the current owner. |
|
| 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 a sale of a property is finalized by the buyer signing the mortgage
documents and paying closing costs. Also called "settlement." |
|
| closing
cost item |
| A
fee or amount that a home buyer 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. 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. Closing costs
percentage will vary according to the area of the country. |
|
| closing
statement |
| Also referred
to as the HUD-1. The final statement of costs incurred to close on a loan
or to purchase a home. |
|
| cloud on
title |
| Any conditions
revealed by a title search that adversely affect 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. |
|
| combination
loan |
| With this
type of loan, you receive a first mortgage for 80 percent of the loan
amount, and a second mortgage at the same time for the remainder of the
balance. If avoiding PMI (mortgage insurance) is important to you, consider
combination loans--known as 80/10/10 loans or 80/20's. |
|
| combined
loan-to-value (CLTV) |
| The relationship
between the unpaid principal balances of all the mortgages on a property
(first and second usually) and the property's appraised value (or sales
price, if it is lower). |
|
| 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.
A commission is generally a percentage of the price of the property or
loan. |
|
| commitment
letter |
| A formal
offer by a lender stating the terms under which it agrees to lend money
to a home buyer. Also known as a "loan commitment." |
|
| common areas |
| Those
portions of a building, land, and amenities owned (or managed) by a planned
unit development (PUD) or condominium project's homeowners' 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. |
|
| Community
Home Improvement Mortgage Loan |
| An alternative
financing option that allows low- and moderate-income home buyers to obtain
95 percent financing for the purchase and improvement of a home in need
of modest repairs. The repair work can account for as much as 30 percent
of the appraised value. |
|
| 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. |
|
| comparables |
| 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
, and amenities and have recently been sold. Comparables help the appraiser
determine the approximate fair market value of the subject property. |
|
| condominium |
| A real
estate project in which each unit owner has title to a unit in a building,
an 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. |
|
| conforming
loan |
| The current
conforming loan limit is $275,000 and below. Conforming loan limits change
annually. |
|
| 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 not to do a certain thing. |
|
| conventional
mortgage |
| A mortgage
that is not insured or guaranteed by the federal government. |
|
| 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. |
|
| corporate
relocation |
| Arrangements
under which an employer moves an employee to another area as part of the
employer's normal course of business or under which it transfers a substantial
part or all of its operations and employees to another area because it
is relocating its headquarters or expanding its office capacity. |
|
| 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. |
|
| covenant |
| A clause
in a mortgage that obligates or restricts the borrower and that, if violated,
can result in foreclosure. |
|
| credit |
| An agreement
in which a borrower receives something of value in exchange for 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
a lender to determine whether a potential borrower has a history of repaying
debts in a timely manner. |
|
| credit report |
| A report
of an individual's credit history prepared by a credit bureau and used
by a lender in determining a loan applicant's creditworthiness. |
|
| 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. |
|
| debt |
| An amount
owed to another. |
|
| 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. |
|
| 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. |
|
| depreciation |
| A decline
in the value of property; the opposite of appreciation. |
|
| 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 security for the mortgage. |
|
| earnest
money deposit |
| A deposit
made by the potential home buyer 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 over a property. |
|
| effective
age |
| An appraiser's
estimate of the physical condition of a building. The actual age of a
building may be shorter or longer than its effective age. |
|
| effective
gross income |
| Normal
annual income including overtime that is regular or guaranteed. The income
may be from more than one source. Salary is generally the principal source,
but other income may qualify if it is significant and stable. |
|
| eighty-ten-ten
loan |
| See "combination
loan." |
|
| 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 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 escrow accounts 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 the
borrower's property taxes, mortgage insurance, and hazard insurance. |
|
| escrow disbursements |
| The use
of escrow funds 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. |
|
