Glossary of Terms
Abstract of Title: A condensed history of the legal status of a property taken from public records. Abstracts generally include recorded liens, encumbrances, wills, grants or any other information on the property.
Acceleration: The right of the lender to demand payment on the outstanding balance of the loan.
Acceptance: The written approval of the Buyer's offer by the Seller.
Adjustable Rate Mortgage (ARM): A mortgage that the interest rate changes periodically based on the index rate and usually subject to a cap.
Adjustment Date: The actual date that the interest rate is changed for an ARM.
Adjustment Index: The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.
Affidavit: A signed, sworn statement made by the Buyer or Seller regarding the truth of information provided.
Amortization: A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Annual Percentage Rate (APR): A measure of the cost of credit expressed as a yearly rate. APR includes the base interest rate plus all additional service charges and other costs associated with the loan. To ensure accuracy, all lenders follow the same federal rules. It provides the consumer with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage. APR can be found on the Truth-in-Lending form.
Application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fee: A fee charged by lenders to process a loan application.
|
Appraisal: A document from a professional that gives an estimate of a property’s fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraisal Fee: Fee charged by an Appraiser to estimate the market value of the property.
Appraised Value: An estimation of the current market value of a property.
Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Appreciation: The increase in value or price of a property over time.
ARM: Adjustable Rate Mortgage. See above.
ARM Loan Description: This explains how an adjustable mortgage works, with examples of adjustments and worse case scenarios. The borrower can request these forms for any adjustable program being considered.
Arms Length Transaction: Transactions where there are no pre-existing family or business relationships. All parties have an equal bargaining position and each acts to protect their own interest.
Assessed Valuation: The value that a taxing authority places on a real or personal property for purpose of collecting payment of taxes.
As-Is Condition: The purchase or sale of a property in its existing condition without repairs.
Asking Price: A Seller’s stated price for a property.
Assessed Value: The value that a public official has placed on any asset (used to determine taxes).
Assessments: The method of placing value on an asset for taxation purposes.
Assessor: A government official who is responsible for determining the value of a property for taxation.
Assets: Any item with measurable value.
|
Balance Sheet: A statement of financial condition of an individual or a business showing assets, liabilities and net worth as of a given date.
Balloon Loan/Mortgage: A mortgage that typically offers low rates for an initial period of time; after that time period elapses; the balance is due or is refinanced by the Borrower.
Balloon Payment: The final lump sum payment due at the end of a balloon mortgage.
Bankruptcy: A federal law whereby a person’s assets are turned over to a Trustee and used to pay off outstanding debts, usually occurs when someone owes more than they have the ability to repay.
CHAPTER 7 bankruptcy covers liquidation of the assets of a Debtor in their order of priority for cancellation of debt. (Most Common)
CHAPTER 11 bankruptcy allows for a plan of reorganization to provide full or partial payment to all creditors.
CHAPTER 12 covers certain farm bankruptcies.
CHAPTER 13 covers restructuring of the consumer’s debts. Monitored by the course, the Borrower is allowed to keep the property but must make payments according to the court’s terms within a 3-5 year period. Fannie Mae and Freddie Mac will allow an individual to apply for a mortgage after the bankruptcy has been discharged for 4 years and 2 years if certain conditions are met. (Most Common)
Basis Points: One-hundredth of 1%. Used to describe the amount of change in yield on mortgages. For example ½ of 1 basis point (.050%) equals 50 basis points.
Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
|
Broker: A licensed individual or firm that charges a fee to serve as the mediator between the Buyer and the Seller. Mortgage Brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. Real Estate Brokers helps the Buyer find a house.
Budget: A detailed record of all income earned and spent during a specific period.
Buy Down: The Seller pays an amount to the lender so the Lender provides a lower rate and lower payments. The Seller may increase the sales price to cover the cost of the buy-down.
Cap: a limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the leder is earning, so they may cause negative amortization.
Capacity: The ability to make mortgage payments on time, dependent on assets and the amount of income each month after paying housing costs, debts and other obligations.
Capits or Cash Reserves: An individual's savings, investments, or assets.
Cash-Out Refinance: When a borrower refinances a mortgage at a higher principal amounth to get additional money. Usually this occurs when the property has appreciated in value.
Cash Reserves: A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Title: A document proviided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other cliams.
Charge-Off: The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Clear Title: A property that has no defects. Properties with clear titles are marketable for sale.
Closing: The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.
Closing Costs: Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance and real estate transfer taxes.
Co-Borrower: An additional person that is responsible for loan repayment and is listed on the title.
Collection Account: An unpaid debt referred to a collection agency to collect on the bad debt. This is reported to the credit bureaus and will show on the borrowers credit report.
Commission: An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Comparative Market Analysis (COMPS): A property evaluation that determines property value by comparing similar properties sold within the last year.
Compensating Factors: Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also share financial responsibilty for common areas.
Conforming Loan: Is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits.
Construction Loan: A short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process.
Contingency: A clause in a purchase contract outlining conditions that ust be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.
Covenants: Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenants.
Credit Bureau: An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.
Credit Counseling: Educating on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Grantor: The lender that provides a loan or credit:
Credit History: A record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrowers ability to repay a loan.
Credit Report: A report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.
Credit Risk: A term used to describe the possibility of default on a loan by a borrower.
Credit Score: A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from 300-840; the lower the score, the higher the risk whereas a higher score means there is a less likely of a risk.
Creditor: The lending institution providing the loan or credit.
Crediworthiness: The way a lender measures the ability of a person to qualify and repay a loan.
|
Debtor: The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
Debt-to-Income Ratio: A comparison or ratio of gross income to housing and non-housing expenses; with the FHA, the monthly mortgage payment should be no more than 29% of the monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deductible: The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes called "out of pocket expenses."
Deed: A document that legally transfers ownership of property from one person to another. The deed is recorded on publich record with the property description and the owners signature. This is also known as the Title.
Default: The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60-90 days. Once in default, the lender can exercise the legal rights defined in the contract to begin foreclosure proceedings.
Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement. In general, after 15 days a late fee may be assessed.
Depreciation: A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.
Disclosures: The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full Disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirements to warn of potential lead-based paint hazards in homes built before 1978.
Discount Points: Normally paid at closing and generally calculated to be equilavent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Down Payment: The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage Insurance is required when a down payment less than 20 percent is made.
Earnest Money (Deposit): Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment of the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. Duiring the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Easements: The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
Encroachments: A structure that extends over the legal property line onto another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
Encumberance: Anyting that affects title to a property, such as loans, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA): A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity: An owners financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.
Escrow: Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.
Escrow Account: A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Estate: The ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.
FICO Score (Fair Isaac Corporation): This refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the 3 major credit bureaus and is usually between 300 and 850.
Fannie Mae - Federal National Mortgage Association (FNMA): A federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.
FHA (Federal Housing Administration): Established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most lossses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
FHA Insure Loan: A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to a borrowers default.
Fixed Rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Float: Allowing an interest rate and discount points to fluctuate with the changes in the market.
Forebearance: A lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.
Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statues of each state.
Freddie Mac - Federal Home Loan MOrtgage Corporation (FHLM): A federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers.
Front End Ratio: A percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance and real estate taxes) to monthly income before deductions.
GSE (Government Sponsored Enterprises): A collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Fannie Mae and Freddie Mac are GSE's.
Ginnie Mae- Government National Mortgage Association (GNMA): Government owned corporation overseen by the US Department of Housing and Urban Development. Ginnie Mae pools FHA insured and VA guaranteed loans to back securities for private investment. The investment income provides funding that may be lent to eligible borrowers by the lenders.
Good Faith Estimate (GFE): An estimate of all closing fees including pre-paid and escrow items as well as lender charges. This must be given to the borrower within three days after submission of a loan application.
Grantee: An individual to whom an interest in real property is conveyed.
Grantor: An individual conveying an interest in real property.
Gross Income: Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
|
Hazard Insurance: Protection against a specific loss, such as fire, wind, etc. over a period of time that is secured by the payment of a regularly scheduled premium.
Home Equity Line of Credit: A mortgage loan, usually a second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan: A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
Home Inspection: An examination of the structure and mechanical systems to determine a home's quality, soundness and safety. This makes potential homebuyers away of any repairs that may be needed.
Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.
Homeowner's Insurance: An insurance policy, also called hazard insurance, that combines protection agains damage to a dwelling and its contents including fire, storms, or other damages with protection agains claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.
Homeownership Education Classes: Classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their home.
HUD - The US Department of Housing and Urban Development: Established in 1965, HUD works to create a decent home and suitable living environment for all Americans, it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Settlement Statement: Also referred to as the Settlement Sheet or Closing Statement, it itemizes all closing costs. This must be given to the borrowe at or before closing. Items that appear are real estate commissions, loan fees, points, and escrow amounts.
HVAC - Heating, Ventilation and Air Conditioning: A home's heating and cooling system.
Indemnification: To secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor).
Index: The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile.
Inflation: The number of dollars in circulation exceeds the amount of goods and services available for purchase. Inflation results in a decrease in the dollar's value.
Inflation Coverage: Endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This does not adjust for increases in the home's value due to improvements.
Inquiry: Each time a credit application is completed or more credit is requested is counted as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.
Interest: A fee charged for the use of borrowing money.
Interest Rate: The amount of interest charged on a monthly loan payment expressed as a percentage.
Insurance: Protection against a specific loss, such as fire, wind, etc. over a period of time that is secured by the payment of a regularly scheduled premium.
Judgment: When requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Jumbo Loan: A non-conforming loan that exceeds Fannie Mae's and Freddie Mac's loan limits.
Late Payment Charges: The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.
Lease: A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
Lease Purchase/Lease Option: Asists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The amount that is credited to an account for use as a down payment.
Lender: A term referring to a person or company that makes loans for real estate purchases.
Liabilities: A person's financial obligations such as long-term/short-term debt and other financial obligations to be paid.
Liability Insurance: Insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. This is normally included in a homeowner's insurance policy.
Lien: A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as a security in repayment of a debt. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.
Line of Credit: An agreement by a financial institution such as a bank to extend credit up to a certian amount for a certain time to a specified borrower.
Liquid Asset: A cash asset or an asset that is easily converted into cash.
Listing Agreement: A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or is or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.
Loan: Money borrowed that is usually repaid with interest.
Loan Fraud: Purposely giving incorrect information on a loan application in order to better qualify for a loan, this may result in civil liability or criminal penalties.
Loan Officer: A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.
Loan Origination Fee: A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of a loan.
Loan Servicer: The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor non-performing loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.
Loan to Value Ratio - LTV: The percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as a down payment.
Lock-In: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
Lock-In Period: The length of time that the lender has guaranteed a specific interest rate to a borrower.
Loss Mitigation: A process to avoid foreclosure. The lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.
|
Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value: The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Maturity: The date when the principal balance of a loan becomes due and payable.
Median Price: The price of the house that falls in the midde of the total number of homes for sale in that area.
Merged Credit Report: Raw data pulled from two or more of the major credit reporting firms.
Mitigation: Term usually used to refer to various changes or improvements made in a home. For example, to reduce the average level of radon.
Modification: When a lender agrees to modify the terms of a mortgage without refinancing the loan.
Mortgage Acceleration Clause: A clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refianced or the borrower defaults on a scheduled payment.
Mortgage Backed Security - MBS: A fannie Mae security that represents an undivided interest in a group of mortages. Principal and interest payments from the individual mortgage loans are grouped and paid out th the MBS holders.
Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like Fannie Maie or Freddie Mac.
Mortgage Broker: A firm that originates and processes loans for a number of lenders.
Mortgage Life and Disability Insurance: Term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines.
Mortgage Insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance is purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20% down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80% of the value of the house or for a set period of time. Mortgage insurance is also available through government agencies such as Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium - MIP: A monthly payment, usually part of the mortgage payment, paid by a borrower for mortgage insurance.
Mortgage Loan: A loan which utilizes real estate as security or collateral to provide for repayment should a borrower default on the terms of the loan.
Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.
Mortgage Qualifying Ratio: Used to calculate the maximum amount of funds that an individual traditionally may be able to afford.
Mortgage Score: A score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay the loan and manage credit.
Mortgagee: The lender in a mortgage agreement.
Mortgagor: The borrower in a mortgage agreement.
Multifamily Housing: A building with more than four (4) residental rental units).
Multiple Listing Service - MLS: Realtors submit listings and agree to attempt to sell all properties on the MLS. The MLS is a service and has timely information on availability, access to houses, open houses, and other types of property on the market.
|
Negative Amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your 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, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
Net Income: Your take-home pay; the amount of money that you receive in your paycheck after taxes and deductions.
No Cash Out Refiance: A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cah against the equity of the home. Also known as a rate and term refiance.
Note: A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.
Note Rate: The interest rate state on a mortgage note.
Notice of Default: A formal written notice to a borrower that there is a default on a loan and that legal action is possible.
Non-Conforming Loan: A loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae are referred to as conforming loans.
Notary Public: A person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.
Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price, usually put into writing.
Original Principal Balance: The total principal owed on a mortgage prior to any payments being made.
Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee: The charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals to one percent of the loan amount.
Owner Financing: A home purchase where the seller provides all or part of the financing, acting as a lender.
Ownership: Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners of if the property changes ownership.
Owners Policy: The insurance policy that protects the buyer from title defects. |
Payment Shock: A sudden, large increase in the monthly mortgage payment as a result of an adjustable-rate mortgage or through a refinance with new financing terms.
Partial Claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
Partial Payment: A payment that is less than the total amount owed on a monthly mortgage payment. Normally, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.
Payment Cap: A limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.
Payment Change Date: The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generall the payment change date occurs in the month immediately after the interest rate adjustment date.
Payment Due Date: Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specific date. Greace periods to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.
Personal Property: Any property that is not real property or attached to real property. For example, furniture is not attached but light fixtures are.
PITI - Principal, Interest, Taxes, and Insurance: The four elements of a monthly mortgage payment: The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that cover taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
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 (PUD): A development that is planned, and constructed as one entity. Generally, there are commonn features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in association via a payment of annual dues.
PMI - Private Mortgage Insurance: Privately owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of the purchase price.
|
Point: A dollar amount, expressed as a percentage of the mortgage amount (1 point =1%) that is paid to the lender as compensation for providing the mortgage.
Power-of-Attorney: A legal document authorizing one person to act on behalf of another. If one party applying for a mortgage cannot be at the closing, some lenders will allow an authorized person to sign documents for the absent applicant with a Power-of-Attorney form.
Pre-Approval: A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Predatory Lending: Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refiancing of a loan charging high interest and fees each time.
Predicitive Variables: The variables that are part of the formula comprising elements of a credit scoring model. These variables are used to predict a borrower's future credit performance.
Pre-Paid Interest: Mortgage interest that is paid in advance of when it is due. Pre-Payment Penalty This is a monetary penalty for paying off the mortgage loan earlier than the specific term stated in the mortgage.
Prepayment: Any amount paid to reduce the principal balance of a loan befre the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off of the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Prepayment Penalty: A provision in some loans that charge a fee to a borrower who pays off a loan before it is due.
PreQualify: A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.
Price Range: The high and low amount a buyer is willing to pay for a home.
Primary Residence: A property where the homeowner occupies and takes title to. A person can have only one primary residence.
Prime Rate: The interest rate that banks charge to preferred customers. Changes in the prime rate are published in the business media. Prime rate can be used as a basis for adjustable rate mortgages (ARM's) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed rate mortgage.
Principal: The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow the money.
Principal Balance: The outstanding balance of a mortgage, exclusive of interest and other charges.
Promissory Note: A written promise to repay a specified amount over a specified period of time.
Property (Fixture and non-fixture): In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.
Property Tax: A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent of the assessed value of the property.
Property Tax Deduction: The US tax code allows homeowners to deduct the amount they have paid in property taxes from their total income.
Punch List: A list of items that have not been completed at the time of the final walk through of a newly constructed home.
Purchase Money Mortgage: A mortgage given by a purchaser of real estate to the seller as part of consideration in a sales contract.
Purchase Offer: A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, often called a Sales Contract. |
Qualifying Ratios: Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.
Quit Claim Deed: A deed transferring ownership of a property but does not make any guarantee of clear title.
RESPA - Real Estate Settlement Procedures Act: A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Rate Cap: A limit on an ARM on how much the interest rate or mortage payment may change. Rate cap limits how much the interest can rise or fall on the adjustment dates and over the life of the loan.
Rate Lock: A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.
Real Estate Agent: An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
Real Property: Land, including all the natural resources and permanent buildings on it.
Recording: The noting in the registrar’s office of the details of a deed, mortgage satisfaction of mortgage or extension of mortgage and making it a part of the public record.
Recording Fees: Charges for recording a deed with the appropriate government agency.
Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
Rehabilitation Mortgage: A mortage that covers the costs of rehabilitiating (repairing or improving) a property; some rehabilitation mortgages like the FHA 203(k) allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
Remaining Balance: The amount of principal that has not yet been repaid.
Resident Alien: An individual who is not a U.S. citizen but who has an Alien Registration Receipt Card. He is authorized to live and work in the U.S. on a permanent basis. Generally, no problem in obtaining a mortgage. He must have a green card as proof of resident status for lenders.
Right of First Refusal: A provision in an agreement that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
Right-of-Recission: The right of a borrower on some types of loans (refinancing, home equity) under the Truth-In-Lending law, to rescind a transaction within a period of 3 days after the closing has taken place. If the borrower does not exercise his Right of Recession, all monies are then disbursed on the fourth business day after the closing.
Risk Based Capital: An amount of capital needed to offset losses during a ten-year period with adverse circumstances.
Risk Based Pricing: Fee structure used by creditors based on risks of granting credit to a borrower with poor credit history.
Risk Scoring: An automated way to analyze a credit report verses a manual review. It takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner. |
Sales Concessions: Money or other things of value paid or transferred by the seller to the buyer to entice him to purchase the property. These concessions will be deducted from the sales price before the loan amount is determined.
Second Home: A home that the borrower occupies in addition to his primary residence. This home cannot be income-producing property (for example, a vacation home).
Second Mortgage: An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.
Secured Loan: A loan backed by collateral such as property.
Security: The property that will be pledged as collateral for a loan.
Serious Delinquency: A mortgage that is 90 days or more past due.
Servicer: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Settlement: Another name for closing.
Settlement Statement: A document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is also called the HUD 1 Settlement Statement.
Sub-Prime Loan: "B" Loan or "B" paper with FICO scores from 620-659. "C" Loan or "C" Paper with FICO scores typically from 580-619. An industry term used to describe loans with less tringent lending and underwriting terms and conditions. Due to the higher risk, sub-prime loans charge higher interest rates and fees.
Subordinate: To place a rank of lesser importance or to make one claim secondary to another.
Survey: A plot or survey is drawn by a surveyor and outlines a property’s measurements and shape. It also shows the house with any easements and/or encroachments that are noted on the title policy. The measurements shown on the survey must correspond to those in the deed for the property.
Sweat Equity: Using labor to build or improve a property as part of the down payment.
|
Term: The number of years before a mortgage is scheduled to be paid off.
Third Party Origination: A process by which a lender uses another party to completely or partiall originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Title: The evidence that an individual has the right to ownership in the property.
Title can be acquired through purchase, inheritance, gift or through foreclosure. Also known as the Deed.
Title Company: A company that specializes in examining and insuring titles to real estate.
Title Defect: An outstandinig claim on a property that limits the ability to sell the property. Also referred to as a cloud in the title.
Title Insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against losss in the event of title defect. This charge is included in the closing costs.
Title Search: Examination of public records, laws and court decisions to disclose the current and past facts regarding ownership of a specific piece of real estate.
Transfer Fees: Fees collected from buyer and seller of a property to defray city or county charges for changing the mortgage records.
Transfer Tax: A tax levied on the sale of property, a sales tax on real estate.
Treasury Index: Can be used as the basis for adjustable rate mortgages (ARM's). It is bill based on the results of auctions that the US Treasury holds for its Treasury bills and securities.
Truth-In-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
Trustee: A person who holds or controls property for the benefit of another.
Underwriting: The process of analyzing a loan application to determine the amount of risk involved ini making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
VA - Department of Veteran Affairs: A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VA Mortgage: A mortgage guaranteed by the Department of Veteran Affairs (VA).
VOD - Verification of Deposit: The Lender verifys the funds in a borrowers account.
VOE - Verification of Employment: The Lender verifys current and past employment status, income, start and end dates of a borrower.
VOM - Verification of Mortgage or Rent: The Lender verifys the current and past rental history of a borrower.
Walk Through: The final inspection of a property being sold by the buyer ot confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fisture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.
Warranty Deed: A deed in which the grantor guarantees good clear title to the property. This is always the best deed to want when buying a home.
|
|
| Let's Get Started Today!1-800-539-0204
|
