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Glossary of Mortgage Terms |
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203(b):
FHA's single family program which provides mortgage insurance to lenders to
protect against the borrower defaulting; 203(b) is used to finance the
purchase of new or existing one to four family housing; 203(b) insured loans
are known for requiring a low down payment, flexible qualifying guidelines,
limited fees, and a limit on maximum loan amount.
"A" Loan or "A" Paper:
a credit rating where the FICO score is 660 or above. There have been no
late mortgage payments within a 12-month period. This is the best credit
rating to have when entering into a new loan.
Acceleration:
the right of the lender to demand payment on the outstanding balance of a
loan.
Acceptance:
the written approval of the buyer's offer by the seller.
Additional Principal Payment:
money paid to the lender in addition to the established payment amount used
directly against the loan principal to shorten the length of the loan.
Adjustable-Rate Mortgage (ARM):
a mortgage loan that does not have a fixed interest rate. During the life of
the loan the interest rate will change based on the index rate. Also
referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages
(VRMs).
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.
Adjustment Interval:
the time between the interest rate change and the monthly payment for an
ARM. The interval is usually every one, three or five years depending on the
index.
Affidavit:
a
signed, sworn statement made by the buyer or seller regarding the truth of
information provided.
Amenity:
a
feature of the home or property that serves as a benefit to the buyer but
that is not necessary to its use; may be natural (like location, woods,
water) or man-made (like a swimming pool or garden).
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 Mortgagor Statement:
yearly statement to borrowers detailing the remaining principal and amounts
paid for taxes and interest.
Annual Percentage Rate (APR):
a measure of the cost of credit, expressed as a yearly rate. It includes
interest as well as other charges. Because all lenders, by federal law,
follow the same rules to ensure the accuracy of the annual percentage rate,
it provides consumers 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.
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 a 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.
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 the purpose of taxation.
Assets:
any item with measurable value.
Assumable Mortgage:
when a home is sold, the seller may be able to transfer the mortgage to the
new buyer. This means the mortgage is assumable. Lenders generally require a
credit review of the new borrower and may charge a fee for the assumption.
Some mortgages contain a due-on-sale clause, which means that the mortgage
may not be transferable to a new buyer. Instead, the lender may make you pay
the entire balance that is due when you sell the home. An assumable mortgage
can help you attract buyers if you sell your home.
Assumption Clause:
a
provision in the terms of a loan that allows the buyer to take legal
responsibility for the mortgage from the seller.
"B" Loan or "B" Paper:
FICO scores from 620 - 659. Factors include two 30 day late mortgage
payments and two to three 30 day late installment loan payments in the last
12 months. No delinquencies over 60 days are allowed. Should be two to four
years since a bankruptcy. Also referred to as Sub-Prime.
Back End Ratio (debt ratio):
a ratio that compares the total of all monthly debt payments (mortgage, real
estate taxes and insurance, car loans, and other consumer loans) to gross
monthly income.
Back to Back Escrow:
arrangements that an owner makes to oversee the sale of one property and the
purchase of another at the same time.
Balloon Loan or Mortgage:
a mortgage that typically offers low rates for an initial period of time
(usually 5, 7, or 10) years; 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.
Biweekly Payment Mortgage:
a mortgage paid twice a month instead of once a month, reducing the amount
of interest to be paid on the loan.
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.
Bridge Loan: a
short-term loan paid back relatively fast. Normally used until a long-term
loan can be processed.
Broker: a
licensed individual or firm that charges a fee to serve as the mediator
between the buyer and seller. Mortgage brokers are individuals in the
business of arranging funding or negotiating contracts for a client, but who
does not loan the money. A real estate broker is someone who helps find a
house.
Budget: a
detailed record of all income earned and spent during a specific period of
time.
Buy Down:
the seller pays an amount to the lender so the lender provides a lower rate
and lower payments many times for an ARM. The seller may increase the sales
price to cover the cost of the buy down.
"C" Loan or "C" Paper:
FICO scores typically from 580 to 619. Factors include three to four 30 day
late mortgage payments and four to six 30 day late installment loan payments
or two to four 60 day late payments. Should be one to two years since
bankruptcy. Also referred to as Sub - Prime.
Callable Debt:
a
debt security whose issuer has the right to redeem the security at a
specified price on or after a specified date, but prior to its stated final
maturity.
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 lender is earning, so they may cause
negative amortization.
Capacity:
The ability to make mortgage payments on time, dependant on assets and the
amount of income each month after paying housing costs, debts and other
obligations.
Capital Gain:
the profit received based on the difference of the original purchase price
and the total sale price.
Capital Improvements:
property improvements that either will enhance the property value or will
increase the useful life of the property.
Capital or Cash Reserves:
an individual's savings, investments, or assets.
Cash-Out Refinance:
when a borrower refinances a mortgage at a higher principal amount to get
additional money. Usually this occurs when the property has appreciated in
value. For example, if a home has a current value of $100,000 and an
outstanding mortgage of $60,000, the owner could refinance $80,000 and have
additional $20,000 in cash.
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.
Casualty Protection:
property insurance that covers any damage to the home and personal property
either inside or outside the home.
Certificate of Title: a
document provided 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
claims.
Chapter 7 Bankruptcy:
a bankruptcy that requires assets be liquidated in exchange for the
cancellation of debt.
Chapter 13 Bankruptcy:
this type of bankruptcy sets a payment plan between the borrower and the
creditor monitored by the court. The homeowner can keep the property, but
must make payments according to the court's terms within a 3 to 5 year
period.
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 title 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. A common estimate of a Buyer's
closing costs is 2 to 4 percent of the purchase price of the home. A common
estimate for Seller's closing costs is 3 to 9 percent.
Cloud On The Title:
any condition which affects the clear title to real property.
Co-Borrower:
an additional person that is responsible for loan repayment and is listed on
the title.
Co-Signed Account:
an account signed by someone in addition to the primary borrower, making
both people responsible for the amount borrowed.
Co-Signer: a
person that signs a credit application with another person, agreeing to be
equally responsible for the repayment of the loan.
Collateral:
security in the form of money or property pledged for the payment of a loan.
For example, on a home loan, the home is the collateral and can be taken
away from the borrower if mortgage payments are not made.
Collection Account:
an unpaid debt referred to a collection agency to collect on the bad debt.
This type of account is reported to the credit bureau and will show on the
borrower's 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 shares financial responsibility for
common areas.
Conforming loan:
is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits.
Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Consideration:
an item of value given in exchange for a promise or act.
Construction Loan: a
short-term loan, to finance the cost of building a new home. The lender pays
the builder based on milestones accomplished during the building process.
For example, once a sub-contractor pours the foundation and it is approved
by inspectors the lender will pay for their service.
Contingency:
a
clause in a purchase contract outlining conditions that must be fulfilled
before the contract is executed. Both, buyer or seller may include
contingencies in a contract, but both parties must accept the contingency.
Conventional Loan: a
private sector loan, one that is not guaranteed or insured by the U.S.
government.
Conversion Clause: a
provision in some ARMs allowing it to change to a fixed-rate loan at some
point during the term. Usually conversions are allowed at the end of the
first adjustment period. At the time of the conversion, the new fixed rate
is generally set at one of the rates then prevailing for fixed rate
mortgages. There may be additional cost for this clause.
Convertible ARM:
an adjustable-rate mortgage that provides the borrower the ability to
convert to a fixed-rate within a specified time.
Cost of Funds Index (COFI):
an index used to determine interest rate changes for some adjustable-rate
mortgages.
Counter Offer: a
rejection to all or part of a purchase offer that negotiates different terms
to reach an acceptable sales contract.
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 covenant.
Credit:
an agreement that a person will borrow money and repay it to the lender over
time.
Credit Bureau:
an agency that provides financial information and payment history to lenders
about potential borrowers. Also known as a National Credit Repository.
Equifax, Experian, and Trans Union are known as the credit bureaus.
Credit Counseling:
education on how to improve bad credit and how to avoid having more debt
than can be repaid.
Credit Enhancement: a
method used by a lender to reduce default of a loan by requiring collateral,
mortgage insurance, or other agreements.
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 borrower's ability
to repay a loan.
Credit Loss Ratio:
the ratio of credit-related losses to the dollar amount of MBS outstanding
and total mortgages owned by the corporation.
Credit Related Expenses:
foreclosed property expenses plus the provision for losses.
Credit Related Losses:
foreclosed property expenses combined with charge-offs.
Credit Repair Companies:
Private, for-profit businesses that claim to offer consumers credit and debt
repayment difficulties assistance with their credit problems and a bad
credit report.
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 about 360 -
850: a lower score meaning a person is a higher risk, while a higher score
means that there is less risk.
Credit Union:
a
non-profit financial institution federally regulated and owned by the
members or people who use their services. Credit unions serve groups that
hold a common interest and you have to become a member to use the available
services.
Creditor:
the lending institution providing a loan or credit.
Creditworthiness:
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.
Debt Security: a
security that represents a loan from an investor to an issuer. The issuer in
turn agrees to pay interest in addition to the principal amount borrowed.
Deductible:
the amount of cash payment that is made by the insured (the homeowner) to
cover a portion of a damage or loss. Sometimes also called "out-of-pocket
expenses." For example, out of a total damage claim of $1,000, the homeowner
might pay a $250 deductible toward the loss, while the insurance company
pays $750 toward the loss. Typically, the higher the deductible, the lower
the cost of the policy.
Deed: a
document that legally transfers ownership of property from one person to
another. The deed is recorded on public record with the property description
and the owner's signature. Also known as the title.
Deed-in-Lieu:
to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the
lender to fulfill the obligation to repay the debt; this process does not
allow the borrower to remain in the house but helps avoid the costs, time,
and effort associated with foreclosure.
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 to 90 days. Once in default the lender can exercise legal
rights defined in the contract to begin foreclosure proceedings
Delinquency:
failure of a borrower to make timely mortgage payments under a loan
agreement. Generally after fifteen days a late fee may be assessed.
Deposit (Earnest Money):
money put down by a potential buyer to show that they are serious about
purchasing the home; it becomes part of the down payment if the offer is
accepted, is returned if the offer is rejected, or is forfeited if the buyer
pulls out of the deal. During the contingency period the money may be
returned to the buyer if the contingencies are not met to the buyer's
satisfaction.
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 requirement to warn
of potential lead-based paint hazards in pre-1978 housing. A seller found to
have knowingly lied about a defect may face legal penalties.
Discount Point:
normally paid at closing and generally calculated to be equivalent to 1% of
the total loan amount, discount points are paid to reduce the interest rate
on a loan. In an ARM with an initial rate discount, the lender gives up a
number of percentage points in interest to give you a lower rate and lower
payments for part of the mortgage term (usually for one year or less). After
the discount period, the ARM rate will probably go up depending on the index
rate.
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.
Document Recording:
after closing on a loan, certain documents are filed and made public record.
Discharges for the prior mortgage holder are filed first. Then the deed is
filed with the new owner's and mortgage company's names.
Due on Sale Clause:
a
provision of a loan allowing the lender to demand full repayment of the loan
if the property is sold.
Duration:
the number of years it will take to receive the present value of all future
payments on a security to include both principal and interest.
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 if the offer is
accepted, is returned if the offer is rejected, or is forfeited if the buyer
pulls out of the deal. During 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.
EEM:
Energy Efficient Mortgage; an FHA program that helps homebuyers save money
on utility bills by enabling them to finance the cost of adding energy
efficiency features to a new or existing home as part of the home purchase.
Eminent Domain:
when a government takes private property for public use. The owner receives
payment for its fair market value. The property can then proceed to
condemnation proceedings.
Encroachments:
a
structure that extends over the legal property line on to 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.
Encumbrance:
anything 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 owner's financial interest in a property; calculated by subtracting the
amount still owed on the mortgage loon(s)from the fair market value of the
property.
Escape Clause: a
provision in a purchase contract that allows either party to cancel part or
the entire contract if the other does not respond to changes to the sale
within a set period. The most common use of the escape clause is if the
buyer makes the purchase offer contingent on the sale of another house.
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.
Exclusive Listing: a
written contract giving a real estate agent the exclusive right to sell a
property for a specific timeframe.
FICO Score:
FICO is an abbreviation for Fair Isaac Corporation and 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 three major credit
bureaus and is usually between 300 and 850.
FSBO (For Sale by Owner):
a home that is offered for sale by the owner without the benefit of a real
estate professional.
Fair Credit Reporting Act:
federal act to ensure that credit bureaus are fair and accurate protecting
the individual's privacy rights enacted in 1971 and revised in October 1997.
Fair Housing Act: a
law that prohibits discrimination in all facets of the home buying process
on the basis of race, color, national origin, religion, sex, familial
status, or disability.
Fair Market Value:
: the hypothetical price that a willing buyer and seller will agree
upon when they are acting freely, carefully, and with complete knowledge of
the situation.
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. Also known as a Government Sponsored Enterprise (GSE).
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 losses that may occur when a borrower
defaults; this encourages lenders to make loans to borrowers who might not
qualify for conventional mortgages.
First Mortgage:
the mortgage with first priority if the loan is not paid.
Fixed Expenses:
payments that do not vary from month to month.
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.
Fixture:
personal property permanently attached to real estate or real property that
becomes a part of the real estate.
Float:
the act of allowing an interest rate and discount points to fluctuate with
changes in the market.
Flood Insurance:
insurance that protects homeowners against losses from a flood; if a home is
located in a flood plain, the lender will require flood insurance before
approving a loan.
Forbearance: 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 statutes 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. Also known as a Government Sponsored Enterprise (GSE).
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.
G
GSE:
abbreviation for government sponsored enterprises: a collection of financial
services corporations formed by the United States Congress to reduce
interest rates for farmers and homeowners. Examples include Fannie Mae and
Freddie Mac.
Ginnie Mae:
Government National Mortgage Association (GNMA); a government-owned
corporation overseen by the U.S. Department of Housing and Urban
Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back
securities for private investment; as With Fannie Mae and Freddie Mac, the
investment income provides funding that may then be lent to eligible
borrowers by lenders.
Good Faith Estimate:
an estimate of all closing fees including pre-paid and escrow items as well
as lender charges; must be given to the borrower within three days after
submission of a loan application.
Graduated Payment Mortgages:
mortgages that begin with lower monthly payments that get slowly larger over
a period of years, eventually reaching a fixed level and remaining there for
the life of the loan. Graduated payment loans may be good if you expect your
annual income to increase.
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.
H
HECM (Reverse Mortgage):
the reverse mortgage is used by senior homeowners age 62 and older to
convert the equity in their home into monthly streams of income and/or a
line of credit to be repaid when they no longer occupy the home. A lending
institution such as a mortgage lender, bank, credit union or savings and
loan association funds the FHA insured loan, commonly known as HECM.
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 (HELOC):
a mortgage loan, usually in 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 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.
Homebuyer Education Learning Program (HELP) :
Homebuyer Education Learning Program; an educational program from the FHA
that counsels people about the home buying process; HELP covers topics like
budgeting, finding a home, getting a loan, and home maintenance; in most
cases, completion of the program may entitle the homebuyer to a reduced
initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home
purchase price.
Homeowner's Insurance:
an insurance policy, also called hazard insurance, that combines protection
against damage to a dwelling and its contents including fire, storms or
other damages with protection against 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 homes.
Homestead Credit:
property tax credit program, offered by some state governments, that
provides reductions in property taxes to eligible households.
Housing Counseling Agency:
provides counseling and assistance to individuals on a variety of issues,
including loan default, fair housing, and home buying.
HUD:
the U.S. 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.
HUD-1 Statement:
also known as the "settlement sheet," or "closing statement" it itemizes all
closing costs; must be given to the borrower at or before closing. Items
that appear on the statement include 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 or 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. You should ask your lender how the index for any
ARM you are considering has changed in recent years, and where it is
reported.
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
type of coverage does not adjust for increases in the home's value due to
improvements.
Inquiry: a
credit report request. Each time a credit application is completed or more
credit is requested counts 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.
Interest Rate Swap: a
transaction between two parties where each agrees to exchange payments tied
to different interest rates for a specified period of time, generally based
on a notional principal amount.
Intermediate Term Mortgage:
a mortgage loan with a contractual maturity from the time of purchase equal
to or less than 20 years.
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.
Joint Tenancy (with Rights of Survivorship): two or more owners share equal ownership and
rights to the property. If a joint owner dies, his or her share of the
property passes to the other owners, without probate. In joint tenancy,
ownership of the property cannot be willed to someone who is not a joint
owner.
Judgment: a
legal decision; when requiring debt repayment, a judgment may include a
property lien that secures the creditor's claim by providing a collateral
source.
Jumbo Loan:
or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie
Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as
conforming loans.
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):
assists low to moderate income homebuyers in purchasing a home by allowing
them to lease a home with an option to buy; the rent payment is made up of
the monthly rental payment plus an additional amount that is credited to an
account for use as a down payment.
Lender: A
term referring to an person or company that makes loans for real estate
purchases. Sometimes referred to as a loan officer or lender.
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.
It is normally included in homeowner's insurance policies.
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 security in repayment of a debt. Examples include a mechanic's
lien, which might be for the unpaid cost of building supplies, or a tax lien
for unpaid property taxes. 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.
Lien Waiver: A
document that releases a consumer (homeowner) from any further obligation
for payment of a debt once it has been paid in full. Lien waivers typically
are used by homeowners who hire a contractor to provide work and materials
to prevent any subcontractors or suppliers of materials from filing a lien
against the homeowner for nonpayment.
Life Cap: a
limit on the range interest rates can increase or decrease over the life of
an adjustable-rate mortgage (ARM).
Line of Credit:
an agreement by a financial institution such as a bank to extend credit up
to a certain 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 his
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 Acceleration:
an acceleration clause in a loan document is a statement in a mortgage that
gives the lender the right to demand payment of the entire outstanding
balance if a monthly payment is missed.
Loan Fraud:
purposely giving incorrect information on a loan application in order to
better qualify for a loan; 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 loan. A loan origination fee of 1 to 2 percent of the mortgage
amount is common.
Loan Servicer:
the company that collects monthly mortgage payments and disperses property
taxes and insurance payments. Loan servicers also monitor nonperforming
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 (LTV) Ratio:
a 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 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
Mandatory Delivery Commitment:
an agreement that a lender will deliver loans or securities by a certain
date at agreed-upon terms.
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 middle 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 instance, to reduce the average level of radon.
Modification:
when a lender agrees to modify the terms of a mortgage without refinancing
the loan.
Mortgage: a
lien on the property that secures the Promise to repay a loan. A security
agreement between the lender and the buyer in which the property is
collateral for the loan. The mortgage gives the lender the right to collect
payment on the loan and to foreclose if the loan obligations are not met.
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 refinanced 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
mortgages. Principal and interest payments from the individual mortgage
loans are grouped and paid out to the MBS holders.
Mortgage Banker: a
company that originates loans and resells them to secondary mortgage lenders
like Fannie Mae 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. There are many
different terms of coverage determining amounts of payments and when
payments begin and end.
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 purchased by the buyer to protect the
lender in the event of default. Typically purchased for loans with less than
20 percent 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 percent of the
value of the house or for a set period of time (7 years is common). Mortgage
insurance also is available through a government agency, such as the 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 Interest Deduction:
the interest cost of a mortgage, which is a tax - deductible expense. The
interest reduces the taxable income of taxpayers.
Mortgage Modification:
a loss mitigation option that allows a borrower to refinance and/or extend
the term of the mortgage loan and thus reduce the monthly payments.
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 a mortgage loan and manage credit.
Mortgagee:
the lender in a mortgage agreement. Mortgagor - The borrower in a mortgage
agreement.
Mortgagor:
the borrower in a mortgage agreement
Multifamily Housing: a
building with more than four residential rental units.
Multiple Listing Service (MLS):
within the Metro Columbus area, Realtors submit listings and agree to
attempt to sell all properties in the MLS. The MLS is a service of the local
Columbus Board of Realtors®. The local MLS has a protocol for updating
listings and sharing commissions. The MLS offers the advantage of more
timely information, availability, and access to houses and other types of
property on the market.
National Credit Repositories:
currently, there are three companies that maintain national credit -
reporting databases. These are Equifax, Experian, and Trans Union, referred
to as Credit Bureaus.
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 Refinance:
a refinance of an existing loan only for the amount remaining on the
mortgage. The borrower does not get any cash against the equity of the home.
Also called a "rate and term refinance."
Nonperforming Asset:
an asset such as a mortgage that is not currently accruing interest or which
interest is not being paid.
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 stated 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:
is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie
Mac and Fannie Mae loans 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; generally put forth in 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 one percent of the loan amount.
On a conventional loan, the loan origination fee is the number of points a
borrower pays.
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 or
if the property changes ownership.
Owner's Policy:
the insurance policy that protects the buyer from title defects.
PITI:
Principal, Interest, Taxes, and Insurance:
the four elements of a
monthly mortgage payment; payments of principal and interest go directly
towards repaying the loan while the portion that covers 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.
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 a purchase price.
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).
Generally, 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 specified date. Grace periods prior to assessing a late fee or
additional interest do not eliminate the responsibility of making payments
on time.
Perils:
for homeowner's insurance, an event that can damage the property.
Homeowner's insurance may cover the property for a wide variety of perils
caused by accidents, nature, or people.
Personal Property:
any property that is not real property or attached to real property. For
example furniture is not attached however a new light fixture would be
considered attached and part of the real property.
Planned Unit Development (PUD):
a development that is planned, and constructed as one entity. Generally,
there are common 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 the association via a
payment of annual dues.
Points: a
point is equal to one percent of the principal amount of your mortgage. For
example, if you get a mortgage for $95,000, one point means you pay $950 to
the lender. Lenders frequently charge points in both fixed-rate and
adjustable-rate mortgages in order to cover
loan closing costs. These points usually are collected at closing and may be
paid by the borrower or the home seller, or may be split between them.
Power of Attorney: a
legal document that authorizes another person to act on your behalf. A power
of attorney can grant complete authority or can be limited to certain acts
or certain periods of time or both.
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 and met
underwriting guidelines.
Pre-foreclosure Sale: a
procedure in which the borrower is allowed to sell a property for an amount
less than what is owed on it to avoid a foreclosure. This sale fully
satisfies the borrower's debt.
Pre-Qualify: a
lender informally determines the maximum amount an individual is eligible to
borrow. This is not a guaranty of a loan.
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 refinancing of a
loan charging high interest and fees each time.
Predictive 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.
Preferred Stock:
stock that takes priority over common stock with regard to dividends and
liquidation rights. Preferred stockholders typically have no voting rights.
Premium:
an amount paid on a regular schedule by a policyholder that maintains
insurance coverage.
Prepayment:
(a) any amount paid to reduce the principal balance of a loan before the due
date or payment in full of a mortgage. This can occur with the sale of the
property, the pay off the loan in full, or a foreclosure. In each case, full
payment occurs before the loan has been fully amortized. (b) payment of the
mortgage loan before the scheduled due date; may be Subject to a prepayment
penalty.
Prepayment Penalty:
(a) a fee charged to a homeowner who pays one or more monthly payments
before the due date. It can also apply to principal reduction payments. (b)
a provision in some loans that charge a fee to a borrower who pays off a
loan before it is due.
Prepayment Penalty Mortgage (PPM):
a type of mortgage that requires the borrower to pay a penalty for
prepayment, partial payment of principal or for repaying the entire loan
within a certain time period. A partial payment is generally defined as an
amount exceeding 20% of the original principal balance.
Prime Rate:
the interest rate that banks charge to preferred customers. Changes in the
prime rate are publicized in the business media. Prime rate can be used as
the basis for adjustable rate mortgages (ARMs) 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 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 that money. The principal balance is the amount owed on a
loan at any given time. It is the original loan amount minus the total
repayments of principal made.
Principal, Interest, Taxes, and Insurance (PITI):
the four elements of a monthly
mortgage payment; payments of principal and interest go directly towards
repaying the loan while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into an escrow account to
cover the fees when they are due.
Private Mortgage Insurance (PMI):
insurance purchased by a buyer to protect the lender in the event of
default. The cost of mortgage insurance is usually added to the monthly
payment. Mortgage insurance is generally maintained until over 20 Percent of
the outstanding amount of the loan is paid or for a set period of time,
seven years is normal. Mortgage insurance may be available through a
government agency, such as the Federal Housing Administration (FHA) or the
Veterans Administration (VA), or through private mortgage insurance
companies (PMI).
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 per $1,000 of
assessed value of the property.
Property Tax Deduction:
the U.S. tax code allows homeowners to deduct the amount they have paid in
property taxes from their total income.
Public Record Information:
Court records of events that are a matter of public interest such as credit,
bankruptcy, foreclosure and tax liens. The presence of public record
information on a credit report is regarded negatively by creditors.
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, sometimes called the 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.
Quitclaim 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 mortgage payment may
change. Rate caps limit how much the interest rates 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 Estate Property Tax Deduction:
a tax deductible expense reducing a taxpayer's taxable income.
Real Estate Settlement Procedures Act (RESPA): 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
Real Property:
land, including all the natural resources and permanent buildings on it.
REALTOR®: a
real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF
REALTORS, and its local and state associations.
Recorder:
the public official who keeps records of transactions concerning real
property. Sometimes known as a "Registrar of Deeds" or "County Clerk."
Recording:
the recording in a registrar's office of an executed legal document. These
include deeds, mortgages, satisfaction of a mortgage, or an extension of a
mortgage 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 mortgage that covers the costs of rehabilitating (repairing or Improving)
a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a
borrower to roll the costs of rehabilitation and home purchase into one
mortgage loan.
Reinstatement Period: a
phase of the foreclosure process where the homeowner has an opportunity to
stop the foreclosure by paying money that is owed to the lender.
Remaining Balance:
the amount of principal that has not yet been repaid.
Remaining Term:
the original amortization term minus the number of payments that have been
applied.
Repayment plan:
an
agreement between a lender and a delinquent borrower where the borrower
agrees to make additional payments to pay down past due amounts while making
regularly scheduled payments.
Reverse Mortgage (HECM):
the reverse mortgage is used by senior homeowners age 62 and older to
convert the equity in their home into monthly streams of income and/or a
line of credit to be repaid when they no longer occupy the home. A lending
institution such as a mortgage lender, bank, credit union or savings and
loan association funds the FHA insured loan, commonly known as HECM.
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.
Risk Based Pricing:
Fee structure used by creditors based on risks of granting credit to a
borrower with a 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.
Sale Leaseback:
when a seller deeds property to a buyer for a payment, and the buyer
simultaneously leases the property back to the seller.
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.
Secondary Mortgage Market:
the buying and selling of mortgage loans. Investors purchase residential
mortgages originated by lenders, which in turn provides the lenders with
capital for additional lending.
Secured Loan: a
loan backed by collateral such as property.
Security:
the property that will be pledged as collateral for a loan.
Seller Take Back:
an agreement where the owner of a property provides second mortgage
financing. These are often combined with an assumed mortgage instead of a
portion of the seller's equity.
Serious Delinquency: a
mortgage that is 90 days or more past due.
Servicer: a
business that collects mortgage payments from borrowers and manages the
borrower's escrow accounts.
Servicing:
the collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.
Setback:
the distance between a property line and the area where building can take
place. Setbacks are used to assure space between buildings and from roads
for a many of purposes including drainage and utilities.
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 called the HUD 1 Settlement
Statement.
Special Forbearance: a
loss mitigation option where the lender arranges a revised repayment plan
for the borrower that may include a temporary reduction or suspension of
monthly loan payments.
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 to 619. An industry term to used to
describe loans with less stringent lending and underwriting terms and
conditions. Due to the higher risk, sub-prime loans charge higher interest
rates and fees.
Subordinate:
to place in a rank of lesser importance or to make one claim secondary to
another.
Survey: a
property diagram that indicates legal boundaries, easements, encroachments,
rights of way, improvement locations, etc. Surveys are conducted by licensed
surveyors and are normally required by the lender in order to confirm that
the property boundaries and features such as buildings, and easements are
correctly described in the legal description of the property.
Sweat Equity:
using labor to build or improve a property as part of the down payment
Terms:
The period of time and the interest rate agreed upon by the lender and the
borrower to repay a loan.
Title: a
legal document establishing the right of ownership and is recorded to make
it part of the public record. Also known as a Deed.
Title 1:
an FHA-insured loan that allows a borrower to make non-luxury improvements
(like renovations or repairs) to their home; Title I loans less than $7,500
don't require a property lien.
Title Company: a
company that specializes in examining and insuring titles to real estate.
Title Defect:
an outstanding claim on a property that limits the ability to sell the
property. Also referred to as a cloud on 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 loss in the event of a title defect. This
charge is included in the closing costs. A policy that protects the buyer
from title defects is known as an owner's policy and requires an additional
charge.
Title Search: a
check of public records to be sure that the seller is the recognized owner
of the real estate and that there are no unsettled liens or other claims
against the property.
Transfer of Ownership:
any means by which ownership of a property changes hands. These include
purchase of a property, assumption of mortgage debt, exchange of possession
of a property via a land sales contract or any other land trust device.
Transfer Taxes:
State and local taxes charged for the transfer of real estate. Usually equal
to a percentage of the sales price.
Treasury Index:
can be used as the basis for adjustable rate mortgages (ARMs) It is based on
the results of auctions that the U.S. 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.
Two Step Mortgage:
an adjustable-rate mortgage (ARM) that has one interest rate for the first
five to seven years of its term and a different interest rate for the
remainder of the term.
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 in making the loan; it includes a review of the potential
borrower's credit history and a judgment of the property value.
Up
Front Charges:
the fees charged to homeowners by the lender at the time of closing a
mortgage loan. This includes points, broker's fees, insurance, and other
charges.
VA
(Department of Veterans 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 Veterans Affairs (VA).
Variable Expenses:
Costs or payments that may vary from month to month, for example, gasoline
or food.
Variance: a
special exemption of a zoning law to allow the property to be used in a
manner different from an existing law.
Vested: a
point in time when you may withdraw funds from an investment account, such
as a retirement account, without penalty.
Walk Through:
the final inspection of a property being sold by the buyer to confirm that
any contingencies specified in the purchase agreement such as repairs have
been completed, fixture and non-fixture property is in place and confirm the
electrical, mechanical, and plumbing systems are in working order.
Warranty Deed:
a
legal document that includes the guarantee the seller is the true owner of
the property, has the right to sell the property and there are no claims
against the property.
Zoning: local laws established to control the uses of land within a
particular area. Zoning laws are used to separate residential land from
areas of non-residential use, such as industry or businesses. Zoning
ordinances include many provisions governing such things as type of
structure, setbacks, lot size, and uses of a building.
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