1031
Exchange This refers to a portion of the IRS code also known
as a Like Kind Exchange or Starker Exchange. This specifies that if
a property is sold and the proceeds of the sale are investing in an
asset of like kind, then no gain or loss is recognized. This is a very
effective way to defer taxes that would otherwise be due on the sale
of a property.
401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set
aside tax-deferred income for retirement or emergency purposes. 401(k)
plans are provided by employers that are private corporations. 403(b)
plans are provided by employers that are not for profit organizations.
401(k)/403(b)
loan Some administrators of 401(k)/403(b) plans allow for loans against
the monies you have accumulated in these plans. Loans against 401K plans
are an acceptable source of down payment for most types of loans.
Abstract
of Judgment The summary of a court judgment that creates
a lien against a property when filed with the county recorder
Abstract of Title The historical summary of all of the recorded
instruments and proceedings that affect title to a property.
Acceleration
Clause A clause in your mortgage which allows the lender
to demand payment of the outstanding loan balance for various reasons.
The most common reasons for accelerating a loan are if the borrower
defaults on the loan or transfers title to another individual without
informing the lender. See also Due on Sale
Acre
-- An area of land equaling 4,840 square yards or 43,560 square feet.
Ad
Valorem Tax ad valorem is Latin for "According to Value"
- A tax based on the assessed value of real estate or personal property.
Addendum
-- An addition to a contract or agreement
adjustable-rate mortgage (ARM) -- A mortgage in which the
interest changes periodically, according to corresponding fluctuations
in an index. All ARMs are tied to indexes.
adjustment
date -- The date the interest rate changes on an adjustable-rate
mortgage
Adverse
Possession A means of acquiring title to real estate where
an occupant has been in actual, open, notorious, exclusive and continuous
occupancy of property for the period required by state law.
amortization
-- The loan payment consists of a portion which will be applied to pay
the accruing interest on a loan, with the remainder being applied to
the principal. Over time, the interest portion decreases as the loan
balance decreases, and the amount applied to principal increases so
that the loan is paid off (amortized) in the specified time.
amortization
schedule A table which shows how much of each payment will
be applied toward principal and how much toward interest over the life
of the loan. It also shows the gradual decrease of the loan balance
until it reaches zero.
annual percentage rate (APR) This is not the note rate on
your loan. It is a value created according to a government formula intended
to reflect the true annual cost of borrowing, expressed as a percentage.
It works sort of like this, but not exactly, so only use this as a guideline:
deduct the closing costs from your loan amount, then using your actual
loan payment, calculate what the interest rate would be on this amount
instead of your actual loan amount. You will come up with a number close
to the APR. Because you are using the same payment on a smaller amount,
the APR is always higher than the actual not rate on your loan.
application
The form used to apply for a mortgage loan, containing information about
a borrower's income, savings, assets, debts, and more.
appraisal
-- A written justification of the price paid for a property, primarily
based on an analysis of comparable sales of similar homes nearby.
appraised value -- An opinion of a property's fair market
value, based on an appraiser's knowledge, experience, and analysis of
the property. Since an appraisal is based primarily on comparable sales,
and the most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price.
appraiser
-- An individual qualified by education, training, and experience to
estimate the value of real property and personal property. Although
some appraisers work directly for mortgage lenders, most are independent.
appreciation The increase in the value of a property due to changes
in market conditions, inflation, or other causes.
assessed
value -- The valuation placed on property by a public tax
assessor for purposes of taxation.
assessment
-- The placing of a value on property for the purpose of taxation.
assessor
-- A public official who establishes the value of a property for taxation
purposes.
asset
-- Items of value owned by an individual. Assets that can be quickly
converted into cash are considered liquid assets. These include bank
accounts, stocks, bonds, mutual funds, and so on. Other assets include
real estate, personal property, and debts owed to an individual by others.
assignment
-- When ownership of your mortgage is transferred from one company or
individual to another, it is called an assignment.
assumable
mortgage -- A mortgage that can be assumed by the buyer when
a home is sold. Usually, the borrower must qualify in order to assume
the loan.
assumption
-- The term applied when a buyer assumes the seller's mortgage.
balloon
mortgage -- A mortgage loan that requires the remaining principal
balance be paid at a specific point in time. For example, a loan may
be amortized as if it would be paid over a thirty year period, but requires
that at the end of the tenth year the entire remaining balance must
be paid.
balloon payment The final lump sum payment that is due at the termination
of a balloon mortgage.
bankruptcy
-- By filing in federal bankruptcy court, an individual or individuals
can restructure or relieve themselves of debts and liabilities. Bankruptcies
are of various types, but the most common for an individual seem to
be a Chapter 7 No Asset bankruptcy which relieves the borrower of most
types of debts. A borrower cannot usually qualify for an A paper loan
for a period of two years after the bankruptcy has been discharged and
requires the re-establishment of an ability to repay debt.
Basis
Point -- A basis point is one one-hundredth of one percentage
point. For example, the difference between a home loan at 4.25 percent
and one at 4.38 percent is 13 basis points.
bill
of sale -- A written document that transfers title to personal
property. For example, when selling an automobile to acquire funds which
will be used as a source of down payment or for closing costs, the lender
will usually require the bill of sale (in addition to other items) to
help document this source of funds.
biweekly
mortgage -- A mortgage in which you make payments every two
weeks instead of once a month. The basic result is that instead of making
twelve monthly payments during the year, you make thirteen. The extra
payment reduces the principal, substantially reducing the time it takes
to pay off a thirty year mortgage. Note: there are independent companies
that encourage you to set up bi-weekly payment schedules with them on
your thirty year mortgage. They charge a set-up fee and a transfer fee
for every payment. Your funds are deposited into a trust account from
which your monthly payment is then made, and the excess funds then remain
in the trust account until enough has accrued to make the additional
payment which will then be paid to reduce your principal. You could
save money by doing the same thing yourself, plus you have to have faith
that once you transfer money to them that they will actually transfer
your funds to your lender.
bond
market -- Usually refers to the daily buying and selling
of thirty year treasury bonds. Lenders follow this market intensely
because as the yields of bonds go up and down, fixed rate mortgages
do approximately the same thing. The same factors that affect the Treasury
Bond market also affect mortgage rates at the same time. That is why
rates change daily, and in a volatile market can and do change during
the day as well.
bridge loan -- Bridge loans are obtained by those who have
not yet sold their previous property, but must close on a purchase property.
The bridge loan becomes the source of their funds for the down payment.
One reason for their fall from favor is that there are more and more
second mortgage lenders now that will lend at a high loan to value.
In addition, sellers often prefer to accept offers from buyers who have
already sold their property.
broker
-- Broker has several meanings in different situations. Most Realtors
are agents who work under a broker. Some agents are brokers as well,
either working form themselves or under another broker. In the mortgage
industry, broker usually refers to a company or individual that does
not lend the money for the loans themselves, but broker loans to larger
lenders or investors. (See the Home Loan Library that discusses the
different types of lenders). As a normal definition, a broker is anyone
who acts as an agent, bringing two parties together for any type of
transaction and earns a fee for doing so.
buydown
-- Usually refers to a fixed rate mortgage where the interest rate is
bought down for a temporary period, usually one to three years. After
that time and for the remainder of the term, the borrower's payment
is calculated at the note rate. In order to buy down the initial rate
for the temporary payment, a lump sum is paid and held in an account
used to supplement the borrower's monthly payment. These funds usually
come from the seller (or some other source) as a financial incentive
to induce someone to buy their property. A lender funded buydown is
when the lender pays the initial lump sum. They can accomplish this
because the note rate on the loan (after the buydown adjustments) will
be higher than the current market rate. One reason for doing this is
because the borrower may get to qualify at the start rate and can qualify
for a higher loan amount. Another reason is that a borrower may expect
his earnings to go up substantially in the near future, but wants a
lower payment right now.
Buyer's
Agent -- A person with a state/provincial license to represent
a buyer or a seller in a real-estate transaction in exchange for commission.
Most agents work for a real-estate broker or realtor.
call
option -- Similar to the acceleration clause.
cap
-- Adjustable Rate Mortgages have fluctuating interest rates, but those
fluctuations are usually limited to a certain amount. Those limitations
may apply to how much the loan may adjust over a six month period, an
annual period, and over the life of the loan, and are referred to as
caps. Some ARMs, although they may have a life cap, allow the interest
rate to fluctuate freely, but require a certain minimum payment which
can change once a year. There is a limit on how much that payment can
change each year, and that limit is also referred to as a cap.
Cap
Rate -- See Capitalization Rate
Capitalization
Rate -- The assumed rate of return on an investment in real
estate. The capitalization rate is commonly used in the valuation of
commercial and investment property because it directly links the value
to the income produced by the property.
Cash
Flow -- The amount of cash a rental property investor receives
after deducting operating expenses and loan payments from gross income.
Cash
Out Refinance -- The refinancing of a mortgage in which the
money received from the new loan is greater than the amount due on the
old loan.
cash-out
refinance -- When a borrower refinances his mortgage at a
higher amount than the current loan balance with the intention of pulling
out money for personal use, it is referred to as a cash out refinance.
(top)
Caveat
Emptor -- A Latin term meaning "Let the Buyer Beware"
certificate
of deposit -- A time deposit held in a bank which pays a
certain amount of interest to the depositor. (top)
certificate
of deposit index -- One of the indexes used for determining
interest rate changes on some adjustable rate mortgages. It is an average
of what banks are paying on certificates of deposit. (top)
Certificate
of Eligibility -- A document issued by the Veterans Administration
that certifies a veteran's eligibility for a VA loan.(top)
Certificate
of Occupancy (CO) -- A document stating that a home or other
building has met all building codes and is suitable for habitation.
Certificate
of Reasonable Value (CRV) -- Once the appraisal has been
performed on a property being bought with a VA loan, the Veterans Administration
issues a CRV.
Certified
Commercial Investment Member (CCIM) -- A certification for
someone recognized as an expert in the disciplines of commercial and
investment real estate.
Certified
Residential Broker (CRB) -- Certification granted by the
Realtors National Marketing Institute, which is affiliated with the
National Association of Realtors.
chain
of title -- An analysis of the transfers of title to a piece
of property over the years.
clear
title -- A title that is free of liens or legal questions
as to ownership of the property.
closing
-- This has different meanings in different states. In some states a
real estate transaction is not consider closed until the documents record
at the local recorders office. In others, the closing is a meeting where
all of the documents are signed and money changes hands.
closing
costs -- Closing costs are separated into what are called
non-recurring closing costs and pre-paid items. Non-recurring closing
costs are any items which are paid just once as a result of buying the
property or obtaining a loan. Pre-paids are items which recur over time,
such as property taxes and homeowners insurance. A lender makes an attempt
to estimate the amount of non-recurring closing costs and prepaid items
on the Good Faith Estimate which they must issue to the borrower within
three days of receiving a home loan application.
closing
statement -- See Settlement Statement.
cloud
on title -- Any conditions revealed by a title search that
adversely affect the title to real estate. Usually clouds on title cannot
be removed except by deed, release, or court action.
co-borrower
-- An additional individual who is both obligated on the loan and is
on title to the property.
collateral
-- In a home loan, the property is the collateral. The borrower risks
losing the property if the loan is not repaid according to the terms
of the mortgage or deed of trust.
collection
-- When a borrower falls behind, the lender contacts them in an effort
to bring the loan current. The loan goes to collection. As part of the
collection effort, the lender must mail and record certain documents
in case they are eventually required to foreclose on the property.
commission
-- Most salespeople earn commissions for the work that they do and there
are many sales professionals involved in each transaction, including
Realtors, loan officers, title representatives, attorneys, escrow representative,
and representatives for pest companies, home warranty companies, home
inspection companies, insurance agents, and more. The commissions are
paid out of the charges paid by the seller or buyer in the purchase
transaction. Realtors generally earn the largest commissions, followed
by lenders, then the others.
common
area assessments -- In some areas they are called Homeowners
Association Fees. They are charges paid to the Homeowners Association
by the owners of the individual units in a condominium or planned unit
development (PUD) and are generally used to maintain the property and
common areas.
common
areas -- Those portions of a building, land, and amenities
owned (or managed) by a planned unit development (PUD) or condominium
project's homeowners' association (or a cooperative project's cooperative
corporation) that are used by all of the unit owners, who share in the
common expenses of their operation and maintenance. Common areas include
swimming pools, tennis courts, and other recreational facilities, as
well as common corridors of buildings, parking areas, means of ingress
and egress, etc.
common
law -- An unwritten body of law based on general custom in
England and used to an extent in some states.
community
property -- In some states, especially the southwest, property
acquired by a married couple during their marriage is considered to
be owned jointly, except under special circumstances. This is an outgrowth
of the Spanish and Mexican heritage of the area.
comparable
sales -- Recent sales of similar properties in nearby areas
and used to help determine the market value of a property. Also referred
to as comps.
Conditions,
Covenants, and Restrictions (CCR's) -- Promises written into
deeds and other instruments agreeing to performance or nonperformance
of certain acts, or requiring or prohibiting certain uses of the property.
Often referred to as deed restrictions, they represent the do's and
don'ts of a deed-restricted community.
condominium
-- A type of ownership in real property where all of the owners own
the property, common areas and buildings together, with the exception
of the interior of the unit to which they have title. Often mistakenly
referred to as a type of construction or development, it actually refers
to the type of ownership.
condominium
conversion -- Changing the ownership of an existing building
(usually a rental project) to the condominium form of ownership.
condominium
hotel -- A condominium project that has rental or registration
desks, short-term occupancy, food and telephone services, and daily
cleaning services and that is operated as a commercial hotel even though
the units are individually owned. These are often found in resort areas
like Hawaii.
Conforming
Loan -- A loan which has underwriting criteria consistent
with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie
Mac, FHA or VA. These are typically the lowest interest rate loans with
very good terms. (See definitions of "Fannie Mae", "Freddie
Mac", "FHA", "VA" and "underwriting"
below.).
construction
loan -- A short-term, interim loan for financing the cost
of construction. The lender makes payments to the builder at periodic
intervals as the work progresses.
contingency
-- A condition that must be met before a contract is legally binding.
For example, home purchasers often include a contingency that specifies
that the contract is not binding until the purchaser obtains a satisfactory
home inspection report from a qualified home inspector.
contract An oral or written agreement to do or not to do a certain thing.
conventional mortgage Refers to home loans other than government loans
(VA and FHA).
convertible
ARM -- An adjustable-rate mortgage that allows the borrower
to change the ARM to a fixed-rate mortgage within a specific time.
cooperative
(co-op) -- A type of multiple ownership in which the residents
of a multi unit housing complex own shares in the cooperative corporation
that owns the property, giving each resident the right to occupy a specific
apartment or unit.
cost
of funds index (COFI) -- One of the indexes that is used
to determine interest rate changes for certain adjustable-rate mortgages.
It represents the weighted-average cost of savings, borrowings, and
advances of the financial institutions such as banks and savings &
loans, in the 11th District of the Federal Home Loan Bank.
Counteroffer
-- An offer made in return by one who rejects an unsatisfactory offer.
Creative
Financing -- Financing property or anything outside of a
standard loan.
credit
-- An agreement in which a borrower receives something of value in exchange
for a promise to repay the lender at a later date. (top)
credit
history -- A record of an individual's repayment of debt.
Credit histories are reviewed my mortgage lenders as one of the underwriting
criteria in determining credit risk.
credit
report -- A report of an individual's credit history prepared
by a credit bureau and used by a lender in determining a loan applicant's
credit worthiness.
credit
repository -- An organization that gathers, records, updates,
and stores financial and public records information about the payment
records of individuals who are being considered for credit.
creditor
-- A person to whom money is owed.
Dealer
-- One who holds real property primarily for sale to customers, merchandise
is inventory and gain on sale is treated as ordinary income.
debt
-- An amount owed to another.
deed
-- The legal document conveying title to a property.
deed
of trust -- Some states, like California, do not record mortgages.
Instead, they record a deed of trust which is essentially the same thing.
deed-in-lieu
of foreclosure -- Short for deed in lieu of foreclosure,
this conveys title to the lender when the borrower is in default and
wants to avoid foreclosure. The lender may or may not cease foreclosure
activities if a borrower asks to provide a deed-in-lieu. Regardless
of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment
of debt will most likely show on a credit history. What a deed-in-lieu
may prevent is having the documents preparatory to a foreclosure being
recorded and become a matter of public record.
default
-- Failure to make the mortgage payment within a specified period of
time. For first mortgages or first trust deeds, if a payment has still
not been made within 30 days of the due date, the loan is considered
to be in default.
delinquency
-- Failure to make mortgage payments when mortgage payments are due.
For most mortgages, payments are due on the first day of the month.
Even though they may not charge a late fee for a number of days, the
payment is still considered to be late and the loan delinquent. When
a loan payment is more than 30 days late, most lenders report the late
payment to one or more credit bureaus.
deposit
-- A sum of money given in advance of a larger amount being expected
in the future. Often called in real estate as an earnest money deposit.
depreciation
-- A decline in the value of property; the opposite of appreciation.
Depreciation is also an accounting term which shows the declining monetary
value of an asset and is used as an expense to reduce taxable income.
Since this is not a true expense where money is actually paid, lenders
will add back depreciation expense for self-employed borrowers and count
it as income.
discount
points -- In the mortgage industry, this term is usually
used in only in reference to government loans, meaning FHA and VA loans.
Discount points refer to any points paid in addition to the one percent
loan origination fee. A point is one percent of the loan amount.
down
payment -- The part of the purchase price of a property that
the buyer pays in cash and does not finance with a mortgage.
Due-on-Sale
Clause -- A clause in many mortgages that allows the lender
to call the loan due immediately if the property is sold. In general
lenders are not very aggressive in enforcing this clause as long as
they continue to be paid their monthly payment.
Due-on-Sale
Provision -- A provision in a mortgage that allows the lender
to demand repayment in full if the borrower sells or transfers beneficial
interest in the property that serves as security for the mortgage. Note:
Under the Garnes Saint Germaines Depository Institution Act of 1982,
Congress agreed to allow lenders to insert the DOS Clause with the provision
that an owner could transfer property into a land trust with no penalty
or repercussion.
earnest money or binder deposit -- A deposit made by the
potential home buyer to show that he or she is serious about buying
the house.
easement
-- A right of way giving persons other than the owner access to or over
a property.
effective
age -- An appraiser's estimate of the physical condition
of a building. The actual age of a building may be shorter or longer
than its effective age.
eminent
domain -- The right of a government to take private property
for public use upon payment of its fair market value. Eminent domain
is the basis for condemnation proceedings.
encroachment
-- An improvement that intrudes illegally on another's property.
encumbrance
-- Anything that affects or limits the fee simple title to a property,
such as mortgages, leases, easements, or restrictions.
Equal
Credit Opportunity Act (ECOA) -- A federal law that requires
lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age,
sex, marital status, or receipt of income from public assistance programs.
equity
-- A homeowner's financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed
on its mortgage and other liens.
escrow
-- An item of value, money, or documents deposited with a third party
to be delivered upon the fulfillment of a condition. For example, the
earnest money deposit is put into escrow until delivered to the seller
when the transaction is closed.
escrow
account -- Once you close your purchase transaction, you
may have an escrow account or impound account with your lender. This
means the amount you pay each month includes an amount above what would
be required if you were only paying your principal and interest. The
extra money is held in your impound account (escrow account) for the
payment of items like property taxes and homeowner's insurance when
they come due. The lender pays them with your money instead of you paying
them yourself.
escrow
analysis -- Once each year your lender will perform an escrow
analysis to make sure they are collecting the correct amount of money
for the anticipated expenditures.
escrow
disbursements -- The use of escrow funds to pay real estate
taxes, hazard insurance, mortgage insurance, and other property expenses
as they become due.
estate
-- The ownership interest of an individual in real property. The sum
total of all the real property and personal property owned by an individual
at time of death.
et
uxor -- A latin term meaning "And Wife". Commonly
used in real estate deeds. Also etux, et ux.
eviction
-- The lawful expulsion of an occupant from real property.
examination
of title -- The report on the title of a property from the
public records or an abstract of the title.
exclusive
listing -- A written contract that gives a licensed real
estate agent the exclusive right to sell a property for a specified
time.
executor
-- A person named in a will to administer an estate. The court will
appoint an administrator if no executor is named. Executrix is the feminine
form.
Fair
Credit Reporting Act -- A consumer protection law that regulates
the disclosure of consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting mistakes on one's
credit record.
fair
market value -- The highest price that a buyer, willing but
not compelled to buy, would pay, and the lowest a seller, willing but
not compelled to sell, would accept.
Fannie
Mae (FNMA) -- The Federal National Mortgage Association,
which is a congressionally chartered, shareholder-owned company that
is the nation's largest supplier of home mortgage funds. For a discussion
of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA),
see the Library.
Fannie
Mae's Community Home Buyer's Program -- An income-based community
lending model, under which mortgage insurers and Fannie Mae offer flexible
underwriting guidelines to increase a low- or moderate-income family's
buying power and to decrease the total amount of cash needed to purchase
a home. Borrowers who participate in this model are required to attend
pre-purchase home-buyer education sessions.
Federal
Housing Administration (FHA) -- An agency of the U.S. Department
of Housing and Urban Development (HUD). Its main activity is the insuring
of residential mortgage loans made by private lenders. The FHA sets
standards for construction and underwriting but does not lend money
or plan or construct housing. top)
fee
simple -- The greatest possible interest a person can have
in real estate.
fee-simple
estate -- An unconditional, unlimited estate of inheritance
that represents the greatest estate and most extensive interest in land
that can be enjoyed. It is of perpetual duration. When the real estate
is in a condominium project, the unit owner is the exclusive owner only
of the air space within his or her portion of the building (the unit)
and is an owner in common with respect to the land and other common
portions of the property.
FHA
mortgage -- A mortgage that is insured by the Federal Housing
Administration (FHA). Along with VA loans, an FHA loan will often be
referred to as a government loan.
firm
commitment -- A lender's agreement to make a loan to a specific
borrower on a specific property.
first
mortgage -- The mortgage that is in first place among any
loans recorded against a property. Usually refers to the date in which
loans are recorded, but there are exceptions.
fixed-rate
mortgage -- A mortgage in which the interest rate does not
change during the entire term of the loan.
fixture
-- Personal property that becomes real property when attached in a permanent
manner to real estate.
flood
insurance -- Insurance that compensates for physical property
damage resulting from flooding. It is required for properties located
in federally designated flood areas.
foreclosure -- The legal process by which a borrower in default under
a mortgage is deprived of his or her interest in the mortgaged property.
This usually involves a forced sale of the property at public auction
with the proceeds of the sale being applied to the mortgage debt.
Gentrification -- The restoration of deteriorated urban property by
middle-class or affluent people, often resulting in displacement of
lower-income people.
government loan (mortgage) -- A mortgage that is insured by the Federal
Housing Administration (FHA) or guaranteed by the Department of Veterans
Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are
not government loans are classified as conventional loans.
grantee -- The person to whom an interest in real property is conveyed.
grantor The person conveying an interest in real property.
Hard Money Loan -- Hard money loans are loans in which real estate serves
as the collateral asset. It is most commonly used as a type of bridge
loan for temporary financing. As with other collateralized loans, the
size, rate, and length of a hard money loan is determined by the borrower’s
equity in the asset, the volatility of the asset and marketplace, and
the financial standing of the borrower. Hard money loans are funded
for business and personal use. The real estate asset may be business
or personal property, and the proceeds of hard money loans are not restricted
to business use.
hazard insurance -- Insurance coverage that in the event of physical
damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM) -- Usually referred to as a reverse
annuity mortgage, what makes this type of mortgage unique is that instead
of making payments to a lender, the lender makes payments to you. It
enables older home owners to convert the equity they have in their homes
into cash, usually in the form of monthly payments. Unlike traditional
home equity loans, a borrower does not qualify on the basis of income
but on the value of his or her home. In addition, the loan does not
have to be repaid until the borrower no longer occupies the property.
home equity line of credit -- A mortgage loan, usually in second position,
that allows the borrower to obtain cash drawn against the equity of
his home, up to a predetermined amount.
home inspection -- A thorough inspection by a professional that evaluates
the structural and mechanical condition of a property. A satisfactory
home inspection is often included as a contingency by the purchaser.
homeowners' association -- A nonprofit association that manages the
common areas of a planned unit development (PUD) or condominium project.
In a condominium project, it has no ownership interest in the common
elements. In a PUD project, it holds title to the common elements.
homeowner's insurance -- An insurance policy that combines personal
liability insurance and hazard insurance coverage for a dwelling and
its contents.
homeowner's warranty -- A type of insurance often purchased by homebuyers
that will cover repairs to certain items, such as heating or air conditioning,
should they break down within the coverage period. The buyer often requests
the seller to pay for this coverage as a condition of the sale, but
either party can pay.
House Buyer -- An individual or company that purchases houses.
HUD median income Median family income for a particular county or metropolitan
statistical area (MSA), as estimated by the Department of Housing and
Urban Development (HUD).
HUD-1 settlement statement -- A document that provides an itemized listing
of the funds that were paid at closing. Items that appear on the statement
include real estate commissions, loan fees, points, and initial escrow
(impound) amounts. Each type of expense goes on a specific numbered
line on the sheet. The totals at the bottom of the HUD-1 statement define
the seller's net proceeds and the buyer's net payment at closing. It
is called a HUD1 because the form is printed by the Department of Housing
and Urban Development (HUD). The HUD1 statement is also known as the
closing statement or settlement sheet.
joint tenancy -- A form of ownership or taking title to property which
means each party owns the whole property and that ownership is not separate.
In the event of the death of one party, the survivor owns the property
in its entirety.
judgment -- A decision made by a court of law. In judgments that require
the repayment of a debt, the court may place a lien against the debtor's
real property as collateral for the judgment's creditor.[Top]
judicial foreclosure -- A type of foreclosure proceeding used in some
states that is handled as a civil lawsuit and conducted entirely under
the auspices of a court. Other states use non-judicial foreclosure.
jumbo loan -- A loan that exceeds Fannie Mae's and Freddie Mac's loan
limits, currently at $227,150. Also called a nonconforming loan. Freddie
Mac and Fannie Mae loans are referred to as conforming loans.
Land Trust -- A trust created to effectuate a real estate ownership
arrangement in which the trustee holds legal and equitable title to
the property subject to the provisions of a trust agreement setting
out the rights of the beneficiaries whose interests in the trust are
declared to be personal property called also Illinois land trust.
late charge -- The penalty a borrower must pay when a payment is made
a stated number of days. On a first trust deed or mortgage, this is
usually fifteen days.
lease -- A written agreement between the property owner and a tenant
that stipulates the payment and conditions under which the tenant may
possess the real estate for a specified period of time.
Lease Option -- An alternative financing option that allows home buyers
to lease a home with an option to buy. Each month's rent payment often
includes taxes, insurance, and homeowner's association dues, if applicable.
NOTE: Some unscrupulous people offering rent-to-own/lease-option/lease-purchase
opportunities attempt to scam uninformed people desiring home ownership.
Read how to avoid the scammers and the scams at
Rent-to-Own Home Scams Revealed
leasehold estate -- A way of holding title to a property wherein the
mortgagor does not actually own the property but rather has a recorded
long-term lease on it.
legal description -- A property description, recognized by law, that
is sufficient to locate and identify the property without oral testimony.
lender -- A term which can refer to the institution making the loan
or to the individual representing the firm. For example, loan officers
are often referred to as lenders.
liabilities -- A person's financial obligations. Liabilities include
long-term and short-term debt, as well as any other amounts that are
owed to others.
liability insurance Insurance coverage that offers protection against
claims alleging that a property owner's negligence or inappropriate
action resulted in bodily injury or property damage to another party.
It is usually part of a homeowner's insurance policy.
lien -- A legal claim against a property that must be paid off when
the property is sold. A mortgage or first trust deed is considered a
lien.
life cap -- For an adjustable-rate mortgage (ARM), a limit on the amount
that the interest rate can increase or decrease over the life of the
mortgage.
line of credit An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a certain time
to a specified borrower.
liquid asset -- A cash asset or an asset that is easily converted into
cash.
loan A sum of borrowed money (principal) that is generally repaid with
interest.
loan officer -- Also referred to by a variety of other terms, such as
lender, loan representative, loan rep, account executive, and others.
The loan officer serves several functions and has various responsibilities:
they solicit loans, they are the representative of the lending institution,
and they represent the borrower to the lending institution.
loan origination -- How a lender refers to the process of obtaining
new loans.
loan servicing -- After you obtain a loan, the company you make the
payments to is servicing your loan. They process payments, send statements,
manage the escrow/impound account, provide collection efforts on delinquent
loans, ensure that insurance and property taxes are made on the property,
handle pay-offs and assumptions, and provide a variety of other services.
loan-to-value (LTV) -- The percentage relationship between the amount
of the loan and the appraised value or sales price (whichever is lower).
lock-in -- An agreement in which the lender guarantees a specified interest
rate for a certain amount of time at a certain cost.
lock-in period -- The time period during which the lender has guaranteed
an interest rate to a borrower.
margin -- The difference between the interest rate and the index on
an adjustable rate mortgage. The margin remains stable over the life
of the loan. It is the index which moves up and down.
maturity -- The date on which the principal balance of a loan, bond,
or other financial instrument becomes due and payable.[Top]
merged credit report -- A credit report which reports the raw data pulled
from two or more of the major credit repositories. Contrast with a Residential
Mortgage Credit Report (RMCR) or a standard factual credit report.
modification -- Occasionally, a lender will agree to modify the terms
of your mortgage without requiring you to refinance. If any changes
are made, it is called a modification.
mortgage -- A legal document that pledges a property to the lender as
security for payment of a debt. Instead of mortgages, some states use
First Trust Deeds.
mortgage banker -- For a more complete discussion of mortgage banker,
see Types of Lenders. A mortgage banker is generally assumed to originate
and fund their own loans, which are then sold on the secondary market,
usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather
loosely apply this term to themselves, whether they are true mortgage
bankers or simply mortgage brokers or correspondents.
mortgage broker -- A mortgage company that originates loans, then places
those loans with a variety of other lending institutions with whom they
usually have pre-established relationships.
mortgage insurance (MI) -- Insurance that covers the lender against
some of the losses incurred as a result of a default on a home loan.
Often mistakenly referred to as PMI, which is actually the name of one
of the larger mortgage insurers. Mortgage insurance is usually required
in one form or another on all loans that have a loan-to-value higher
than eighty percent. Mortgages above 80% LTV that call themselves "No
MI" are usually a made at a higher interest rate. Instead of the
borrower paying the mortgage insurance premiums directly, they pay a
higher interest rate to the lender, which then pays the mortgage insurance
themselves. Also, FHA loans and certain first-time home buyer programs
require mortgage insurance regardless of the loan-to-value.
mortgage insurance premium (MIP) The amount paid by a mortgagor for
mortgage insurance, either to a government agency such as the Federal
Housing Administration (FHA) or to a private mortgage insurance (MI)
company.
mortgage life and disability insurance -- A type of term life insurance
often bought by borrowers. The amount of coverage decreases as the principal
balance declines. Some policies also cover the borrower in the event
of disability. In the event that the borrower dies while the policy
is in force, the debt is automatically satisfied by insurance proceeds.
In the case of disability insurance, the insurance will make the mortgage
payment for a specified amount of time during the disability. Be careful
to read the terms of coverage, however, because often the coverage does
not start immediately upon the disability, but after a specified period,
sometime forty-five days.
mortgagee The lender in a mortgage agreement.
mortgagor -- The borrower in a mortgage agreement.[Top]
multi dwelling units -- Properties that provide separate housing units
for more than one family, although they secure only a single mortgage.
Multiple Listing Service (MLS) -- A real estate listing service that
combines the listings for all available properties in an area that are
listed by real estate agents in one directory. The MLS is typically
limited to licensed real estate agents.
negative amortization -- Some adjustable rate mortgages allow the interest
rate to fluctuate independently of a required minimum payment. If a
borrower makes the minimum payment it may not cover all of the interest
that would normally be due at the current interest rate. In essence,
the borrower is deferring the interest payment, which is why this is
called deferred interest. The deferred interest is added to the balance
of the loan and the loan balance grows larger instead of smaller, which
is called negative amortization.
no cash-out refinance -- A refinance transaction which is not intended
to put cash in the hand of the borrower. Instead, the new balance is
calculated to cover the balance due on the current loan and any costs
associated with obtaining the new mortgage. Often referred to as a rate
and term refinance.
no-cost loan -- Many lenders offer loans that you can obtain at no cost.
You should inquire whether this means there are no lender costs associated
with the loan, or if it also covers the other costs you would normally
have in a purchase or refinance transactions, such as title insurance,
escrow fees, settlement fees, appraisal, recording fees, notary fees,
and others. These are fees and costs which may be associated with buying
a home or obtaining a loan, but not charged directly by the lender.
Keep in mind that, like a no-point loan, the interest rate will be higher
than if you obtain a loan that has costs associated with it.
note -- A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period of time.
note rate -- The interest rate stated on a mortgage note.
notice of default -- A formal written notice to a borrower that a default
has occurred and that legal action may be taken.
Option -- A situation in which a buyer puts down money for the right
to purchase a piece of real estate within a set time period but does
not have an obligation to buy.
Option Arm Loan -- A home loan where the borrower has multiple payment
options each month.
original principal balance -- The total amount of principal owed on
a mortgage before any payments are made.
origination fee -- On a government loan the loan origination fee is
one percent of the loan amount, but additional points may be charged
which are called discount points. One point equals one percent of the
loan amount. On a conventional loan, the loan origination fee refers
to the total number of points a borrower pays.
owner financing -- A property purchase transaction in which the property
seller provides all or part of the financing.
partial payment -- A payment that is not sufficient to cover the scheduled
monthly payment on a mortgage loan. Normally, a lender will not accept
a partial payment, but in times of hardship you can make this request
of the loan servicing collection department.
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.
periodic payment cap -- For an adjustable-rate mortgage where the interest
rate and the minimum payment amount fluctuate independently of one another,
this is a limit on the amount that payments can increase or decrease
during any one adjustment period.
periodic rate cap -- For an adjustable-rate mortgage, a limit on the
amount that the interest rate can increase or decrease during any one
adjustment period, regardless of how high or low the index might be.
personal property Any property that is not real property.
PITI -- This stands for principal, interest, taxes and insurance. If
you have an impounded loan, then your monthly payment to the lender
includes all of these and probably includes mortgage insurance as well.
If you do not have an impounded account, then the lender still calculates
this amount and uses it as part of determining your debt-to-income ratio.
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 project or subdivision that includes
common property that is owned and maintained by a homeowners' association
for the benefit and use of the individual PUD unit owners.
point -- A point is 1 percent of the amount of the mortgage.
power of attorney -- A legal document that authorizes another person
to act on one's behalf. A power of attorney can grant complete authority
or can be limited to certain acts and/or certain periods of time.
pre-approval -- A loosely used term which is generally taken to mean
that a borrower has completed a loan application and provided debt,
income, and savings documentation which an underwriter has reviewed
and approved. A pre-approval is usually done at a certain loan amount
and making assumptions about what the interest rate will actually be
at the time the loan is actually made, as well as estimates for the
amount that will be paid for property taxes, insurance and others. A
pre-approval applies only to the borrower. Once a property is chosen,
it must also meet the underwriting guidelines of the lender. Contrast
with pre-qualification.
Pre-approval letter -- A letter from a lender that states the amount
of money a potential buyer can obtain.
pre-payment -- Any amount paid to reduce the principal balance of a
loan before the due date. Payment in full on a mortgage that may result
from a sale of the property, the owner's decision to pay off the loan
in full, or a foreclosure. In each case, prepayment means payment occurs
before the loan has been fully amortized.
prepayment penalty -- A fee that may be charged to a borrower who pays
off a loan before it is due.
pre-qualification -- This usually refers to the loan officer's written
opinion of the ability of a borrower to qualify for a home loan, after
the loan officer has made inquiries about debt, income, and savings.
The information provided to the loan officer may have been presented
verbally or in the form of documentation, and the loan officer may or
may not have reviewed a credit report on the borrower.
prime rate -- The interest rate that banks charge to their preferred
customers. Changes in the prime rate are widely publicized in the news
media and are used as the indexes in some adjustable rate mortgages,
especially home equity lines of credit. Changes in the prime rate do
not directly affect other types of mortgages, but the same factors that
influence the prime rate also affect the interest rates of mortgage
loans.
principal -- The amount borrowed or remaining unpaid. The part of the
monthly payment that reduces the remaining balance of a mortgage.
principal balance The outstanding balance of principal on a mortgage.
The principal balance does not include interest or any other charges.
See remaining balance.
principal, interest, taxes, and insurance (PITI) -- The four components
of a monthly mortgage payment on impounded loans. Principal refers to
the part of the monthly payment that reduces the remaining balance of
the mortgage. Interest is the fee charged for borrowing money. Taxes
and insurance refer to the amounts that are paid into an escrow account
each month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI) -- Mortgage insurance that is provided
by a private mortgage insurance company to protect lenders against loss
if a borrower defaults. Most lenders generally require MI for a loan
with a loan-to-value (LTV) percentage in excess of 80 percent.
promissory note -- A written promise to repay a specified amount over
a specified period of time.
public auction -- A meeting in an announced public location to sell
property to repay a mortgage that is in default.
sale and purchase agreement -- A written contract signed by the buyer
and seller stating the terms and conditions under which a property will
be sold.
purchase money transaction The acquisition of property through the payment
of money or its equivalent.
qualifying ratios -- Calculations that are used in determining whether
a borrower can qualify for a mortgage. There are two ratios. The top
or front ratio is a calculation of the borrower's monthly housing costs
(principle, taxes, insurance, mortgage insurance, homeowner's association
fees) as a percentage of monthly income. The back or bottom ratio includes
housing costs as will as all other monthly debt.
NOTE: Please review the following special Sell
Florida Home Fast report, which saved one family over $169,000
Quit Claim Deed -- A quit claim deed is a legal document by which a
person releases or "quits" any claim that they may have had
to property. Of the different types of deeds, the quit-claim has the
least assurance that the person receiving it will actually get any rights.
The person who provides a quit-claim deed makes no warranty or representation
that they actually own anything. The quit-claim merely provides that
whatever they had or may have had, they are conveying it. Other types
of deeds are judicial deeds, warranty deeds, and sheriff's deeds.
quitclaim deed -- A deed that transfers without warranty whatever interest
or title a grantor may have at the time the conveyance is made.
rate lock -- A commitment issued by a lender to a borrower or other
mortgage originator guaranteeing a specified interest rate for a specified
period of time at a specific cost.
real estate agent -- A person licensed to negotiate and transact the
sale of real estate.
Real Estate Investment Trust -- A company that purchases and manages
real estate or real estate loans, using money invested by its shareholders.
(REIT)
Real Estate Settlement Procedures Act (RESPA) -- A consumer protection
law that requires lenders to give borrowers advance notice of closing
costs.
real property Land and appurtenances, including anything of a permanent
nature such as structures, trees, minerals, and the interest, benefits,
and inherent rights thereof.
Realtor -- A real estate agent, broker or an associate who holds active
membership in a local real estate board that is affiliated with the
National Association of Realtors.
recorder -- The public official who keeps records of transactions that
affect real property in the area. Sometimes known as a Registrar of
Deeds or County Clerk.
recording -- The noting in the registrar's office of the details of
a properly executed legal document, such as a deed, a mortgage note,
a satisfaction of mortgage, or an extension of mortgage, thereby making
it a part of the public record.
refinance transaction -- The process of paying off one loan with the
proceeds from a new loan using the same property as security.
REIT -- See Real Estate Investment Trust
Remaining Balance -- The amount of principal that has not yet been repaid.
See principal balance.
Remaining Term -- The original amortization term minus the number of
payments that have been applied.
Rent Loss Insurance -- Insurance that protects a landlord against loss
of rent or rental value due to fire or other casualty that renders the
leased premises unavailable for use and as a result of which the tenant
is excused from paying rent.
Repayment Plan -- An arrangement made to repay delinquent installments
or advances.
Replacement Reserve Fund -- A fund set aside for replacement of common
property in a condominium, PUD, or cooperative project -- particularly
that which has a short life expectancy, such as carpeting, furniture,
etc.
RESPA Real Estate Settlement Procedures Act -- Protects consumers buying
real estate by requiring disclosure of all closing costs. The Act required
lenders to give mortgage applicants a standard form estimating the settlement
costs, and it prohibited kickbacks for referrals among settlement service
providers (as title insurers).
Revolving Debt -- A credit arrangement, such as a credit card, that
allows a customer to borrow against a pre approved line of credit when
purchasing goods and services. The borrower is billed for the amount
that is actually borrowed plus any interest due.
Right of First Refusal -- A provision in an agreement that requires
the owner of a property to give another party the first opportunity
to purchase or lease the property before he or she offers it for sale
or lease to others.
Right of Ingress or Egress -- The right to enter or leave designated
premises.
Right of Survivorship -- In joint tenancy, the right of survivors to
acquire the interest of a deceased joint tenant.
Sale-Leaseback -- A technique in which a seller deeds property to a
buyer for a consideration, and the buyer simultaneously leases the property
back to the seller.
Second Mortgage A mortgage that has a lien position subordinate to the
first mortgage.
Secondary Market -- The buying and selling of existing mortgages, usually
as part of a pool of mortgages.
Secured Loan -- A loan that is backed by collateral.
Security -- The property that will be pledged as collateral for a loan.
Seller Carry-Back -- An agreement in which the owner of a property provides
financing, often in combination with an assumable mortgage.
Servicer -- An organization that collects principal and interest payments
from borrowers and manages borrowers' escrow accounts. The servicer
often services mortgages that have been purchased by an investor in
the secondary mortgage market. For instance, a mortgage broker/specialist
may originate the loan for a lender such as Countrywide, who may then
package a bundle of loans and sell the package to investors on Wall
Street. Countrywide may then stay on to service the loan for Wall Street
investors of a Real Estate Investment Trust (REIT).
Servicing -- The collection of mortgage payments from borrowers and
related responsibilities of a loan servicer.
Settlement Statement See HUD1 Settlement Statement
Squatter's Rights --See Adverse Posession
Subdivision -- A housing development that is created by dividing a tract
of land into individual lots for sale or lease.
Subordinate Financing -- Any mortgage or other lien that has a priority
that is lower than that of the first mortgage.
Survey -- A drawing or map showing the precise legal boundaries of a
property, the location of improvements, easements, rights of way, encroachments,
and other physical features.
Sweat Equity -- Contribution to the construction or rehabilitation of
a property in the form of labor or services rather than cash.
Tenancy in Common -- As opposed to joint tenancy, when there are two
or more individuals on title to a piece of property, this type of ownership
does not pass ownership to the others in the event of death.
T hird-Party Origination -- A process by which a lender uses another
party to completely or partially originate, process, underwrite, close,
fund, or package the mortgages it plans to deliver to the secondary
mortgage market.
Title -- A legal document evidencing a person's right to or ownership
of a property.
Title Tompany -- A company that specializes in examining and insuring
titles to real estate.
Title Insurance -- Insurance that protects the lender (lender's policy)
or the buyer (owner's policy) against loss arising from disputes over
ownership of a property.
Title Search -- A check of the title records to ensure
that the seller is the legal owner of the property and that there are
no liens or other claims outstanding.
T ransfer of Ownership -- Any means by which the ownership of a property
changes hands. Lenders consider all of the following situations to be
a transfer of ownership: the purchase of a property subject to the mortgage,
the assumption of the mortgage debt by the property purchaser, and any
exchange of possession of the property under a land sales contract or
any other land trust device.
T ransfer tax State or Local Tax -- Tax payable when title passes from
one owner to another.
Treasury Index -- An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It is based on the
results of auctions that the U.S. Treasury holds for its Treasury bills
and securities or is derived from the U.S. Treasury's daily yield curve,
which is based on the closing market bid yields on actively traded Treasury
securities in the over-the-counter market. [Top]
trustee -- A fiduciary who holds or controls property for the benefit
of another.
Truth-in-Lending -- A federal law that requires lenders to fully disclose,
in writing, the terms and conditions of a mortgage, including the annual
percentage rate (APR) and other charges.
two-to-four-family property -- A property that consists of a structure
that provides living space (dwelling units) for two to four families,
although ownership of the structure is evidenced by a single deed.
two-step mortgage -- An adjustable-rate mortgage (ARM) that has one
interest rate for the first five or seven years of its mortgage term
and a different interest rate for the remainder of the amortization
term.
Underwriting -- The act of applying formal guidelines that provide qualitative
and quantitative standards for determining whether or not a loan should
be approved.
Undivided Interest -- An ownership right to use and possession of a
property that is shared among co-owners, with no one co-owner having
exclusive rights to any portion of the property.
Unencumbered Property -- Real estate that is owned free and clear.
Unrecorded Deed -- An instrument that transfers title from one party
(grantor) to another party (grantee) without providing public notice
of the change in ownership.
VA mortgage -- A mortgage that is guaranteed by the Department of Veterans
Affairs (VA).
Vested Having the right to use a portion of a fund such as an individual
retirement fund. For example, individuals who are 100 percent vested
can withdraw all of the funds that are set aside for them in a retirement
fund. However, taxes may be due on any funds that are actually withdrawn.
Veterans Administration (VA) An agency of the federal government that
guarantees residential mortgages made to eligible veterans of the military
services. The guarantee protects the lender against loss and thus encourages
lenders to make mortgages to veterans.
|
|
|
