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Acceleration clause -
A clause that states that the entire debt is due immediately upon default
of the contract on a mortgage or trust deed.
Adjustable
Rate Mortgage (ARM) -
Mortgage with an adjustable interest rate. The interest rate is adjusted
periodically based on an index. See also Variable Rate Mortgage.
Adjustment date -
The date the interest rate changes on an ARM
. Adjustment Interval -
The time between changes of the interest rate in an ARM . The most common
intervals are one, three or five years.
Amortization -
Loan payment by equal periodic payment figured to pay off debt at
the end of a fixed period, including accrued interest on the outstanding
balance.
Annual percentage rate (A.P.R.) -
Interest rate regarding the cost of a mortgage as a yearly rate. Rate is
usually higher than stated rates because APR includes points and other add
on loan fees or cost's.
Appraisal -
Estimated value of property. Must be made by qualified appraiser.
Assessment -
Used for taxation purposes according to the properties value.
Assumable Loan -
These loans may be passed on from a seller of a home to the buyer. The
buyer "assumes" all outstanding payments.
Assumption -
To assume the responsibility and outstanding debt of an existing mortgage.
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Balloon Mortgage -
Acts as a fixed-rate mortgage for a set number of years (usually five or
seven) then remainder must be paid off in full in a single "balloon"
payment.
Best Faith Estimate -
Estimate of the total securities for a real estate loan, that is given to
borrowers prior to closing.
Blanket Mortgage -
A mortgage secured by multiple properties (more than one).
Bi Weekly Mortgage -
Mortgage loan in which payments are made twice monthly which in turn
causes 13 payments per year rather than 12.
Broker -
An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money
himself. Brokers usually receive a commission for their services.
Budget Mortgage -
Mortgage including a portion for taxes and insurance as well as principal
and interest.
Buy-down -
To subsidize the mortgage by lowering the interest rate during the first
few years of the loan. Payments are initially low, but will increase when
the subsidy expires.
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Caps -
Used with rates and monthly payments with adjustable rate mortgages to set
a maximum amount of change.
Carryback Loan -
Loan in which seller finances for the buyer.
Certificate of Eligibility -
Veteran's proof of eligibility for a VA-guaranteed loan.
Certificate of Reasonable Value (CRV) -
An appraisal on a property to be financed with a VA loan stating the
property to be within reasonable value.
Closing -
Final arrangements in which buyer, seller and lender or their agents
legally exchanges properties and finances.
Cloud -
An encumbrance or claim on a properties title.
Construction Loan -
Loan to finance building of property. Generally dispersed in periodic
payments according to progress of the construction.
Contract Sale -
Mutually agreed contract between buyer and seller that states terms and
conditions for title release to the buyer.
Conventional Loan -
Loan in which no guarantees such as FHA or VA exists.
Conversion -
The option to convert a balloon or ARM to a fixed rate loan.
Credit Report -
A report used for lenders to determine creditworthiness of a borrower.
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Debt-To-Income Ratio -
Percentage based ratio stating monthly debts to monthly income.
Deed -
Legal, binding document stating ownership to property. Similar to a title
for a car.
Deed of Trust -
Legal document used as security in place of a mortgage.
Default -
Failure to meet the predetermined payment agreements between the lender
and the borrower.
Deposit -
Initial sum of money to secure a property or mortgage and to be credited
to the overall debt.
Discount Points -
Generally used with FHA and VA loans. One point is 1% of the loan.
Due On Sale -
States that the lender is to be paid in full upon sale of the property
securing the mortgage.
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Earnest Money -
Deposit money used to secure the purchase the sale of a property.
Easement -
Permitted access to a property. Sometimes used for access to another
property or utilities.
Entitlement -
See VA loan.
Eminent Domain -
Government forced sale of a property. Owner of property to be paid
a reasonable and fair amount for the property.
Equal Credit Opportunity Act (ECOA) -
Federal law that prohibits borrower discrimination against race, age, sex,
and religion.
Equity -
The market value of a property minus all outstanding debts.
Escrow -
A third party account used for the temporary holding of funds.
Generally used for taxes and earnest money.
Estate -
The ownership interest an individual holds in real property. This includes
all real property and personal property owned.
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Fair Credit Reporting Act -
Law that protects consumer by standards for credit reporting and error
debating.
Fannie Mae -
Federal National Mortgage Association. Supplier of home mortgage loans.
FHA Loan -
Federal Housing Administration. Government insured loans.
Fixed Rate Loan -
Loan in which interest rate remains constant throughout the life of the
loan.
Foreclosure -
Repossession of a property to be sold in order to pay off a borrowers
defaulted debt to a lender.
Freddie Mac -
Federal Home Loan Mortgage Corporation.
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Good Faith Estimate -
Estimate of all monies required at time of closing.
Graduated Payment Mortgage (GPM) -
A mortgage in which payments increase for a specified period of time and
then level off. Negative amortization.
Government National Mortgage Association (Ginnie
Mae) -
Provides funds for government loans. Serves low-to moderate-income
homebuyers.
Grantee -
The person to whom a conveyance is made.
Grantor -
The person who conveys and interest in a property.
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Hazard Insurance -
Insurance which protects the insured from certain losses, such as
fire, vandalism, storms and certain other natural disasters.
Homeowners Insurance -
Similar to Hazard Insurance but with additional coverage such as personal
liabilities.
Housing Budget Ratio -
Monthly housing ratio of income to monthly home loan payments.
HUD -
Department of Housing and Urban Development.
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Index -
A published interest rate in which lenders measure the difference between
the current interest rate on an adjustable rate mortgage and that earned
by other investments. This is what determines the ARM interest rate
increase or decrease.
Interest -
A percentage based number which determines the lenders costs to borrowers
for lending monies.
Interest Only Payment -
Payment in which the interest payment for that month is paid only and none
of payment is applied to the principal.
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Judicial Foreclosure -
A court process in which a lender legally obtains clear title to a
foreclosed property.
Jumbo Loan -
A loan which is larger (more than $322,700 as of 1/1/2003) than the limits
set by the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation.
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Liability Insurance -
Insurance that protects persons owning a property from suits of negligence
resulting in injury to others.
Lien -
A cloud in a deed that must be repaid in order to sell property or assumed
by buyer.
Life of Loan Cap -
Maximum interest that the borrower can be charged over the lifetime of the
loan.
Loan-To-Value Ratio (LTV) -
Percentage based ratio of the amount of the mortgage to the purchase price
of the property.
Loan Broker -
An intermediary between lending institutions and borrowers.
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Margin -
Added to the quoted index rate for an adjustable rate mortgage to
determine the new interest rate.
Market Value -
The probable value that a property would sell for, not to be confused with
appraisal, which is an actual value.
Maturity -
Ending due date of a loan.
Mortgagee -
The lender.
Mortgagor -
The borrower or homeowner.
Mortgage Broker -
A intermediary between the borrower and the lender that originates loans
for a placement fee.
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Negative Amortization -
Occurs when the monthly payment is not enough to cover the interest for
that month.
Net Effective Income -
Gross income minus federal income tax.
Note -
A legal document that states the legal terms and conditions of the
mortgage loan and obligates the borrower to follow through with them.
Non Assumption Clause -
Clause that disallows the assuming of a loan without prior notice
to the lender.
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Office of Thrift Supervision (OTS) -
A supervisory agency for federally chartered savings institutions.
Origination Fee -
A fee charged by the lender regarding the process of the loan. Usually a
percentage of the amount loaned.
Owner Financing -
A property purchase in which the seller finances all or part of the
property purchase price.
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Partial Entitlement -
The amount of guarantee still available to an eligible veteran who has
used part of their previous entitlement.
Periodic Payment Cap -
Cap which sets the limit for monthly payment maximum on a ARM.
Periodic Rate Cap -
Cap which sets the limit for and interest rate maximum on a ARM.
PITI -
Principal, Interest, Taxes and Insurance.
Pledge Account Mortgage (PAM) -
Mortgage in which a pledged account is started to earn interest and lower
monthly mortgage payments.
Points -
Prepaid interest required at closing by the lender. 1 point is equal to 1%
of the loan amount.
Power of Attorney -
Legal document allowing a person to make legal decisions on behalf of
another person.
Prepayment -
The option to pay mortgage payments ahead of regularly scheduled times.
Prepayment Penalty -
A penalty sometimes imposed by a lender for prepayments.
Principal -
The amount of outstanding debt on a property minus interest charges.
Private Mortgage Insurance (PMI) -
Insurance sometimes required on a mortgage loan in which the down
payment is lower than a specified amount. This protects the lender
in the case of the borrower defaults.
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Quitclaim Deed -
A deed that transfers, without warranty, a persons interest in a property.
Buyer assumes all risks.
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Real Estate -
A portion of the earth's surface extending downward to the center to the
earth and upward into space, including all things permanently attached to
that portion by man or by nature.
Real Estate Settlement Procedures Act (RESPA)
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An act that requires that all costs to incur with the loan process be
revealed to the borrower.
Realtor -
A real estate agent, broker, or associate that holds an active membership
in a local real estate board that is affiliated with the National
Association of Realtors.
Reconveyance Clause -
The clause in a trust deed that states that when the loan is paid in full,
title must be given back to the owner.
Recording Fees -
Fees associated with the legal filing of a properties title.
Refinance -
To obtain a mortgage which pays an existing mortgage. Usually to lower
monthly payments or interest rate or both.
Reverse Annuity Mortgage (RAM) -
Mortgage in which the owner receives payments towards equity on a property
from the lender. At the predetermined date, the borrower pays back
the mortgage.
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Sale-Buyback -
Sale in which an investor buys a property and then sells it back to the
original seller at a profit.
Sale-Leaseback -
Sale in which an investor buys a property and then leases it back to the
original seller.
Second Mortgage -
A mortgage which is subordinate on the lien to the first mortgage.
Simple Interest -
Interest which is rated only by the principle balance.
Survey -
A drawing or map that shows the legal boundaries of a property and other
physical features.
Sweat Equity -
Equity increase on a property due to home improvements.
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Tax Lien -
Lien taken against a properties title in order to secure and collect
unpaid taxes.
Title -
Legal document stating property ownership.
Title Insurance -
Insurance which covers any mistakes in the title search.
Title Search -
A search on a properties title to determine the properties legal
ownership.
Transfer Tax -
State or local tax payable when the title passes from one owner to
another.
Truth-in-Lending Law -
Law that requires that all associated costs be made aware before closing.
Two-Step Mortgage -
Mortgage in which the interest rate is fixed for a certain set amount of
years, generally 7 or 10, then changes to a predetermined rate for the
remainder of the loan.
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VA Loan -
A long-term, low-or no-down payment loan guaranteed by the Department of
Veterans Affairs.
Variable Rate Mortgage -
Mortgage in which the interest rate varies throughout the life of the
loan. See also Adjustable Rate Mortgage.
Verification of Deposit (VOD) -
Legal document stating the status and balance of a borrowers current
finances.
Verification of Employment -
Legal document verifying the current employment status of the borrower.
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