|
| Abstract
of Title |
A written history of the title
transactions or conditions bearing on the title to a designated
parcel of land. It covers the period from the original source
of title to the present and summarizes all subsequent instruments
of public record by setting forth their material parts. |
| Adjustable-Rate
Mortgage |
A general term for any mortgage in which
the interest rate and, generally, the payments change over the
life of the loan. The interest rate is adjusted to match the
rise or fall of a preselected interest rate index and the borrower's
regular payments will increase or decrease accordingly. Different
types of adjustable-rate mortgages (ARMs) have different frequencies
for these adjustments. Some ARMs have limits on payment and
interest rate changes and the maximum interest rate over the
life of the loan. To the borrower's advantage, the initial rate
of an ARM is usually low, permitting the purchase of real estate
that otherwise would be unaffordable with a fixed-rate mortgage.
But, there is a risk of higher payments later on. (See Index,
Initial Interest Rate.) |
| Amortization |
The systematic and continuous repayment
of an obligation through periodic installments until the debt
has been paid off in full. |
| Amortization
Period |
That period of time over which a calculated
mortgage payment will fully repay a set loan amount at a set
interest rate. |
| Annual
Percentage Rate |
The actual interest rate the borrower pays
when all the costs of obtaining credit are included. |
| Annuity |
An amount paid at regular intervals for
a set period of time. Mortgage payments are a form of an annuity
paid to the lender. |
| Appraisal |
A report made by a qualified appraiser setting
forth an opinion or estimate of value. The term also refers
to the process by which this estimate is obtained. |
| Appraised
Value |
An estimation of property value made by
a qualified expert. |
| Appreciation |
An increase in the value of a property.
Appreciation may be the result of an increased demand for a
property, any improvements or additions made, improvements to
the neighborhood, etc. |
| APR |
See Annual Percentage Rate. |
| ARM |
See Adjustable-Rate Mortgage. |
| Assessment |
Tax on real property either by an annual
property tax based on current fair market value or via special
assessments for sewers, public improvements, etc. |
| Assumption |
A means by which the title/mortgage may
be transferred to another party with or without release of liability
on the note. |
| Balloon
Mortgage |
A mortgage with periodic installments of
principal and interest that, at the end of such a period, do
not fully amortize the loan. The balance of the mortgage due
is usually paid in a lump sum at a specified date, usually at
the end of the term of such periodic installments. |
| Balloon
Payment |
The unpaid, principal amount of a mortgage
loan that is due on a specified date, and paid in a lump sum
at the end of the term. |
| Cap |
A limit placed on payments, interest rates
and/or the balance of a loan. Caps can limit increases by either
a dollar amount or a percentage. |
| Cash
Take-Out Refinance |
See Equity Refinance. |
| Closing
(Loan Closing) |
The process that brings a loan into legal
existence, including the signing of all loan documents, their
delivery to the appropriate parties, and the disbursing of at
least some of the loan funds. |
| Closing
Costs |
Costs, in addition to the price of the property
itself, that are due at closing. These costs normally include,
but are not limited to, origination fees, discounts points (see
Points), attorney's fees, costs for title insurance surveys,
recording documents, and prepayments of real estate taxes and
insurance premiums held by the lender. Sometimes the seller
will help the borrower pay some of these costs. |
| Closing
Statement |
A statement of the funds received and spent
at the closing of a real estate sale. The closing statement
is furnished by the real estate closing agent to the buyer and
seller separately. The standardized federal form, HUD-1, is
used in most residential transactions. |
| Collateral |
Property pledged as security for a debt.
For example, real estate securing a mortgage. Collateral can
be repossessed if the loan is not repaid. |
| Collateral
Mortgage Obligation |
A multi-class, mortgage-backed
security collateralized by loans that are typically residential
or multi-family loans. |
| Conventional
Loan |
A mortgage loan not insured by the Federal
Housing Administration (FHA) or guaranteed by the Veterans Administration
(VA) or Farmers Home Administration (FmHA). No governmental
agency approval is required of the lender, borrower or property.
It is called "conventional" because it conforms to
accepted standards, modified within legal bounds by mutual consent
of the borrower and the lender. Also called "conventional
residential mortgage." |
| Co-signer |
A party who signs the mortgage note along
with the borrower, but who does not own or have any interest
in the title to the property. |
| Coupon
Rate |
The annual interest rate shown on the face
of a mortgage note. |
| Credit
Report |
A document completed by a credit-reporting
agency providing information about the buyer's credit cards,
previous mortgage history, bank loans and public records dealing
with financial matters. |
| Deed
in Lieu of Foreclosure |
A transfer of title to real property, from
a delinquent mortgagor to the mortgagee, given voluntarily to
satisfy the balance due on a defaulted loan and to avoid foreclosure
proceedings. Also called "voluntary conveyance." |
| Deed
of Trust |
A legal document which conveys title to
real estate to a disinterested third party (trustee) who holds
the title until the owner of the property has repaid the debt.
In states where it is used, a deed of trust accomplishes essentially
the same purpose as a regular mortgage. Also called "trust
deed" or "trust indenture." In some states, this
is used in place of a mortgage. Three people are involved in
a deed of trust: the borrower, the lender and the trustee. The
borrower transfers the legal title for the property to the trustee
who holds the property as security for the debt. If the borrower
pays the mortgage as agreed, the trustee gives the legal title
to the owner . If the borrower does not pay the mortgage as
agreed, the trustee can sell the property. (See Mortgage.) |
| Deferred
Interest |
With adjustable-rate mortgages (ARMs), if
monthly payments do not cover the interest cost, the interest
left unpaid is deferred to later years by adding it to the unpaid
principal balance, In subsequent months, charged interest is
added to this unpaid interest. Many lenders limit deferred interest.
For example, by not allowing it to go above 125% of the original
mortgage loan balance. If the unpaid balance exceeds the limit
placed by the lender, the borrower can no longer defer interest
and must begin making payments large enough to fully pay what
is due over the remaining term. In this case, the payments can
increase suddenly and significantly. Deferred interest can occur
when choosing a graduated payment option (see Graduated Payments),
where the loan starts out below current rates but an agreement
to pay the difference (the deferred interest) in later years
is made. Deferred interest can also occur when choosing a monthly
payment cap. (See Cap.) |
Department
of Housing and
Urban Development |
A department within the government
that is responsible for the implementation and administration
of government housing and urban development programs. |
| Deposit |
With reference to the sale of real estate,
a sum of money given to either bind a sale of real estate or
assure payment or an advance of funds in the processing of a
loan. Also known as "earnest money." |
| Depreciation |
A lowering of value based on physical deterioration
or functional or economic obsolescence. |
| Down
Payment |
The difference between the sales price of
real estate and the amount of the mortgage loan. |
| Due-On-Sale
Clause |
A clause allowing the lender to demand payment
of the entire loan balance upon sale or other transfer of title
by the borrower to a third party. |
| Earnest
Money |
See Deposit |
| Easement |
A right to the enjoyment or access of land
held by another. Easement is a non-ownership interest in land. |
| Equal
Credit Opportunity Act |
Federal legislation that prohibits a creditor
from discriminating in mortgage lending on the basis of race,
color, religion, national origin, sex, marital status, age,
income derived from public assistance programs, or previous
exercise of Consumer Credit Protection Act rights. |
| Equity |
The owner's interest, or the amount of cash
the owner has, realized, paid in or invested in real estate. |
| Equity
Mortgage |
A debt secured by a lien against real estate
that usually is subordinate to a previous mortgage and is based
or given on the amount of equity one has in real estate after
deducting the previous mortgage. |
| Equity
Refinance |
The borrower obtains a new loan, taking
cash out of the equity which has built up in the original loan,
resulting in a larger loan balance than the original loan. Also
called "cash take-out refinance." |
| Escrow
Account |
An account held by the lending institution
to which the borrower pays monthly installments for property
taxes, insurance and special assessments, and from which the
lender disburses these sums as they become due. |
| Escrow
Payment |
The portion of a borrower's monthly payment
that is set aside by the lender in an escrow account to pay
the taxes, hazard insurance, mortgage insurance, ground rents
and other special items as they come due. |
| Farmers
Home Administration |
A federal agency that makes
and insures loans for rural housing and farms. |
| Federal
Deposit Insurance Corporation |
A federal agency that insures
deposits in commercial banks up to $100,000 and, along with
the Federal Reserve System, regulates banks and banking procedures. |
| Federal
Home Loan Bank Board |
A regulatory and supervisory agency for
federally chartered savings institutions. It oversees the operations
of the Federal Savings and Loan Insurance Corporation (FSLIC)
and the Federal Home Loan Mortgage Corporation (FHLMC). |
| Federal
Housing Administration |
A federal agency within the U.S. Department
of Housing and Urban Development (HUD). Using loan insurance
programs to insure mortgages for lenders, the Federal Housing
Administration (FHA) stimulates the availability of housing
for low- and moderate-income families. |
| FHA
Mortgage |
A mortgage with federally sponsored mortgage
guaranty insurance provided through the Federal Housing Administration
(FHA). |
| Foreclosure |
An action to eliminate the interest of a
borrower in real estate so as to give the lender good title. |
| Good
Faith Estimate |
Provides a breakdown of the
estimated closing charges. |
| Government
National Mortgage Association |
A government corporation within the Department
of Housing and Urban Development (HUD) that provides assistance
for the purchase of certain Federal Housing Administration (FHA)
and Veterans Administration (VA) mortgages and guarantees securities
backed by pools of mortgage loans. |
| Graduated
Payment Mortgage |
A mortgage in which the monthly payments
will generally increase for a set period of time and then reach
an amount that remains constant for the rest of the amortization
period. This increasing payment feature can be incorporated
into fixed-rate or floating-rate loans. For example, the borrower
may agree to make initial monthly payments of $700 that will
rise gradually to $900 by the fifth year, where the payment
will stay for the remainder of the loan. |
| Graduated
Payments |
The amount a borrower pays initially covers
only part of the actual amount needed to amortize the loan.
Payments increase annually during the first few years of the
loan and then ultimately level off. Such payments may result
in negative amortization if there is no pledged account to supplement
the borrower's payment. |
| Hazard
Insurance |
A broad form of casualty insurance coverage
for real estate that includes protection against loss from fire,
certain natural causes, vandalism and malicious mischief. |
| HUD
Information Booklet |
Describes the closing process and costs
and the loan applicant's rights under the Real Estate Settlement
Procedures Act (RESPA). |
| Index |
1) Measurement used by lenders in a
market to determine changes in an accrual rate. This can be
based on a published, independent measure of current interest
rates, such as a Treasury Bill. An index must be readily verifiable
by the borrower and beyond the control of the lender. It provides
a guideline that should accurately reflect the current cost
of lending money.
2) A measure of prevailing market interest rates. The index
is used with the margin to determine a new interest rate at
the time of adjustment. If the index increases, the interest
rate increases unless an interest rate cap is reached. Often,
these interest rates are the rates for U.S. Treasury securities.
Treasury securities have become popular as indexes because
they are easy to monitor and reflect economic conditions accurately. |
| Initial
Interest Rate |
The beginning interest rate at the start
of an adjustable-rate mortgage (ARM). It may be lower than the
fully indexed rate or "going market rate" and it will
remain constant until it is adjusted up or down on the adjustment
date. |
| Interest
Rate |
The percentage of an amount of money which
is paid for its use for a specified time; usually expressed
as an annual percentage. |
| Joint
Tenancy |
Joint ownership by two or more persons giving
each person equal interest and equal rights in the property,
including the right of survivorship. |
| Letter
of Commitment |
A document that advises the borrower that
the loan has been approved, spells out the terms and conditions
of the loan and confirms the closing date. |
| Lien |
A legal encumbrance or claim of one person
on the property of another as security for a debt or charge. |
| Lienholder |
Any person or organization who holds a legal
claim over the specific property of another as security for
debt. |
| Liquidity |
The amount an individual or entity holds
in cash, checking and savings accounts and other assets quickly
convertible to cash without any significant loss. |
| Loan
Closing |
A meeting between borrower and lender in
which transfer of ownership is accomplished, funds and deed
are exchanged, and all loan documents, including the promissory
note and mortgage, are signed. |
| Loan
Servicing Department |
The division of a mortgage lending institution
that is responsible for servicing the terms and conditions of
the loan agreement. The duties of a loan servicing department
include the collection of payments, interest, principal, trust
items such as hazard insurance and taxes, and conducting foreclosures.
Servicing duties also consist of operational procedures covering
accounting, bookkeeping, insurance, tax records, loan payment
follow-up and loan analysis. A fee is charged to the borrower
for these services. |
| Loan
to Value |
Mathematical computation that compares the
loan amount to the value of the property. |
| Loan-to-Value
Ratio |
The ratio, expressed as a percentage, of
the amount of a loan (numerator) to the value or selling price
of real property (denominator). Usually, the higher the percentage,
the greater the interest charged. Maximum percentages for banks,
savings and loans, or government-insured loans are set by statute. |
| LTV |
See Loan to Value and Loan-to-Value Ratio. |
| Margin |
Under the terms of an adjustable-rate mortgage
(ARM), the margin is a premium that a lender charges which is
added to the index. This premium is typically two or three percentage
points. Once the lender specifies the margin, it remains fixed. |
| Market
Value |
An estimate of the highest price a property
would sell for within a reasonable period of time, on the open
market under normal conditions, and between a willing, ready
and able buyer and seller. |
| Mechanic's
Lien |
A claim created by law for the purpose of
securing priority payment for work performed and material furnished
by a mechanic or other person who has done construction or repair
of a building. Such a claim attaches to the land as well as
buildings and improvements erected on land. |
| Mortgage
Guaranty Insurance |
Insurance written by an independent mortgage
guaranty insurance company that protects the mortgage lender
against loss incurred by a mortgage default, thus enabling the
lender to lend a higher percentage of the sales price. The federal
government writes this form of insurance through the Federal
Housing Administration (FHA) and the Veterans Administration
(VA). |
| Mortgage
Guaranty Insurance Premium |
The amount paid by a mortgagor
for mortgage guaranty insurance either to the FHA or a private
mortgage guaranty insurance company. |
Negative
Amortization
|
The gradual increase in the balance of a
loan, caused by adding unpaid interest to the loan balance.
The unpaid interest is a result of monthly payments being less
than the amount required to pay the interest. Negative amortization
can occur on a potential or scheduled basis.
(a) Potential negative amortization: Negative amortization that
results from borrower optional payment caps.
(b) Scheduled negative amortization: Negative amortization that
is scheduled to occur during the life of the loan. |
Origination
Fee
|
The fee that the lender charges the borrower
to cover the cost of issuing a loan commitment. It pays for
processing the loan which includes collecting information about
the borrower's creditworthiness and the property. The fee is
usually computed as a percentage (for example, 1%) of the mortgage
loan. It usually does not include fees for appraisals, credit
reports, inspections and loan document preparation. |
| PITI |
See Principal Interest Real Estate Tax Insurance. |
| PITI
Ratio |
Compares the amount of the monthly income
to the amount the borrower will owe each month in principal,
interest, real estate tax and insurance on a mortgage. It is
used by lenders in deciding whether to give the borrower a loan.
(Compare to Qualifying Income Ratio.) Also called "income-to-debt"
ratio. |
| Points |
An amount equal to one percent of the principal
amount of a note. Loan discount points are a one-time charge
assessed at closing by the lender to increase the yield on the
mortgage loan to a competitive position with other types of
investments. |
| Prepaid
Interest |
Interest the borrower pays the lender before
it becomes due. |
| Prepayment
Penalty |
A penalty under a note, mortgage or deed
of trust imposed when the loan is paid before its maturity date. |
| Principal
Interest Real Estate Tax Insurance |
The total mortgage payment
which includes principal, interest, taxes and insurance. |
| Private
Mortgage Insurance (PMI) |
See Mortgage Guaranty Insurance. |
| Processing |
Gathering the loan application and all of
the required supporting documents (including the property appraisal,
credit report, credit history, and income and expenses) so that
a lender can consider the borrower for a loan. |
| Property
Appraisal |
A supportable estimate of a property's market
value determined by a trained and certified appraiser who measures
the likelihood that a property will maintain its value over
the duration of the loan. |
| Qualifying
Income Ratio |
Income analysis used by lenders in deciding
whether to offer the borrower a loan. One type of analysis compares
only the amount of the proposed monthly mortgage payment to
the monthly income. (See PITI Ratio.) Another compares the amount
of the total monthly payments (for example, car, credit card
and proposed mortgage payments) to the monthly income. |
| RAM |
See Reverse Annuity Mortgage |
| Rate
and Term Refinance |
The borrower replaces a mortgage loan on
the subject property with another mortgage loan for the purpose
of getting a better interest rate and loan term. |
| Real
Estate Settlement Procedures Act |
Federal legislation designed
to help home buyers compare settlement costs among lenders and
to eliminate kickbacks. |
| Refinance |
1) To change a loan from one financial institution
to another, or to rewrite the terms of a loan contract within
the existing lending institution. 2) The payment of a debt from
the proceeds of a new loan, using the same property as security. |
| Reverse
Annuity Mortgage |
A non-traditional mortgage in which someone
who owns their home free and clear (that is, has paid off all
mortgages on the property) receives monthly payments from a
lender for a short period of time, usually less than 10 years.
At the end of the mortgage, the owners agrees to refinance the
loan or sell the property to pay off the loan. Such payments
from the lender are often beneficial for retired people, who
know they won't be in a house for more than five or 10 years,
because the payments can help them make tax and insurance payments. |
| Special
Assessments |
A special tax imposed on
property, individual lots or all property in the immediate
area, for road construction, sidewalks, sewers, street lights,
etc. |
| Special
Lien |
A lien that binds a specified piece of property,
unlike a general lien, which is levied against all one's assets.
It creates a right to retain something of value belonging to
another person as compensation for labor, material, or money
expended in that person's behalf. In some localities it is called
"particular" lien or "specific" lien. (See lien.) |
| Survey |
A map or plat made by a licensed surveyor
showing the results of measuring the land with its elevations,
improvements, boundaries, and its relationship to surrounding
tracts of land. A survey is often required by the lender to
assure him that a building is actually sited on the land according
to its legal description. |
| Title |
As generally used, the rights of ownership
and possession of particular property. In real estate usage,
title may refer to the instruments or documents by which a right
of ownership is established (title documents), or it may refer
to the ownership interest one has in the real estate. |
| Title
Insurance |
Protects lenders or homeowners against loss
of their interest in property due to legal defects in title.
Title insurance may be issued to a "mortgagee's title policy."
Insurance benefits will be paid only to the "named insured"
in the title policy, so it is important that an owner purchase
an "owner's title policy", if he desires the protection of title
insurance. |
| Title
Search |
A check of the title records, generally
at the local courthouse, to make sure the buyer is purchasing
a house from the legal owner and there are no liens, overdue
special assessments, or other claims or outstanding restrictive
covenants filed in the record, which would adversely affect
the marketability or value of title. |
| Trustee |
A party who is given legal responsibility
to hold property in the best interest of or "for the benefit
of" another. The trustee is one placed in a position of responsibility
for another, a responsibility enforceable in a court of law.
(See deed of trust.) |
| Underwriting |
In mortgage lending, the process of approving
or denying a loan based on an evaluation of the property and
the applicant's creditworthiness and ability to repay the loan.
The underwriter analyzes the risks involved and selects an appropriate
loan term and interest rate. |
| Variable-Rate
Mortgage |
A long-term mortgage loan in which the interest
rate may vary or float periodically throughout the term of the
loan. The fluctuations are generally based on an interest rate
index and are restricted under the terms of the mortgage. Also
called "adjustable-rate mortgage." |
| Wrap-Around
Mortgage |
A form of refinancing. (See Refinance.)
When the borrower already owns a property and borrows more money,
the lender combines the amount still owed on the home's original
loan (see First Mortgage) with the new amount to form one wrap-around
mortgage. |
| Yield |
The effective rate or return on an investment
based upon the fees, the rate of interest and the price paid
for the mortgage. |
