Abstract of Title
- A summary of recorded transactions concerning a property. (An attorney or
title insurance company examines an abstract of title for any title defects
which must be cleared before a buyer can purchase clear, marketable, and
insurable title.)
Acceleration Clause -Condition in a mortgage that gives the lender
the right to require immediate repayment of the loan balance if regular
mortgage payments are not made, or for breach of other conditions of the
mortgage.
Accrued Interest -Interest earned but not yet paid.
Adjustable Rate - An interest rate that changes periodically
according to an index.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest
rate is adjusted periodically based on a pre-selected index. Thus, interest
rate and payments rise and fall with the market.
Adjustment Interval -The time between changes in the interest rate
and monthly payments on an ARM
Agreement of Sale - Contract signed by buyer and seller stating the
terms and conditions under which a property will be sold.
Alternative Documentation - A method of documenting a loan file that
relies on information the borrower is likely to be able to provide instead
of waiting on verification sent to third parties for confirmation of
statements made in the application.
Amortization - A monthly repayment schedule according to which a loan
is repaid in fixed payments of principal and interest. For the first few
years, most of each payment is applied toward interest. During the final
years of the loan, payment amounts are applied almost exclusively to the
remaining principal.
Annual Percentage Rate (APR)- The cost of a mortgage expressed as a
yearly rate. This percentage takes into account interest, points,
origination fees, and mortgage insurance, so will be slightly higher than
the interest rate on the loan.
Application - An initial statement of personal and financial
information required to approve your loan.
Application Fee - Fees charged by lender to cover initial costs of
processing a loan application, often including charges for property
appraisal and a credit report.
Appraisal - A written estimate of a property's current market value,
based on recent sales information for similar properties, the condition of
the property, and how the neighborhood might affect future property value.
Appraisal Fee - A fee charged by a licensed, certified appraiser to
render an opinion of market value as of a specific date.
APR - See Annual Percentage Rate.
ARM - See Adjustable Rate Mortgage.
Assessment - A local tax levied against a property for a specific
purpose, such as road or sidewalk construction, a sewer, or street lights.
Asset - Anything of monetary value that is owned by a person. Assets
include real property, personal property, and enforceable claims against
others (including bank accounts, stocks, mutual funds, and so on).
Assignment - The transfer of property rights by one person, the
assignor, to another, the assignee.
Assumability - A feature of a loan which allows it to be transferred
to the new purchaser of a home. Assumable mortgages can help attract buyers
since assumption of a loan requires lower fees and/or qualifying standards
than a new loan.
Assumption - Agreement between buyer and seller for the buyer to take
over the payments on an existing mortgage.
Balloon Mortgage - A short-term fixed-rate
loan with low payments for a set number of years and one large final balloon
payment of the remainder of the principal.
Balance Sheet - A document showing the financial situation--assets,
liabilities, and net worth--of a company at a specific point in time.
Bankruptcy - Proclamation by a court of an individual's (or
organization's) state of insolvency, or inability to pay debts. Petition may
be brought by an individual or his creditors, with a goal of orderly and
equitable settlement of obligations.
Bearer - The legal owner of a piece of property.
Bequest - A gift of personal property by will.
Bill of Sale - A document by which one transfers ownership of goods
to another.
Bi-Weekly Mortgage - A payment plan under which one pays one half of
a monthly payment every two weeks, saving substantially over the life of the
loan.
Blanket Mortgage - A mortgage covering at least two pieces of real
estate, both of which serve as collateral for the loan.
Bona Fide - In good faith.
Bond - A document representing a right to certain payments on
underlying collateral.
Borrower (Mortgagor) - An individual who applies for and receives a
loan in the form of a mortgage with the intention of repaying the loan in
full
Bridge loan (Swing loan) - A form of second trust that is
collateralized by the borrower's present home (which is usually for sale) in
a manner that allows the proceeds to be used for closing on a new house
before the present home is sold.
Broker - An individual who assists in arranging funding or
negotiating contracts for a client but does not loan money himself.
Buy-down - A situation in which the seller contributes money which
allows the lender to give the buyer a lower rate and payment, usually in
exchange for an increase in sales price.
Buyers Broker - An agent hired by a buyer to locate a property for
purchase and to represent the buyer in negotiations with the seller's broker
for the best possible deal for the buyer.
Buyers Market - Market conditions that favor buyers. With more
sellers than buyers in the market, buyers have ample choice of properties
and can negotiate lower prices.
Call Option - A provision in the mortgage
that gives the mortgagee the right to call the mortgage due and payable at
the end of a specified period for whatever reason.
Caps - Limits on changes in ARM interest rates or monthly payments,
either in an adjustment period or over the life of the loan.
Caps (interest) - Consumer safeguards which limit the amount the
interest rate on an adjustable rate mortgage can change in an adjustment
interval and/or over the life of the loan.
Caps (payment) -Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change. Since they do not limit
the amount of interest the lender is earning, they may cause negative
amortization.
Cash Out - A refinance for more than the balance of the original
mortgage, so that money is taken out of the equity built up in the house.
Cashier's Check (or Bank Check) - A check whose payment is guaranteed
because it was paid for in advance and is drawn on the bank's account
instead of the customer's.
CC&Rs - See Covenants, Conditions and Restrictions.
Ceiling - The maximum allowable interest rate of an adjustable rate
mortgage.
Certificate of Eligibility -Document issued by the Veterans
Administration to qualified veterans which entitles them to VA guaranteed
loans. Obtainable through local VA office by submitting form DD-214
(Separation Paper) and VA form 1880 (request for Certificate of
Eligibility).
Certificate of Occupancy - Document issued by local government agency
stating that a property meets the requirements of health and building codes.
Certificate of Reasonable Value (CRV) - A property appraisal
performed by a VA approved appraiser which establishes the limit on the
principal of the VA loan.
Certificate of Title - Written opinion of the status of title to a
property, given by an attorney or title company. This certificate does not
offer the protection given by title insurance.
Certificate of Veteran Status - Document given to veterans or
reservists who have served 90 days of continuous active duty (including
training time) which enables them to obtain lower down payments on certain
FHA-insured loans. Obtainable through local VA office by submitting form DD
214 (Separation Paper) with form 26-8261a (request for certificate of
veteran status).
Certified Check - A check drawn on the issuer's account for funds
that have been segregated by the bank, guaranteeing payment.
Chain of Title - The chronological order of conveyance of a property
from the original owner to the present owner.
Clear Title - A marketable title, free of clouds and disputes.
Closing (or Settlement) -Meeting between the buyer, seller and lender
or their agents at which property and funds legally change hands.
Closing Costs - Fees incurred in a real estate or mortgage
transaction and paid by borrower and/or seller during the closing of the
mortgage loan. These typically include a loan origination fee, discount
points, attorney's fees, title insurance, appraisal, survey, and any items
which must be prepaid, such as taxes and insurance escrow payments. The cost
of closing is usually about 3 percent to 6 percent of the mortgage amount.
Closing Statement - Financial disclosure statement that lists the
funds received and expected at the closing.
Cloud on Title - An outstanding claim or encumbrance that, if valid,
would affect or impair the owner's title.
COFI - See Cost of Funds Index.
Collateral - Assets that back a mortgage loan.
Combined Loan-to-Value (CLTV): - the ratio of the total mortgage
liens against the subject property to the lesser of either the appraised
value or the sales price.
Commission - Money paid to a real estate agent or broker by the
seller (usually 6-7% of the sale price of the house).
Commitment - A formal offer by a lender to make a loan under certain
terms or conditions to a borrower.
Condominium - A form of property ownership in which the homeowner
holds title to an individual dwelling unit and an interest in common areas
and facilities of a multi-unit project.
Conforming Loan - A mortgage loan under the maximum amount of loans
FNMA and FHLMC are legally allowed to buy (up to $275,000 for a one unit
property).
Construction Loan - A short term interim loan to fund the
construction of buildings or homes, which usually advances the money to the
builder as work progresses. After completion, a permanent loan is used to
pay off the construction loan.
Contingency - A condition which must be satisfied before a contract
is legally binding--before a sale can close.
Contract of Sale - The agreement between the buyer and seller on the
purchase price, terms, and conditions of a sale.
Conventional Loan - A mortgage not insured by the FHA or guaranteed
by the VA.
Conversion Clause - A provision in some ARMs that allows you to
change an ARM to a fixed-rate loan, usually after the first adjustment
period. The new fixed rate will be set at current rates, and there may be a
charge for the conversion feature.
Convertible ARMs - ARMs with the option of conversion to a fixed loan
during a given time period.
Conveyance - The transfer of a deed, or possibly a lease or mortgage.
Cost of Funds Index (COFI) -An index of the weighted-average interest
rate paid by savings institutions for sources of funds, usually by members
of the 11th Federal Home Loan Bank District.
Covenants, Conditions and Restrictions (CC&Rs) - A document that
defines the use, requirements and restrictions of a property.
Credit Report - A report detailing the credit history of a
prospective borrower, used to help determine creditworthiness.
Credit Risk - The possibility that the borrower may default on
financial obligations to the investor.
Debt-to-Income Ratio - The ratio,
expressed as a percentage, which results when a borrower's monthly payment
obligation on long-term debts is divided by his or her gross monthly income.
Deed- Legal document by which title to a property is transferred from
one owner to another. The deed contains a description of the property, and
is signed, witnessed, and delivered to the buyer at closing.
Deed of Trust - Agreement to pledge property as security for a loan,
used in many states in place of a mortgage. In such an arrangement, the
borrower transfers legal title to a trustee who holds the property in trust
as security for the repayment of the debt. The deed of trust becomes void if
the debt is repaid, but if the borrower defaults on the loan, the trustee
may sell the property to pay the debt.
Default - Failure to meet legal obligations in a contract, including
failure to make payments on a loan. A mortgage is generally considered to be
in default when a payment is 30 days past due.
Deferred Interest - Interest added to the balance of a loan when
monthly payments are not sufficient to cover it. (See negative
amortization.)
Delinquency - Failure to make payments on time.
Deposit - Cash paid to the seller when a formal sales contract is
signed.
Depreciation � When the value of property declines.
Discount Points (or Points) - Money paid to a lender at closing in
exchange for lower interest rates. Each point is equal to 1% of the loan
amount.
Documentary Stamps - A state tax, in the forms of stamps, required on
deeds and mortgages when real estate title passes from one owner to another.
Document Review - Fee charged by lender for review of documents
necessary to fund a loan.
Down Payment - Money paid for a house from one's own funds at
closing. The down payment will be in the amount of the difference between
the purchase price and mortgage amount.
Due-on-Sale Clause -Provision in a mortgage or deed of trust allowing
the lender to demand immediate payment of the loan balance upon sale of the
property.
Earnest Money - Deposit made by a buyer
towards the down payment in evidence of good faith when the purchase
agreement is signed.
ECOA - See Equal Credit Opportunity Act.
Effective Interest Rate - The cost of a mortgage expressed as a
yearly rate, usually higher than the interest rate on the mortgage since
this figure includes up-front costs of acquiring the loan.
Encumbrance - A legal right or interest in a property that affects
title and lessens the property value. Encumbrances can take the form of
claims, liens, unpaid taxes, etc. These will usually have to be taken care
of before a buyer will want to purchase the property.
Equal Credit Opportunity Act (ECOA) - Federal law requiring 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 - The percentage of property value held by the owner; the
difference between the current market value of a property and the
outstanding mortgage balance.
Equity Loan - A loan based on the borrower's equity in his or her
home.
Escrow Account - Account held by lender containing funds collected as
part of mortgage payments for annual expenses such as taxes and insurance,
so that the homeowner does not have to collect a large sum when these fall
due.
Escrow Waiver - When a buyer borrows less than 80% of the cost of the
house, he may pay a one-time fee and elect not to open an escrow account,
but to pay the hazard insurance and property taxes himself.
Fannie Mae - See Federal National Mortgage
Association.
Farmer's Home Administration (FmHA) - An agency, within the U.S.
Department of Agriculture, that provides financing for purchasers of homes
and farms in small towns and rural areas.
FDIC - See Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation (FDIC) - Independent deposit
insurance agency created by Congress to maintain stability and public
confidence in the nation's banking system.
Federal Home Loan Bank Board (FHLBB) - Former name for the regulatory
and supervisory agency for federally chartered savings institutions, now
called the Office of Thrift Supervision.
Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) -
Quasi-governmental agency that purchases conventional mortgages from insured
depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA) - Government agency, division of
the Department of Housing and Urban Development, which insures residential
mortgage loans made by private lenders and sets standards for underwriting
mortgage loans.
Federal National Mortgage Association (FNMA, or Fannie Mae) -
Corporation created by Congress that buys and sells residential mortgages,
providing funds for one in seven mortgages.
Federal Reserve - Central bank of the United States and major
regulatory agency for many commercial banks.
Fee Simple - Absolute ownership of real property.
FHA - See Federal Housing Administration.
FHA Loan - Loan insured by the FHA for low- to middle-income homes,
open to all qualified home purchasers.
FHLBB - See Federal Home Loan Bank Board.
FHLMC - See Federal Home Loan Mortgage Corporation.
First Mortgage - A mortgage which is in first lien position, taking
priority over all other liens. In the case of a foreclosure, the first
mortgage will be repaid before any other mortgages.
Fixed Rate - An interest rate which is fixed for the term of the
loan.
Fixed-Rate Mortgage - A mortgage whose interest rate does not change
for the life of the loan. Payments are also fixed.
Flood Insurance - A form of hazard insurance required by lenders to
cover properties in flood zones.
Floor - The minimum rate of interest payable on an adjustable-rate
mortgage.
FmHA - See Farmer's Home Administration.
FNMA - See Federal National Mortgage Association.
Forbearance - Grace period given when a lender postpones foreclosure
to give the borrower time to catch up on overdue payments.
Foreclosure (or Repossession) - Legal process by which the lender
forces the sale of a property because the borrower has not met the mortgage
terms.
Freddie Mac - See Federal Home Loan Mortgage Corporation.
Ginnie Mae - See Government National Mortgage Association.
GNMA - See Government National Mortgage Association.
Good Faith Estimate - Written estimate of costs the borrower will
have to pay at closing, provided by a lender within three days of a loan
application.
Government National Mortgage Association (GNMA, or Ginnie Mae) -
Government agency that provides funds for VA and FHA loans.
Graduated Payment Mortgage (GPM) - Mortgage in which initial low
payments (with potential negative amortization) increase regularly for
several years and then level off.
Grace Period - Period of time during which a loan payment may be made
after its due date without incurring a late penalty.
Gross - Before taxes.
Gross Income - Total income before taxes or expenses are deducted.
Gross Monthly Income - The total amount earned by the borrower each
month.
Growing Equity Mortgage - A fixed-rate loan in which payments
increase by some predetermined amount each year, which reduces the
outstanding balance of the loan. This accelerated payment plan allows
repayment of a 30-year loan in 15 to 20 years.
Guarantee - To assume liability for another's debts in the event of
his default.
Guaranty - A promise by one party to pay a debt or perform an
obligation contracted by another in case of that person's default.
Hazard Insurance -Protects the insured against loss due
to fire or other natural disaster in exchange for a premium paid to the
insurer.
Home Equity Loan - A loan secured by the equity in your home. These
are sought for a variety of purposes, including home improvements, major
purchases or expenses, and debt consolidation. Interest paid is usually tax
-deductible.
Homeowners Warranty - A type of insurance that covers repairs to
specified parts of a house for a specific period of time.
Housing and Urban Development (HUD) - A U.S. government
agency established to implement federal housing and community development
programs; oversees the Federal Housing Administration.
Housing Code - Local government ordinance that sets minimum standards
of safety and sanitation for existing residential buildings.
Housing Expense-to-Income Ratio - The ratio, expressed as a
percentage, which results when a borrower's housing expenses are divided by
his/her gross monthly income.
HUD - See Housing and Urban Development.
HUD-I Settlement Statement -A form which itemizes the closing costs
associated with purchasing a home.
Impound (or Reserves) -Portion of a
borrower's monthly payments held by the lender to pay for taxes, insurance,
and other items as they become due.
Impound Account -Savings account for accumulating that portion of a
borrowers monthly payments designated for future payments of taxes and
insurance. (Required by certain lenders or with certain types of financing.)
Index - A published rate used by lenders to calculate interest
adjustments on ARMs (Index+Margin=Interest Rate). Some indexes are more
volatile than others. Some common indices are 1 year Treasury bills, COFI
(Cost of Funds Index ) & 6 month LIBOR (London Interbank Offered Rate).
Initial Rate - The rate charged during the first interval of an ARM.
Insolvency - Condition of a person who is unable to pay his debts as
they fall due.
Interest - Charge paid for borrowing money, calculated as a
percentage of the amount borrowed.
Interest Rate - The periodic charge, expressed as a percentage, for
use of credit.
Interest Rate Cap - A safeguard built into ARMs to prevent drastic
changes in interest rates.
Joint Liability - Liability shared among
two or more people, each of whom is liable for the full debt.
Joint Tenancy - The ownership of property by two or more persons with
the survivor taking the share of the deceased.
Jumbo Loan - A mortgage larger than the limits set by the Federal
National Mortgage Association and the Federal Home Loan Mortgage
Corporation, currently over $275,000. Because jumbo loans cannot be funded
by these two agencies, they usually carry a higher interest rate.
Junior Mortgage - A mortgage subordinate or secondary to another
mortgage. In the case of a foreclosure a senior mortgage will be paid first.
Late Charge - Penalty paid by a borrower
when a payment is made after the due date.
Lease-Purchase Mortgage Loan - An alternative financing option that
allows low- and moderate-income homebuyers to lease a home from a nonprofit
organization with an option to buy. Monthly rental payments cover mortgage
payments, and also include an additional amount which is saved toward a down
payment.
Lender - The bank, mortgage company, or mortgage broker offering the
loan.
LIBOR (London Interbank Offered Rate) - The interest rate charged
among banks for short-term Eurodollar loans, and a common index for ARMs.
Lien - A claim by one person on the property of another for payment
of a debt.
Loan Administration (or Loan Servicing) - The collection of mortgage
payments from borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on defaulted loans and
remitting payments to investors).
Loan Application - Document required by lenders prior to loan
approval containing detailed information about the borrower and property.
Loan Application Fee -Fee paid by prospective buyer to lender when
applying for a mortgage.
Loan Origination Fee - Fee charged by a lender for processing a
mortgage, usually expressed as a percentage of the loan (or points), which
pays for the work in evaluating and processing the loan.
Loan Servicing (or Loan Administration) - The collection of mortgage
payments from borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on defaulted loans and
remitting payments to investors).
Loan to Value Ratio (LTV) - The percentage of the property value
borrowed. (Loan amount/property value=LTV)
Lock or Lock In - A lender's guarantee of an interest rate for a set
period of time, usually between loan application and loan closing; protects
borrower against rate increases during that time.
Margin - The number of percentage points
added to an index to calculate the interest rate on an ARM at each
adjustment.
Marketable Title - A title that is free and clear of liens, clouds,
or other defects which would prevent the sale of the property.
Market rate - The average rate charged by lenders for conventional,
fixed-rate loans.
Market Value - The highest price that a buyer would pay for a
property and the lowest price a seller would accept.
Monthly Housing Expense -Total monthly expense of principal,
interest, taxes, and insurance.
Mortgagee - The lender in a mortgage loan transaction.
Mortgage - Document creating a lien on a property as security for the
payment of a debt.
Mortgage Banker -Originates and services mortgage loans, funding them
with their own money.
Mortgage Broker -Arranges financing for borrowers, but place loans
with lenders rather than funding them with their own money.
Mortgage Insurance - Insurance purchased by a buyer to cover the
lender's risk when a down payment is less than 20 percent of the purchase
price.
MIP (Mortgage Insurance Premium) - Insurance purchased by borrower to
insure against default on government (FHA or VA) loans.
Mortgage Loan - A loan for which real estate serves as collateral to
provide for repayment in case of default.
Mortgage Note - Legal document obligating a borrower to repay a loan
at a stated interest rate during a specified period of time. The agreement
is secured by a mortgage.
Mortgagor - The borrower in a mortgage loan transaction.
Negative Amortization -Increase in
principal balance which occurs when monthly payments are not large enough to
pay all interest due on a loan, usually caused when payment caps prevent
sufficient payment increases. Unpaid deferred interest is added to the loan
balance, which means that the borrower ends up owing more than the original
amount of the loan.
Net - After taxes.
Net Effective Income -Gross income minus federal income tax.
Non-Assumption Clause - A statement in a mortgage contract forbidding
the assumption of the mortgage by another borrower without the prior
approval of the lender.
Non-Conforming Loan -Loan that does not comply with Fannie Mae or
Freddie Mac guidelines, but is larger than $240,000.
Nondischargeable Debt -Debt, such as taxes, that cannot be forgiven
in a bankruptcy liquidation.
Note - Legal document stating the terms of a debt and a promise to
repay it.
Notice of Default -Written notice to a borrower that a default has
occurred and that legal action may be taken.
Office of Comptroller Currency - The
oldest federal financial regulatory body, which oversees the nation's
federally chartered banks.
Office of Thrift Supervision - Regulatory and supervisory agency for
federally chartered savings institutions.
Origination Fee - Fee charged by a lender for processing a mortgage,
usually expressed as a percentage of the loan (or points), which pays for
the work in evaluating and processing the loan.
Owner Financing - A purchase in which the seller provides all or part
of the financing.
Payment Cap - Limit on the amount by which
a borrower's ARM payments may increase, regardless of rise in interest
rates; may result in negative amortization.
Per Diem Interest -Interest calculated per day. (Depending on the day
of the month on which closing takes place, you will have to pay interest
from the date of closing to the end of the month. Your first mortgage
payment will probably be due the first of the following month.)
Permanent Loan - A long term mortgage of ten years or more.
PITI - Abbreviation for Principal, Interest, Taxes and Insurance, the
components of a monthly mortgage payment; also called monthly housing
expenses.
Pledged Account Mortgage (PAM) - Money is placed in a pledged savings
account and this fund plus earned interest is gradually used to reduce
mortgage payments.
Points (or Discount Points) -Interest prepaid to the lender at
closing. Each point is equal to 1 percent of the loan amount. Paying more
points at closing generally reduces the interest rate (and therefore monthly
payments) on a loan.
Power of Attorney - Legal document authorizing one person to act on
behalf of another.
Prepaid Expenses -Taxes, insurance and assessments paid in advance of
their due dates, including at closing.
Prepaid Interest -Charged to a borrower at closing to cover interest
on the loan between closing and the first payment.
Prepayment - Full or partial payment of the principal before the due
date. This might occur if the borrower makes extra payments, sells the
property, or refinances the existing loan.
Prepayment Penalty - Fee charged by a lender for early payment of
debt.
Prequalification - The process of determining how much money a
prospective homebuyer will be eligible to borrow prior to application for a
loan.
Primary Mortgage Market -Includes banks, savings and loans, credit
unions, and mortgage bankers who make mortgage loans directly to borrowers.
These lenders sometimes sell their mortgages to lenders like FNMA in the
secondary mortgage market.
Prime Rate - Lowest commercial interest rate charged by a bank on
short term loans to its most credit worthy customers.
Principal - The amount of debt, not counting interest, left on a
loan.
Private Mortgage Insurance (PMI) - Insurance purchased by a buyer
when a down payment is less than 20% of the purchase price to protect the
lender against default.
Profit and Loss Statement -Financial statement showing sales,
expenses and profits over a period of time.
Property Tax - A government tax based on the market value of a
property.
Purchase Agreement -Contract signed by buyer and seller stating the
terms and conditions under which a property will be sold.
Qualifying Ratio - Comparison of a borrower's
expenses (housing or total debt) to his income.
Real Estate Broker - An agent who
represents a buyer or seller in a real estate transaction.
Real Estate Settlement Procedures Act - Law requiring lenders to give
borrowers advance notice of closing costs.
Real Property - Land and everything that is permanently affixed to
it.
Realtor - Real estate professional who is a member of the National
Association of Realtors.
Recision - The cancellation of a contract, permitted by law within
three days of signing a mortgage not used to purchase a home.
Reclamation - The right of the person with title to a property to
recover it from the debtor in case of a bankruptcy.
Reconveyance - The transfer of property back to the owner when a
mortgage is fully repaid.
Recording - The act of entering documents concerning title to a
property into the public records.
Recording Fee - Money paid to an agent for entering the sale of a
property into the public records.
Refinancing - The process of paying off one loan with the proceeds
from a new loan secured by the same property.
Rent With Option To Buy - See Lease-purchase mortgage loan.
Repossession (or Foreclosure) - Legal process by which the lender
forces the sale of a property because the borrower has not met the mortgage
terms.
RESPA - See Real Estate Settlement Procedures Act.
Reverse Annuity Mortgage (RAM) - Mortgage used by the elderly in
which the lender makes periodic payments to the borrower using the
borrower's equity in the home.
Sale Agreement -Contract signed by buyer
and seller stating the terms and conditions under which a property will be
sold.
Satisfaction - The payment of a debt which satisfies an obligation.
Secondary Mortgage Market -The market into which primary mortgage
lenders sell the mortgages they make to obtain funds to originate more new
loans; includes investors like Fannie Mae and Freddie Mac.
Second Mortgage - A subordinate mortgage made in addition to a first
mortgage.
Servicing (or Loan Administration) - The collection of mortgage
payments from borrowers and related responsibilities (such as handling
escrows for property tax and insurance, foreclosing on defaulted loans and
remitting payments to investors).
Settlement (or Closing) - Meeting between the buyer, seller and
lender or their agents at which property and funds legally change hands.
Settlement Costs - See Closing Costs.
Settlement Cost (HUD guide) -Booklet that provides an overview of the
lending process, given to consumers after completing loan application.
Settlement Sheet - The computation of costs payable at closing which
determines the seller's net proceeds and the buyer's net payment.
Shared Appreciation Mortgage (SAM) - Loan in which the borrower is
given a below-market interest rate and the lender receives a portion of the
future appreciation of the property value.
Simple Interest -Interest which is computed only on the principal
balance.
Subsidized Second Mortgage - Alternative financing option for low-
and moderate-income households that also includes a down payment and a first
mortgage, with funds for the second mortgage provided by city, county, or
state housing agencies, foundations, or nonprofit corporations. Payment on
the second mortgage is often deferred and carries low interest rates (if
any). Part of the debt may be forgiven for each year the family remains in
the home.
Survey - A measurement of land, prepared by a licensed surveyor,
showing a property's boundaries, elevations, improvements, and relationship
to surrounding tracts.
Sweat Equity - Value added to a property by improvements made by the
owner.
Tax Impound - Money paid to and held by a
lender for annual tax payments. See Impound Account.
Tax Lien - Claim against a property for unpaid taxes.
Tax Sale - Public sale of property by a government authority as a
result of non-payment of taxes.
Term - The number of years it will take to pay off a loan.
Title - Document which gives evidence of ownership of a property.
Also the rights of ownership and possession of that property.
Title Company - A company that insures title to property.
Title Insurance - Insurance which protects the lender (lender's
policy) or the buyer (owner's policy) against loss due to disputes over
ownership of a property.
Title Search - Examination of municipal records to ensure that the
seller is the legal owner of a property and that there are no liens other
claims against the property.
Transfer Tax - Tax paid when title passes from one owner to another.
Trust Account - Account maintained by a broker or escrow company to
handle all money collected for clients.
Trustee - Someone given legal responsibility to hold property in the
best interest of another.
Truth-in-Lending Act -Federal law requiring written disclosure of the
terms of a mortgage (including the APR and other charges) by a lender to a
borrower after application.
Two-Step Mortgage -Mortgage with a low fixed interest rate for 5, 7,
or 10 years, which is then adjusted to a new rate for the rest of the loan.
Underwriting - The process of verifying
data and evaluating a loan for approval. The underwriter gives the final
loan approval.
Usury - Interest charged in excess of the legal rate established by
law.
VA Loan - Home loan available to veterans
with little or no down payment and guaranteed by the U.S. Veteran's
Administration.
Variable Rate Mortgage -See Adjustable Rate Mortgage.
Variable Rate - Interest rate that changes periodically in relation
to an index.
Verification of Deposit (VOD) - Document signed by the borrower's
bank or other financial institution verifying the borrower's account balance
and history.
Verification of Employment (VOE) - Document signed by the borrower's
employer verifying the borrower's position and salary.
Waiver
- Voluntary relinquishment or surrender of some right or privilege.
Walk-Through - A final inspection of a home to check for problems
that may need to be corrected before closing.
Warehouse Fee - Mortgage firms often borrow funds on a short term
basis in order to originate loans that will later be sold to investors in
the secondary mortgage market. When the prime rate of interest is higher on
short term loans than on mortgage loans, the mortgage firm has an economic
loss which is offset by charging a warehouse fee.
Wraparound Mortgage -Loan arrangement in which an existing loan is
combined with a new loan, resulting in an interest rate somewhere between
the old rate and the current market rate.
Zoning Ordinances -Local law establishing building codes and usage
regulations for properties in a specified area. This creation of districts
specifies different types of property uses such as commercial or
residential, etc.)
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