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adjustable-rate
mortgage
(ARM) A mortgage that changes interest rate periodically
based upon the changes in a specified index.
adjustment
date
The date on which the interest rate changes for an
adjustable-rate mortgage (ARM).
adjustment
period
The period that elapses between the adjustment dates
for an adjustable-rate mortgage (ARM).
amortization
The repayment of a mortgage loan by installments with
regular payments to cover the principal and interest.
amortization
term
The amount of time required to amortize the mortgage
loan. The amortization term is expressed as a number
of months. For example, for a 30-year fixed-rate mortgage,
the amortization term is 360 months.
annual
percentage rate
(APR) The cost of a mortgage stated as a yearly rate;
includes such items as interest, mortgage insurance,
and loan origination fee (points). application A form,
commonly referred to as a 1003 form, used to apply
for a mortgage and to provide information regarding
a prospective mortgagor and the proposed security.
appraisal
A written analysis of the estimated value of a property
prepared by a qualified appraiser.
appraiser
A person qualified by education, training, and experience
to estimate the value of real property and personal
property.
appreciation
An increase in the value of a property due to changes
in market conditions or other causes. The opposite
of depreciation.
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 a mortgage from one person to another.
assumable mortgage A mortgage that can be taken over
("assumed") by the buyer when a home is sold. assumption
The transfer of the seller's existing mortgage to
the buyer.
assumption
clause A provision in an assumable mortgage that allows
a buyer to assume responsibility for the mortgage
from the seller. The loan does not need to be paid
in full by the original borrower upon sale or transfer
of the property.
assumption
fee
The fee paid to a lender (usually by the purchaser
of real property) resulting from the assumption of
an existing mortgage.
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balance
sheet
A financial statement that shows assets, liabilities,
and net worth as of a specific date.
balloon
mortgage
A mortgage that has level monthly payments that will
amortize it over a stated term but that provides for
a lump sum payment to be due at the end of an earlier
specified term.
balloon
payment
The final lump sum payment that is made at the maturity
date of a balloon mortgage.
bankrupt
A person, firm, or corporation that, through a court
proceeding, is relieved from the payment of all debts
after the surrender of all assets to a court-appointed
trustee.
bankruptcy
A proceeding in a federal court in which a debtor
who owes more than his or her assets can relieve the
debts by transferring his or her assets to a trustee.
before-tax
income Income before taxes are deducted.
beneficiary
The person designated to receive the income from a
trust, estate, or a deed of trust.
binder
A preliminary agreement, secured by the payment of
an earnest money deposit, under which a buyer offers
to purchase real estate.
biweekly
payment mortgage
A mortgage that requires payments to reduce the debt
every two weeks (instead of the standard monthly payment
schedule). The 26 (or possibly 27) biweekly payments
are each equal to one-half of the monthly payment
that would be required if the loan were a standard
30-year fixed-rate mortgage, and they are usually
drafted from the borrower's bank account. The result
for the borrower is a substantial savings in interest.
blanket
mortgage
The mortgage that is secured by a cooperative project,
as opposed to the share loans on individual units
within the project.
bond
An interest-bearing certificate of debt with a maturity
date. An obligation of a government or business corporation.
A real estate bond is a written obligation usually
secured by a mortgage or a deed of trust.
breach
A violation of any legal obligation.
bridge
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. Also known as "swing loan."
broker
A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between
them.
buydown
mortgage
A temporary buydown is a mortgage on which an initial
lump sum payment is made by any party to reduce a
borrower's monthly payments during the first few years
of a mortgage. A permanent buydown reduces the interest
rate over the entire life of a mortgage.
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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.
cap
A provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or mortgage payments
may increase or decrease.
capital
improvement
Any structure or component erected as a permanent
improvement to real property that adds to its value
and useful life.
cash-out
refinance
A refinance transaction in which the amount of money
received from the new loan exceeds the total of the
money needed to repay the existing first mortgage,
closing costs, points, and the amount required to
satisfy any outstanding subordinate mortgage liens.
In other words, a refinance transaction in which the
borrower receives additional cash that can be used
for any purpose.
Certificate
of Eligibility
A document issued by the federal government certifying
a veteran's eligibility for a Department of Veterans
Affairs (VA) mortgage.
Certificate
of Reasonable Value
(CRV) A document issued by the Department of Veterans
Affairs (VA) that establishes the maximum value and
loan amount for a VA mortgage.
certificate
of title A
statement provided by an abstract company, title company,
or attorney stating that the title to real estate
is legally held by the current owner.
chain
of title
The history of all of the documents that transfer
title to a parcel of real property, starting with
the earliest existing document and ending with the
most recent.
change
frequency
The frequency (in months) of payment and/or interest
rate changes in an adjustable-rate mortgage (ARM).
clear
title
A title that is free of liens or legal questions as
to ownership of the property.
closing
A meeting at which a sale of a property is finalized
by the buyer signing the mortgage documents and paying
closing costs. Also called "settlement."
closing
cost item
A fee or amount that a home buyer must pay at closing
for a single service, tax, or product. Closing costs
are made up of individual closing cost items such
as origination fees and attorney's fees. Many closing
cost items are included as numbered items on the HUD-1
statement.
closing
costs
Expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership
of a property. Closing costs normally include an origination
fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance
and a survey. Closing costs percentage will vary according
to the area of the country.
closing
statement
Also referred to as the HUD1. The final statement
of costs incurred to close on a loan or to purchase
a home.
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 a quitclaim deed,
release, or court action.
collateral
An asset (such as a car or a home) that guarantees
the repayment of a loan. The borrower risks losing
the asset if the loan is not repaid according to the
terms of the loan contract.
collection
The efforts used to bring a delinquent mortgage current
and to file the necessary notices to proceed with
foreclosure when necessary.
co-maker
A person who signs a promissory note along with the
borrower. A co-maker's signature guarantees that the
loan will be repaid, because the borrower and the
co-maker are equally responsible for the repayment.
See endorser.
commission
The fee charged by a broker or agent for negotiating
a real estate or loan transaction. A commission is
generally a percentage of the price of the property
or loan.
commitment
letter
A formal offer by a lender stating the terms under
which it agrees to lend money to a home buyer. Also
known as a "loan commitment."
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.
Community
Home Improvement Mortgage Loan
An alternative financing option that allows low- and
moderate-income home buyers to obtain 95 percent financing
for the purchase and improvement of a home in need
of modest repairs. The repair work can account for
as much as 30 percent of the appraised value.
community
property
In some western and southwestern states, a form of
ownership under which property acquired during a marriage
is presumed to be owned jointly unless acquired as
separate property of either spouse.
comparables
An abbreviation for "comparable properties"; used
for comparative purposes in the appraisal process.
Comparables are properties like the property under
consideration; they have reasonably the same size,
location , and amenities and have recently been sold.
Comparables help the appraiser determine the approximate
fair market value of the subject property.
condominium
A real estate project in which each unit owner has
title to a unit in a building, an undivided interest
in the common areas of the project, and sometimes
the exclusive use of certain limited common areas.
condominium
conversion
Changing the ownership of an existing building (usually
a rental project) to the condominium form of ownership.
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.
consumer
reporting agency (or bureau)
An organization that prepares reports that are used
by lenders to determine a potential borrower's credit
history. The agency obtains data for these reports
from a credit repository as well as from other sources.
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 A mortgage that
is not insured or guaranteed by the federal government.
convertibility
clause
A provision in some adjustable-rate mortgages (ARMs)
that allows the borrower to change the ARM to a fixed-rate
mortgage at specified timeframes after loan origination.
convertible
ARM An adjustable-rate mortgage (ARM) that can be
converted to a fixed-rate mortgage under specified
conditions.
cooperative
(co-op)
A type of multiple ownership in which the residents
of a multiunit housing complex own shares in the cooperative
corporation that owns the property, giving each resident
the right to occupy a specific apartment or unit.
corporate
relocation
Arrangements under which an employer moves an employee
to another area as part of the employer's normal course
of business or under which it transfers a substantial
part or all of its operations and employees to another
area because it is relocating its headquarters or
expanding its office capacity.
cost
of funds index
(COFI) An index that is used to determine interest
rate changes for certain adjustable-rate mortgage
(ARM) plans. It represents the weighted-average cost
of savings, borrowings, and advances of the 11th District
members of the Federal Home Loan Bank of San Francisco.
covenant
A clause in a mortgage that obligates or restricts
the borrower and that, if violated, can result in
foreclosure.
credit
An agreement in which a borrower receives something
of value in exchange for a promise to repay the lender
at a later date.
credit
history
A record of an individual's open and fully repaid
debts. A credit history helps a lender to determine
whether a potential borrower has a history of repaying
debts in a timely manner.
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 creditworthiness. See merged credit
report.
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.
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debt
An amount owed to another. deed The legal document
conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy
a debt and avoid foreclosure.
deed
of trust
The document used in some states instead of a mortgage;
title is conveyed to a trustee.
default
Failure to make mortgage payments on a timely basis
or to comply with other requirements of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments
are due.
deposit
A sum of money given to bind the sale of real estate,
or a sum of money given to ensure payment or an advance
of funds in the processing of a loan.
depreciation
A decline in the value of property; the opposite of
appreciation.
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
provision
A provision in a mortgage that allows the lender to
demand repayment in full if the borrower sells the
property that serves as security for the mortgage.
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earnest
money 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.
effective
gross income
Normal annual income including overtime that is regular
or guaranteed. The income may be from more than one
source. Salary is generally the principal source,
but other income may qualify if it is significant
and stable.
encumbrance
Anything that affects or limits the fee simple title
to a property, such as mortgages, leases, easements,
or restrictions.
endorser
A person who signs ownership interest over to another
party. Contrast with co-maker.
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.
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 deposit by a borrower
with the lender of funds to pay taxes and insurance
premiums when they become due, or the deposit of funds
or documents with an attorney or escrow agent to be
disbursed upon the closing of a sale of real estate.
escrow
account
The account in which a mortgage servicer holds the
borrower's escrow payments prior to paying property
expenses.
escrow
analysis
The periodic examination of escrow accounts to determine
if current monthly deposits will provide sufficient
funds to pay taxes, insurance, and other bills when
due.
escrow
collections
Funds collected by the servicer and set aside in an
escrow account to pay the borrower's property taxes,
mortgage insurance, and hazard insurance.
escrow
disbursements
The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other property
expenses as they become due.
escrow
payment
The portion of a mortgagor's monthly payment that
is held by the servicer to pay for taxes, hazard insurance,
mortgage insurance, lease payments, and other items
as they become due. Known as "impounds" or "reserves"
in some states.
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.
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.
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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
A congressionally chartered, shareholder-owned company
that is the nation's largest supplier of home mortgage
funds.
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. fee simple The greatest possible
interest a person can have in real estate.
FHA
mortgage
A mortgage that is insured by the Federal Housing
Administration (FHA). Also known as a government mortgage.
finder's
fee
A fee or commission paid to a mortgage broker for
finding a mortgage loan for a prospective borrower.
first mortgage A mortgage that is the primary lien
against a property.
fixed-rate
mortgage
(FRM) A mortgage in which the interest rate does not
change during the entire term of the loan.
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 mrotgage debt.
fully
amortized
ARM An adjustable-rate mortgage (ARM) with a monthly
payment that is sufficient to amortize the remaining
balance, at the interest accrual rate, over the amortization
term.
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good
faith estimate
An estimate of charges which a borrower is likely
to incur in connection with a settlement.
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hazard
insurance
Insurance protecting against loss to real estate caused
by fire, some natural causes, vandalism, etc., depending
upon the terms of the policy.
housing
ratio
The ratio of the monthly housing payment in total
(PITI - Principal, Interest, Taxes, and Insurance)
divided by the gross monthly income. This ratio is
sometimes referred to as the top ratio or front end
ratio.
HUD
The U.S. Department of Housing and Urban Development.
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index
A published interest rate to which the interest rate
on an Adjustable Rate Mortgage (ARM) is tied. Some
commonly used indeces include the 1 Year Treasury
Bill, 6 Month LIBOR, and the 11th District Cost of
Funds (COFI).
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lien
An encumbrance against property for money due, either
voluntary or involuntary.
lifetime
cap
A provision of an ARM that limits the highest rate
that can occur over the life of the loan.
loan
to value ratio
(LTV) The ratio of the amount of your loan to the
appraised value of the home. The LTV will affect programs
available to the borrower and generally, the lower
the LTV the more favorable the terms of the programs
offered by lenders.
lock-in
A written agreement guaranteeing the home buyer a
specified interest rate provided the loan is closed
within a set period of time. The lock-in also usually
specifies the number of points to be paid at closing.
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margin
The number of percentage points a lender adds to the
index value to calculate the ARM interest rate at
each adjustment period. A representative margin would
be 2.75%.
mortgage
A legal document that pledges a property to the lender
as security for payment of a debt mortgage.
disability
insurance
A disability insurance policy which will pay the monthly
mortgage payment in the event of a covered disability
of an insured borrower for a specified period of time.
mortgage
insurance
(MI)
Insurance written by an independent mortgage insurance
company protecting the mortgage lender against loss
incurred by a mortgage default. Usually required for
loans with an LTV of 80.01% or higher.
mortgagee
The person or company who receives the mortgage as
a pledge for repayment of the loan. The mortgage lender.
mortgagor
The mortgage borrower who gives the mortgage as a
pledge to repay.
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non-conforming
loan
Also called a jumbo loan. Conventional home mortgages
not eligible for sale and delivery to either Fannie
Mae (FNMA) or Freddie Mac (FHLMC) because of various
reasons, including loan amount, loan characteristics
or underwriting guidelines. Non-conforming loans usually
incur a rate and origination fee premium.The current
non-conforming loan limit is ,601 and above.
note
A written agreement containing a promise of the signer
to pay to a named person, or order, or bearer, a definite
sum of money at a specified date or on demand.
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origination
fee
A fee imposed by a lender to cover certain processing
expenses in connection with making a real estate loan.
Usually a percentage of the amount loaned, such as
one percent.
owner
financing
A property purchase transaction in which the property
seller provides all or part of the financing.
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Planned
Unit Developments
(PUD) A subdivision of five or more individually owned
lots with one or more other parcels owned in common
or with reciprocal rights in one or more other parcels.
PITI Principal, interest, taxes and insurance--the
components of a monthly mortgage payment.
points
Charges levied by the mortgage lender and usually
payable at closing. One point represents 1% of the
face value of the mortgage loan.
prepaids
Those expenses of property which are paid in advance
of their due date and will usually be prorated upon
sale, such as taxes, insurance, rent, etc.
prepayment
penalty
A charge imposed by a mortgage lender on a borrower
who wants to pay off part or all of a mortgage loan
in advance of schedule.
principal
Amount of debt, not including interest. The face value
of a note or mortgage.
private
mortgage insurance
(PMI) Insurance provided by nongovernment insurers
that protects lenders against loss if a borrower defaults.
Fannie Mae generally requires private mortgage insurance
for loans with loan-to-value (LTV) percentages greater
than 80%.
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qualifying
ratios
The ratio of your fixed monthly expenses to your gross
monthly income, used to determine how much you can
afford to borrow. The fixed monthly expenses would
include PITI along with other obligations such as
student loans, car loans, or credit card payments.
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rate
cap
A limit on how much the interest rate can change,
either at each adjustment period or over the life
of the loan.
rate
lock-in
A written agreement in which the lender guarantees
the borrower a specified interest rate, provided the
loan closes within a set period of time.
rebate
Compensation received from a wholesale lender which
can be used to cover closing costs or as a refund
to the borrower. Loans with rebates often carry higher
interest rates than loans with "points" (see above).
refinancing
The process of paying off one loan with the proceeds
from a new loan using the same property as security.
residential
mortgage credit report
(RMCR) A report requested by your lender that utilizes
information from at least two of the three national
credit bureaus and information provided on your loan
application.
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seller
carry back
An agreement in which the owner of a property provides
financing, often in combination with an assumed mortgage.
survey
A print showing the measurements of the boundaries
of a parcel of land, together with the location of
all improvements on the land and sometimes its area
and topography.
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tenants-in-common
An undivided interest in property taken by two or
more persons. The interest need not be equal. Upon
death of one or more persons, there is no right of
survivorship.
title
The evidence one has of right to possession of land.
title
insurance
Insurance against loss resulting from defects of title
to a specifically described parcel of real property.
title
search
An investigation into the history of ownership of
a property to check for liens, unpaid claims, restrictions
or problems, to prove that the seller can transfer
free and clear ownership.
total
debt ratio
Monthly debt and housing payments divided by gross
monthly income. Also known as Obligations-to-Income
Ratio or Back-End Ratio.
Truth-in-Lending
Act
A federal law requiring a disclosure of credit terms
using a standard format. This is intended to facilitate
comparisons between the lending terms of different
financial institutions.
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Veterans
Administration
(VA) A government agency guaranteeing mortgage loans
with no down payment to qualified veterans.
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