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ABSTRACT OF TITLE: A written document
produced by a title insurance company (trustee), giving the
history of who owned the property from the first owner forward.
An attorney or title insurance company reviews an abstract of
title to determine whether there are any title defects which
must be cleared before a buyer can purchase clear, marketable,
and insurance title. It also indicates any liens or
encumbrances that may affect the title. A lender will not make
a loan, nor can a sale be affected until the title to the
property is clear.
ACCELERATION CLAUSE: This accelerates the
payments in a mortgage, where the entire amount becomes
immediately due and payable. Most mortgages have this clause,
which comes into effect when, for example, you sell the
property. This is also called the "Alienation Clause."
ACCRUED INTEREST: Interest that has
accumulated but has not been paid.
ACQUISITION LOAN: Money borrowed to purchase a
property.
ADJUSTABLE RATE MORTGAGE (ARM): A mortgage
loan that allows the interest rate to be changed or adjusted at
specific periods over the entire life of the loan.
ADJUSTMENT DATE: The day on which an
adjustment is made in an adjustable rate mortgage. It may occur
monthly, every 6 months, or once a year, or whenever agreed
upon.
AGREEMENT OF SALE: Also known as the Purchase
Contract, Purchase Agreement, or Sales Agreement. It outlines
the agreement of the seller to sell and the buyer to buy a
certain property. It must be signed by both parties in order to
be legally binding.
ALIENATION CLAUSE: The clause that specifies
that if the property is sold or transferred to another person,
the mortgage becomes immediately due and payable.
AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS
(MAI): An association whose members undergo a rigorous
training process as appraisers.
AMERICAN LAND TITLE ASSOCIATION (ALTA): The
more complete and extensive policy of land title insurance that
most lenders insist upon. It involves a physical inspection and
often guarantees the property's boundaries. Lenders will often
insist on an ALTA policy with themselves named as
beneficiaries.
AMERICAN SOCIETY OF APPRAISERS: A professional
organization of appraisers.
AMORTIZATION: Gradual repayment of a loan
(principal)
by way of regular installments.
AMORTIZATION SCHEDULE: A table that shows
monthly payments, interest and principal requirements,
and unpaid balances over the life of a loan.
ANNUAL CAP: The limit on the number of times
an interest rate can be adjusted on an adjustable-rate mortgage
over a 12-month period.
ANNUAL PERCENTAGE RATE (APR): The rate of
interest for a loan over a one year period, expressed as a
percentage value. This disclosure is required by the federal
Truth-In-Lending Law.
ANNUITY: Series of equal or near-equal monthly
payments.
APPLICATION FEE: A fee for applying for a
mortgage. This fee often includes the cost of a full credit
report on the borrower, and a property appraisal. The typical
amount may be $400.
APPRAISAL: Estimate (or professional
opinion)of the value of a property, given by a professional
appraiser who visits the property being sold or bought and
estimates its market value. This kind of information included
in the appraisal ranges from the type of property, its
condition, and its comparable value in the area of its
location.
APPRAISAL and CREDIT REPORT
Fees: These fees are generally
collected by the lender and paid to outside companies
performing the services.
APPRAISED VALUE: An expert opinion of the
value of a property at a given time, based on facts regarding
the location, improvements, etc., of the property and
surroundings.
APPRAISAL REPORT: Estimate of real estate
value, presumably by an expert. An appraisal evaluates the
property at a given time based on facts regarding the location,
improvements, neighborhood and comparable sales. Generally, the
value is based on three approaches: cost, market and
income.
APPRECIATION: The
increase in value or worth of property.
ASSIGNMENT OF MORTGAGE: The lender may sell
your mortgage without permission from you (which he is entitled
to do), and the document that records the transfer of the
mortgage from lender A to lender B is the assignment.
ASSUMABLE LOAN: A mortgage loan that lets a
purchaser of a home assume the obligation of the mortgage
already on that house, without any changes to the loan terms.
This is possible for loans that do not have a due-on-sale
clause, and FHA and VA mortgages (see Glossary for these
terms).
ASSUMPTION OF MORTGAGE: Purchase of property
where the buyer accepts and assumes the mortgage that already
exists on the property. The seller, in turn, remains
responsible to the lender for the loan.
AUTOMATIC GUARANTEE: Some lenders who make VA
loans are empowered to guarantee the loans without first
checking with the VA. Such lenders can often make the loans
quicker.
BALLOON LOAN: Mortgage in which the
remaining principal balance becomes fully due and payable at a
predetermined time. Most of the time, balloon loans have level
payments until the note becomes due and payable.
BALLOON PAYMENT: Final payment on a loan that
is greater than the previous monthly installments. This pays
off the loan entirely and in full.
BANKRUPTCIES: A court action to
restructure debt.
BASIS: Original cost of property plus value of
any improvements put on by the seller minus the depreciation
taken by the seller.
BIWEEKLY MORTGAGE: Payments are made twice a
month (or every two weeks), and the additional payment is used
to reduce the principal amount.
BLANKET MORTGAGE: A single mortgage that
covers several properties. It is often used by developers and
builders.
BRIDGE LOAN: Financing that "bridges" the
period between the end of one loan and the beginning of
another.
BUY-DOWN: The payment of additional Discount
Points (see Glossary) to a lender in return for a reduced
interest rate on a loan.
CAP: Limit placed on the number of adjustments in
order to protect the borrower from large increases in interest
rates or payment levels.
CERTIFICATE OF ELIGIBILITY: Issued by the
Veterans Administrations to those who may qualify for VA
loans.
CERTIFICATE OF OCCUPANCY: Document issued
by a local governmental agency that states a property meets the
local building standards for occupancy.
CERTIFICATE OF REASONABLE VALUE (CRV): When
getting a VA loan, the Veteran's Association will secure an
appraisal of the property, and will issue the Certificate
establishing what they deem the maximum value of the
property.
CERTIFICATE OF TITLE: A certification
issued by a title company or a written opinion rendered by an
attorney that the seller has good marketable and insurable
title to the property which he is offering for sale. A
certificate of title offers no protection against any hidden
defects in the title which an examination of the public records
could not reveal. The issuer of a certificate of title is
liable only for damages due to negligence. The protection
offered a homeowner under a certificate of title is not as
great as that offered in a title insurance policy.
CHAIN OF TITLE: This gives the history of ownership of
a property. The title to property forms a chain going back to
the first owner.
CLOSING: The act of
transferring ownership of a property from seller to buyer
according to the sales contract. Also, that period of time when
a closing is to take place.
CLOSING COSTS: The fees and expenses paid by
the buyer and seller at the time of a real estate closing
(these are also known as Transaction or Settlement Costs).
CO-BORROWER: Another party who signs for the
mortgage loan. Income, debts, assets and credit histories of
both borrowers are combined in order to qualify for the
mortgage.
COMMITMENT: A written promise by a lender
given to the borrower to offer a mortgage at a set amount, a
certain interest rate, and cost. Such a commitment will have a
time limit on it; usually 30-60 days.
CO-MORTGAGOR: A co-signer of a mortgage who is
jointly responsible for the repayment of the loan amount. Such
a person also receives a share of ownership in the mortgaged
property.
CONDITIONAL COMMITMENT: A lenders promise
to issue a loan subject to certain conditions. Generally, the
lender will not fund the loan until the conditions have been
met.
CONFORMING LOAN: Also called a Conventional
Mortgage that adheres to the loan amounts and mortgage
guidelines set by the Federal National Mortgage Association
(FNMA, or Fannie Mae) and/or the guidelines of the Federal Home
Loan Mortgage Corporation (FHLMC, or Freddie Mac). A conforming
loan is a mortgage under $203,150. A non-conforming or jumbo
loan exceeds $203,150.
CONSTRUCTION LOAN: A type of mortgage that allows a home to be
built, by a general contractor, for residential purposes
only. Financing up to 95% of appraised value.
Minimum credit score requirement 700 FICO. One settlement
reduces borrower’s expenses. Flexible draw
schedule.
CONVENTIONAL LOAN: A type of mortgage in which
the terms and conditions meet the guidelines and requirements
of Fannie Mae and Freddie Mac. These two agencies guarantee or
purchase up to 50% of all mortgages. Conventional mortgages may
be fixed rate or adjustable rate mortgages. For owner occupied
properties, downpayment requirements generally start at 5%
down, with a few exceptions. Credit score requirements start at
620, generally speaking.
CONVERTIBLE ARMS: ARMs that have a
provision allowing the borrower to convert the mortgage to a
fixed rate term. The conversion feature is outlined in the
mortgage note and has certain restrictions.
CO-SIGNOR: A second borrower who signs in
conjunction with the first borrower for the mortgage loan. A
co-signor is equally responsible for the repayment of the
loan.
CREDIT RATING: The evaluation of a person's
history and capacity of debt repayment. Such a rating is
available from a credit bureau in the form of a report.
CREDIT REPORT: A report of a person's credit
history issued by one of three national credit bureaus. The
report mentions any delinquent payments, or any failures to
pay, as well as bankruptcies and foreclosures. Lenders use such
reports to determine the credit-worthiness of a borrower.
DEED: Formal written document
transferring title to real estate; a new deed is used for each
transfer. The deed should contain an accurate description of
the property being conveyed, should be signed and witnessed
according to the laws of the State where the property is
located, and should be delivered to the purchaser at closing
day.
DEED OF TRUST: A legal instrument used in many
states in place of a mortgage, where title to the property is
vested in one or more trustees to secure the repayment of the
loan.
DEFAULT: The failure to fulfill a promise or
pledge such as the timely (monthly) repayment of a loan.
DEFECTIVE TITLE: Title to real property
which lacks some of the elements necessary to transfer good
title. Title to a negotiable instrument obtained by fraud.
DEFICIENCY JUDGMENT: A court order stating
that the borrower still owes money when the security for a loan
does not fully satisfy a defaulted loan.
DISCOUNT POINTS: Amounts paid to the lender
(often by the seller) to make up the difference between the
market interest rate and the lower face rate of the Note (see
Glossary).
DOWN PAYMENT: The amount paid for a property
in addition to the mortgage loan; usually expressed as a
percentage value.
DUE-ON-ENCUMBRANCE: A seldom-used clause in
mortgages that allows the lender to foreclose if the borrower
gets additional financing, such as a second mortgage.
DUE-ON-SALE CLAUSE: Provision in a mortgage
that states that the loan is due upon the sale of the
property.
EFFECTIVE RATE: The true rate of return that
takes into account all relevant financing expenses.
ENCUMBRANCE: Also known as a Lien, where a claim is
made against a property by a third party. Such an act ensures
that a property cannot be transferred without first clearing
such a Lien or Encumbrance.
EQUITY: The true value that an owner has in a
property over and above the debt upon it.
ESCROW: The placing of property or funds with
a third party (usually an attorney) for safe-keeping, pending
the fulfillment or performance of a condition or act.
EXCULPATORY CLAUSE: A provision in a mortgage
that allows the borrower to surrender the property to the
lender without personal liability for the loan.
FEDERAL HOME LOAN MORTGAGE
CORPORATION (FHLMC): A private corporation authorized
by federal law to provide secondary mortgage market support for
conventional real estate loans. It is popularly known as
"Freddie Mac."
FEDERAL HOUSING ADMINISTRATION
(FHA): An agency of the U.S. government, Department of
Housing and Urban Development, that administers many loan
programs, loan guarantee programs and loan insurance programs
in order to make housing more widely available.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA): A federally chartered, semi-public
corporation that purchases conventional and government
guaranteed real estate loans. Their stock is traded on the New
York Stock Exchange. The FNMA is popularly known as "Fannie
Mae."
FEDERAL RESERVE BANK: The regulatory
agency for certain commercial banks and bank holding companies.
Sets monetary policy for the country and provides liquidity for
supervised financial institutions.
FEDERAL TAX LIEN: A lien attached to
property for nonpayment of a federal tax.
FEDERAL TAX RETURN: The U.S. government's
method to identify individual and company's annual tax
responsibility. The tax returns identify the income and
taxes.
FIRST MORTGAGE: That mortgage which has
priority as a lien (see Glossary) or debt over all other
mortgages. In case of foreclosure, the first mortgage must be
paid before any other mortgage or lien.
FIXED RATE MORTGAGE: A mortgage loan that has
a constant interest rate for the entire term of the loan.
FORECLOSURE: Termination of all rights of
ownership of a borrower in a property covered by the mortgage.
Statutory foreclosure can be effected without a
court-order.
GENERAL LIEN: A lien such as a tax lien
or judgment lien, which attaches to all property of the debtor
rather than the lien of, for example, a trust deed, which
attaches only to a specific property.
GENERAL WARRANTY DEED: A deed which conveys not
only all the grantor's interests in and title to the property
to the grantee, but also warrants that if the title is
defective or has a "cloud" on it (such as mortgage claims, tax
liens, title claims, judgments, or mechanic's liens against it)
the grantee may hold the grantor liable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA/GINNIE
MAE): A government owned agency that acts as a
secondary market conduit for FHA and VA loans. GNMA guarantees
the timely principal and interest payments to investors.
GRADUATED PAYMENT MORTGAGE: A mortgage where
the payments vary over the term of the loan, usually starting
low, then slowly rising, until they reach a plateau where they
remain for the remainder of the term. This mortgage is useful
if you want low initial payments. It is often used by
first-time home buyers and is often combined with a fixed-rate
or an adjustable-rate mortgage.
GRANTEE: The buyer, who receives a
deed.
GRANTOR: The seller, who gives a
deed.
GROWING EQUITY MORTGAGE: A rarely used type of
mortgage where the payments increase according to set a
schedule. The purpose is to pay additional money into the
principal in
order to pay off the loan earlier, and save interest
charges.
GUARANTEE: The agreement to indemnify the
holder of a loan all or some of the unpaid principal balance
in case of default by the borrower.
HAZARD INSURANCE:
Insurance on a property against damages caused by fire, wind
storms, and similar risks.
HOME EQUITY - A type of loan, which
is really a second mortgage, that allows the homeowner to
borrow against the equity in their property. Fixed rate
and adjustable rate line of credit programs are
available. Fixed terms up to 20 years available.
Maximum total loan to value (TLTV) up to 90% of appraised
value. Minimum credit score 620.
HOMEOWNERS ASSOCIATION: An association of
people who own homes in a given area for the purpose of
improving or maintaining the quality of the area.
HOMEOWNER'S POLICY: Policy which expands the
insurance for a homeowner. It may include theft, liability,
earthquake, etc.
HOMEOWNER'S OR MAINTENANCE FEES: Payments made
by property owner (s) of a condominium or a unit in PUD to the
homeowners' association for expenses incurred in upkeep of the
common areas.
HOUSING AND URBAN DEVELOPMENT
(HUD): The federal government agency that oversees
FHA.
HUD 1: A closing document required by HUD that
outlines the settlement cost of a loan. The closing agent
generally prepares the document and buyer receives it shortly
after the loan is closed.
INDEX: A measurement of an established
interest rate used to establish the periodic rate adjustments
for adjustable-rate mortgages. There are a wide variety of
indexes used, including Treasury bill rates, cost of funds to
lenders, and a few others.
INSURANCE: The policy purchased by a borrower
which shall indemnify the lender in case of foreclosure of the
loan.
INSURED MORTGAGE: A mortgage insured
against loss to the mortgagee (lender) in the event of default
and failure of the mortgaged property to satisfy the balance
owing plus cost of foreclosure.
INTEREST PAYMENT NOTIFICATION (1098): A
federal tax form that lenders use at year end to notify
borrowers of the interest that was paid on their mortgage over
the last year.
INTEREST RATE: The percentage of an
amount of money which is paid for its use for a specified
time.
INTERIM FINANCING: A loan where the property
owner is unable or unwilling to arrange permanent financing.
Such financing is usually arranged for less than 3 years. <
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INVESTMENT - A type of mortgage used to purchase
a non-owner occupied property. One to four units allowed.
Downpayment requirements are 20% down on 1 and 2 units, and 25%
down on 3 and 4 units.
JOINT AND SEVERAL LIABILITY: A liability
which allows the creditor to sue any one of the debtors or sue
all together.
JOINT TENANCY: An undivided interest in
property taken by two or more joint tenants. The interests must
equal, accruing under the same conveyance and beginning at the
same time. Upon death of a joint tenant, the interest passes to
the surviving joint tenants rather than to the heirs of the
deceased.
JUDGMENT: The decision of a court of law.
Money judgments, when recorded, become a lien on real property
of the defendant.
JUNIOR MORTGAGE: A mortgage which is paid only
after prior mortgages are settled.
LAND CONTRACT: Installment plan for
buying a house. It is used as an alternative to obtaining a
loan from a traditional, source such as a mortgage banker or
savings and loan.
LATE CHARGE: A penalty for failure to pay
an installment on time.
LEASE WITH OPTION TO PURCHASE: A lease under
which the lessee has the right to purchase the property. The
option may run for the length of the lease or only for a
portion of the lease period.
LEGAL DESCRIPTION: An expanded and unique
description of a property that is used on legal documents, such
as deeds and deeds of trust. Recorded documents generally
require a legal description.
LENDER: A general term encompassing all
mortgages, and beneficiaries under deeds of trust.
LENDER'S INSTRUCTIONS: A document that
lenders prepare for the closing agent that outlines the
requirements for loan closing.
LIEN: The charge against
a property, thus making it security for the payment of a loan,
judgment, mortgage, or taxes. It is also a type of encumbrance
on a property. A Personal Lien is against all the property
owned by the indebted person.
LIFE OF LOAN CAP: The limitation on the
maximum interest rate that can be charged on an adjustable-rate
mortgage during the term of the loan.
LOAN APPLICATION: Documentation required by a
lender before issuing a loan commitment.
LOAN COMMITMENT: An agreement to lend a
specified amount of money, at specified terms and
conditions.
LOAN DISCOUNT/PREMIUM FEES: Fees that
borrowers pay (sometimes seller will pay for borrower) that
adjust to the yield requirement of the investor. Loan discount
denotes an investor yield requirement higher than the note
rate. Loan premium denotes an investor yield requirement lower
than the note rate.
LOAN LOCK: Guarantee from a lender that a
borrower will receive the interest rate in effect at the time
of loan application.
LOAN OFFICER: A person that helps
borrowers through the loan selection, processing, and closing
of a mortgage loan. Loan officers can be paid a commission or
salary for their services and can work for mortgage brokers,
mortgage bankers, or depository institutions.
LOAN ORIGINATION FEES: The cost to obtain a loan
that is paid to the originating lender or broker.
LOAN PACKAGE: The information regarding a
borrower and property necessary which is the basis for a
lender's credit decision to extend or deny credit.
LOAN SERVICING: The function of
collecting loan payments, managing the property tax and
insurance escrows, foreclosing on defaulted loans and remitting
payments to the investor/beneficiary.
LOAN-TO-VALUE RATIO (LTV): The proportion of
the amount borrowed compared to the cost or value of the
property purchased.
MARGIN: The constant amount added to the value
of the index (percentage of interest) for the purpose of
adjusting the interest rate on an adjustable-rate mortgage.
MARKETABLE TITLE: A title that is free
and clear of objectionable liens, clouds or other title
defects. A title which enables an owner to sell his property
freely to others and which others will accept without
objection.
MARKET PRICE: The price paid for a
property; the amount of money that must be given or which can
be obtained at the market in exchange under the immediate
conditions existing at a certain date. To be distinguished from
market value.
MARKET VALUE: The highest price estimated in
terms of money which a buyer would be warranted in paying and a
seller justified in accepting, provided both parties were fully
informed, acted intelligently and voluntarily and, further,
that all the rights and benefits inherent in or attributable to
the property were included in the transfer.
MATURITY: The due date of a loan.
MECHANICS LIEN: A lien created by statute
for the purpose of securing priority of payment for the price
or value of work performed and materials furnished in
construction or repair of improvements to land.
MORTGAGE: The written instrument that creates
a lien upon property as security for the payment of a specified
loan. All mortgages are valued according to the chronological
order in which they are put placed onto a property. The first
mortgage on a property is called a "first" in time, the next
mortgage is "second" in time, and the next one after that is
called "third" in time, and so on. This order is important
because in the event of foreclosure, all the money from a
foreclosure will go to pay off the lender of the first. Only if
there is any money left over will it go to pay off the holder
of the second and the third. The earlier the number, the more
superior the mortgage is considered. Usually, when a first
mortgage is paid off, the second takes the place of the first,
and the third becomes the second, and so on.
MORTGAGEE: The lender of money or the
receiver of the mortgage document.
MORTGAGE BANKER: Financial intermediaries
that originate mortgage loans through loan officers or
independent mortgage brokers and sell the mortgages into the
secondary mortgage market.
MORTGAGE BROKER: A professional that
helps consumers through the loan selection, processing and
closing of a mortgage loan. Most mortgage brokers have access
to a wide range of mortgage products through many mortgage
lenders. Mortgage brokers are paid a fee by the borrower when a
suitable mortgage is found and closed.
MORTGAGE COMMITMENT: A written notice
from the bank or other lending institution saying it will
advance mortgage funds in a specified amount to enable a buyer
to purchase a house.
MORTGAGE CONSTANT: The percentage ratio
between the annual debt service and the loan principal. The
formula is expressed in this way: Annual Debt/Loan Principal =
mortgage constant.
MORTGAGE INSURANCE: Insurance required
for a loan-to-value ratio above 80.01%. Also called Private Motgage Insurance
(PMI)
MORTGAGE LIEN: The encumbrance on a property
used to secure a loan. The holder of the lien has a claim to
the property in case of default. The priority itself depends
upon the agreements and conditions of the loan.
MORTGAGE NOTE: The document outlining the
amount of the debt, the terms and payments, the interest rate,
margins and caps for ARMs, the name of the lender and the
borrower, and any other material item required by the
lender.
MORTGAGE WAREHOUSING: A funding facility,
such as a commercial bank, that is used by mortgage companies
to fund loans which are sold to an investor shortly thereafter.
The mortgage notes are used as collateral for this interim
financing.
MORTGAGOR: The borrower of money or the
giver of the mortgage document.
NEGATIVE AMORTIZATION: An increase in
principal balance which occurs when the monthly payments do not
cover all of the interest cost. The interest cost which is not
covered by the payment is added to the unpaid principal
balance.
NON-CONFORMING LOAN: Loans that are above
the loan limits set by FNMA and FHLMC. Also known as
jumbo loans.
NONCONFORMING USE: A property which does not
conform to the zoning of an area.
NOTE: The written instrument that acknowledges
a loan and states a promise to pay.
OPEN END MORTGAGE: A mortgage permitting
the mortgagor to borrow additional money under the same
mortgage, with certain conditions.
ORIGINATION FEES: The charges to the borrower
to cover the costs of issuing the loan, such as, credit checks,
appraisals and title expenses.
OWNER OF RECORD: The individual(s) named
on a deed that has been recorded at the local municipality.
OWNERS POLICY: Title insurance for the
owner of property, rather than a lien holder.
PACKAGE MORTGAGE: Mortgage covering both
real and personal property.
PAPER: A mortgage, deed of trust or land
contract which is given instead of cash.
PARTIAL RELEASE: A release of a portion
of property covered by a mortgage.
PERMANENT MORTGAGE: A mortgage on
completed construction on the same property under one mortgage
or trust deed.
PERSONAL PROPERTY: Any property that does not
go with the land. This includes cars, clothing, and furniture.
Some items are disputable, such as, appliances and floor and
wall coverings.
PHYSICAL DEPRECIATION: A term that is
frequently used when physical deterioration is intended. In a
broad concept it may relate to those elements contributing to
depreciation that are existent or inherent in the physical
property itself, as distinguished from other and external
circumstances that may influence its utilization. Not a clear
or proper them without qualification and explanation.
PITI: Principal, Interest, Taxes and
Insurance. These are the monthly payments required for most
home mortgage loans.
POINTS: A point is equal to one percentage
(1%) of a mortgage amount. Lenders use the term "basis points".
A basis point is one hundredth of a point. Thus, for example,
½% is 50 basis points.
PORTFOLIO LOAN: Loans held as an
investment by a bank, savings and loan or credit union.
PREPAID INTEREST: Prepaid interest is the
interest charged to borrowers at loan closing to pay for the
cost of borrowing for a partial month. For example, if a loan
closes on the 15th of the month and the first payment is due 45
days later, the lender will charge 15 days of prepaid
interest.
PREPAID ITEMS OF EXPENSE: Perorations of
prepaid items of expense which are credited to the seller in
the closing statement.
PREPAYMENT: Full payment of the principal
before the due date; occurs when a property is sold or the
borrower refinances the existing loan.
PREPAYMENT PENALTY: Fees that must be paid by the
borrower for retiring a loan
early.
PRIMARY MORTGAGE MARKET: The process of
obtaining a real estate loan, including the consumer's
completion of a loan application form, validation of the credit
and property information, loan underwriting by the lender and
closing of the mortgage loan.
PRIMARY RESIDENCE: Considered the
permanent location of residency.
PRINCIPAL: The owner
of a property. A broker's or agent's client. The amount of
money raised by a mortgage, separate from the interest paid
upon it.
PRINCIPAL AND INTEREST PAYMENT (P&I):
Monthly payment that includes the interest charges for the
period, plus an amount applied to amortization of the
principal balance.
PRIVATE MORTGAGE INSURANCE
(PMI): Insurance on a conventional loan, provided by a
private insurance company, which insures the lender against
loss in the event that the borrower defaults on the
mortgage.
PROCESSING, UNDERWRITING AND DOCUMENT
FEES: Charges for the lender's services
associated with making the loan.
PROPERTY: The rights of ownership. The
right to use, possess, enjoy, and dispose of a thing in every
legal way and to exclude everyone else from interfering with
these rights. Property is generally classified into two groups,
personal property and real property.
PROPERTY TAX: A tax levied by the local
municipality or county on real and personal property.
PERORATIONS: The allocation of expenses, such as
taxes between buyer and seller at closing based on the number
of days the property is owned during the month of closing.
PRORATE: To divide in proportionate
shares, such as taxes, insurance, rent, or other items.
PURCHASE MONEY MORTGAGE: A mortgage given by a
buyer to a seller in partial payment of the purchase price of
property.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA):
This act requires lenders to provide the buyer with specified
information regarding the cost of securing financing, along
with a break-down of actual costs.
REAL PROPERTY: Another term for real estate,
including the house and the adjoining land.
RECORDING: The act of writing or entering
an instrument in a book or public record, usually in the office
of the county clerk and recorder. Such recording constitutes
notice to all persons of the rights or claims contained in the
instrument. This type of notice is called "constructive notice"
or "legal notice."
REDLINING: The practice of refusing to
provide loans or insurance in a certain neighborhood.
REFINANCE: The substitution of a new loan for
an old loan.
REIT (Real Estate Investment Trusts): A
method in investing real estate in a group, with certain tax
advantages.
RESPA (Real Estate Settlement Procedures
Act): A federal regulation that requires lenders
and mortgage brokers to disclose to borrowers, in advance, the
fees required to obtain a mortgage loan.
RESTRICTIVE COVENANTS: Private
restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land,"
binding all subsequent purchasers of the land, or may be
"personal" and be binding only between the original seller and
buyer.
REVERSE MORTGAGE: A special program for
the elderly that provides income until death. Payment
requirements are arranged through the increase in the principal
amount of the loan.
RETIRING (a debt): To fully pay off the
principal on a
loan
SATISFACTION OF MORTGAGE: Document issued
by mortgagee when the mortgage is paid off.
SAVINGS AND LOANS ASSOCIATIONS (S&Ls):
Institutions that specialize in giving, servicing, and holding
mortgage loans, primarily on owner-occupied, residential
property.
SECOND HOME: Commonly known as a vacation
home. This home is not rented and is occupied occasionally by
the owners.
SECOND MORTGAGE: A subordinated lien, created
by a mortgage loan, over the amount of a first mortgage. Second
mortgages are often used to reduce the amount of a cash down
payment.
SECONDARY FINANCING: A loan secured by a
mortgage or trust deed, which lien is junior to another
mortgage or trust deed.
SECONDARY MARKET: The buying and selling of
mortgage notes between sophisticated investors such as pension
funds, commercial banks, savings and loans and wall street
firms.
SECONDARY MARKET INVESTOR: An entity,
such as FNMA or FHLMC, that buys mortgage
loans for investment or sells them again to another secondary
market investor. Secondary market investors do not service
loans and do not collect payments from borrowers.
SECONDARY MORTGAGE MARKET: The buying and
selling of first mortgages of trust deds by banks, insurance
companies, government agencies, and other mortgagers.
SETTLEMENT: See "closing".
SETTLEMENT COST, A HUD GUIDE: This
booklet gives an overview of the lending process and is
required by HUD.
It is provided to consumers after the loan application is
completed.
SETTLEMENT STATEMENT: A statement prepared by
broker, escrow or lender giving a complete breakdown of the
cost associated with a real estate transaction.
SHERIFF'S DEED: A deed given at the
sheriff's sale in foreclosure of a mortgage.
SINGLE FAMILY DETACHED HOME: A
residential home that is not attached physically to another
home.
SOCIETY OF REAL ESTATE APPRAISERS (SREA): A
professional association to which most qualified appraisers
belong. It is best to use an SREA designated appraiser.
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.
SPECIAL WARRANTY DEED: A deed in which
the grantor conveys title to the grantee and agrees to protect
the grantee against title defects or claims asserted by the
grantor and those persons whose right to assert a claim against
the title arose during the period the grantor held title to the
property. In a special warranty deed the grantor guarantees to
the grantee that he has done nothing during the time he held
title to the property which has, or which might in the future,
impair the grantee's title.
STANDARD UNIFORM APPLICATION: An
application developed by FNMA and FHLMC that is
widely used in the mortgage industry.
STATE AND LOCAL HOUSING PROGRAMS: Unique
housing finance programs to assist first time home buyers and
low to moderate housing groups. Each state and local group has
different sets of criteria.
STATUTORY LIEN: An involuntary lien, includes tax liens,
judgment liens, mechanic liens, etc.
SUBJECT PROPERTY: The property being
appraised.
SUBJECT-TO MORTGAGE: Condition in which the
buyer takes title to a mortgaged property but is not personally
liable for the payment of the amount due. The buyer does have
to make payments in order to keep the property. In case of
default, only the buyer's equity in the property is lost.
SUBORDINATION CLAUSE: A clause that can be
inserted into a mortgage document to keep the mortgage
secondary to any other mortgages. (See Mortgage for more
details).
SWEAT EQUITY: Equity created by the labor
of the purchaser or borrower that increases the value of the
property.
TAX BRACKET: Marginal rate for income taxes.
It is the percentage of each additional dollar in income
required to be paid as income taxes.
TAX LIEN: Lien for nonpayment
of taxes.
TAX SALE: Public sale of property at an auction
by a governmental authority, due to non payment of property
taxes.
TEASER RATE: Interest rate charged on an
adjustable-rate mortgage for the initial adjustment interval
that is usually much lower than the fully indexed rate. The
Teaser Rate is an incentive to encourage borrowers to accept an
adjustable-rate mortgage loan. Usually, the interest rate jumps
back to the indexed rate at the adjustment date.
TERM: The period of time during which
principal and interest payments must be made on a regular
basis.
TITLE: This is evidence that you actually have
the right of ownership of real property. It takes the form of a
deed that specifies the kind of title you have (whether joint,
common, or some other). Often used interchangeably with the
word ownership.
TITLE INSURANCE POLICY: An insurance policy
that covers the title to your home. It may list you or the
lender as a beneficiary. This policy is issued by a title
insurance company, or by an attorney (underwritten by an
insurance company). The policy states that if for any covered
reason your title is defective, the company will correct the
title or pay you up to a specified amount (usually the purchase
price or mortgage). Before issuing this policy, an insurance
company fully investigates the chain of title and notifies all
parties of any defect (such as liens). These must then be paid
off.
TITLE SEARCH: A review of the public
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 records, which
would adversely affect the marketability or value of title.
TRANSACTION COSTS: Costs associated with
buying and selling a home. These include: Appraisal Fee,
Brokerage Commission (paid by the seller), Legal Fees, Mortgage
Discount Points, Mortgage Origination Fees, Recording Fees,
Survey Fees, and Title Search Fees.
TRUTH IN LENDING STATEMENT (Regulation
Z): A federal government regulation that provides
details of the cost of obtaining a mortgage loan. Lenders must
provide this shortly after the loan application has been
completed.
USDA Guaranteed Rural Housing - A
program to assist moderate income applicants through the
Guarantee of Loans, in the acquisition of modest single family
homes, in eligible rural areas. Allows zero downpayment and
fixed rates up to 30 years. Subject to acceptable credit
history and income limits. Call YES
Financial for details.
VA LOANS: Home loans guaranteed by the
Veterans Administration (VA) under the Servicemen's
Readjustment Act of 1944 and its later revisions. The VA
guarantees payment to the lender in case of default. The home
must be the buyer's principal place of residence. Minimum
credit score down to 580 - subject to credit requirements of
the program. Contact YES Financial for eligibility
requirements. Fixed rates up to 30 years.
VALUATION: The act or process of
estimating value; the amount of estimated value.
W2 FORM: Income tax form that is provided
by employers to employees that states the income and taxes paid
in a calendar year.
WARRANTY DEED: A type of deed in which
the grantor makes formal assurance of title.
WRAP-AROUND OR WRAP FINANCING: This is a
combination of two mortgages. If the lender is the seller, then
he does not get all cash. Instead of giving the buyer/borrower
a simple second mortgage, the lender combines the balance due
on a previous, existing mortgage (usually a first) with an
additional loan. In this way, the wrap-around includes both the
second and the first mortgages. The borrower then makes
payments to the lender, who keeps part of the payment, and then
makes payments on the existing mortgage. The wrap is typically
used by a seller who either does not trust the buyer to make
payments on a first, or who wants to get a higher interest
rate.
ZONING ORDINANCES: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.