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Glossary of Mortgage Terms
Following is a list of mortgage-industry specific terms.
If you have questions about the mortgage process, contact
F&M Mortgage Group today at 301-528-0022 We're here to
answer your questions.
A B C
D E F
G H I
J K L
M N O
P Q R
S T U
V W X
Y Z
A
Abstract of Title - A
summary of the public records relating to the title of
a piece of land.
Abstract of Judgment -
A summary of a court judgment that creates a lien against
a property when filed with the county recorder.
Acceleration Clause -
A condition in a mortgage that gives the lender the right
to require the balance of the loan to become immediately
due and payable under certain conditions.
Acceptance - A seller's
written approval of a buyer's offer.
Acknowledgment - A declaration
by a notary certifying the identity of the signer, either
by personal knowledge or written identification.
Acre - An area of land
measuring 43,560 square feet.
Addendum - An addition
or change to a contract.
Adjustable Rate Mortgage (ARM)
- A mortgage loan with an interest rate that adjusts periodically
to reflect changes in a specified financial index.
Adjustment Period - The
amount of time between interest rate changes for an adjustable
rate mortgage.
Agreement of Sale - A
contract between the seller and buyer of a home detailing
the price and terms of the transaction.
Americans with Disabilities Act
- A law which was passed in 1990 that prohibits discrimination
in the areas of housing, public accommodations, employment,
government services, transportation, and telecommunications
against persons with disabilities.
Amortization - The gradual
repayment of a debt over time with periodic interest payments.
Annual Mortgagor Statement
- An annual statement sent to the borrower detailing the
remaining principal of the loan and the amounts of taxes
and interest paid for the year.
Annual Percentage Rate (APR)
- The total cost of the loan, including interest and other
finance charges, expressed as a yearly rate.
Annual Percentage Rate
- This is not the note rate applied for, but rather is
a government mandated formula that shows the cost of the
loan in a yearly rate by using the note rate plus certain
other upfront costs.
Application - A request
for a loan completed by a borrower and submitted to a
lender. The document is used to determine creditworthiness
that details income, debt, and other obligations.
Application Fee - A fee
some lenders charge to process a loan application.
Appraisal - An expert
estimate of the fair market value of a property as of
a given point in time. It is usually performed by a licensed
appraiser.
Appraisal Fee - The fee
charged by an appraiser to estimate the value of a property.
Appraisal Report - A detailed
written report regarding the fair market value of a property
based on its condition and recent sales of comparable
properties in the particular area.
Appraised Value - The
current market value of a property as determined by an
appraiser.
Appreciation - An increase
in the value of a property.
APR (Annual Percentage Rate)
- The total cost of the loan, including interest and other
finance charges, expressed as a yearly rate.
ARM (Adjustable Rate Mortgage)
- A mortgage loan with an interest rate that changes periodically
to reflect changes in a specified financial index.
As-Is Condition - A property
being purchased or sold in its existing condition.
Asking Price - The initial
price for a property, as determined by the seller.
Assessed Value - The value
of a property as determined by a tax assessor in order
to calculate a tax base.
Assessment - The estimated
value of a property on the tax roll.
Assessment Rolls - A list
of taxable properties compiled by a tax assessor.
Assets - Any items of
value, including cash, real estate, investments, and securities.
Assignor - An individual
who transfers rights and interests of a property to another.
Assumable Mortgage - A
mortgage that, with lender approval, can be transferred
from one borrower to another without obtaining new financing.
Average Price - The price
of a home determined by averaging the sales prices of
all houses sold in a particular area.
B
Back End Ratio - A borrower's
debt-to-income ratio, expressed as a percentage, calculated
by adding the new mortgage payment (including principal,
interest, taxes, and insurance) and rental or consumer
credit obligations divided by gross monthly income.
Balloon Mortgage - A
mortgage with monthly payments that are not large enough
to repay the loan at the end of the loan term, resulting
in a final payment that is a lump sum of the remaining
principal.
Balloon Payment - The
final lump sum payment of a balloon mortgage.
Bankruptcy - A court proceeding
authorizing reorganization or discharge of debts.
Bargain Sale - Selling
a piece of property for less than current market value.
Basis Point - One one-hundredth
of one percentage point.
Before Tax Income - Gross
income before taxes are deducted.
Betterment - An improvement
that increases a property’s value.
Bilateral Contract -
A contract in which the involved parties offer mutual
promises; also called a reciprocal contract.
Bill of Sale - A document
that transfers personal property ownership from one party
to another.
Binder - A preliminary
agreement between a buyer and a seller to purchase real
estate with agreed upon terms within a limited period
of time, secured by the payment of earnest money. A report
from a title insurance company with the details of the
condition of a home’s title and the terms under
which the title insurer will issue a title insurance policy.
Temporary evidence of hazard insurance until a formal
policy can be drawn.
Bona Fide - A legal term
referring to actions or individuals that are acting honestly
and in good faith.
Bond - An agreement that
insures a party against loss by acts or defaults of another
party.
Breach of Contract -
Failure to perform the provisions of a contract.
Break Even Point for Rental
- The point when an owner's rental income matches expenses
and debt.
Brokerage - Bringing together
two or more parties for a fee or commission.
Buy-Down - Paying a premium
to the lender to reduce the interest rate of a loan.
Buyer's Broker - A real
estate broker who represents only the buyer's interest,
whose commission is paid by the buyer.
Buyer's Market - A slow
real estate market, when buyers have the market advantage.
Bylaws - Rules and regulations
that govern a homeowner's association or corporation.
C
Call (Demand) Option
- A clause in a loan agreement that lets the lender request
the balance of the loan at any time during the life of
the loan.
Cancellation Clause -
A clause that explains the conditions under which a party
may terminate an agreement.
Cap - The limit on the
amount that the monthly payment and interest rate can
increase on an adjustable rate mortgage.
Capital - Money used to
create additional wealth, such as money invested in rental
property.
Capital Expenditure -
The cost of making improvements on property.
Capital Gains - The profit
from the sale of real estate or other long term investments.
Capital Gains Tax - A
tax on the profit from the sale of real estate or other
long-term investments.
Capital Improvement -
Any improvement that increases the value of a property.
Cash to Close - The amount
needed from the borrower at closing. Consists of down
payment, closing costs and prepaid items. This amount
needs to be in the form of a cashier check made payable
to the buyer.
Cash Out Refinancing
- Refinancing a mortgage with a loan amount that is greater
than the amount due on the loan being refinanced. The
additional funds may be used for cash to the borrower,
payment of additional outstanding liens or personal new
loan expenses.
Caveat Emptor - A legal
principle derived from the Latin phase, meaning "let
the buyer beware".
CC&Rs (Covenants, Conditions,
and Restrictions) - Rules and regulations for
a particular housing development.
Certificate of Occupancy
- A document issued by local government to a builder,
stating that the building has met all building codes and
is suitable for habitation.
Certificate of Title
- A document issued by a title company or a written opinion
from an attorney stating that the seller of a property
has good marketable and insurable title to the property
for sale.
Chain of Title - The
official record detailing the ownership history of a property.
Change Frequency - The
interest rate change schedule on an adjustable rate mortgage.
Clear Title - A property
that does not have any liens, defects, or other legal
encumbrances recorded against it.
Closing - The final step
in the purchase of a property, when documents are signed
and recorded, and the property is transferred to the new
owner.
Closing Costs - Various
costs related to the sale of real estate, including loan,
title, escrow, and appraisal fees.
Closing Date - Date stated
on the purchase agreement that buyer and seller agree
to finalize or close the transaction.
Closing Statement - The
document detailing the final financial settlement and
costs paid between a buyer and a seller in a real estate
transaction. The closing statement for a purchase transaction
is generally referred to as a HUD-1. The closing statement
for a refinance transaction may be a HUD-1A.
Cloud on Title - An outstanding
encumbrance on a property which may adversely affect the
marketability of title.
Collateral - Property
that a borrower offers as security to obtain a loan.
Collection - Steps taken
by a lender to obtain overdue payments on a loan.
Co-Maker - An individual
who signs a promissory note with a borrower and assumes
responsibility for the loan.
Commercial Property -
An area zoned for business.
Commingling - Mixing money
held in trust with other funds.
Commission - A percentage
of a sale paid to an agent of the sale as compensation
for assisting either the buyer or seller.
Commitment - A promise
from a lender to make a loan, under certain terms. Commitments
are issued for a limited period of time.
Commitment Fee - The
amount a lender may charge for issuing a commitment to
lend.
Common Area - An area
within a housing complex or tract that is owned by all
residents and is maintained using common funds.
Common Area Assessments
- Fees paid by the owners of a condominium or home in
a planned unit development to operate and maintain common
areas.
Common Interest Development
- A compilation of individually-owned units that share
responsibility for and usage of common areas.
Community Property -
A classification in certain states of property owned jointly
by a husband and wife.
Comparable - A property
with similar characteristics used to compare with a subject
property for the purpose of determining the fair market
value of the subject property.
Conditional Commitment
- A lender's promise to make a loan if a borrower meets
certain conditions.
Condominium - Individual
ownership of a unit within a building or development with
common areas owned by all residents. The individual owners
own the interior space of the dwelling. They do not own
the land the condominium sits on.
Conforming Loan - Any
loan that meets the qualifications to be purchased by
Fannie Mae or Freddie Mac.
Construction Loan - A
short-term loan for the construction of a home. Funds
are disbursed in stages by the lender.
Construction to Permanent Loan
- Converting a construction loan to a traditional
mortgage loan after construction is complete.
Consumer Credit - Credit
owed that is not secured by real estate.
Contract - An agreement
between two or more parties.
Contract to Purchase
- A contract between the seller and buyer of a home detailing
the price and terms of the transaction.
Conventional Mortgage
- A long-term loan for the purchase of a home that is
not insured by HUD or guaranteed by the Veteran's Administration.
Convertible Adjustable Rate Mortgage
- An adjustable rate loan which allows the borrower
to convert to a fixed rate loan during a specific period
of time.
Conveyance - The transfer
of a property's title from one party to another.
Conveyance Tax - A tax
on the transfer of real property.
Co-Signer - A second
party who signs a promissory note and assumes responsibility
for payment of the loan. A co-signer is fully responsible
for the debt in the event the borrower does not repay
the debt.
Counteroffer - A response
to an offer to purchase property, usually requesting a
change in the terms set forth in the buyer's offer.
Credit - Money lent to
a borrower in exchange for a commitment to repay the loan
within a certain timeframe.
Credit Bureau - A company
that collects credit data and issue credit reports. A
credit bureau will generally access credit information
held by a credit repository.
Credit History - A record
of a person's current and past payment of debts.
Creditor - Any individual
or institution to which a debt is owed.
Credit Rating / Scores
- The number generated by the credit bureaus which is
a numerical representation of the subject’s credit
profile, range is from 450 on the low side to 900 being
the highest score possible.
Credit Report - A report
furnished by an independent credit reporting agency that
verifies an individual's credit and payment history on
current and previous debts, and other information pertinent
to their credit history.
Credit Repository - A
large company that gathers financial and credit information
from multiple sources about individuals who have applied
for credit. The credit repository generally furnished
data to credit reporting agencies or bureaus.
D
Debt - Any amount of money,
goods, or services one person owes to another.
Debt Ratios - Ratio of
debt to pretax income, often expressed as a front (housing
payment only) or back (all debt) ratios. Example: $5000
monthly income, $1400 housing payment, $1700 total debt
would equal ratios of 28%/34%.
Deed - The legal document
that transfers ownership of real property from one person
to another. There are may types of deeds (e.g., quit claim,
grant, warranty).
Default - Failure to make
loan payments as agreed to in the terms of the mortgage
or deed of trust. A borrower may default for reasons other
than non-payment (e.g., failure to keep the property in
a safe and sound condition, failure to notify the lender
that the property has been sold).
Delinquent Mortgage -
SA mortgage that is behind on regularly scheduled payments.
Deposit - Money the buyer
offers when extending an offer to purchase a property
in order to show good faith.
Depreciation - A property’s
decline in value due to wear and tear, adverse changes
in the neighborhood, or any other reasons.
Discharge - The final
step in bankruptcy proceedings, in which debts are no
longer owed or collectable.
Disclosure - A statement
to a potential buyer of a property, including all of the
relevant information about that property.
Discount Points - One
point equals one percent of the loan amount. Points are
used to lower the interest rate. One point does not equate
into lowering the interest rate one percent. Generally
lowering the interest rate 1/8 will cost about 1/2 point,
although this can vary based on daily pricing. Typically
is tax deductible.
Distressed Property -
Property in poor physical condition.
Documentary Stamps -
A state tax, in the form of stamps, that is required on
deeds and mortgages when property titles pass from one
owner to another. The fee is generally paid to the state.
Down Payment - The amount
of money the purchaser agrees to pay to the seller upon
signing the sales agreement which is the difference between
the loan amount and the purchase price.
Dual Agent - An agent
who represents both the buyer and the seller in a transaction.
Due-On-Sale Clause -
A statement in loan documents which states that the loan
must be paid in full when the house is sold.
E
Early Occupancy - When
the seller of a property allows the buyers to occupy the
property before the sale is complete.
Earnest Money - The deposit
money a buyer gives to a seller with the offer to purchase
a property.
Easement - A right given
to an individual or agency authorizing access to or over
the owner’s property.
Encumbrance - A claim
or lien on a property that affects a free and clear title
to the property.
Equal Credit Opportunity Act
- A federal law prohibiting lenders or other creditors
from refusing credit based on the applicant’s race,
color, religion, national origin, sex, marital status,
age (provided the applicant has the capacity to contract);
on the fact that all or part of the applicant’s
income is derived from public assistance; or the fact
that the applicant has in good faith exercised any right
under the Consumer Credit Protection Act.
Equifax Information Services
PO Box 740243
Atlanta, GA 30374
(800) 685-1111
Equity - The remaining
value of a homeowner’s property after deducting
existing liens.
Escrow (Escrow Agent)
- A neutral third party who holds money and documents
until all conditions of the agreement are satisfied and
then directs the closing of the transaction.
Escrow (Impound) Account
- An account established to hold funds for payment of
various homeowner’s expenses, such as hazard insurance
or property taxes.
Escrow (Impound) Analysis
- An annual review of an escrow account by a lender to
determine if the lender is withholding enough funds from
the borrower’s monthly mortgage payment to cover
property taxes, insurance, or other expenses.
Escrow Closing - When
all conditions for the real estate transaction are met
and the property title is transferred to the buyer.
Escrow Instructions -
Instructions prepared by the escrow agent stating the
conditions, parameters, and contingencies of a transaction.
The escrow instructions are agreed to by all parties.
Examination of Title
- A review of public records and other documents by a
title company to establish the chain of ownership of a
property.
Experian Information Services
PO Box 2002,
Allen, TX 75013-3742
(888) 397-3742
F
Fair Credit Reporting Act
- A federal law which prevents old or inaccurate information
from remaining in consumer credit files and regulates
credit reporting procedures.
Fair Debt Collection Practices
Act - A federal law which renders debtor harassment
illegal and regulates collection practices.
Fair Housing Act - A
federal law which outlaws denying rent or refusing to
sell property to anyone based on race, color, religion,
familial status (having one or more children), handicap,
or national origin.
Fannie Mae (FNMA) - Short
name for the Federal National Mortgage Association. One
of the main Government Sponsored Agencies which are the
companies who sell mortgage backed bonds to investors.
They are the ultimate source of the money that we lend.
Fannie Mae protects its investors by issuing underwriting
guidelines that are to be followed to ensure quality lending;
also see schematic under "commonly asked questions"
Federal Home Loan Mortgage Corporation
- A company, commonly known as Freddie Mac, that
buys mortgages from lenders and resells them to investors.
Federal Housing Administration
(FHA) - A government agency that operates various
home loan programs.
Fee Simple - A type of
property ownership in which the owner owns both the land
and the structures, and is entitled to use the property
freely, in accordance with state and local laws.
FHA Loans -
First Mortgage - The
primary mortgage on a property that has priority over
all other mortgages recorded against it.
Fixed Installment - The
monthly payment on a fixed-rate loan.
Fixed Rate Mortgage -
A home loan with an interest rate that remains the same
for the entire term of the loan.
Floating - Not locking
in a rate, but rather choosing to float the interest rate
as the market moves up or down.
Flood Certification -
Required document on all loans. Confirms if the property
is in or out of a FEMA designated flood zone.
Foreclosure - A legal
process in which a lender enforces early payment of a
mortgage in default by taking and selling the mortgaged
property to repay the loan, legal costs, and other liens
on the property.
Free and Clear - When
a property is completely paid and has no liens attached.
Front End Ratio - A borrower’s
debt-to-income ratio, expressed as a percentage, calculated
by dividing the mortgage payment (including principal,
interest, tax, and insurance) by gross monthly income.
Funds held in Escrow
- Generally only applies to new construction. Monies held
from the seller to provide payment for repairs or non
completed items.
G
Gift - Cash a borrower
receives from a relative or another source, used to make
a down payment on a property.
Good Faith Estimate -
An estimate from a lender that details the estimated costs
a borrower will incur, including points, loan processing
fees, inspection fees, title, escrow, recording, and other
fees.
Government Financing
- Financing provided from government agencies such as
FHA, VA, etc.
Government National Mortgage
Association - An agency, commonly known as Ginnie
Mae, which purchases only government-backed loans, then
resells them to investors.
Grace Period - A period
of time after the payment due date during which a penalty
for late payment is not assessed.
Grant Deed - The most
common type of title transfer conveyance, which has warranties
against prior conveyances or encumbrances.
Graduated Payment Mortgage
- A mortgage with payments that gradually increase over
three to five years, then remain fixed for the remainder
of the term.
Gross Income - Total
household income before taxes or other expenses are taken
out.
Guarantee Mortgage -
- A mortgage loan that is guaranteed by a third party,
such as a government institution.
H
Hazard Insurance - A
type of homeowner’s insurance that protects against
damages caused to property by fire, wind, or other common
hazards.
HELOC - Home Equity Line
of Credit. Second mortgage product, generally characterized
by interest only payments and the ability to draw, payback,
and redraw.
Home Equity Loan - A
loan in which the owner of a property borrows against
any remaining equity in the property.
Home Inspection - An examination
of the construction, condition, and internal systems of
a home by a qualified inspector prior to purchase.
Home Warranty - Insurance
that covers repairs to certain parts of a house and some
fixtures. It is generally offered and paid for by the
seller.
Homeowners Association Dues
- Amount paid by owner of a townhouse or condo to cover
various amenities or services provided by the homeowners
association. (examples – common areas, hazard insurance,
garbage, mowing, snow removal).
Homeowner's/hazard Insurance
- Insurance which covers damage or loss to the
property. The premium is usually paid into an escrow account
held by the mortgage company, which then pays the insurance
company once a year.
Homeowner's Association
- An elected group that governs a planned community.
Housing Expense Ratio
- The percentage of gross monthly income that goes for
housing costs.
HUD (U.S. Department of Housing
and Urban Development) - A federal agency charged
with overseeing the Federal Housing Administration and
other housing and community development programs.
HUD-1 Uniform Settlement Statement
- A closing settlement statement that identifies
the distribution of funds and closing costs on a real
estate purchase transaction.
>
I
Impound (Escrows) - A
portion of the monthly mortgage payment that is placed
in an account and held to pay hazard insurance, property
insurance and private mortgage insurance.
Income Property - Property
used to generate rental income.
Incurable Defect - A
property defect that cannot be fixed or that would be
too costly to repair.
Initial Interest Rate
- The original interest rate on an adjustable rate mortgage.
Inspection Report - A
document describing the examination of a home’s
exterior and interior.
Insurance Binder - A
temporary policy used until a permanent policy can be
obtained. It is usually valid for 30, 60, or 90 days.
Interest - The cost of
borrowing money.
Interest Rate - The amount
at which interest will be charged for a loan, expressed
as a percentage of the loan amount.
Interest Rate Cap - The
limit on the amount of interest that can be charged on
the monthly payment of an adjustable rate mortgage during
the adjustment period.
Interest Rate Ceiling
- The highest amount of interest a lender can charge for
a particular adjustable rate mortgage over its lifetime.
Also known as a life cap.
Interest-Only Loan -
A loan in which the monthly payment covers only the interest;
the principal balance does not decline with each payment.
Investment Property -
Real estate that generates rental income.
J
Joint Liability - When
two or more individuals are responsible to fulfill the
terms of a loan or agreement.
Joint Tenancy - Ownership
of a property in which two or more individuals have equal
shares of a piece of property, and survivorship rights
pass to the surviving owner or owners.
Judgment - The decision
of a court of law.
Jumbo Loan - A loan that
exceeds loan amount limits set by Fannie Mae and Freddie
Mac.
Jumbo Pricing - Refers
to the fact that rates are generally slightly higher on
jumbo loans.
Junior Mortgage - A loan
that is subordinate (obtained after) the primary loan
(first mortgage).
K
No entries
L
Land Contract - A contract
in which the seller does not transfer title to the buyer
until the full purchase price of the property is paid.
Late Charge - A fee charged
to a borrower when their payment is not received on time
or within the grace period (if provided).
Late Payment - A payment
received by the lender after the due date.
Legal Blemish - A blemish,
such as a title claim or zoning violation, on a piece
of property. It may also be referred to as a cloud on
title.
Legal Description - A
method of geographically describing the location of a
property that is acceptable in a court of law.
Lender - Any bank, credit
union, mortgage company, or savings institution that offers
home loans.
Letter of Intent - A
formal statement in which an individual indicates the
intention to purchase property for a certain price and
on a specific date.
Liabilities - A individual’s
debts and financial obligations.
Liability Insurance -
An insurance policy that protects property owners against
claims of negligence, property damage, or personal injury.
LIBOR - The London Interbank
Offered Rate, which is the base interest rate paid on
deposits between banks in the Eurodollar market.
Lien - An attachment by
an individual or company to the property of another as
security for repayment of a debt.
Life Cap - The limit
on the amount that a loan rate can change during the term
of an adjustable rate mortgage.
Liquid Assets - Cash
and all other assets that can be quickly converted to
cash.
Liquidated Damages -
An amount of money agreed upon in the real estate purchase
contract that one party is entitled to if the deal falls
through.
Loan Approval - The decision
a lender makes about the amount that can be borrowed for
the purchase of a property.
Loan Modification - A
change in the terms of a loan agreement.
Loan Risk - A value or
category assigned to a loan which estimates the probability
that the loan will experience delinquency or loss in the
future.
Loan-to-Value Ratio -
A measure used by lenders to assess the relationship between
the value of the property and the amount of the loan.
The loan-to-value ratio is determined by dividing the
loan amount by the fair market value of the property.
Loan Officer - A representative
of a lending institution who is authorized to act on behalf
of a lender in order to obtain new borrowers.
Loan Origination Fee
- The lender’s fee (price) for a particular loan
type, loan amount, interest rate, and term.
Loan Processing Fee -
A fee charged for gathering information to process a loan.
Loan Term - The length
of time set by a lender for a borrower to repay a mortgage
loan.
Location - One of the
most important characteristics in determining a home’s
desirability.
Lock In - A period of
time during which a potential borrower and a lender have
agreed to a specific interest rate.
Locking In - Choosing
to protect a particular rate and program for a specific
period of time.
M
Maintenance Fee - A monthly assessment paid by members of a homeowners' association for repair and maintenance of common areas.
Margin - Percentage points added to an index to determine the interest rate of the loan.
Marketable Title - A title that is free and clear of all objectionable liens, clouds, or other title defects.
Market Conditions - Factors affecting the sale and purchase of homes at a point in time.
Market Value - The likely selling price of a property if sold in a reasonable length of time after being put up for sale.
Mechanic's Lien - An encumbrance filed by a subcontractor or supplier against a property to ensure payment of goods or services.
Mediation - A dispute and resolution process in which a neutral party attempts to resolves contract differences between various parties.
Mortgage - A lien or claim against real property given by the buyer to a lender as security for repayment of the loan.
Mortgage Acceleration Clause - A statement in the mortgage documents that permits a lender to request payment in full of the loan as a lump sum in certain cases, such as when the home is sold, the title is changed, the loan is refinanced, or if the borrower defaults on a payment.
Mortgage Banker - A company that provides home loans using its own capital, then usually sells the loans to investors.
Mortgage Broker - An individual or company that receives a commission for matching prospective borrowers with lenders.
Mortgagee - The lender in a mortgage agreement.
Mortgage Insurance (MI) - Insurance which protects the lender LENDER against default. Generally, the higher the loan-to-value the higher the monthly premium.
Mortgage - Document - This document signed at closing is the collateralization of the property to the note or loan.
Mortgage Life Insurance - Insurance that will pay off a mortgage if the borrower dies before the loan is paid off.
Mortgage Note - A legal document in which a borrower agrees to repay a loan.
Mortgagor - The borrower in a mortgage agreement.
Move-In Condition - A house that is ready for a new occupant to move in without any repairs, upgrades or changes to the house.
Move-Up Buyer - A buyer who has previously owned a home and wants to purchase a larger or more expensive home.
N
Negative Amortization - When monthly mortgage payments do not cover the principal and interest of a loan, and the outstanding balance of the loan grows larger with each payment.
Net Cash Flow - An investment property that generates income after all of the expenses, such as mortgage, taxes, and insurance, have been paid. The cash flow may either be positive or negative.
Net Worth - An individual or company's worth after subtracting total liabilities from total assets.
Non-Assumption Clause - A provision in a loan agreement that prohibits the transfer of a mortgage to another borrower.
Non-Conforming Loan - Any loan that is too large or doesn't otherwise meet the qualifications to be purchased by Fannie Mae or Freddie Mac.
Non-Liquid Asset - An asset that is not easily turned into cash.
Non-Owner Occupied - A property not used as a residence by the owner of the property.
Non-Recurring Closing Costs - One-time expenses at closing for items such as appraisal, credit report, loan points, home inspection, and title insurance.
Notary Public - An individual who is designated by the state and authorized to certify the identity of a person signing various documents.
Note - The promissory note, a document that details the terms of a loan and legally obligates the borrower to repay the debt.
Note Rate - The interest rate specified in a mortgage note.
Notice of Default - An initial action from a lender when a borrower's mortgage payment is late and all other attempts to resolve the issue out of court have been unsuccessful.
O
Odd Days Interest/Per Diem Interest - Collected at closing, it is money collected/refunded to borrower to synchronize the closing to the monthly payments.
Option - When a potential buyer puts down an amount of money for the right to purchase a piece of real estate within a certain period of time, but is not obligated to buy.
Oral Agreement - An unwritten contractual agreement that is not usually legally binding.
Original Principal Balance - The amount of principal owed on a loan before the borrower makes any payments.
Origination Fee - 1% of the loan amount. Can be avoided by paying a higher rate; typically is tax deductible.
Owner Financing - When the seller of a property finances all or part of a real estate purchase.
Owner Occupied - A property in which the owner is also the resident of the property.
P
Paying Points - Money paid upfront to lower the interest rate. Rule of thumb - breakeven point is (where monthly savings meets/exceeds money paid upfront) usually around 60 payments or 5 years. This means that in many cases paying points will pay off as long as you do not sell or refinance your loan before the breakeven point. (actual breakeven point may vary, please talk to us about your exact situation) Some niche programs and products may require points to be paid.
Per Diem Interest - Interest that is charged on a daily basis.
Personal Property - Moveable belongings on a property.
Piggy Back - A second mortgage closed at the same time as a first mortgage. Usually purpose is to avoid mortgage insurance, jumbo pricing, or for future needs.
PITI - Monthly payment. Stands for Principal, Interest, Tax Escrow, Insurance (both hazard and mortgage) escrow.
Planned Unit Development (PUD) - Residential projects that may contain clusters of homes, in which residents own the house and land, and share use and financial responsibility for common areas.
Plat - A map or chart of a lot, subdivision, or community showing boundary lines, buildings, easements, and improvements, as drawn by a surveyor.
PMI (Private Mortgage Insurance) - Insurance required on conventional loans with less than a 20% down payment to protect the lender from possible default on the loan.
Point - One percent of the principal amount of a mortgage loan.
Portfolio Lender - A lender that makes loans with its own funds and does not sell the loans to the secondary market.
Power of Attorney - A legal document authorizing an individual to act on the behalf of another.
Pre-Approval (Credit Approval) - When a lender completes an assessment of individual's creditworthiness and ability to pay for a house and indicates the amount that can be borrowed. Final loan approval is not given until the property has been appraised and all other lender conditions have been obtained.
Pre-Approval Letter - A letter from a lender indicating the amount of money that a potential borrower may obtain subject to conditions.
Pre-Qualification - Based on stated income, assets and debt. Information not verified, not as useful or informative as a pre-Approval.
Preliminary Title Report - A report issued by a title company at the beginning of the loan application process that indicates if there are liens on the property, who has title to the property, and any property taxes owed.
Prepaid Interest Charge - The portion of interest which covers the time period between loan funding and the beginning of the first 30-day period covered by the first payment. Prepaid interest is collected at the loan closing.
Prepayment - Payment of the entire mortgage loan, or part of it, before the due date (maturity date).
Prepayment Penalty - A monetary penalty imposed by a lender on a borrower who pays off a loan before a specified length of time. The prepayment penalty is generally assessed only during the first five years of the loan.
Principle of Conformity - The concept that a house will more likely appreciate in value if it is similar in age, condition, size, and style to other houses in the neighborhood.
Principle of Progression - The concept that real estate of lower value is enhanced by the proximity of higher-end properties.
Principle of Regression - The concept that real estate of high-end value can be lowered by the proximity of too many lower-end properties.
Property Taxes - Amount of tax due on a property. Usually is collected as part of the escrow portion of the monthly payment, with the lender being responsible to forward the escrowed money as the bills come due on May 15 and Oct. 15.
Punch List - A list, compiled by a buyer on a final walk-through, detailing items to be fixed before closing.
Purchase Agreement (Contract) - A contract between the seller and buyer of a home detailing the price and terms of the transaction.
Q
Qualification - When a lender completes an assessment of a borrower's creditworthiness and ability to pay for a house and indicates the amount the lender is willing to lend.
Quitclaim Deed - A legal document that released an individual from any interest in a piece of real estate, whether or not the individual actually had an interest.
R
Rate Lock - A period of time during which a potential borrower and a lender have agreed to a specific interest rate.
Rate vs. Price - Rate refers to the interest rate. Price refers to points. It is easy to become confused as both rate and points are usually referred to in 1/8 percent increments. A good rule of thumb is that often a 1/8% change in interest rate reflects a ½% change in points (actual rate and points may vary slightly)
Real Estate Agent - An individual who is licensed by the state to represent a buyer or seller in a real estate transaction in exchange for a commission.
Real Estate Broker - A real estate agent who is licensed by the state to represent a buyer or seller in a real estate transaction in exchange for a commission, and may be responsible for supervising real estate agents in their employ.
Real Property - Land and anything permanently affixed to it.
Reconveyance - A release of lien filed with the county recorder.
Recording Fee - A fee charged by a Recorder to cover the cost of recording documents for the public records.
Refinancing - Replacing a mortgage loan with a new loan that has better terms.
Remaining Balance - The total unpaid principal on a mortgage loan.
Remaining Term - The original loan term, less the number of payments already made.
Rescission - The cancellation of a transaction or contract by law or by mutual consent.
Restructured Loan - A mortgage with newly- negotiated terms.
Right to Rescission - A provision in the federal Truth-In-Lending Act that allows borrowers to cancel certain loans within three days of signing loan documents.
S
Secondary Mortgage Market - An area of the mortgage industry that packages home loans and resells them as securities to investors.
Secured Loan - A loan backed by collateral.
Security - A piece of property designated as collateral.
Servicer - A company that collects and processes mortgage payments and manages borrowers' escrow accounts.
Single Family Residence - Standard, one unit home, as opposed to a Condo/Town Home with a homeowners association.
Special Assessment - A special tax imposed on property for road construction, sidewalks, sewers, street lights, or other municipal needs.
Square Footage - The number of square feet of livable space in a home.
Statement of Information - A form completed by a customer for the title company to give further identification of the customer.
Step-Rate Mortgage - A loan that has a gradual increase in the interest rate during the years of the loan.
Survey - A map made by a surveyor with the purpose of measuring land with elevations, boundaries, improvements, and its relationship to surrounding tracts of land.
T
Tax Lien - A claim placed against a property for the purpose of repaying back taxes. Property may be sold for payment of delinquent taxes.
Teaser Rate - A low, short-term rate offered on an adjustable rate mortgage to assist borrowers in initially qualifying for a home loan.
Title Company - A firm that provides title insurance and confirms that the title to a property is clear.
Title Insurance - Policy provided by the title company on their title work guaranteeing the accuracy and completion. Lenders Policy is required and only protects the Lender from loss, Owners Policy is available at buyers discretion and protects the owner.
Title Search - A check of public title records to ensure that the seller is the legal owner of a property and that there are no claims or liens against the property.
Title Work - Document prepared by title company which outlines the ownership of the property and other various details.
Trans Union Information Services - P.O. Box 1000
Chester, PA 79022
(800) 916-8800
Transfer of Ownership - Any legal means by which real estate changes from one owner to another.
Transfer Tax - An assessment on a piece of property by state or local authorities when the ownership of the property changes.
Trust Account - A special account to safeguard funds for a buyer or seller, primarily used by brokers and escrow agents. An escrow or impound account is also a trust account.
Trustee - An individual who has legal responsibility to hold property for another person(s).
Truth-In-Lending Act - A federal law that requires a Truth-In-Lending Statement to be disclosed for all consumer loans; the Truth-In-Lending Statement includes the annual percentage rate (APR), as well as the other terms of the loan; the Truth-In-Lending Act also requires the disclosure of the right of rescission, which allows a consumer to cancel a refinance, home improvement loan, second mortgage, or other refinancing loan program for three business days after the contract is signed, if the home is owner occupied.
U
Underwriting - The process of evaluating the creditworthiness of a borrower and the risks associated with making a particular loan. The underwriter established the loan amount, loan term, interest rate, and conditions for funding the loan.
Unsecured Loan - A loan
that is not backed by any collateral.
V
VA Loan - A Veterans Administration program that allows veterans to purchase a house without a down payment.
Variable Interest Rate - A loan interest rate that changes with fluctuations in the index to which it is attached, such as the U.S. Treasury bill index.
Variable Rate Mortgage - A mortgage loan with an interest rate that changes with fluctuations in the index to which it is attached.
Verification of Deposit - When a lender, as part of the loan process, requests that the potential borrower's bank sign a statement verifying the borrower's account balances and history.
Verification of Employment - When a lender, as part of the loan process, requests that the borrower's employer confirm a borrower's employment position and salary.
W
Walk-Through - A buyer's final inspection of a home to determine if the conditions established in the purchase agreement have been satisfied.
X
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Y
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Z
Zoning - The division of a city or county in areas with administrative regulations specifying the allowable uses for property.
Zoning Variance - A one-time modification of an existing zoning regulation.
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