Glossary of Finance Terms
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
acceleration clause:
A provision in a mortgage that gives the lender the right to
demand payment of the entire principal balance if a monthly payment is missed.
acceptance:
An offeree’s consent to enter into a contract and be bound
by the terms of the offer.
additional principal payment:
A payment by a borrower of more than the scheduled principal
amount due in order to reduce the remaining balance on the loan.
adjustable-rate mortgage (ARM):
A mortgage that permits the lender to adjust the mortgage's interest
rate periodically on the basis of changes in a specified index. Interest rates
may move up or down, as market conditions change.
adjusted basis:
The original cost of a property plus the value of any capital
expenditures for improvements to the property minus any depreciation taken.
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).
administrator:
A person appointed by a probate court to administer the estate
of a person who died intestate.
affordability analysis:
A detailed analysis of your ability to afford the purchase of
a home. An affordability analysis takes into consideration your income, liabilities
and available funds, along with the type of mortgage you plan to use, the area
where you want to purchase a home and the closing costs that you might expect
to pay.
amenity:
A feature of real property that enhances its attractiveness and
increases the occupant’s or user’s satisfaction although the feature
is not essential to the property’s use. Natural amenities include a pleasant
or desirable location near water, scenic views of the surrounding area, etc.
Human-made amenities include swimming pools, tennis courts, community buildings
and other recreational facilities.
amortization:
The gradual repayment of a mortgage loan by installments.
amortization schedule:
A timetable for payment of a mortgage loan. An amortization schedule
shows the amount of each payment applied to interest and principal and shows
the remaining balance after each payment is made.
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.
amortize:
To repay a mortgage with regular payments that cover both principal
and interest.
annual mortgagor statement:
A report sent to the mortgagor (the borrower) each year. The
report shows how much was paid in taxes and interest during the year, as well
as the remaining mortgage loan balance at the end of the year.
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).
annuity:
An amount paid yearly or at other regular intervals, often on
a guaranteed dollar basis.
application:
A form used to apply for a mortgage loan and to record pertinent
information concerning a prospective mortgagor and the proposed security. Lenders
use the information on the loan application to evaluate whether or not they
can give the loan, and if so, the amount of money they can lend.
appraisal:
A written analysis of the estimated value of a property prepared
by a qualified appraiser. Contrast with home inspection.
appraised value:
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience and analysis of the property.
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.
assessed value:
The valuation placed on property by a public tax assessor for
purposes of taxation.
assessment:
The process of placing a value on property for the strict purpose
of taxation. May also refer to a levy against property for a special purpose,
such as a sewer assessment.
assessment rolls:
The public record of taxable property.
assessor:
A public official who establishes the value of a property for
taxation purposes.
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.
See assumable mortgage.
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.
attorney-in-fact:
One who holds a power of attorney from another to execute documents
on behalf of the grantor of the power.
top of page
B
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. The principal and interest on the loan
are amortized over a longer period than the actual term of the mortgage.
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.
bequeath:
To transfer personal property through a will.
betterment:
An improvement that increases property value as distinguished
from repairs or replacements that simply maintain value.
bill of sale:
A written document that transfers title to personal property.
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 insurance policy:
A single policy that covers more than one piece of property (or
more than one person).
blanket mortgage:
The mortgage that is secured by a cooperative project, as opposed
to the share loans on individual units within the project.
bona fide:
In good faith, without fraud.
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.
budget:
A detailed plan of income and expenses expected over a certain
period of time. A budget can provide guidelines for managing future investments
and expenses.
budget category:
A category of income or expense data that you can use in a budget.
You can also define your own budget categories and add them to some or all of
the budgets you create. "Rent" is an example of an expense category.
"Salary" is a typical income category.
building code:
Local regulations that control design, construction and materials
used in construction. Building codes are based on safety and health standards.
buydown account:
An account in which funds are held so that they can be applied
as part of the monthly mortgage payment as each payment comes due during the
period that an interest rate buydown plan is in effect.
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.
top of page
C
call option:
A provision in the mortgage that gives the mortgagee (the lender)
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. See
lifetime payment cap, lifetime rate cap, periodic payment cap and periodic rate
cap.
capital:
(1) Money used to create income, either as an investment in a
business or an income property. (2) The money or property comprising the wealth
owned or used by a person or business enterprise. (3) The accumulated wealth
of a person or business. (4) The net worth of a business represented by the
amount by which its assets exceed liabilities.
capital expenditure:
The cost of an improvement made to extend the useful life of
a property or to add to its value.
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 deposit:
A document written by a bank or other financial institution that
is evidence of a deposit, with the issuer's promise to return the deposit plus
earnings at a specified interest rate within a specified time period. See adjustable
rate mortgage (ARM).
certificate of deposit index:
An index that is used to determine interest rate changes for
certain adjustable-rate mortgage (ARM) plans. It represents the weekly average
of secondary market interest rates on six-month negotiable certificates of deposit.
See adjustable-rate mortgage.
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).
chattel:
Another name for personal property.
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. "
At this meeting, ownership of the property is transferred from the seller to
the buyer.
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; lenders or REALTORS®
often provide estimates of closing costs to prospective homebuyers.
closing statement:
See HUD-1 statement.
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.
coinsurance:
A sharing of insurance risk between the insurer and the insured.
Coinsurance depends on the relationship between the amount of the policy and
a specified percentage of the actual value of the property insured at the time
of the loss.
coinsurance clause:
A provision in a hazard insurance policy that states the amount
of coverage that must be maintained -- as a percentage of the total value of
the property -- for the insured to collect the full amount of a loss.
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 area assessments:
Levies against individual unit owners in a condominium or planned
unit development (PUD) project for additional capital to defray homeowners'
association costs and expenses and to repair, replace, maintain, improve or
operate the common areas of the project.
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.
common law:
An unwritten body of law based on general custom in England and
used to an extent in the United States.
Community Land Trust Mortgage Option:
An alternative financing option that enables low- and moderate-income
home buyers to purchase housing that has been improved by a nonprofit Community
Land Trust and to lease the land on which the property stands.
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.
Community Seconds®:
An alternative financing option for low- and moderate-income
households under which an investor purchases a first mortgage that has a subsidized
second mortgage behind it. The second mortgage may be issued by a state, county
or local housing agency, foundation, or nonprofit organization. Payment on the
second mortgage is often deferred and carries a very low interest rate (or no
interest rate at all). Part of the debt may be forgiven incrementally for each
year the buyer remains in the home.
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.
compound interest:
Interest paid on the original principal balance and on the accrued
and unpaid interest.
condemnation:
The determination that a building is not fit for use or is dangerous
and must be destroyed; the taking of private property for a public purpose through
an exercise of the right of eminent domain.
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.
condominium hotel:
A condominium project that has rental or registration desks,
short-term occupancy, food and telephone services and daily cleaning services
and that is operated as a commercial hotel even though the units are individually
owned.
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.
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.
Contrast with government mortgage.
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.
cooperative corporation:
A business trust entity that holds title to a cooperative project
and grants occupancy rights to particular apartments or units to shareholders
through proprietary leases or similar arrangements.
cooperative mortgages:
Mortgages related to a cooperative project. This usually refers
to the multifamily mortgage covering the entire project but occasionally describes
the share loans on the individual units.
cooperative project:
A residential or mixed-use building wherein a corporation or
trust holds title to the property and sells shares of stock representing the
value of a single apartment unit to individuals who, in turn, receive a proprietary
lease as evidence of title.
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. See adjustable-rate mortgage (ARM).
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 life insurance:
A type of insurance often bought by mortgagors because it will
pay off the mortgage debt if the mortgagor dies while the policy is in force.
creditor:
A person to whom money is owed.
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.
credit 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.
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.
top of page
D
debt:
An amount owed to another. See installment loan and revolving
liability.
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. Also called a "voluntary conveyance."
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. See earnest money deposit.
depreciation:
A decline in the value of property; the opposite of appreciation.
discount points:
See point.
dower:
The rights of a widow in the property of her husband at his death.
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.
due-on-transfer provision:
This terminology is usually used for second mortgages. See due-on-sale
provision.
top of page
E
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.
eminent domain:
The right of a government to take private property for public
use upon payment of its fair market value. Eminent domain is the basis for condemnation
proceedings.
employer-assisted housing:
A special housing initiative that offers several different ways
for employers to work with local lenders to develop plans to assist their employees
in purchasing homes.
encroachment:
An improvement that intrudes illegally on another’s property.
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.
exclusive listing:
A written contract that gives a licensed real estate agent the
exclusive right to sell a property for a specified time, but reserving the owner’ s
right to sell the property alone without the payment of a commission.
executor:
A person named in a will to administer an estate. The court will
appoint an administrator if no executor is named. "Executrix" is the
feminine form.
top of page
F
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 New York Stock Exchange company and the largest non-bank financial
services company in the world. It operates pursuant to a federal charter and
is the nation's largest source of financing for home mortgages.
Fannie Mae Properties:
Fannie Mae owns, manages and has available for sale, single-family
detached homes, two- to four-unit properties, condominiums and townhouses in
a variety of neighborhoods. The number, type and sales price may vary substantially.
The homes vary in age and may require repairs. Fannie Mae homes are sold through
local real estate brokers.
Fannie Mae's Community Home Buyer's ProgramSM:
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.
Fannie 97®:
A financing option for a fixed-rate mortgage that offers home
buyers a 3 percent down payment loan with a term between 15 and 30 years. The
mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed
to expand homeownership opportunities for people with modest incomes. Borrowers
must take a pre-purchase home-buyer education session to qualify for a Fannie
97 mortgage.
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.
fee simple estate:
An unconditional, unlimited estate of inheritance that represents
the greatest estate and most extensive interest in land that can be enjoyed.
It is of perpetual duration. When the real estate is in a condominium project,
the unit owner is the exclusive owner only of the air space within his or her
portion of the building (the unit) and is an owner in common with respect to
the land and other common portions of the property.
FHA coinsured mortgage:
A mortgage (under FHA Section 244) for which the Federal Housing
Administration (FHA) and the originating lender share the risk of loss in the
event of the mortgagor's default.
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.
firm commitment:
A lender’s agreement to make a loan to a specific borrower
on a specific property.
first mortgage:
A mortgage that is the primary lien against a property.
fixed installment:
The monthly payment due on a mortgage loan. The fixed installment
includes payment of both principal and interest.
fixed-rate mortgage (FRM):
A mortgage in which the interest rate does not change during
the entire term of the loan.
fixture:
Personal property that becomes real property when attached in
a permanent manner to real estate.
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 mortgage debt.
forfeiture:
The loss of money, property, rights or privileges due to a breach
of legal obligation.
401(k)/403(b):
An employer-sponsored investment plan that allows individuals
to set aside tax-deferred income for retirement or emergency purposes. 401(k)
plans are provided by employers that are private corporations. 403(b) plans
are provided by employers that are not for profit organizations.
401(k)/403(b) loan:
Some administrators of 401(k)/403(b) plans allow for loans against
the monies you have accumulated in these plans -- monies must be repaid to avoid
serious penalty charges.
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.
top of page
G
government mortgage:
A mortgage that is insured by the Federal Housing Administration
(FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural
Housing Service (RHS). Contrast with conventional mortage.
Government National Mortgage Association:
A government-owned corporation within the U.S. Department of
Housing and Urban Development (HUD). Created by Congress on Sept. 1, 1968, GNMA
assumed responsibility for the special assistance loan program formerly administered
by Fannie Mae. Popularly known as Ginnie Mae.
grantee:
The person to whom an interest in real property is conveyed.
grantor:
The person conveying an interest in real property.
ground rent:
The amount of money that is paid for the use of land when title
to a property is held as a leasehold estate rather than as a fee simple estate.
group home:
A single-family residential structure designed or adapted for
occupancy by unrelated developmentally disabled persons. The structure provides
long-term housing and support services that are residential in nature.
growing-equity mortgage (GEM):
A fixed-rate mortgage that provides scheduled payment increases
over an established period of time, with the increased amount of the monthly
payment applied directly toward reducing the remaining balance of the mortgage.
guarantee mortgage:
A mortgage that is guaranteed by a third party.
guaranteed loan:
Also known as a government mortgage.
top of page
H
hazard insurance:
Insurance coverage that compensates for physical damage to a
property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM):
A special type of mortgage that enables older home owners to
convert the equity they have in their homes into cash, using a variety of payment
options to address their specific financial needs. Unlike traditional home equity
loans, a borrower does not qualify on the basis of income but on the value of
his or her home. In addition, the loan does not have to be repaid until the
borrower no longer occupies the property. Sometimes called a reverse mortgage.
home equity line of credit:
A mortgage loan, which is usually in a subordinate position,
that allows the borrower to obtain multiple advances of the loan proceeds at
his or her own discretion, up to an amount that represents a specified percentage
of the borrower's equity in a property.
home inspection:
A thorough inspection that evaluates the structural and mechanical
condition of a property. A satisfactory home inspection is often included as
a contingency by the purchaser. Contrast with appraisal.
HomeKeeperSM:
Fannie Mae's adjustable-rate conventional reverse mortgage, which
allows older homeowners to borrow against the value of their homes and receive
the proceeds according to the payment option they select. The amount available
is based on the number of borrowers and their ages and the adjusted property
value. Anyone 62 years or older who either owns his or her own home free and
clear or has very low mortgage debt is eligible.
homeowners' association:
A nonprofit association that manages the common areas of a planned
unit development (PUD) or condominium project. In a condominium project, it
has no ownership interest in the common elements. In a PUD project, it holds
title to the common elements.
homeowner's insurance:
An insurance policy that combines personal liability insurance
and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty (HOW):
A type of insurance that covers repairs to specified parts of
a house for a specific period of time. It is provided by the builder or property
seller as a condition of the sale.
HomeStyle® Mortgage Loan:
A mortgage that enables eligible borrowers to obtain financing
to remodel, repair and upgrade their existing homes or homes that they are purchasing.
See also HomeStyle Standard Mortgage, HomeStyle Remodeler, HomeStyle Community
Mortgage and HomeStyle Consumer Energy Loan.
housing expense ratio:
The percentage of gross monthly income that goes toward paying
housing expenses.
HUD median income:
Median family income for a particular county or metropolitan
statistical area (MSA), as estimated by the Department of Housing and Urban
Development (HUD).
HUD-1 statement:
A document that provides an itemized listing of the funds that
are payable at closing. Items that appear on the statement include real estate
commissions, loan fees, points and initial escrow amounts. Each item on the
statement is represented by a separate number within a standardized numbering
system. The totals at the bottom of the HUD-1 statement define the seller's
net proceeds and the buyer's net payment at closing. The blank form for the
statement is published by the Department of Housing and Urban Development (HUD).
The HUD-1 statement is also known as the "closing statement" or "settlement
sheet."
top of page
I
income property:
Real estate developed or improved to produce income.
index:
A number used to compute the interest rate for an adjustable-rate
mortgage (ARM). The index is generally a published number or percentage, such
as the average interest rate or yield on Treasury bills. A margin is added to
the index to determine the interest rate that will be charged on the ARM. This
interest rate is subject to any caps that are associated with the mortgage.
in-file credit report:
An objective account, normally computer-generated, of credit
and legal information obtained from a credit repository.
inflation:
An increase in the amount of money or credit available in relation
to the amount of goods or services available, which causes an increase in the
general price level of goods and services. Over time, inflation reduces the
purchasing power of a dollar, making it worth less.
initial interest rate:
The original interest rate of the mortgage at the time of closing.
This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as
"start rate" or "teaser."
installment:
The regular periodic payment that a borrower agrees to make to
a lender.
installment loan:
Borrowed money that is repaid in equal payments, known as installments.
A furniture loan is often paid for as an installment loan.
insurable title:
A property title that a title insurance company agrees to insure
against defects and disputes.
insurance:
A contract that provides compensation for specific losses in
exchange for a periodic payment. An individual contract is known as an insurance
policy, and the periodic payment is known as an insurance premium.
insurance binder:
A document that states that insurance is temporarily in effect.
Because the coverage will expire by a specified date, a permanent policy must
be obtained before the expiration date.
insured mortgage:
A mortgage that is protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI). If the borrower defaults on the
loan, the insurer must pay the lender the lesser of the loss incurred or the
insured amount.
interest:
The fee charged for borrowing money.
interest accrual rate:
The percentage rate at which interest accrues on the mortgage.
In most cases, it is also the rate used to calculate the monthly payments, although
it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
interest rate:
The rate of interest in effect for the monthly payment due.
interest rate buydown plan:
An arrangement wherein the property seller (or any other party)
deposits money to an account so that it can be released each month to reduce
the mortgagor's monthly payments during the early years of a mortgage. During
the specified period, the mortgagor's effective interest rate is "bought
down" below the actual interest rate.
interest rate ceiling:
For an adjustable-rate mortgage (ARM), the maximum interest rate,
as specified in the mortgage note.
interest rate floor:
For an adjustable-rate mortgage (ARM), the minimum interest rate,
as specified in the mortgage note.
investment property:
A property that is not occupied by the owner.
IRA (Individual Retirement Account):
A retirement account that allows individuals to make tax-deferred
contributions to a personal retirement fund. Individuals can place IRA funds
in bank accounts or in other forms of investment such as stocks, bonds or mutual
funds.
top of page
J
joint tenancy:
A form of co-ownership that gives each tenant equal interest
and equal rights in the property, including the right of survivorship.
judgment:
A decision made by a court of law. In judgments that require
the repayment of a debt, the court may place a lien against the debtor's real
property as collateral for the judgment's creditor.
judgment lien:
A lien on the property of a debtor resulting from the decree
of a court.
judicial foreclosure:
A type of foreclosure proceeding used in some states that is
handled as a civil lawsuit and conducted entirely under the auspices of a court.
jumbo loan:
A loan that exceeds Fannie Mae’s mortgage amount limits.
Also called a nonconforming loan.
top of page
L
late charge:
The penalty a borrower must pay when a payment is made a stated
number of days (usually 15) after the due date.
lease:
A written agreement between the property owner and a tenant that
stipulates the conditions under which the tenant may possess the real estate
for a specified period of time and rent.
leasehold estate:
A way of holding title to a property wherein the mortgagor does
not actually own the property but rather has a recorded long-term lease on it.
lease-purchase mortgage loan:
An alternative financing option that allows low- and moderate-income
home buyers to lease a home from a nonprofit organization with an option to
buy. Each month's rent payment consists of principal, interest, taxes and insurance
(PITI) payments on the first mortgage plus an extra amount that is earmarked
for deposit to a savings account in which money for a downpayment will accumulate.
legal description:
A property description, recognized by law, that is sufficient
to locate and identify the property without oral testimony.
liabilities:
A person's financial obligations. Liabilities include long-term
and short-term debt, as well as any other amounts that are owed to others.
liability insurance:
Insurance coverage that offers protection against claims alleging
that a property owner's negligence or inappropriate action resulted in bodily
injury or property damage to another party.
lien:
A legal claim against a property that must be paid off when the
property is sold.
lifetime payment cap:
For an adjustable-rate mortgage (ARM), a limit on the amount
that payments can increase or decrease over the life of the mortgage. See cap.
lifetime rate cap:
For an adjustable-rate mortgage (ARM), a limit on the amount
that the interest rate can increase or decrease over the life of the loan. See
cap, interest rate ceiling and interest rate floor.
line of credit:
An agreement by a commercial bank or other financial institution
to extend credit up to a certain amount for a certain time to a specified borrower.
See home equity line of credit.
liquid asset:
A cash asset or an asset that is easily converted into cash.
loan:
A sum of borrowed money (principal) that is generally repaid
with interest.
loan commitment:
See commitment letter.
loan origination:
The process by which a mortgage lender brings into existence
a mortgage secured by real property.
loan-to-value (LTV) percentage:
The relationship between the principal balance of the mortgage
and the appraised value (or sales price if it is lower) of the property. For
example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80
percent.
lock-in:
A written agreement in which the lender guarantees a specified
interest rate if a mortgage goes to closing within a set period of time. The
lock-in also usually specifies the number of points to be paid at closing.
lock-in period:
The time period during which the lender has guaranteed an interest
rate to a borrower. See lock-in.
top of page
M
margin:
For an adjustable-rate mortgage (ARM), the amount that is added
to the index to establish the interest rate on each adjustment date, subject
to any limitations on the interest rate change.
master association:
A homeowners' association in a large condominium or planned unit
development (PUD) project that is made up of representatives from associations
covering specific areas within the project. In effect, it is a " second-level"
association that handles matters affecting the entire development, while the
"first-level" associations handle matters affecting their particular
portions of the project.
maturity:
The date on which the principal balance of a loan, bond or other
financial instrument becomes due and payable.
maximum financing:
A mortgage amount that is within 5 percent of the highest loan-to-value
(LTV) percentage allowed for a specific product. Thus, maximum financing on
a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the
maximum allowable LTV percentage for that product.
Mello Roos Taxes: All homes have property taxes and accompanying special assessments. Mello Roos taxes are additional encumbrances added to basic property taxes. This is a method of financing or underwriting the cost of public improvements or infrastructure such as utilities, roads, recreational facilities, schools, libraries, fire stations, etc. that are needed to support new development.
This method of financing came about in 1982 and was a direct result of the passage of Proposition 13 in 1978 in California, which limited the amount of revenue that could be raised to support new developments through traditional means. Only those new developments that choose to create a Community Facilities District impose this added tax burden on homeowners.
Bonds usually run for 20 to 40 years and are repaid by homeowners. This means for example that your "overall tax burden" when you purchase a home with Mello Roos financing can be 60%, 80%, or 100% higher than your basic property tax obligation would be if you purchased the same home without Mello Roos financing.
When purchasing a home with Mello Roos financing always investigate the basis for the tax, it’s duration and any potential for increase. Also, be aware that this added burden will affect your qualifying ratios.
merged credit report:
A credit report that contains information from three credit repositories.
When the report is created, the information is compared for duplicate entries.
Any duplicates are combined to provide a summary of a your credit.
modification:
The act of changing any of the terms of the mortgage.
money market account:
A savings account that provides bank depositors with many of
the advantages of a money market fund. Certain regulatory restrictions apply
to the withdrawal of funds from a money market account.
money market fund:
A mutual fund that allows individuals to participate in managed
investments in short-term debt securities, such as certificates of deposit and
Treasury bills.
monthly fixed installment:
That portion of the total monthly payment that is applied toward
principal and interest. When a mortgage negatively amortizes, the monthly fixed
installment does not include any amount for principal reduction.
monthly payment mortgage:
A mortgage that requires payments to reduce the debt once a month.
mortgage:
A legal document that pledges a property to the lender as security
for payment of a debt.
mortgage banker:
A company that originates mortgages exclusively for resale in
the secondary mortgage market.
mortgage broker:
An individual or company that brings borrowers and lenders together
for the purpose of loan origination. Mortgage brokers typically require a fee
or a commission for their services.
mortgagee:
The lender in a mortgage agreement.
mortgage insurance:
A contract that insures the lender against loss caused by a mortgagor's
default on a government mortgage or conventional mortgage. Mortgage insurance
can be issued by a private company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of mortgage insurance, the
insurance may cover a percentage of or virtually all of the mortgage loan. See
private mortgage insurance.
mortgage insurance premium (MIP):
The amount paid by a mortgagor for mortgage insurance, either
to a government agency such as the Federal Housing Administration (FHA) or to
a private mortgage insurance (MI) company.
mortgage life insurance:
A type of term life insurance often bought by mortgagors. The
amount of coverage decreases as the principal balance declines. In the event
that the borrower dies while the policy is in force, the debt is automatically
satisfied by insurance proceeds.
mortgagor:
The borrower in a mortgage agreement.
multidwelling units:
Properties that provide separate housing units for more than
one family, although they secure only a single mortgage.
multifamily mortgage:
A residential mortgage on a dwelling that is designed to house
more than four families, such as a high-rise apartment complex.
multifamily properties:
Fannie Mae provides financing for multifamily (buildings with
five or more units) rental properties through a nationwide network of mortgage
lenders.
top of page
N
negative amortization:
A gradual increase in mortgage debt that occurs when the monthly
payment is not large enough to cover the entire principal and interest due.
The amount of the shortfall is added to the remaining balance to create " negative"
amortization.
net cash flow:
The income that remains for an investment property after the
monthly operating income is reduced by the monthly housing expense, which includes
principal, interest, taxes and insurance (PITI) for the mortgage, homeowners'
association dues, leasehold payments and subordinate financing payments.
net worth:
The value of all of a person's assets, including cash, minus
all liabilities.
no cash-out refinance:
A refinance transaction in which the new mortgage amount is limited
to the sum of the remaining balance of the existing first mortgage, closing
costs (including prepaid items), points, the amount required to satisfy any
mortgage liens that are more than one year old (if the borrower chooses to satisfy
them) and other funds for the borrower's use (as long as the amount does not
exceed 1 percent of the principal amount of the new mortgage).
nonliquid asset:
An asset that cannot easily be converted into cash.
note:
A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period of time.
note rate:
The interest rate stated on a mortgage note.
notice of default:
A formal written notice to a borrower that a default has occurred
and that legal action may be taken.
O
original principal balance:
The total amount of principal owed on a mortgage before any payments
are made.
origination fee:
A fee paid to a lender for processing a loan application. The
origination fee is stated in the form of points. One point is 1 percent of the
mortgage amount.
owner financing:
A property purchase transaction in which the property seller
provides all or part of the financing.
top of page
P
partial payment:
A payment that is not sufficient to cover the scheduled monthly
payment on a mortgage loan.
payment change date:
The date when a new monthly payment amount takes effect on an
adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage
(GPARM). Generally, the payment change date occurs in the month immediately
after the adjustment date.
periodic payment cap:
For an adjustable-rate mortgage (ARM), a limit on the amount
that payments can increase or decrease during any one adjustment period.
periodic rate cap:
For an adjustable-rate mortgage (ARM), a limit on the amount
that the interest rate can increase or decrease during any one adjustment period,
regardless of how high or low the index might be.
personal property:
Any property that is not real property.
PITI:
See principal, interest, taxes and insurance (PITI) below.
PITI reserves:
A cash amount that a borrower must have on hand after making
a down payment and paying all closing costs for the purchase of a home. The
principal, interest, taxes and insurance (PITI) reserves must equal the amount
that the borrower would have to pay for PITI for a predefined number of months.
planned unit development:
See PUD below.
point:
A one-time charge by the lender for originating a loan. A point
is 1 percent of the amount of the mortgage.
power of attorney:
A legal document that authorizes another person to act on one’s
behalf. A power of attorney can grant complete authority or can be limited to
certain acts and/or certain periods of time.
prearranged refinancing agreement:
A formal or informal arrangement between a lender and a borrower
wherein the lender agrees to offer special terms (such as a reduction in the
costs) for a future refinancing of a mortgage being originated as an inducement
for the borrower to enter into the original mortgage transaction.
preforeclosure sale:
A procedure in which the investor allows a mortgagor to avoid
foreclosure by selling the property for less than the amount that is owed to
the investor.
prepayment:
Any amount paid to reduce the principal balance of a loan before
the due date. Payment in full on a mortgage that may result from a sale of the
property, the owner's decision to pay off the loan in full, or a foreclosure.
In each case, prepayment means payment occurs before the loan has been fully
amortized.
prepayment penalty:
A fee that may be charged to a borrower who pays off a loan before
it is due.
pre-qualification:
The process of determining how much money a prospective home
buyer will be eligible to borrow before he or she applies for a loan.
prime rate:
The interest rate that banks charge to their preferred customers.
Changes in the prime rate influence changes in other rates, including mortgage
interest rates.
principal:
The amount borrowed or remaining unpaid. The part of the monthly
payment that reduces the remaining balance of a mortgage. More
principal balance:
The outstanding balance of principal on a mortgage. The principal
balance does not include interest or any other charges. See remaining balance.
principal, interest, taxes and insurance (PITI):
The four components of a monthly mortgage payment. Principal
refers to the part of the monthly payment that reduces the remaining balance
of the mortgage. Interest is the fee charged for borrowing money. Taxes and
insurance refer to the amounts that are paid into an escrow account each month
for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI):
Mortgage insurance that is provided by a private mortgage insurance
company to protect lenders against loss if a borrower defaults. Most lenders
generally require MI for a loan with a loan-to-value (LTV) percentage in excess
of 80 percent.
promissory note:
A written promise to repay a specified amount over a specified
period of time.
public auction:
A meeting in an announced public location to sell property to
repay a mortgage that is in default.
PUD (Planned Unit Development):
A project or subdivision that includes common property that is
owned and maintained by a homeowners' association for the benefit and use of
the individual PUD unit owners.
purchase and sale agreement:
A written contract signed by the buyer and seller stating the
terms and conditions under which a property will be sold.
purchase money transaction:
The acquisition of property through the payment of money or its
equivalent.
top of page
Q
qualifying ratios:
Calculations that are used in determining whether a borrower
can qualify for a mortgage. They consist of two separate calculations: a housing
expense as a percent of income ratio and total debt obligations as a percent
of income ratio.
quitclaim deed:
A deed that transfers without warranty whatever interest or title
a grantor may have at the time the conveyance is made.
top of page
R
radon:
A radioactive gas found in some homes that in sufficient concentrations
can cause health problems.
rate-improvement mortgage:
A fixed-rate mortgage that includes a provision that gives the
borrower a one-time option to reduce the interest rate (without refinancing)
during the early years of the mortgage term.
rate lock:
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate for a specified period of
time. See lock-in.
real estate agent:
A person licensed to negotiate and transact the sale of real
estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA):
A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
real property:
Land and appurtenances, including anything of a permanent nature
such as structures, trees, minerals and the interest, benefits and inherent
rights thereof.
REALTOR®:
A real estate broker or an associate who holds active membership
in a local real estate board that is affiliated with the NATIONAL ASSOCIATION
of REALTORS®.
recission:
The cancellation or annulment of a transaction or contract by
the operation of a law or by mutual consent. Borrowers usually have the option
to cancel a refinance transaction within three business days after it has closed.
recorder:
The public official who keeps records of transactions that affect
real property in the area. Sometimes known as a "Registrar of Deeds"
or "County Clerk."
recording:
The noting in the registrar’s office of the details of
a properly executed legal document, such as a deed, a mortgage note, a satisfaction
of mortgage or an extension of mortgage, thereby making it a part of the public
record.
refinance transaction:
The process of paying off one loan with the proceeds from a new
loan using the same property as security.
rehabilitation mortgage:
A mortgage created to cover the costs of repairing, improving
and sometimes acquiring an existing property.
remaining balance:
The amount of principal that has not yet been repaid. See principal
balance.
remaining term:
The original amortization term minus the number of payments that
have been applied.
rent loss insurance:
Insurance that protects a landlord against loss of rent or rental
value due to fire or other casualty that renders the leased premises unavailable
for use and as a result of which the tenant is excused from paying rent.
rent with option to buy:
See lease-purchase mortgage loan.
repayment plan:
An arrangement made to repay delinquent installments or advances.
Lenders' formal repayment plans are called "relief provisions."
replacement reserve fund:
A fund set aside for replacement of common property in a condominium,
PUD, or cooperative project -- particularly that which has a short life expectancy,
such as carpeting, furniture, etc.
revolving liability:
A credit arrangement, such as a credit card, that allows a customer
to borrow against a preapproved line of credit when purchasing goods and services.
The borrower is billed for the amount that is actually borrowed plus any interest
due.
right of first refusal:
A provision in an agreement that requires the owner of a property
to give another party the first opportunity to purchase or lease the property
before he or she offers it for sale or lease to others.
right of ingress or egress:
The right to enter or leave designated premises.
right of survivorship:
In joint tenancy, the right of survivors to acquire the interest
of a deceased joint tenant.
Rural Housing Service (RHS):
An agency within the Department of Agriculture, which operates
principally under the Consolidated Farm and Rural Development Act of 1921 and
Title V of the Housing Act of 1949. This agency provides financing to farmers
and other qualified borrowers buying property in rural areas who are unable
to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
top of page
S
sale-leaseback:
A technique in which a seller deeds property to a buyer for a
consideration, and the buyer simultaneously leases the property back to the
seller.
second mortgage:
A mortgage that has a lien position subordinate to the first
mortgage.
secondary mortgage market:
The buying and selling of existing mortgages.
secured loan:
A loan that is backed by collateral.
security:
The property that will be pledged as collateral for a loan.
seller take-back:
An agreement in which the owner of a property provides financing,
often in combination with an assumable mortgage. See owner financing.
servicer:
An organization that collects principal and interest payments
from borrowers and manages borrowers’ escrow accounts. The servicer often
services mortgages that have been purchased by an investor in the secondary
mortgage market.
servicing:
The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.
settlement:
See closing.
settlement sheet:
See HUD-1 statement.
single-family properties:
One- to four-unit properties including detached homes, townhomes,
condominiums and cooperatives.
special deposit account:
An account that is established for rehabilitation mortgages to
hold the funds needed for the rehabilitation work so they can be disbursed from
time to time as particular portions of the work are completed.
standard payment calculation:
The method used to determine the monthly payment required to
repay the remaining balance of a mortgage in substantially equal installments
over the remaining term of the mortgage at the current interest rate.
step-rate mortgage:
A mortgage that allows for the interest rate to increase according
to a specified schedule (i.e., seven years), resulting in increased payments
as well. At the end of the specified period, the rate and payments will remain
constant for the remainder of the loan.
subdivision:
A housing development that is created by dividing a tract of
land into individual lots for sale or lease.
subordinate financing:
Any mortgage or other lien that has a priority that is lower
than that of the first mortgage.
subsidized second mortgage:
An alternative financing option known as the Community Seconds®
mortgage for low- and moderate-income households. An investor purchases a first
mortgage that has a subsidized second mortgage behind it. The second mortgage
may be issued by a state, county, or local housing agency, foundation, or nonprofit
corporation. Payment on the second mortgage is often deferred and carries a
very low interest rate (or no interest rate). Part of the debt may be forgiven
incrementally for each year the buyer remains in the home.
survey:
A drawing or map showing the precise legal boundaries of a property,
the location of improvements, easements, rights of way, encroachments and other
physical features.
sweat equity:
Contribution to the construction or rehabilitation of a property
in the form of labor or services rather than cash.
top of page
T
tenancy by the entirety:
A type of joint tenancy of property that provides right of survivorship
and is available only to a husband and wife. Contrast with tenancy in common.
tenancy in common:
A type of joint tenancy in a property without right of survivorship.
Contrast with tenancy by the entirety and with joint tenancy.
tenant-stockholder:
The obligee for a cooperative share loan, who is both a stockholder
in a cooperative corporation and a tenant of the unit under a proprietary lease
or occupancy agreement.
third-party origination:
A rocess by which a lender uses another party to completely or
partially originate, process, underwrite, close, fund or package the mortgages
it plans to deliver to the secondary mortgage market. See mortgage broker.
title:
A legal document evidencing a person's right to or ownership
of a property.
title company:
A company that specializes in examining and insuring titles to
real estate.
title insurance:
Insurance that protects the lender (lender's policy) or the buyer
(owner's policy) against loss arising from disputes over ownership of a property.
title search:
A check of the title records to ensure that the seller is the
legal owner of the property and that there are no liens or other claims outstanding.
total expense ratio:
Total obligations as a percentage of gross monthly income. The
total expense ratio includes monthly housing expenses plus other monthly debts.
trade equity:
Equity that results from a property purchaser giving his or her
existing property (or an asset other than real estate) as trade as all or part
of the down payment for the property that is being purchased.
transfer of ownership:
Any means by which the ownership of a property changes hands.
Lenders consider all of the following situations to be a transfer of ownership:
the purchase of a property "subject to" the mortgage, the assumption
of the mortgage debt by the property purchaser and any exchange of possession
of the property under a land sales contract or any other land trust device.
In cases in which an inter vivos revocable trust is the borrower, lenders also
consider any transfer of a beneficial interest in the trust to be a transfer
of ownership.
transfer tax:
State or local tax payable when title passes from one owner to
another.
Treasury index:
An index that is used to determine interest rate changes for
certain adjustable-rate mortgage (ARM) plans. It is based on the results of
auctions that the U.S. Treasury holds for its Treasury bills and securities
or is derived from the U.S. Treasury's daily yield curve, which is based on
the closing market bid yields on actively traded Treasury securities in the
over-the-counter market. See adjustable-rate mortgage (ARM).
Truth-in-Lending:
A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the annual percentage rate
(APR) and other charges.
two-step mortgage:
An adjustable-rate mortgage (ARM) that has one interest rate
for the first five or seven years of its mortgage term and a different interest
rate for the remainder of the amortization term.
two- to four-family property:
A property that consists of a structure that provides living
space (dwelling units) for two to four families, although ownership of the structure
is evidenced by a single deed.
trustee:
A fiduciary who holds or controls property for the benefit of
another.
top of page
U
underwriting:
The process of evaluating a loan application to determine the
risk involved for the lender. Underwriting involves an analysis of the borrower's
creditworthiness and the quality of the property itself.
unsecured loan:
A loan that is not backed by collateral.
V
VA mortgage:
A mortgage that is guaranteed by the Department of Veterans Affairs
(VA). Also known as a government mortgage.
vested:
Having the right to use a portion of a fund such as an individual
retirement fund. For example, individuals who are 100 percent vested can withdraw
all of the funds that are set aside for them in a retirement fund. However,
taxes may be due on any funds that are actually withdrawn.
Department of Veterans Affairs (VA):
An agency of the federal government that guarantees residential
mortgages made to eligible veterans of the military services. The guarantee
protects the lender against loss and thus encourages lenders to make mortgages
to veterans.
W
what-if analysis:
An affordability analysis that is based on a what-if scenario.
A what-if analysis is useful if you do not have complete data or if you want
to explore the effect of various changes to your income, liabilities, or available
funds or to the qualifying ratios or down payment expenses that are used in
the analysis.
what-if scenario:
A change in the amounts that is used as the basis of an affordability
analysis. A what-if scenario can include changes to monthly income, debts, or
down payment funds or to the qualifying ratios or down payment expenses that
are used in the analysis. You can use a what-if scenario to explore different
ways to improve your ability to afford a house.
wraparound mortgage:
A mortgage that includes the remaining balance on an existing
first mortgage plus an additional amount requested by the mortgagor. Full payments
on both mortgages are made to the wraparound mortgagee, who then forwards the
payments on the first mortgage to the first mortgagee.
top of page
|
