203(b): FHA's
single family program which provides mortgage insurance
to lenders to protect against the borrower defaulting;
203(b) is used to finance the purchase of new or
existing one to four family housing; 203(b) insured
loans are known for requiring a low down payment,
flexible qualifying guidelines, limited fees, and
a limit on maximum loan amount.
203(k): this FHA mortgage insurance program enables
homebuyers to finance both the purchase of a house
and the cost of its rehabilitation through a single
mortgage loan.
A
"A" Loan or "A"
Paper: a credit rating where the FICO
score is 660 or above. There have been no late mortgage
payments within a 12-month period. This is the best
credit rating to have when entering into a new loan.
ARM: Adjustable
Rate Mortgage; a mortgage loan subject to changes
in interest rates; when rates change, ARM monthly
payments increase or decrease at intervals determined
by the lender; the change in monthly payment amount,
however, is usually subject to a cap.
Abstract of Title:
documents recording the ownership of property throughout
time.
Acceleration:
the right of the lender to demand payment on the
outstanding balance of a loan.
Acceptance:
the written approval of the buyer's offer by the
seller.
Additional Principal Payment:
money paid to the lender in addition to the established
payment amount used directly against the loan principal
to shorten the length of the loan.
Adjustable-Rate Mortgage
(ARM): a mortgage loan that does not
have a fixed interest rate. During the life of the
loan the interest rate will change based on the
index rate. Also referred to as adjustable mortgage
loans (AMLs) or variable-rate mortgages (VRMs).
Adjustment Date:
the actual date that the interest rate is changed
for an ARM.
Adjustment Index:
the published market index used to calculate
the interest rate of an ARM at the time of origination
or adjustment.
Adjustment Interval:
the time between the interest rate change and the
monthly payment for an ARM. The interval is usually
every one, three or five years depending on the
index.
Affidavit: a
signed, sworn statement made by the buyer or seller
regarding the truth of information provided.
Amenity: a feature
of the home or property that serves as a benefit
to the buyer but that is not necessary to its use;
may be natural (like location, woods, water) or
man-made (like a swimming pool or garden).
American Society of Home
Inspectors: the American Society of Home
Inspectors is a professional association of independent
home inspectors. Phone: (800) 743-2744
Amortization:
a payment plan that enables you to reduce your debt
gradually through monthly payments. The payments
may be principal and interest, or interest-only.
The monthly amount is based on the schedule for
the entire term or length of the loan.
Annual Mortgagor Statement:
yearly statement to borrowers detailing the remaining
principal and amounts paid for taxes and interest.
Annual Percentage Rate
(APR): a measure of the cost of credit,
expressed as a yearly rate. It includes interest
as well as other charges. Because all lenders, by
federal law, follow the same rules to ensure the
accuracy of the annual percentage rate, it provides
consumers with a good basis for comparing the cost
of loans, including mortgage plans. APR is a higher
rate than the simple interest of the mortgage.
Application:
the first step in the official loan approval process;
this form is used to record important information
about the potential borrower necessary to the underwriting
process.
Application Fee:
a fee charged by lenders to process a loan application.
Appraisal: a
document from a professional that gives an estimate
of a property's fair market value based on the sales
of comparable homes in the area and the features
of a property; an appraisal is generally required
by a lender before loan approval to ensure that
the mortgage loan amount is not more than the value
of the property.
Appraisal Fee:
fee charged by an appraiser to estimate the
market value of a property.
Appraised Value:
an estimation of the current market value of a property.
Appraiser: a
qualified individual who uses his or her experience
and knowledge to prepare the appraisal estimate.
Appreciation:
an increase in property value.
Arbitration:
a legal method of resolving a dispute without going
to court.
As-is Condition:
the purchase or sale of a property in its existing
condition without repairs.
Asking Price:
a seller's stated price for a property.
Assessed Value:
the value that a public official has placed on any
asset (used to determine taxes).
Assessments:
the method of placing value on an asset for
taxation purposes.
Assessor: a
government official who is responsible for determining
the value of a property for the purpose of taxation.
Assets: any
item with measurable value.
Assumable Mortgage:
when a home is sold, the seller may be able to transfer
the mortgage to the new buyer. This means the mortgage
is assumable. Lenders generally require a credit
review of the new borrower and may charge a fee
for the assumption. Some mortgages contain a due-on-sale
clause, which means that the mortgage may not be
transferable to a new buyer. Instead, the lender
may make you pay the entire balance that is due
when you sell the home. An assumable mortgage can
help you attract buyers if you sell your home.
Assumption Clause:
a provision in the terms of a loan that allows the
buyer to take legal responsibility for the mortgage
from the seller.
Automated Underwriting:
loan processing completed through a computer-based
system that evaluates past credit history to determine
if a loan should be approved. This system removes
the possibility of personal bias against the buyer.
Average Price: determining the cost of a home by
totaling the cost of all houses sold in one area
and dividing by the number of homes sold.
B
"B" Loan or "B"
Paper: FICO scores from 620 - 659. Factors
include two 30 day late mortgage payments and two
to three 30 day late installment loan payments in
the last 12 months. No delinquencies over 60 days
are allowed. Should be two to four years since a
bankruptcy. Also referred to as Sub-Prime.
Back End Ratio (debt ratio):
a ratio that compares the total of all
monthly debt payments (mortgage, real estate taxes
and insurance, car loans, and other consumer loans)
to gross monthly income.
Back to Back Escrow:
arrangements that an owner makes to oversee
the sale of one property and the purchase of another
at the same time.
Balance Sheet:
a financial statement that shows the assets, liabilities
and net worth of an individual or company.
Balloon Loan or Mortgage:
a mortgage that typically offers low rates for an
initial period of time (usually 5, 7, or 10) years;
after that time period elapses, the balance is due
or is refinanced by the borrower.
Balloon Payment:
the final lump sum payment due at the end of
a balloon mortgage.
Bankruptcy:
a federal law whereby a person's assets are turned
over to a trustee and used to pay off outstanding
debts; this usually occurs when someone owes more
than they have the ability to repay.
Biweekly Payment Mortgage:
a mortgage paid twice a month instead of once a
month, reducing the amount of interest to be paid
on the loan.
Borrower: a
person who has been approved to receive a loan and
is then obligated to repay it and any additional
fees according to the loan terms.
Bridge Loan:
a short-term loan paid back relatively fast. Normally
used until a long-term loan can be processed.
Broker: a licensed
individual or firm that charges a fee to serve as
the mediator between the buyer and seller. Mortgage
brokers are individuals in the business of arranging
funding or negotiating contracts for a client, but
who does not loan the money. A real estate broker
is someone who helps find a house.
Building Code:
based on agreed upon safety standards within a specific
area, a building code is a regulation that determines
the design, construction, and materials used in
building.
Budget: a detailed record of all income earned and
spent during a specific period of time.
Buy Down: the
seller pays an amount to the lender so the lender
provides a lower rate and lower payments many times
for an ARM. The seller may increase the sales price
to cover the cost of the buy down.
C
"C" Loan or "C"
Paper: FICO scores typically from 580 to 619. Factors
include three to four 30 day late mortgage payments
and four to six 30 day late installment loan payments
or two to four 60 day late payments. Should be one
to two years since bankruptcy. Also referred to
as Sub - Prime.
Callable Debt:
a debt security whose issuer has the right to redeem
the security at a specified price on or after a
specified date, but prior to its stated final maturity.
Cap: a limit,
such as one placed on an adjustable rate mortgage,
on how much a monthly payment or interest rate can
increase or decrease, either at each adjustment
period or during the life of the mortgage. Payment
caps do not limit the amount of interest the lender
is earning, so they may cause negative amortization.
Capacity: The
ability to make mortgage payments on time, dependant
on assets and the amount of income each month after
paying housing costs, debts and other obligations.
Capital Gain:
the profit received based on the difference of the
original purchase price and the total sale price.
Capital Improvements:
property improvements that either will enhance the
property value or will increase the useful life
of the property.
Capital or Cash Reserves:
an individual's savings, investments, or assets.
Cash-Out Refinance:
when a borrower refinances a mortgage
at a higher principal amount to get additional money.
Usually this occurs when the property has appreciated
in value. For example, if a home has a current value
of $100,000 and an outstanding mortgage of $60,000,
the owner could refinance $80,000 and have additional
$20,000 in cash.
Cash Reserves:
a cash amount sometimes required of the buyer to
be held in reserve in addition to the down payment
and closing costs; the amount is determined by the
lender.
Casualty Protection:
property insurance that covers any damage to the
home and personal property either inside or outside
the home.
Certificate of Title:
a document provided by a qualified source, such
as a title company, that shows the property legally
belongs to the current owner; before the title is
transferred at closing, it should be clear and free
of all liens or other claims.
Chapter 7 Bankruptcy:
a bankruptcy that requires assets be
liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy:
this type of bankruptcy sets a payment plan between
the borrower and the creditor monitored by the court.
The homeowner can keep the property, but must make
payments according to the court's terms within a
3 to 5 year period.
Charge-Off:
the portion of principal and interest due on a loan
that is written off when deemed to be uncollectible.
Clear Title:
a property title that has no defects. Properties
with clear titles are marketable for sale.
Closing: the
final step in property purchase where the title
is transferred from the seller to the buyer. Closing
occurs at a meeting between the buyer, seller, settlement
agent, and other agents. At the closing the seller
receives payment for the property. Also known as
settlement.
Closing Costs:
fees for final property transfer not included
in the price of the property. Typical closing costs
include charges for the mortgage loan such as origination
fees, discount points, appraisal fee, survey, title
insurance, legal fees, real estate professional
fees, prepayment of taxes and insurance, and real
estate transfer taxes. A common estimate of a Buyer's
closing costs is 2 to 4 percent of the purchase
price of the home. A common estimate for Seller's
closing costs is 3 to 9 percent.
Cloud On The Title:
any condition which affects the clear
title to real property.
Co-Borrower:
an additional person that is responsible for loan
repayment and is listed on the title.
Co-Signed Account:
an account signed by someone in addition to the
primary borrower, making both people responsible
for the amount borrowed.
Co-Signer: a
person that signs a credit application with another
person, agreeing to be equally responsible for the
repayment of the loan.
Collateral:
security in the form of money or property pledged
for the payment of a loan. For example, on a home
loan, the home is the collateral and can be taken
away from the borrower if mortgage payments are
not made.
Collection Account:
an unpaid debt referred to a collection agency to
collect on the bad debt. This type of account is
reported to the credit bureau and will show on the
borrower's credit report.
Commission:
an amount, usually a percentage of the property
sales price that is collected by a real estate professional
as a fee for negotiating the transaction. Traditionally
the home seller pays the commission. The amount
of commission is determined by the real estate professional
and the seller and can be as much as 6% of the sales
price.
Common Stock:
a security that provides voting rights in a corporation
and pays a dividend after preferred stock holders
have been paid. This is the most common stock held
within a company.
Comparative Market Analysis
(COMPS): a property evaluation that determines
property value by comparing similar properties sold
within the last year.
Compensating Factors:
factors that show the ability to repay a loan based
on less traditional criteria, such as employment,
rent, and utility payment history.
Condominium:
a form of ownership in which individuals purchase
and own a unit of housing in a multi-unit complex.
The owner also shares financial responsibility for
common areas.
Conforming loan:
is a loan that does not exceed Fannie Mae's and
Freddie Mac's loan limits. Freddie Mac and Fannie
Mae loans are referred to as conforming loans.
Consideration:
an item of value given in exchange for a promise
or act.
Construction Loan:
a short-term, to finance the cost of building a
new home. The lender pays the builder based on milestones
accomplished during the building process. For example,
once a sub-contractor pours the foundation and it
is approved by inspectors the lender will pay for
their service.
Contingency:
a clause in a purchase contract outlining conditions
that must be fulfilled before the contract is executed.
Both, buyer or seller may include contingencies
in a contract, but both parties must accept the
contingency.
Conventional Loan:
a private sector loan, one that is not guaranteed
or insured by the U.S. government.
Conversion Clause:
a provision in some ARMs allowing it to change to
a fixed-rate loan at some point during the term.
Usually conversions are allowed at the end of the
first adjustment period. At the time of the conversion,
the new fixed rate is generally set at one of the
rates then prevailing for fixed rate mortgages.
There may be additional cost for this clause.
Convertible ARM:
an adjustable-rate mortgage that provides the borrower
the ability to convert to a fixed-rate within a
specified time.
Cooperative (Co-op):
residents purchase stock in a cooperative corporation
that owns a structure; each stockholder is then
entitled to live in a specific unit of the structure
and is responsible for paying a portion of the loan.
Cost of Funds Index (COFI):
an index used to determine interest rate changes
for some adjustable-rate mortgages.
Counter Offer:
a rejection to all or part of a purchase offer that
negotiates different terms to reach an acceptable
sales contract.
Covenants: legally
enforceable terms that govern the use of property.
These terms are transferred with the property deed.
Discriminatory covenants are illegal and unenforceable.
Also known as a condition, restriction, deed restriction
or restrictive covenant.
Credit: an agreement
that a person will borrow money and repay it to
the lender over time.
Credit Bureau:
an agency that provides financial information and
payment history to lenders about potential borrowers.
Also known as a National Credit Repository.
Credit Counseling: education on how to improve bad
credit and how to avoid having more debt than can
be repaid.
Credit Enhancement:
a method used by a lender to reduce default of a
loan by requiring collateral, mortgage insurance,
or other agreements.
Credit Grantor:
the lender that provides a loan or credit.
Credit History:
a record of an individual that lists all debts and
the payment history for each. The report that is
generated from the history is called a credit report.
Lenders use this information to gauge a potential
borrower's ability to repay a loan.
Credit Loss Ratio:
the ratio of credit-related losses to the dollar
amount of MBS outstanding and total mortgages owned
by the corporation.
Credit Related Expenses:
foreclosed property expenses plus the provision
for losses.
Credit Related Losses:
foreclosed property expenses combined
with charge-offs.
Credit Repair Companies:
Private, for-profit businesses that claim to offer
consumers credit and debt repayment difficulties
assistance with their credit problems and a bad
credit report.
Credit Report:
a report generated by the credit bureau that contains
the borrower's credit history for the past seven
years. Lenders use this information to determine
if a loan will be granted.
Credit Risk:
a term used to describe the possibility of default
on a loan by a borrower.
Credit Score:
a score calculated by using a person's credit report
to determine the likelihood of a loan being repaid
on time. Scores range from about 360 - 840: a lower
score meaning a person is a higher risk, while a
higher score means that there is less risk.
Credit Union:
a non-profit financial institution federally
regulated and owned by the members or people who
use their services. Credit unions serve groups that
hold a common interest and you have to become a
member to use the available services.
Creditor: the
lending institution providing a loan or credit.
Creditworthiness:
the way a lender measures the ability of a person
to qualify and repay a loan.
D
Debtor: The
person or entity that borrows money. The term debtor
may be used interchangeably with the term borrower.
Debt-to-Income Ratio:
a comparison or ratio of gross income to housing
and non-housing expenses; With the FHA, the-monthly
mortgage payment should be no more than 29% of monthly
gross income (before taxes) and the mortgage payment
combined with non-housing debts should not exceed
41% of income.
Debt Security:
a security that represents a loan from an investor
to an issuer. The issuer in turn agrees to pay interest
in addition to the principal amount borrowed.
Deductible:
the amount of cash payment that is made by the insured
(the homeowner) to cover a portion of a damage or
loss. Sometimes also called "out-of-pocket
expenses." For example, out of a total damage
claim of $1,000, the homeowner might pay a $250
deductible toward the loss, while the insurance
company pays $750 toward the loss. Typically, the
higher the deductible, the lower the cost of the
policy.
Deed: a document
that legally transfers ownership of property from
one person to another. The deed is recorded on public
record with the property description and the owner's
signature. Also known as the title.
Deed-in-Lieu:
to avoid foreclosure ("in lieu" of foreclosure),
a deed is given to the lender to fulfill the obligation
to repay the debt; this process does not allow the
borrower to remain in the house but helps avoid
the costs, time, and effort associated with foreclosure.
Default: the
inability to make timely monthly mortgage payments
or otherwise comply with mortgage terms. A loan
is considered in default when payment has not been
paid after 60 to 90 days. Once in default the lender
can exercise legal rights defined in the contract
to begin foreclosure proceedings
Delinquency:
failure of a borrower to make timely mortgage payments
under a loan agreement. Generally after fifteen
days a late fee may be assessed.
Deposit (Earnest Money):
money put down by a potential buyer to
show that they are serious about purchasing the
home; it becomes part of the down payment if the
offer is accepted, is returned if the offer is rejected,
or is forfeited if the buyer pulls out of the deal.
During the contingency period the money may be returned
to the buyer if the contingencies are not met to
the buyer's satisfaction.
Depreciation:
a decrease in the value or price of a property due
to changes in market conditions, wear and tear on
the property, or other factors.
Derivative:
a contract between two or more parties where the
security is dependent on the price of another investment.
Disclosures:
the release of relevant information about a property
that may influence the final sale, especially if
it represents defects or problems. "Full disclosure"
usually refers to the responsibility of the seller
to voluntarily provide all known information about
the property. Some disclosures may be required by
law, such as the federal requirement to warn of
potential lead-based paint hazards in pre-1978 housing.
A seller found to have knowingly lied about a defect
may face legal penalties.
Discount Point:
normally paid at closing and generally calculated
to be equivalent to 1% of the total loan amount,
discount points are paid to reduce the interest
rate on a loan. In an ARM with an initial rate discount,
the lender gives up a number of percentage points
in interest to give you a lower rate and lower payments
for part of the mortgage term (usually for one year
or less). After the discount period, the ARM rate
will probably go up depending on the index rate.
Down Payment:
the portion of a home's purchase price that is paid
in cash and is not part of the mortgage loan. This
amount varies based on the loan type, but is determined
by taking the difference of the sale price and the
actual mortgage loan amount. Mortgage insurance
is required when a down payment less than 20 percent
is made.
Document Recording:
after closing on a loan, certain documents are filed
and made public record. Discharges for the prior
mortgage holder are filed first. Then the deed is
filed with the new owner's and mortgage company's
names.
Due on Sale Clause:
a provision of a loan allowing the lender to demand
full repayment of the loan if the property is sold.
Duration: the
number of years it will take to receive the present
value of all future payments on a security to include
both principal and interest.
E
Earnest Money (Deposit):
money put down by a potential buyer to show that
they are serious about purchasing the home; it becomes
part of the down payment if the offer is accepted,
is returned if the offer is rejected, or is forfeited
if the buyer pulls out of the deal. During the contingency
period the money may be returned to the buyer if
the contingencies are not met to the buyer's satisfaction.
Earnings Per Share (EPS):
a corporation's profit that is divided among each
share of common stock. It is determined by taking
the net earnings divided by the number of outstanding
common stocks held. This is a way that a company
reports profitability.
Easements: the
legal rights that give someone other than the owner
access to use property for a specific purpose. Easements
may affect property values and are sometimes a part
of the deed.
EEM: Energy
Efficient Mortgage; an FHA program that helps homebuyers
save money on utility bills by enabling them to
finance the cost of adding energy efficiency features
to a new or existing home as part of the home purchase
Eminent Domain:
when a government takes private property for public
use. The owner receives payment for its fair market
value. The property can then proceed to condemnation
proceedings.
Encroachments:
a structure that extends over the legal property
line on to another individual's property. The property
surveyor will note any encroachment on the lot survey
done before property transfer. The person who owns
the structure will be asked to remove it to prevent
future problems.
Encumbrance:
anything that affects title to a property, such
as loans, leases, easements, or restrictions.
Equal Credit Opportunity
Act (ECOA): a federal law requiring lenders
to make credit available equally without discrimination
based on race, color, religion, national origin,
age, sex, marital status, or receipt of income from
public assistance programs.
Equity: an owner's
financial interest in a property; calculated by
subtracting the amount still owed on the mortgage
loon(s)from the fair market value of the property.
Escape Clause:
a provision in a purchase contract that allows either
party to cancel part or the entire contract if the
other does not respond to changes to the sale within
a set period. The most common use of the escape
clause is if the buyer makes the purchase offer
contingent on the sale of another house.
Escrow: funds
held in an account to be used by the lender to pay
for home insurance and property taxes. The funds
may also be held by a third party until contractual
conditions are met and then paid out.
Escrow Account:
a separate account into which the lender puts a
portion of each monthly mortgage payment; an escrow
account provides the funds needed for such expenses
as property taxes, homeowners insurance, mortgage
insurance, etc.
Estate: the
ownership interest of a person in real property.
The sum total of all property, real and personal,
owned by a person.
Exclusive Listing:
a written contract giving a real estate agent the
exclusive right to sell a property for a specific
timeframe.
F
FICO Score:
FICO is an abbreviation for Fair Isaac Corporation
and refers to a person's credit score based on credit
history. Lenders and credit card companies use the
number to decide if the person is likely to pay
his or her bills. A credit score is evaluated using
information from the three major credit bureaus
and is usually between 300 and 850.
FSBO (For Sale by Owner):
a home that is offered for sale by the owner without
the benefit of a real estate professional.
Fair Credit Reporting Act:
federal act to ensure that credit bureaus are fair
and accurate protecting the individual's privacy
rights enacted in 1971 and revised in October 1997.
Fair Housing Act:
a law that prohibits discrimination in all facets
of the home buying process on the basis of race,
color, national origin, religion, sex, familial
status, or disability.
Fair Market Value:
the hypothetical price that a willing buyer and
seller will agree upon when they are acting freely,
carefully, and with complete knowledge of the situation.
Familial Status:
HUD uses this term to describe a single person,
a pregnant woman or a household with children under
18 living with parents or legal custodians who might
experience housing discrimination.
Fannie Mae:
Federal National Mortgage Association (FNMA); a
federally-chartered enterprise owned by private
stockholders that purchases residential mortgages
and converts them into securities for sale to investors;
by purchasing mortgages, Fannie Mae supplies funds
that lenders may loan to potential homebuyers. Also
known as a Government Sponsored Enterprise (GSE).
FHA: Federal
Housing Administration; established in 1934 to advance
homeownership opportunities for all Americans; assists
homebuyers by providing mortgage insurance to lenders
to cover most losses that may occur when a borrower
defaults; this encourages lenders to make loans
to borrowers who might not qualify for conventional
mortgages.
First Mortgage:
the mortgage with first priority if the loan
is not paid.
Fixed Expenses:
payments that do not vary from month to month.
Fixed-Rate Mortgage:
a mortgage with payments that remain the same throughout
the life of the loan because the interest rate and
other terms are fixed and do not change.
Fixture: personal
property permanently attached to real estate or
real property that becomes a part of the real estate.
Float: the act
of allowing an interest rate and discount points
to fluctuate with changes in the market.
Flood Insurance:
insurance that protects homeowners against losses
from a flood; if a home is located in a flood plain,
the lender will require flood insurance before approving
a loan.
Forbearance:
a lender may decide not to take legal action when
a borrower is late in making a payment. Usually
this occurs when a borrower sets up a plan that
both sides agree will bring overdue mortgage payments
up to date.
Foreclosure:
a legal process in which mortgaged property is sold
to pay the loan of the defaulting borrower. Foreclosure
laws are based on the statutes of each state.
Freddie Mac:
Federal Home Loan Mortgage Corporation (FHLM);
a federally chartered corporation that purchases
residential mortgages, securitizes them, and sells
them to investors; this provides lenders with funds
for new homebuyers. Also known as a Government Sponsored
Enterprise (GSE).
Front End Ratio:
a percentage comparing a borrower's total monthly
cost to buy a house (mortgage principal and interest,
insurance, and real estate taxes) to monthly income
before deductions.
G
GSE: abbreviation
for government sponsored enterprises: a collection
of financial services corporations formed by the
United States Congress to reduce interest rates
for farmers and homeowners. Examples include Fannie
Mae and Freddie Mac.
Ginnie Mae:
Government National Mortgage Association (GNMA);
a government-owned corporation overseen by the U.S.
Department of Housing and Urban Development, Ginnie
Mae pools FHA-insured and VA-guaranteed loans to
back securities for private investment; as With
Fannie Mae and Freddie Mac, the investment income
provides funding that may then be lent to eligible
borrowers by lenders.
Global Debt Facility:
designed to allow investors all over the world to
purchase debt (loans) of U.S. dollar and foreign
currency through a variety of clearing systems.
Good Faith Estimate:
an estimate of all closing fees including pre-paid
and escrow items as well as lender charges; must
be given to the borrower within three days after
submission of a loan application.
Graduated Payment Mortgages:
mortgages that begin with lower monthly
payments that get slowly larger over a period of
years, eventually reaching a fixed level and remaining
there for the life of the loan. Graduated payment
loans may be good if you expect your annual income
to increase.
Grantee: an
individual to whom an interest in real property
is conveyed.
Grantor: an
individual conveying an interest in real property.
Gross Income:
money earned before taxes and other deductions.
Sometimes it may include income from self-employment,
rental property, alimony, child support, public
assistance payments, and retirement benefits.
Guaranty Fee:
payment to FannieMae from a lender for the assurance
of timely principal and interest payments to MBS
(Mortgage Backed Security) security holders.
H
HECM (Reverse
Mortgage): the reverse mortgage is used by senior
homeowners age 62 and older to convert the equity
in their home into monthly streams of income and/or
a line of credit to be repaid when they no longer
occupy the home. A lending institution such as a
mortgage lender, bank, credit union or savings and
loan association funds the FHA insured loan, commonly
known as HECM.
Hazard Insurance:
protection against a specific loss, such as fire,
wind etc., over a period of time that is secured
by the payment of a regularly scheduled premium.
HELP: Homebuyer
Education Learning Program; an educational program
from the FHA that counsels people about the home
buying process; HELP covers topics like budgeting,
finding a home, getting a loan, and home maintenance;
in most cases, completion of the program may entitle
the homebuyer to a reduced initial FHA mortgage
insurance premium-from 2.25% to 1.75% of the home
purchase price.
Home Equity Line of Credit:
a mortgage loan, usually in second mortgage, allowing
a borrower to obtain cash against the equity of
a home, up to a predetermined amount.
Home Equity Loan:
a loan backed by the value of a home (real estate).
If the borrower defaults or does not pay the loan,
the lender has some rights to the property. The
borrower can usually claim a home equity loan as
a tax deduction.
Home Inspection: an examination of the structure
and mechanical systems to determine a home's quality,
soundness and safety; makes the potential homebuyer
aware of any repairs that may be needed. The homebuyer
generally pays inspection fees.
Home Warranty:
offers protection for mechanical systems and attached
appliances against unexpected repairs not covered
by homeowner's insurance; coverage extends over
a specific time period and does not cover the home's
structure.
Homeowner's Insurance:
an insurance policy, also called hazard insurance,
that combines protection against damage to a dwelling
and its contents including fire, storms or other
damages with protection against claims of negligence
or inappropriate action that result in someone's
injury or property damage. Most lenders require
homeowners insurance and may escrow the cost. Flood
insurance is generally not included in standard
policies and must be purchased separately.
Homeownership Education
Classes: classes that stress the need
to develop a strong credit history and offer information
about how to get a mortgage approved, qualify for
a loan, choose an affordable home, go through financing
and closing processes, and avoid mortgage problems
that cause people to lose their homes.
Homestead Credit:
property tax credit program, offered by some state
governments, that provides reductions in property
taxes to eligible households.
Housing Counseling Agency:
provides counseling and assistance to individuals
on a variety of issues, including loan default,
fair housing, and home buying.
HUD: the U.S.
Department of Housing and Urban Development; established
in 1965, HUD works to create a decent home and suitable
living environment for all Americans; it does this
by addressing housing needs, improving and developing
American communities, and enforcing fair housing
laws.
HUD1 Statement:
also known as the "settlement sheet,"
or "closing statement" it itemizes all
closing costs; must be given to the borrower at
or before closing. Items that appear on the statement
include real estate commissions, loan fees, points,
and escrow amounts.
HVAC: Heating,
Ventilation and Air Conditioning; a home's heating
and cooling system.
I
Indemnification:
to secure against any loss or damage, compensate
or give security for reimbursement for loss or damage
incurred. A homeowner should negotiate for inclusion
of an indemnification provision in a contract with
a general contractor or for a separate indemnity
agreement protecting the homeowner from harm, loss
or damage caused by actions or omissions of the
general (and all sub) contractor.
Index: the measure
of interest rate changes that the lender uses to
decide how much the interest rate of an ARM will
change over time. No one can be sure when an index
rate will go up or down. If a lender bases interest
rate adjustments on the average value of an index
over time, your interest rate would not be as volatile.
You should ask your lender how the index for any
ARM you are considering has changed in recent years,
and where it is reported.
Inflation: the
number of dollars in circulation exceeds the amount
of goods and services available for purchase; inflation
results in a decrease in the dollar's value.
Inflation Coverage:
endorsement to a homeowner's policy that automatically
adjusts the amount of insurance to compensate for
inflationary rises in the home's value. This type
of coverage does not adjust for increases in the
home's value due to improvements.
Inquiry: a credit
report request. Each time a credit application is
completed or more credit is requested counts as
an inquiry. A large number of inquiries on a credit
report can sometimes make a credit score lower.
Interest: a
fee charged for the use of borrowing money.
Interest Rate:
the amount of interest charged on a monthly
loan payment, expressed as a percentage.
Interest Rate Swap:
a transaction between two parties where each agrees
to exchange payments tied to different interest
rates for a specified period of time, generally
based on a notional principal amount.
Intermediate Term Mortgage:
a mortgage loan with a contractual maturity from
the time of purchase equal to or less than 20 years.
Insurance: protection
against a specific loss, such as fire, wind etc.,
over a period of time that is secured by the payment
of a regularly scheduled premium.
J
Joint Tenancy (with Rights
of Survivorship): two or more owners
share equal ownership and rights to the property.
If a joint owner dies, his or her share of the property
passes to the other owners, without probate. In
joint tenancy, ownership of the property cannot
be willed to someone who is not a joint owner.
Judgment: a
legal decision; when requiring debt repayment, a
judgment may include a property lien that secures
the creditor's claim by providing a collateral source.
Jumbo Loan:
or non-conforming loan, is a loan that exceeds Fannie
Mae's and Freddie Mac's loan limits. Freddie Mac
and Fannie Mae loans are referred to as conforming
loans.
K
L
Late Payment Charges:
the penalty the homeowner must pay when a mortgage
payment is made after the due date grace period.
Lease: a written
agreement between a property owner and a tenant
(resident) that stipulates the payment and conditions
under which the tenant may occupy a home or apartment
and states a specified period of time.
Lease Purchase (Lease Option):
assists low to moderate income homebuyers in purchasing
a home by allowing them to lease a home with an
option to buy; the rent payment is made up of the
monthly rental payment plus an additional amount
that is credited to an account for use as a down
payment.
Lender: A term
referring to an person or company that makes loans
for real estate purchases. Sometimes referred to
as a loan officer or lender.
Lender Option Commitments:
an agreement giving a lender the option to deliver
loans or securities by a certain date at agreed
upon terms.
Liabilities:
a person's financial obligations such as long-term
/ short-term debt, and other financial obligations
to be paid.
Liability Insurance:
insurance coverage that protects against claims
alleging a property owner's negligence or action
resulted in bodily injury or damage to another person.
It is normally included in homeowner's insurance
policies.
Lien: a legal
claim against property that must be satisfied when
the property is sold. A claim of money against a
property, wherein the value of the property is used
as security in repayment of a debt. Examples include
a mechanic's lien, which might be for the unpaid
cost of building supplies, or a tax lien for unpaid
property taxes. A lien is a defect on the title
and needs to be settled before transfer of ownership.
A lien release is a written report of the settlement
of a lien and is recorded in the public record as
evidence of payment.
Lien Waiver:
A document that releases a consumer (homeowner)
from any further obligation for payment of a debt
once it has been paid in full. Lien waivers typically
are used by homeowners who hire a contractor to
provide work and materials to prevent any subcontractors
or suppliers of materials from filing a lien against
the homeowner for nonpayment.
Life Cap: a
limit on the range interest rates can increase or
decrease over the life of an adjustable-rate mortgage
(ARM).
Line of Credit:
an agreement by a financial institution such
as a bank to extend credit up to a certain amount
for a certain time to a specified borrower.
Liquid Asset:
a cash asset or an asset that is easily converted
into cash.
Listing Agreement:
a contract between a seller and a real estate professional
to market and sell a home. A listing agreement obligates
the real estate professional (or his or her agent)
to seek qualified buyers, report all purchase offers
and help negotiate the highest possible price and
most favorable terms for the property seller.
Loan: money
borrowed that is usually repaid with interest.
Loan Acceleration:
an acceleration clause in a loan document
is a statement in a mortgage that gives the lender
the right to demand payment of the entire outstanding
balance if a monthly payment is missed.
Loan Fraud:
purposely giving incorrect information on a loan
application in order to better qualify for a loan;
may result in civil liability or criminal penalties.
Loan Officer:
a representative of a lending or mortgage company
who is responsible for soliciting homebuyers, qualifying
and processing of loans. They may also be called
lender, loan representative, account executive or
loan rep.
Loan Origination Fee:
a charge by the lender to cover the administrative
costs of making the mortgage. This charge is paid
at the closing and varies with the lender and type
of loan. A loan origination fee of 1 to 2 percent
of the mortgage amount is common.
Loan Servicer:
the company that collects monthly mortgage payments
and disperses property taxes and insurance payments.
Loan Service also monitor nonperforming loans, contact
delinquent borrowers, and notify insurers and investors
of potential problems. Loan Service may be the lender
or a specialized company that just handles loan
servicing under contract with the lender or the
investor who owns the loan.
Loan to Value (LTV) Ratio:
a percentage calculated by dividing the amount borrowed
by the price or appraised value of the home to be
purchased; the higher the LTV, the less cash a borrower
is required to pay as down payment.
Lock-In: since
interest rates can change frequently, many lenders
offer an interest rate lock-in that guarantees a
specific interest rate if the loan is closed within
a specific time.
Lock-in Period:
the length of time that the lender has guaranteed
a specific interest rate to a borrower.
Loss Mitigation:
a process to avoid foreclosure; the lender tries
to help a borrower who has been unable to make loan
payments and is in danger of defaulting on his or
her loan
M
Mandatory Delivery Commitment:
an agreement that a lender will deliver
loans or securities by a certain date at agreed-upon
terms.
Margin: the
number of percentage points the lender adds to the
index rate to calculate the ARM interest rate at
each adjustment.
Market Value:
the amount a willing buyer would pay a willing
seller for a home. An appraised value is an estimate
of the current fair market value.
Maturity: the
date when the principal balance of a loan becomes
due and payable.
Median Price:
the price of the house that falls in the middle
of the total number of homes for sale in that area.
Medium Term Notes:
unsecured general obligations of Fannie Mae with
maturities of one day or more and with principal
and interest payable in U.S. dollars.
Merged Credit Report:
raw data pulled from two or more of the major credit-reporting
firms.
Mitigation:
term usually used to refer to various changes or
improvements made in a home; for instance, to reduce
the average level of radon.
Modification:
when a lender agrees to modify the terms of a mortgage
without refinancing the loan.
Mortgage: a
lien on the property that secures the Promise to
repay a loan. A security agreement between the lender
and the buyer in which the property is collateral
for the loan. The mortgage gives the lender the
right to collect payment on the loan and to foreclose
if the loan obligations are not met.
Mortgage Acceleration Clause:
a clause allowing a lender, under certain circumstances,
demand the entire balance of a loan is repaid in
a lump sum. The acceleration clause is usually triggered
if the home is sold, title to the property is changed,
the loan is refinanced or the borrower defaults
on a scheduled payment.
Mortgage-Backed Security
(MBS): a Fannie Mae security that represents
an undivided interest in a group of mortgages. Principal
and interest payments from the individual mortgage
loans are grouped and paid out to the MBS holders.
Mortgage Banker:
a company that originates loans and resells them
to secondary mortgage lenders like Fannie Mae or
Freddie Mac.
Mortgage Broker:
a firm that originates and processes loans for
a number of lenders.
Mortgage Life and Disability
Insurance: term life insurance bought
by borrowers to pay off a mortgage in the event
of death or make monthly payments in the case of
disability. The amount of coverage decreases as
the principal balance declines. There are many different
terms of coverage determining amounts of payments
and when payments begin and end.
Mortgage Insurance:
a policy that protects lenders against
some or most of the losses that can occur when a
borrower defaults on a mortgage loan; mortgage insurance
is required primarily for borrowers with a down
payment of less than 20% of the home's purchase
price. Insurance purchased by the buyer to protect
the lender in the event of default. Typically purchased
for loans with less than 20 percent down payment.
The cost of mortgage insurance is usually added
to the monthly payment. Mortgage insurance is maintained
on conventional loans until the outstanding amount
of the loan is less than 80 percent of the value
of the house or for a set period of time (7 years
is common). Mortgage insurance also is available
through a government agency, such as the Federal
Housing Administration (FHA) or through companies
(Private Mortgage Insurance or PMI).
Mortgage Insurance Premium
(MIP): a monthly payment -usually part
of the mortgage payment - paid by a borrower for
mortgage insurance.
Mortgage Interest Deduction:
the interest cost of a mortgage, which is a tax
- deductible expense. The interest reduces the taxable
income of taxpayers.
Mortgage Modification:
a loss mitigation option that allows
a borrower to refinance and/or extend the term of
the mortgage loan and thus reduce the monthly payments.
Mortgage Note:
a legal document obligating a borrower to repay
a loan at a stated interest rate during a specified
period; the agreement is secured by a mortgage that
is recorded in the public records along with the
deed.
Mortgage Qualifying Ratio:
Used to calculate the maximum amount of funds that
an individual traditionally may be able to afford.
A typical mortgage qualifying ratio is 28: 36.
Mortgage Score:
a score based on a combination of information about
the borrower that is obtained from the loan application,
the credit report, and property value information.
The score is a comprehensive analysis of the borrower's
ability to repay a mortgage loan and manage credit.
Mortgagee: the
lender in a mortgage agreement. Mortgagor - The
borrower in a mortgage agreement.
Mortgagor: the
borrower in a mortgage agreement
Multifamily Housing:
a building with more than four residential
rental units.
Multiple Listing Service
(MLS): within the Metro Columbus area,
Realtors submit listings and agree to attempt to
sell all properties in the MLS. The MLS is a service
of the local Columbus Board of Realtors?. The local
MLS has a protocol for updating listings and sharing
commissions. The MLS offers the advantage of more
timely information, availability, and access to
houses and other types of property on the market.
N
National Credit Repositories:
currently, there are three companies that maintain
national credit - reporting databases. These are
Equifax, Experian, and Trans Union, referred to
as Credit Bureaus.
Negative Amortization:
amortization means that monthly payments are large
enough to pay the interest and reduce the principal
on your mortgage. Negative amortization occurs when
the monthly payments do not cover all of the interest
cost. The interest cost that isn't covered is added
to the unpaid principal balance. This means that
even after making many payments, you could owe more
than you did at the beginning of the loan. Negative
amortization can occur when an ARM has a payment
cap that results in monthly payments not high enough
to cover the interest due.
Net Income:
Your take-home pay, the amount of money that you
receive in your paycheck after taxes and deductions.
No Cash Out Refinance:
a refinance of an existing loan only for the amount
remaining on the mortgage. The borrower does not
get any cash against the equity of the home. Also
called a "rate and term refinance."
No Cost Loan:
there are many variations of a no cost loan.
Generally, it is a loan that does not charge for
items such as title insurance, escrow fees, settlement
fees, appraisal, recording fees or notary fees.
It may also offer no points. This lessens the need
for upfront cash during the buying process however
no cost loans have a higher interest rate.
Nonperforming Asset:
an asset such as a mortgage that is not currently
accruing interest or which interest is not being
paid.
Note: a legal
document obligating a borrower to repay a mortgage
loan at a stated interest rate over 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 there
is a default on a loan and that legal action is
possible.
Notional Principal Amount:
the proposed amount which interest rate swap payments
are based but generally not paid or received by
either party.
Non-Conforming loan:
is a loan that exceeds Fannie Mae's and Freddie
Mac's loan limits. Freddie Mac and Fannie Mae loans
are referred to as conforming loans.
Notary Public:
a person who serves as a public official and certifies
the authenticity of required signatures on a document
by signing and stamping the document.
O
Offer: indication
by a potential buyer of a willingness to purchase
a home at a specific price; generally put forth
in writing.
Original Principal Balance:
the total principal owed on a mortgage prior to
any payments being made.
Origination:
the process of preparing, submitting, and evaluating
a loan application; generally includes a credit
check, verification of employment, and a property
appraisal.
Origination Fee:
the charge for originating a loan; is usually calculated
in the form of points and paid at closing. One point
equals one percent of the loan amount. On a conventional
loan, the loan origination fee is the number of
points a borrower pays.
Owner Financing:
a home purchase where the seller provides all or
part of the financing, acting as a lender.
Ownership: ownership
is documented by the deed to a property. The type
or form of ownership is important if there is a
change in the status of the owners or if the property
changes ownership.
Owner's Policy:
the insurance policy that protects the buyer from
title defects.
P
PITI: Principal,
Interest, Taxes, and Insurance: the four elements
of a monthly mortgage payment; payments of principal
and interest go directly towards repaying the loan
while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into
an escrow account to cover the fees when they are
due.
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.
PMI: Private
Mortgage Insurance; privately-owned companies that
offer standard and special affordable mortgage insurance
programs for qualified borrowers with down payments
of less than 20% of a purchase price.
Partial Claim:
a loss mitigation option offered by the FHA that
allows a borrower, with help from a lender, to get
an interest-free loan from HUD to bring their mortgage
payments up to date.
Partial Payment:
a payment that is less than the total amount owed
on a monthly mortgage payment. Normally, lenders
do not accept partial payments. The lender may make
exceptions during times of difficulty. Contact your
lender prior to the due date if a partial payment
is needed.
Payment Cap:
a limit on how much an ARM's payment may increase,
regardless of how much the interest rate increases.
Payment Change Date:
the date when a new monthly payment amount
takes effect on an adjustable-rate mortgage (ARM)
or a graduated-payment mortgage (GPM). Generally,
the payment change date occurs in the month immediately
after the interest rate adjustment date.
Payment Due Date:
Contract language specifying when payments are due
on money borrowed. The due date is always indicated
and means that the payment must be received on or
before the specified date. Grace periods prior to
assessing a late fee or additional interest do not
eliminate the responsibility of making payments
on time.
Perils: for
homeowner's insurance, an event that can damage
the property. Homeowner's insurance may cover the
property for a wide variety of perils caused by
accidents, nature, or people.
Personal Property:
any property that is not real property
or attached to real property. For example furniture
is not attached however a new light fixture would
be considered attached and part of the real property.
Planned Unit Development
(PUD): a development that is planned,
and constructed as one entity. Generally, there
are common features in the homes or lots governed
by covenants attached to the deed. Most planned
developments have common land and facilities owned
and managed by the owner's or neighborhood association.
Homeowners usually are required to participate in
the association via a payment of annual dues.
Points: a point
is equal to one percent of the principal amount
of your mortgage. For example, if you get a mortgage
for $95,000, one point means you pay $950 to the
lender. Lenders frequently charge points in both
fixed-rate and adjustable-rate mortgages in order
to increase the yield on the mortgage and to cover
loan closing costs. These points usually are collected
at closing and may be paid by the borrower or the
home seller, or may be split between them.
Power of Attorney:
a legal document that authorizes another
person to act on your behalf. A power of attorney
can grant complete authority or can be limited to
certain acts or certain periods of time or both.
Pre-Approval:
a lender commits to lend to a potential borrower
a fixed loan amount based on a completed loan application,
credit reports, debt, savings and has been reviewed
by an underwriter. The commitment remains as long
as the borrower still meets the qualification requirements
at the time of purchase. This does not guaranty
a loan until the property has passed inspections
underwriting guidelines.
Predatory Lending:
abusive lending practices that include a mortgage
loan to someone who does not have the ability to
repay. It also pertains to repeated refinancing
of a loan charging high interest and fees each time.
Predictive Variables:
The variables that are part of the formula comprising
elements of a credit-scoring model. These variables
are used to predict a borrower's future credit performance.
Preferred Stock:
stock that takes priority over common stock with
regard to dividends and liquidation rights. Preferred
stockholders typically have no voting rights.
Pre-foreclosure Sale:
a procedure in which the borrower is allowed to
sell a property for an amount less than what is
owed on it to avoid a foreclosure. This sale fully
satisfies the borrower's debt.
Prepayment:
any amount paid to reduce the principal balance
of a loan before the due date or payment in full
of a mortgage. This can occur with the sale of the
property, the pay off the loan in full, or a foreclosure.
In each case, full payment occurs before the loan
has been fully amortized.
Prepayment Penalty:
a provision in some loans that charge a fee to a
borrower who pays off a loan before it is due.
Pre-Foreclosure sale:
allows a defaulting borrower to sell the mortgaged
property to satisfy the loan and avoid foreclosure.
Pre-Qualify:
a lender informally determines the maximum amount
an individual is eligible to borrow. This is not
a guaranty of a loan.
Premium: an
amount paid on a regular schedule by a policyholder
that maintains insurance coverage.
Prepayment:
payment of the mortgage loan before the scheduled
due date; may be Subject to a prepayment penalty.
Prepayment Penalty:
a fee charged to a homeowner who pays one or more
monthly payments before the due date. It can also
apply to principal reduction payments.
Prepayment Penalty Mortgage
(PPM): a type of mortgage that requires
the borrower to pay a penalty for prepayment, partial
payment of principal or for repaying the entire
loan within a certain time period. A partial payment
is generally defined as an amount exceeding 20%
of the original principal balance.
Price Range:
the high and low amount a buyer is willing to pay
for a home.
Prime Rate:
the interest rate that banks charge to preferred
customers. Changes in the prime rate are publicized
in the business media. Prime rate can be used as
the basis for adjustable rate mortgages (ARMs) or
home equity lines of credit. The prime rate also
affects the current interest rates being offered
at a particular point in time on fixed mortgages.
Changes in the prime rate do not affect the interest
on a fixed mortgage.
Principal: the
amount of money borrowed to buy a house or the amount
of the loan that has not been paid back to the lender.
This does not include the interest paid to borrow
that money. The principal balance is the amount
owed on a loan at any given time. It is the original
loan amount minus the total repayments of principal
made.
Principal, Interest, Taxes,
and Insurance (PITI): the four elements
of a monthly mortgage payment; payments of principal
and interest go directly towards repaying the loan
while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into
an escrow account to cover the fees when they are
due.
Private Mortgage Insurance
(PMI): insurance purchased by a buyer
to protect the lender in the event of default. The
cost of mortgage insurance is usually added to the
monthly payment. Mortgage insurance is generally
maintained until over 20 Percent of the outstanding
amount of the loan is paid or for a set period of
time, seven years is normal. Mortgage insurance
may be available through a government agency, such
as the Federal Housing Administration (FHA), or
through private mortgage insurance companies (PMI).
Promissory Note:
a written promise to repay a specified amount over
a specified period of time.
Property (Fixture and Non-Fixture):
in a real estate contract, the property is the land
within the legally described boundaries and all
permanent structures and fixtures. Ownership of
the property confers the legal right to use the
property as allowed within the law and within the
restrictions of zoning or easements. Fixture property
refers to those items permanently attached to the
structure, such as carpeting or a ceiling fan, which
transfers with the property.
Property Tax:
a tax charged by local government and used to fund
municipal services such as schools, police, or street
maintenance. The amount of property tax is determined
locally by a formula, usually based on a percent
per $1,000 of assessed value of the property.
Property Tax Deduction:
the U.S. tax code allows homeowners to deduct the
amount they have paid in property taxes from there
total income.
Public Record Information:
Court records of events that are a matter of public
interest such as credit, bankruptcy, foreclosure
and tax liens. The presence of public record information
on a credit report is regarded negatively by creditors.
Punch List:
a list of items that have not been completed at
the time of the final walk through of a newly constructed
home.
Purchase Offer:
A detailed, written document that makes an offer
to purchase a property, and that may be amended
several times in the process of negotiations. When
signed by all parties involved in the sale, the
purchase offer becomes a legally binding contract,
sometimes called the Sales Contract.
Q
Qualifying Ratios:
guidelines utilized by lenders to determine how
much money a homebuyer is qualified to borrow. Lending
guidelines typically include a maximum housing expense
to income ratio and a maximum monthly expense to
income ratio.
Quitclaim Deed:
a deed transferring ownership of a property but
does not make any guarantee of clear title.
R
RESPA: Real
Estate Settlement Procedures Act; a law protecting
consumers from abuses during the residential real
estate purchase and loan process by requiring lenders
to disclose all settlement costs, practices, and
relationships
Radon: a radioactive
gas found in some homes that, if occurring in strong
enough concentrations, can cause health problems.
Rate Cap: a
limit on an ARM on how much the interest rate or
mortgage payment may change. Rate caps limit how
much the interest rates can rise or fall on the
adjustment dates and over the life of the loan.
Rate Lock: a
commitment by a lender to a borrower guaranteeing
a specific interest rate over a period of time at
a set cost.
Real Estate Agent:
an individual who is licensed to negotiate and arrange
real estate sales; works for a real estate broker.
Real Estate Mortgage Investment
Conduit (REMIC): a security representing
an interest in a trust having multiple classes of
securities. The securities of each class entitle
investors to cash payments structured differently
from the payments on the underlying mortgages.
Real Estate Property Tax
Deduction: a tax deductible expense reducing
a taxpayer's taxable income.
Real Estate Settlement
Procedures Act (RESPA): a law protecting
consumers from abuses during the residential real
estate purchase and loan process by requiring lenders
to disclose all settlement costs, practices, and
relationships
Real Property:
land, including all the natural resources and permanent
buildings on it.
REALTOR?: a
real estate agent or broker who is a member of the
NATIONAL ASSOCIATION OF REALTORS, and its local
and state associations.
Recorder: the public official who keeps records
of transactions concerning real property. Sometimes
known as a "Registrar of Deeds" or "County
Clerk."
Recording: the
recording in a registrar's office of an executed
legal document. These include deeds, mortgages,
satisfaction of a mortgage, or an extension of a
mortgage making it a part of the public record.
Recording Fees:
charges for recording a deed with the appropriate
government agency.
Refinancing:
paying off one loan by obtaining another; refinancing
is generally done to secure better loan terms (like
a lower interest rate).
Rehabilitation Mortgage:
a mortgage that covers the costs of rehabilitating
(repairing or Improving) a property; some rehabilitation
mortgages - like the FHA's 203(k) - allow a borrower
to roll the costs of rehabilitation and home purchase
into one mortgage loan.
Reinstatement Period:
a phase of the foreclosure process where the homeowner
has an opportunity to stop the foreclosure by paying
money that is owed to the lender.
Remaining Balance:
the amount of principal that has not yet been repaid.
Remaining Term:
the original amortization term minus the number
of payments that have been applied.
Repayment plan:
an agreement between a lender and a delinquent borrower
where the borrower agrees to make additional payments
to pay down past due amounts while making regularly
scheduled payments.
Return On Average Common
Equity: net income available to common
stockholders, as a percentage of average common
stockholder equity.
Reverse Mortgage (HECM):
the reverse mortgage is used by senior homeowners
age 62 and older to convert the equity in their
home into monthly streams of income and/or a line
of credit to be repaid when they no longer occupy
the home. A lending institution such as a mortgage
lender, bank, credit union or savings and loan association
funds the FHA insured loan, commonly known as HECM.
Right of First Refusal:
a provision in an agreement that requires the owner
of a property to give one party an opportunity to
purchase or lease a property before it is offered
for sale or lease to others.
Risk Based Capital:
an amount of capital needed to offset
losses during a ten-year period with adverse circumstances.
Risk Based Pricing:
Fee structure used by creditors based on risks of
granting credit to a borrower with a poor credit
history.
Risk Scoring:
an automated way to analyze a credit report verses
a manual review. It takes into account late payments,
outstanding debt, credit experience, and number
of inquiries in an unbiased manner.
S
Sale Leaseback:
when a seller deeds property to a buyer for
a payment, and the buyer simultaneously leases the
property back to the seller.
Second Mortgage:
an additional mortgage on property. In case of a
default the first mortgage must be paid before the
second mortgage. Second loans are more risky for
the lender and usually carry a higher interest rate.
Secondary Mortgage Market:
the buying and selling of mortgage loans.
Investors purchase residential mortgages originated
by lenders, which in turn provides the lenders with
capital for additional lending.
Secured Loan:
a loan backed by collateral such as property.
Security: the
property that will be pledged as collateral for
a loan.
Seller Take Back:
an agreement where the owner of a property provides
second mortgage financing. These are often combined
with an assumed mortgage instead of a portion of
the seller's equity.
Serious Delinquency:
a mortgage that is 90 days or more past
due.
Servicer: a
business that collects mortgage payments from borrowers
and manages the borrower's escrow accounts.
Servicing: the
collection of mortgage payments from borrowers and
related responsibilities of a loan servicer.
Setback: the
distance between a property line and the area where
building can take place. Setbacks are used to assure
space between buildings and from roads for a many
of purposes including drainage and utilities.
Settlement:
another name for closing.
Settlement Statement:
a document required by the Real Estate Settlement
Procedures Act (RESPA). It is an itemized statement
of services and charges relating to the closing
of a property transfer. The buyer has the right
to examine the settlement statement 1 day before
the closing. This is called the HUD 1 Settlement
Statement.
Special Forbearance:
a loss mitigation option where the lender arranges
a revised repayment plan for the borrower that may
include a temporary reduction or suspension of monthly
loan payments.
Stockholders' Equity:
the sum of proceeds from the issuance of stock and
retained earnings less amounts paid to repurchase
common shares.
Stripped MBS (SMBS):
securities created by "stripping"
or separating the principal and interest payments
from the underlying pool of mortgages into two classes
of securities, with each receiving a different proportion
of the principal and interest payments.
Sub-Prime Loan: "B"
Loan or "B" paper with FICO scores from
620 - 659. "C" Loan or "C" Paper
with FICO scores typically from 580 to 619. An industry
term to used to describe loans with less stringent
lending and underwriting terms and conditions. Due
to the higher risk, sub-prime loans charge higher
interest rates and fees.
Subordinate:
to place in a rank of lesser importance or to make
one claim secondary to another.
Survey: a property
diagram that indicates legal boundaries, easements,
encroachments, rights of way, improvement locations,
etc. Surveys are conducted by licensed surveyors
and are normally required by the lender in order
to confirm that the property boundaries and features
such as buildings, and easements are correctly described
in the legal description of the property.
Sweat Equity:
using labor to build or improve a property as part
of the down payment
T
Third Party Origination:
a process 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.
Terms: The period
of time and the interest rate agreed upon by the
lender and the borrower to repay a loan.
Title: a legal
document establishing the right of ownership and
is recorded to make it part of the public record.
Also known as a Deed.
Title 1: an
FHA-insured loan that allows a borrower to make
non-luxury improvements (like renovations or repairs)
to their home; Title I loans less than $7,500 don't
require a property lien.
Title Company:
a company that specializes in examining and insuring
titles to real estate.
Title Defect:
an outstanding claim on a property that limits the
ability to sell the property. Also referred to as
a cloud on the title.
Title Insurance:
insurance that protects the lender against any
claims that arise from arguments about ownership
of the property; also available for homebuyers.
An insurance policy guaranteeing the accuracy of
a title search protecting against errors. Most lenders
require the buyer to purchase title insurance protecting
the lender against loss in the event of a title
defect. This charge is included in the closing costs.
A policy that protects the buyer from title defects
is known as an owner's policy and requires an additional
charge.
Title Search:
a check of public records to be sure that the seller
is the recognized owner of the real estate and that
there are no unsettled liens or other claims against
the property.
Transfer Agent:
a bank or trust company charged with keeping a record
of a company's stockholders and canceling and issuing
certificates as shares are bought and sold.
Transfer of Ownership:
any means by which ownership of a property changes
hands. These include purchase of a property, assumption
of mortgage debt, exchange of possession of a property
via a land sales contract or any other land trust
device.
Transfer Taxes:
State and local taxes charged for the transfer of
real estate. Usually equal to a percentage of the
sales price.
Treasury Index:
can be used as the basis for adjustable rate mortgages
(ARMs) It is based on the results of auctions that
the U.S. Treasury holds for its Treasury bills and
securities.
Truth-in-Lending:
a federal law obligating a lender to give full written
disclosure of all fees, terms, and conditions associated
with the loan initial period and then adjusts to
another rate that lasts for the term of the loan.
Two Step Mortgage:
an adjustable-rate mortgage (ARM) that
has one interest rate for the first five to seven
years of its term and a different interest rate
for the remainder of the term.
Trustee: a person
who holds or controls property for the benefit of
another.
U
Underwriting:
the process of analyzing a loan application
to determine the amount of risk involved in making
the loan; it includes a review of the potential
borrower's credit history and a judgment of the
property value.
Up Front Charges:
the fees charged to homeowners by the lender at
the time of closing a mortgage loan. This includes
points, broker's fees, insurance, and other charges.
V
Variable Expenses:
Costs or payments that may vary from
month to month, for example, gasoline or food.
Variance: a
special exemption of a zoning law to allow the property
to be used in a manner different from an existing
law.
Vested: a point
in time when you may withdraw funds from an investment
account, such as a retirement account, without penalty.
W
Walk Through:
the final inspection of a property being sold by
the buyer to confirm that any contingencies specified
in the purchase agreement such as repairs have been
completed, fixture and non-fixture property is in
place and confirm the electrical, mechanical, and
plumbing systems are in working order.
Warranty Deed:
a legal document that includes the guarantee the
seller is the true owner of the property, has the
right to sell the property and there are no claims
against the property.
X
Y
Z
Zoning: local
laws established to control the uses of land within
a particular area. Zoning laws are used to separate
residential land from areas of non-residential use,
such as industry or businesses. Zoning ordinances
include many provisions governing such things as
type of structure, setbacks, lot size, and uses
of a building.
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