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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 one mortgage loan. |
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"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.
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.
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"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. |
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"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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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 servicers also
monitor nonperforming loans, contact delinquent borrowers,
and notify insurers and investors of potential problems.
Loan servicers 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. |
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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. |
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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. |
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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. |
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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 the Veterans Administration (VA),
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. |
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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. |
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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. |
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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. |
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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.
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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. |
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VA
(Department of Veterans Affairs):
a federal agency, which guarantees loans made to veterans;
similar to mortgage insurance, a loan guarantee protects
lenders against loss that may result from a borrower default.
VA Mortgage: a mortgage
guaranteed by the Department of Veterans Affairs (VA).
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. |
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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. |
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| 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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| DISCLAIMER:
Presentation of this glossary is for general purposes only.
No information on this page is to be viewed as legal advice
or as an official description of judicial process. These
terms are general and are displayed strictly as a service
to consumers. They are not intended to be all-inclusive
or to cover default situations in all states. Consumers
are advised to seek professional legal counsel in any default
proceeding. |
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