Glossary of Terms

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.

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.

Adverse Possession: Open and exclusive occupation and use of someone else’s real property without permission of the owner continuously for a period of years prescribed by law, thereafter giving title to the occupier-user.

Adverse Use: the use of someone else’s property without the owner’s consent.

Affidavit: a signed, sworn statement made by the buyer or seller regarding the truth of information provided.

Agreement of Sale: A document that specifies the terms under which ownership of real estate property are conveyed from one owner to another.

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).

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.

Annuity: A contract or agreement by which one receives fixed payments on an investment for a lifetime or for a specified number of years.

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 real estate property (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.

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.

Back-up Offer: A second offer for the property, used in case the sale using the first offer doesn’t work.

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.

Bidding War: A situation when a number of buyers compete for a property by submitting higher offers.

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.

Blanket Insurance Policy: Insurance policy that covers a number of properties.

Blanket Mortgage: A mortgage that cover a number of properties instead of one.

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 or sell 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.

Building Moratorium: A temporary stop of home construction.

Budget: a detailed record of all income earned and spent during a specific period of time.

Bundle of Rights: Various right of the owner associated with property ownership.

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.

Buyer Broker: A broker exclusively focused on representing home buyers.

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.

Capital Expenditure: Funds spent for the acquisition of a long-term asset.

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, dependent 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.

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.

Certificate of Occupancy: A certificate issued by the local authority indicating that a building or single family home meets building code requirements.

Certificate of Title: A certificate of ownership stating that the title to the specified property is free and clear except for any encumbrance (as a mortgage) listed on it.

Chain of Title: The succession of conveyance of the title to a particular item of real estate (as a house).

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.

Closing Statement: A document commonly used in a real estate transaction, detailing the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place. This document is prepared by a closing real estate agent and is also known as a “settlement sheet.”

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.

Comparative Market Analysis (CMA): The best method available to home sellers to learn their home’s current value so they determine the best sale price. CMA is the term real estate professionals use when they conduct an in-depth analysis of a home’s worth in today’s market.

Compound Interest: Interest paid on both the principal and on accrued interest.

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.

Conveyance Tax: A tax imposed on the transfer of real estate property.

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.

Covenents, Conditions and Restrictions (CC&Rs): The governing documents that dictate how the homeowner’s association operates and what rules the owners must obey.

Credit: an agreement that a person will borrow money and repay it to the lender over time.

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 Report or Credit Rating: 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.

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-E

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.

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.

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.

Disclosures: the release of relevant information about a property. “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.

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.

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.

Dual Agency: The process by which one real estate broker represents both the home seller and the buyer in a transaction.

Due on Sale Clause: a provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.

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.

Examination of Title: A close examination of all public records that affect the title to the real estate being purchased.

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.

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, by direct providers of housing, such as landlords and real estate companies, 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: mortgage payments that do not vary from month to month.

Fixed-Rate Mortgage: a home 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.

Forfeiture: the loss of an asset, or rights to an asset, as a result of defaulting on contractual obligations or conditions.

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).

G-H

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.

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.

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.

Housing Expense Ratio: This ratio compares the sum of monthly housing expenses to monthly gross income.

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

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.

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-K-L

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.

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 Option: The abbreviated form of the appropriated term lease with the option to purchase. It is a type of lease used in residential real estate.

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: the legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.

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.

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 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 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

Market Value: the amount a willing buyer would pay a willing seller for a home.

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.

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 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 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.

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.

N-O

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: The increase of the principal of a loan by the amount by which periodic loan payments fall short of the interest due, usually as a result of an interest in the interest rate after the loan has begun.

Net Cash Flow: Income from an investment property after expenses such as principal, interest, taxes, and insurance are subtracted.

Net Income: Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

Notice of Default: a formal written notice to a borrower that there is a default on a loan and that legal action is possible.

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.

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.

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.

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. 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 pre-qualification from a lender that states that a potential borrower is “qualified” to purchase a home in a certain price range.

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.

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-Qualification: 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.

Proration: The allocation of property taxes, interest, insurance premiums, rental income, etc., between buyer and seller proportionate to time of use.

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.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions, and that may be amended several times in the process of negotiations.

Q-R

Qualifying Ratio: the ratio of the borrower’s fixed monthly expenses to his gross monthly income.

Quit-claim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title.

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 and  works for a real estate broker.

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.

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, that becomes public record.

Refinancing: paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

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.

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.

S-T

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.

Secured Loan: a loan backed by collateral such as property.

Seller Broker: A broker that has a fiduciary responsibility to the seller.

Serious Delinquency: a mortgage that is 90 days or more past due.

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 (HUD 1): 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.

Shared Equity Transaction: A transaction in which two buyers purchase a property , one as a resident co-owner and the other as an investor co-owner.

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.

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

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 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 that is paid by the seller. 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.

Trustee: a person who holds or controls property for the benefit of another.

U-V

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.

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.

Variable Interest Rate: An interest rate that moves up and down based on the changes of an underlying interest rate index.

Variable Rate Mortgage: A mortgage loan where the interest rate varies to reflect market conditions.

Variance: a special exemption of a zoning law to allow the property to be used in a manner different from an existing law.

W-X-Y-Z

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.

Wrap-around Mortgage: A mortgage, as a second mortgage, that includes payments on a previous mortgage that continues in effect.

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.