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Glossaries
of Housing Terms
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A
acceleration
clause
A
provision in a mortgage that gives the
lender the right to demand payment of
the entire principal balance if a monthly
payment is missed.
acceptance
An
offeree’s consent to enter into
a contract and be bound by the terms of
the offer.
additional
principal payment
A
payment by a borrower of more than the
scheduled principal amount due in order
to reduce the remaining balance on the
loan.
adjustable-rate
mortgage (ARM)
A
mortgage that permits the lender to adjust
the mortgage's interest rate periodically
on the basis of changes in a specified
index. Interest rates may move up or down,
as market conditions change.
adjusted
basis
The
original cost of a property plus the value
of any capital expenditures for improvements
to the property minus any depreciation
taken.
adjustment
date
The
date on which the interest rate changes
for an adjustable-rate mortgage (ARM).
adjustment
period
The
period that elapses between the adjustment
dates for an adjustable-rate mortgage
(ARM).
administrator
A
person appointed by a probate court to
administer the estate of a person who
died intestate.
affordability
analysis
A
detailed analysis of your ability to afford
the purchase of a home. An affordability
analysis takes into consideration your
income, liabilities and available funds,
along with the type of mortgage you plan
to use, the area where you want to purchase
a home and the closing costs that you
might expect to pay.
amenity
A
feature of real property that enhances
its attractiveness and increases the occupant’s
or user’s satisfaction although
the feature is not essential to the property’s
use. Natural amenities include a pleasant
or desirable location near water, scenic
views of the surrounding area, etc. Human-made
amenities include swimming pools, tennis
courts, community buildings and other
recreational facilities.
amortization
The
gradual repayment of a mortgage loan by
installments.
amortization
schedule
A
timetable for payment of a mortgage loan.
An amortization schedule shows the amount
of each payment applied to interest and
principal and shows the remaining balance
after each payment is made.
amortization
term
The
amount of time required to amortize the
mortgage loan. The amortization term is
expressed as a number of months. For example,
for a 30-year fixed-rate mortgage, the
amortization term is 360 months.
amortize
To
repay a mortgage with regular payments
that cover both principal and interest.
annual
mortgagor statement
A
report sent to the mortgagor (the borrower)
each year. The report shows how much was
paid in taxes and interest during the
year, as well as the remaining mortgage
loan balance at the end of the year.
annual
percentage rate (APR)
The
cost of a mortgage stated as a yearly
rate; includes such items as interest,
mortgage insurance and loan origination
fee (points).
annuity
An
amount paid yearly or at other regular
intervals, often on a guaranteed dollar
basis.
application
A
form used to apply for a mortgage loan
and to record pertinent information concerning
a prospective mortgagor and the proposed
security. Lenders use the information
on the loan application to evaluate whether
or not they can give the loan, and if
so, the amount of money they can lend.
appraisal
A
written analysis of the estimated value
of a property prepared by a qualified
appraiser. Contrast with home inspection.
appraised
value
An
opinion of a property's fair market value,
based on an appraiser's knowledge, experience
and analysis of the property.
appraiser
A
person qualified by education, training
and experience to estimate the value of
real property and personal property.
appreciation
An
increase in the value of a property due
to changes in market conditions or other
causes. The opposite of depreciation.
assessed
value
The
valuation placed on property by a public
tax assessor for purposes of taxation.
assessment
The
process of placing a value on property
for the strict purpose of taxation. May
also refer to a levy against property
for a special purpose, such as a sewer
assessment.
assessment
rolls
The
public record of taxable property.
assessor
A
public official who establishes the value
of a property for taxation purposes.
asset
Anything
of monetary value that is owned by a person.
Assets include real property, personal
property and enforceable claims against
others (including bank accounts, stocks,
mutual funds and so on).
assignment
The
transfer of a mortgage from one person
to another.
assumable
mortgage
A
mortgage that can be taken over ("assumed")
by the buyer when a home is sold.
assumption
The
transfer of the seller’s existing
mortgage to the buyer. See assumable mortgage.
assumption
clause
A
provision in an assumable mortgage that
allows a buyer to assume responsibility
for the mortgage from the seller. The
loan does not need to be paid in full
by the original borrower upon sale or
transfer of the property.
assumption
fee
The
fee paid to a lender (usually by the purchaser
of real property) resulting from the assumption
of an existing mortgage.
attorney-in-fact
One
who holds a power of attorney from another
to execute documents on behalf of the
grantor of the power.
B
balance
sheet
A
financial statement that shows assets,
liabilities and net worth as of a specific
date.
balloon
mortgage
A
mortgage that has level monthly payments
that will amortize it over a stated term
but that provides for a lump sum payment
to be due at the end of an earlier specified
term. The principal and interest on the
loan are amortized over a longer period
than the actual term of the mortgage.
balloon
payment
The
final lump sum payment that is made at
the maturity date of a balloon mortgage.
bankrupt
A
person, firm, or corporation that, through
a court proceeding, is relieved from the
payment of all debts after the surrender
of all assets to a court-appointed trustee.
bankruptcy
A
proceeding in a federal court in which
a debtor who owes more than his or her
assets can relieve the debts by transferring
his or her assets to a trustee.
before-tax
income
Income
before taxes are deducted.
beneficiary
The
person designated to receive the income
from a trust, estate or a deed of trust.
bequeath
To
transfer personal property through a will.
betterment
An
improvement that increases property value
as distinguished from repairs or replacements
that simply maintain value.
bill
of sale
A
written document that transfers title
to personal property.
binder
A
preliminary agreement, secured by the
payment of an earnest money deposit, under
which a buyer offers to purchase real
estate.
biweekly
payment mortgage
A
mortgage that requires payments to reduce
the debt every two weeks (instead of the
standard monthly payment schedule). The
26 (or possibly 27) biweekly payments
are each equal to one-half of the monthly
payment that would be required if the
loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted
from the borrower’s bank account.
The result for the borrower is a substantial
savings in interest.
blanket
insurance policy
A
single policy that covers more than one
piece of property (or more than one person).
blanket
mortgage
The
mortgage that is secured by a cooperative
project, as opposed to the share loans
on individual units within the project.
bona
fide
In
good faith, without fraud.
bond
An
interest-bearing certificate of debt with
a maturity date. An obligation of a government
or business corporation. A real estate
bond is a written obligation usually secured
by a mortgage or a deed of trust.
breach
A
violation of any legal obligation.
bridge
loan
A
form of second trust that is collateralized
by the borrower's present home (which
is usually for sale) in a manner that
allows the proceeds to be used for closing
on a new house before the present home
is sold. Also known as "swing loan."
broker
A
person who, for a commission or a fee,
brings parties together and assists in
negotiating contracts between them.
budget
A
detailed plan of income and expenses expected
over a certain period of time. A budget
can provide guidelines for managing future
investments and expenses.
budget
category
A
category of income or expense data that
you can use in a budget. You can also
define your own budget categories and
add them to some or all of the budgets
you create. "Rent" is an example
of an expense category. "Salary"
is a typical income category.
building
code
Local
regulations that control design, construction
and materials used in construction. Building
codes are based on safety and health standards.
buydown
account
An
account in which funds are held so that
they can be applied as part of the monthly
mortgage payment as each payment comes
due during the period that an interest
rate buydown plan is in effect.
buydown
mortgage
A
temporary buydown is a mortgage on which
an initial lump sum payment is made by
any party to reduce a borrower’s
monthly payments during the first few
years of a mortgage. A permanent buydown
reduces the interest rate over the entire
life of a mortgage.
C
call
option
A
provision in the mortgage that gives the
mortgagee (the lender) the right to call
the mortgage due and payable at the end
of a specified period for whatever reason.
cap
A
provision of an adjustable-rate mortgage
(ARM) that limits how much the interest
rate or mortgage payments may increase
or decrease. See lifetime payment cap,
lifetime rate cap, periodic payment cap
and periodic rate cap.
capital
(1)
Money used to create income, either as
an investment in a business or an income
property. (2) The money or property comprising
the wealth owned or used by a person or
business enterprise. (3) The accumulated
wealth of a person or business. (4) The
net worth of a business represented by
the amount by which its assets exceed
liabilities.
capital
expenditure
The
cost of an improvement made to extend
the useful life of a property or to add
to its value.
capital
improvement
Any
structure or component erected as a permanent
improvement to real property that adds
to its value and useful life.
cash-out
refinance
A
refinance transaction in which the amount
of money received from the new loan exceeds
the total of the money needed to repay
the existing first mortgage, closing costs,
points and the amount required to satisfy
any outstanding subordinate mortgage liens.
In other words, a refinance transaction
in which the borrower receives additional
cash that can be used for any purpose.
certificate
of deposit
A
document written by a bank or other financial
institution that is evidence of a deposit,
with the issuer's promise to return the
deposit plus earnings at a specified interest
rate within a specified time period. See
adjustable rate mortgage (ARM).
certificate
of deposit index
An
index that is used to determine interest
rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the
weekly average of secondary market interest
rates on six-month negotiable certificates
of deposit. See adjustable-rate mortgage.
Certificate
of Eligibility
A
document issued by the federal government
certifying a veteran's eligibility for
a Department of Veterans Affairs (VA)
mortgage.
Certificate
of Reasonable Value (CRV)
A
document issued by the Department of Veterans
Affairs (VA) that establishes the maximum
value and loan amount for a VA mortgage.
certificate
of title
A
statement provided by an abstract company,
title company, or attorney stating that
the title to real estate is legally held
by the current owner.
chain
of title
The
history of all of the documents that transfer
title to a parcel of real property, starting
with the earliest existing document and
ending with the most recent.
change
frequency
The
frequency (in months) of payment and/or
interest rate changes in an adjustable-rate
mortgage (ARM).
chattel
Another
name for personal property.
clear
title
A
title that is free of liens or legal questions
as to ownership of the property.
closing
A
meeting at which a sale of a property
is finalized by the buyer signing the
mortgage documents and paying closing
costs. Also called "settlement."
At this meeting, ownership of the property
is transferred from the seller to the
buyer.
closing
cost item
A
fee or amount that a home buyer must pay
at closing for a single service, tax,
or product. Closing costs are made up
of individual closing cost items such
as origination fees and attorney's fees.
Many closing cost items are included as
numbered items on the HUD-1 statement.
closing
costs
Expenses
(over and above the price of the property)
incurred by buyers and sellers in transferring
ownership of a property. Closing costs
normally include an origination fee, an
attorney's fee, taxes, an amount placed
in escrow and charges for obtaining title
insurance and a survey. Closing costs
percentage will vary according to the
area of the country; lenders or REALTORS®
often provide estimates of closing costs
to prospective homebuyers.
closing
statement
See
HUD-1 statement.
cloud
on title
Any
conditions revealed by a title search
that adversely affect the title to real
estate. Usually clouds on title cannot
be removed except by a quitclaim deed,
release, or court action.
coinsurance
A
sharing of insurance risk between the
insurer and the insured. Coinsurance depends
on the relationship between the amount
of the policy and a specified percentage
of the actual value of the property insured
at the time of the loss.
coinsurance
clause
A
provision in a hazard insurance policy
that states the amount of coverage that
must be maintained -- as a percentage
of the total value of the property --
for the insured to collect the full amount
of a loss.
collateral
An
asset (such as a car or a home) that guarantees
the repayment of a loan. The borrower
risks losing the asset if the loan is
not repaid according to the terms of the
loan contract.
collection
The
efforts used to bring a delinquent mortgage
current and to file the necessary notices
to proceed with foreclosure when necessary.
co-maker
A
person who signs a promissory note along
with the borrower. A co-maker's signature
guarantees that the loan will be repaid,
because the borrower and the co-maker
are equally responsible for the repayment.
See endorser.
commission
The
fee charged by a broker or agent for negotiating
a real estate or loan transaction. A commission
is generally a percentage of the price
of the property or loan.
commitment
letter
A
formal offer by a lender stating the terms
under which it agrees to lend money to
a home buyer. Also known as a "loan
commitment."
common
area assessments
Levies
against individual unit owners in a condominium
or planned unit development (PUD) project
for additional capital to defray homeowners'
association costs and expenses and to
repair, replace, maintain, improve or
operate the common areas of the project.
common
areas
Those
portions of a building, land and amenities
owned (or managed) by a planned unit development
(PUD) or condominium project's homeowners'
association (or a cooperative project's
cooperative corporation) that are used
by all of the unit owners, who share in
the common expenses of their operation
and maintenance. Common areas include
swimming pools, tennis courts and other
recreational facilities, as well as common
corridors of buildings, parking areas,
means of ingress and egress, etc.
common
law
An
unwritten body of law based on general
custom in England and used to an extent
in the United States.
Community
Land Trust Mortgage Option
An
alternative financing option that enables
low- and moderate-income home buyers to
purchase housing that has been improved
by a nonprofit Community Land Trust and
to lease the land on which the property
stands.
community
property
In
some western and southwestern states,
a form of ownership under which property
acquired during a marriage is presumed
to be owned jointly unless acquired as
separate property of either spouse.
Community
Seconds®
An
alternative financing option for low-
and moderate-income households under which
an investor purchases a first mortgage
that has a subsidized second mortgage
behind it. The second mortgage may be
issued by a state, county or local housing
agency, foundation, or nonprofit organization.
Payment on the second mortgage is often
deferred and carries a very low interest
rate (or no interest rate at all). Part
of the debt may be forgiven incrementally
for each year the buyer remains in the
home.
comparables
An
abbreviation for "comparable properties";
used for comparative purposes in the appraisal
process. Comparables are properties like
the property under consideration; they
have reasonably the same size, location
and amenities and have recently been sold.
Comparables help the appraiser determine
the approximate fair market value of the
subject property.
compound
interest
Interest
paid on the original principal balance
and on the accrued and unpaid interest.
condemnation
The
determination that a building is not fit
for use or is dangerous and must be destroyed;
the taking of private property for a public
purpose through an exercise of the right
of eminent domain.
condominium
A
real estate project in which each unit
owner has title to a unit in a building,
an undivided interest in the common areas
of the project and sometimes the exclusive
use of certain limited common areas.
condominium
conversion
Changing
the ownership of an existing building
(usually a rental project) to the condominium
form of ownership.
condominium
hotel
A
condominium project that has rental or
registration desks, short-term occupancy,
food and telephone services and daily
cleaning services and that is operated
as a commercial hotel even though the
units are individually owned.
construction
loan
A
short-term, interim loan for financing
the cost of construction. The lender makes
payments to the builder at periodic intervals
as the work progresses.
contingency
A
condition that must be met before a contract
is legally binding. For example, home
purchasers often include a contingency
that specifies that the contract is not
binding until the purchaser obtains a
satisfactory home inspection report from
a qualified home inspector.
contract
An
oral or written agreement to do or not
to do a certain thing.
conventional
mortgage
A
mortgage that is not insured or guaranteed
by the federal government. Contrast with
government mortgage.
convertibility
clause
A
provision in some adjustable-rate mortgages
(ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified
timeframes after loan origination.
convertible
ARM
An
adjustable-rate mortgage (ARM) that can
be converted to a fixed-rate mortgage
under specified conditions.
cooperative
(co-op)
A
type of multiple ownership in which the
residents of a multiunit housing complex
own shares in the cooperative corporation
that owns the property, giving each resident
the right to occupy a specific apartment
or unit.
cooperative
corporation
A
business trust entity that holds title
to a cooperative project and grants occupancy
rights to particular apartments or units
to shareholders through proprietary leases
or similar arrangements.
cooperative
mortgages
Mortgages
related to a cooperative project. This
usually refers to the multifamily mortgage
covering the entire project but occasionally
describes the share loans on the individual
units.
cooperative
project
A
residential or mixed-use building wherein
a corporation or trust holds title to
the property and sells shares of stock
representing the value of a single apartment
unit to individuals who, in turn, receive
a proprietary lease as evidence of title.
corporate
relocation
Arrangements
under which an employer moves an employee
to another area as part of the employer's
normal course of business or under which
it transfers a substantial part or all
of its operations and employees to another
area because it is relocating its headquarters
or expanding its office capacity.
cost
of funds index (COFI)
An
index that is used to determine interest
rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the
weighted-average cost of savings, borrowings
and advances of the 11th District members
of the Federal Home Loan Bank of San Francisco.
See adjustable-rate mortgage (ARM).
covenant
A
clause in a mortgage that obligates or
restricts the borrower and that, if violated,
can result in foreclosure.
credit
An
agreement in which a borrower receives
something of value in exchange for a promise
to repay the lender at a later date.
credit
history
A
record of an individual's open and fully
repaid debts. A credit history helps a
lender to determine whether a potential
borrower has a history of repaying debts
in a timely manner.
credit
life insurance
A
type of insurance often bought by mortgagors
because it will pay off the mortgage debt
if the mortgagor dies while the policy
is in force.
creditor
A
person to whom money is owed.
credit
report
A
report of an individual's credit history
prepared by a credit bureau and used by
a lender in determining a loan applicant's
creditworthiness.
credit
reporting agency (or bureau)
An
organization that prepares reports that
are used by lenders to determine a potential
borrower's credit history. The agency
obtains data for these reports from a
credit repository as well as from other
sources.
credit
repository
An
organization that gathers, records, updates
and stores financial and public records
information about the payment records
of individuals who are being considered
for credit.
D
debt
An
amount owed to another. See installment
loan and revolving liability.
deed
The
legal document conveying title to a property.
deed-in-lieu
A
deed given by a mortgagor to the mortgagee
to satisfy a debt and avoid foreclosure.
Also called a "voluntary conveyance."
deed
of trust
The
document used in some states instead of
a mortgage; title is conveyed to a trustee.
default
Failure
to make mortgage payments on a timely
basis or to comply with other requirements
of a mortgage.
delinquency
Failure
to make mortgage payments when mortgage
payments are due.
deposit
A
sum of money given to bind the sale of
real estate, or a sum of money given to
ensure payment or an advance of funds
in the processing of a loan. See earnest
money deposit.
depreciation
A
decline in the value of property; the
opposite of appreciation.
discount
points
See
point.
dower
The
rights of a widow in the property of her
husband at his death.
down
payment
The
part of the purchase price of a property
that the buyer pays in cash and does not
finance with a mortgage.
due-on-sale
provision
A
provision in a mortgage that allows the
lender to demand repayment in full if
the borrower sells the property that serves
as security for the mortgage.
due-on-transfer
provision
This
terminology is usually used for second
mortgages. See due-on-sale provision.
E
earnest
money deposit
A
deposit made by the potential home buyer
to show that he or she is serious about
buying the house.
easement
A
right of way giving persons other than
the owner access to or over a property.
effective
age
An
appraiser’s estimate of the physical
condition of a building. The actual age
of a building may be shorter or longer
than its effective age.
effective
gross income
Normal
annual income including overtime that
is regular or guaranteed. The income may
be from more than one source. Salary is
generally the principal source, but other
income may qualify if it is significant
and stable.
eminent
domain
The
right of a government to take private
property for public use upon payment of
its fair market value. Eminent domain
is the basis for condemnation proceedings.
employer-assisted
housing
A
special housing initiative that offers
several different ways for employers to
work with local lenders to develop plans
to assist their employees in purchasing
homes.
encroachment
An
improvement that intrudes illegally on
another’s property.
encumbrance
Anything
that affects or limits the fee simple
title to a property, such as mortgages,
leases, easements or restrictions.
endorser
A
person who signs ownership interest over
to another party. Contrast with co-maker.
Equal
Credit Opportunity Act (ECOA)
A
federal law that requires lenders and
other creditors to make credit equally
available without discrimination based
on race, color, religion, national origin,
age, sex, marital status, or receipt of
income from public assistance programs.
equity
A
homeowner's financial interest in a property.
Equity is the difference between the fair
market value of the property and the amount
still owed on its mortgage.
escrow
An
item of value, money, or documents deposited
with a third party to be delivered upon
the fulfillment of a condition. For example,
the deposit by a borrower with the lender
of funds to pay taxes and insurance premiums
when they become due, or the deposit of
funds or documents with an attorney or
escrow agent to be disbursed upon the
closing of a sale of real estate.
escrow
account
The
account in which a mortgage servicer holds
the borrower’s escrow payments prior
to paying property expenses.
escrow
analysis
The
periodic examination of escrow accounts
to determine if current monthly deposits
will provide sufficient funds to pay taxes,
insurance and other bills when due.
escrow
collections
Funds
collected by the servicer and set aside
in an escrow account to pay the borrower’s
property taxes, mortgage insurance and
hazard insurance.
escrow
disbursements
The
use of escrow funds to pay real estate
taxes, hazard insurance, mortgage insurance
and other property expenses as they become
due.
escrow
payment
The
portion of a mortgagor’s monthly
payment that is held by the servicer to
pay for taxes, hazard insurance, mortgage
insurance, lease payments and other items
as they become due. Known as "impounds"
or "reserves" in some states.
estate
The
ownership interest of an individual in
real property. The sum total of all the
real property and personal property owned
by an individual at time of death.
eviction
The
lawful expulsion of an occupant from real
property.
examination
of title
The
report on the title of a property from
the public records or an abstract of the
title.
exclusive
listing
A
written contract that gives a licensed
real estate agent the exclusive right
to sell a property for a specified time,
but reserving the owner’s right
to sell the property alone without the
payment of a commission.
executor
A
person named in a will to administer an
estate. The court will appoint an administrator
if no executor is named. "Executrix"
is the feminine form.
F
Fair
Credit Reporting Act
A
consumer protection law that regulates
the disclosure of consumer credit reports
by consumer/credit reporting agencies
and establishes procedures for correcting
mistakes on one's credit record.
fair
market value
The
highest price that a buyer, willing but
not compelled to buy, would pay and the
lowest a seller, willing but not compelled
to sell, would accept.
Fannie
Mae
A
New York Stock Exchange company and the
largest non-bank financial services company
in the world. It operates pursuant to
a federal charter and is the nation's
largest source of financing for home mortgages.
Fannie
Mae Properties
Fannie
Mae owns, manages and has available for
sale, single-family detached homes, two-
to four-unit properties, condominiums
and townhouses in a variety of neighborhoods.
The number, type and sales price may vary
substantially. The homes vary in age and
may require repairs. Fannie Mae homes
are sold through local real estate brokers
whose contact information is provided
in the Fannie Mae Properties for Sale
search results on homepath.com.
Fannie
Mae's Community Home Buyer's ProgramSM
An
income-based community lending model,
under which mortgage insurers and Fannie
Mae offer flexible underwriting guidelines
to increase a low- or moderate-income
family's buying power and to decrease
the total amount of cash needed to purchase
a home. Borrowers who participate in this
model are required to attend pre-purchase
home-buyer education sessions.
Fannie
97®
A
financing option for a fixed-rate mortgage
that offers home buyers a 3 percent down
payment loan with a term between 15 and
30 years. The mortgage features a loan-to-value
(LTV) percentage of 97 percent, and is
designed to expand homeownership opportunities
for people with modest incomes. Borrowers
must take a pre-purchase home-buyer education
session to qualify for a Fannie 97 mortgage.
Federal
Housing Administration (FHA)
An
agency of the U.S. Department of Housing
and Urban Development (HUD). Its main
activity is the insuring of residential
mortgage loans made by private lenders.
The FHA sets standards for construction
and underwriting but does not lend money
or plan or construct housing.
fee
simple
The
greatest possible interest a person can
have in real estate.
fee
simple estate
An
unconditional, unlimited estate of inheritance
that represents the greatest estate and
most extensive interest in land that can
be enjoyed. It is of perpetual duration.
When the real estate is in a condominium
project, the unit owner is the exclusive
owner only of the air space within his
or her portion of the building (the unit)
and is an owner in common with respect
to the land and other common portions
of the property.
FHA
coinsured mortgage
A
mortgage (under FHA Section 244) for which
the Federal Housing Administration (FHA)
and the originating lender share the risk
of loss in the event of the mortgagor's
default.
FHA
mortgage
A
mortgage that is insured by the Federal
Housing Administration (FHA). Also known
as a government mortgage.
finder's
fee
A
fee or commission paid to a mortgage broker
for finding a mortgage loan for a prospective
borrower.
firm
commitment
A
lender’s agreement to make a loan
to a specific borrower on a specific property.
first
mortgage
A
mortgage that is the primary lien against
a property.
fixed
installment
The
monthly payment due on a mortgage loan.
The fixed installment includes payment
of both principal and interest.
fixed-rate
mortgage (FRM)
A
mortgage in which the interest rate does
not change during the entire term of the
loan.
fixture
Personal
property that becomes real property when
attached in a permanent manner to real
estate.
flood
insurance
Insurance
that compensates for physical property
damage resulting from flooding. It is
required for properties located in federally
designated flood areas.
foreclosure
The
legal process by which a borrower in default
under a mortgage is deprived of his or
her interest in the mortgaged property.
This usually involves a forced sale of
the property at public auction with the
proceeds of the sale being applied to
the mortgage debt.
forfeiture
The
loss of money, property, rights or privileges
due to a breach of legal obligation.
401(k)/403(b)
An
employer-sponsored investment plan that
allows individuals to set aside tax-deferred
income for retirement or emergency purposes.
401(k) plans are provided by employers
that are private corporations. 403(b)
plans are provided by employers that are
not for profit organizations.
401(k)/403(b)
loan
Some
administrators of 401(k)/403(b) plans
allow for loans against the monies you
have accumulated in these plans -- monies
must be repaid to avoid serious penalty
charges.
fully
amortized ARM
An
adjustable-rate mortgage (ARM) with a
monthly payment that is sufficient to
amortize the remaining balance, at the
interest accrual rate, over the amortization
term.
G
government
mortgage
A
mortgage that is insured by the Federal
Housing Administration (FHA) or guaranteed
by the Department of Veterans Affairs
(VA) or the Rural Housing Service (RHS).
Contrast with conventional mortage.
Government
National Mortgage Association
A
government-owned corporation within the
U.S. Department of Housing and Urban Development
(HUD). Created by Congress on Sept. 1,
1968, GNMA assumed responsibility for
the special assistance loan program formerly
administered by Fannie Mae. Popularly
known as Ginnie Mae.
grantee
The
person to whom an interest in real property
is conveyed.
grantor
The
person conveying an interest in real property.
ground
rent
The
amount of money that is paid for the use
of land when title to a property is held
as a leasehold estate rather than as a
fee simple estate.
group
home
A
single-family residential structure designed
or adapted for occupancy by unrelated
developmentally disabled persons. The
structure provides long-term housing and
support services that are residential
in nature.
growing-equity
mortgage (GEM)
A
fixed-rate mortgage that provides scheduled
payment increases over an established
period of time, with the increased amount
of the monthly payment applied directly
toward reducing the remaining balance
of the mortgage.
guarantee
mortgage
A
mortgage that is guaranteed by a third
party.
guaranteed
loan
Also
known as a government mortgage.
H
hazard
insurance
Insurance
coverage that compensates for physical
damage to a property from fire, wind,
vandalism, or other hazards.
Home
Equity Conversion Mortgage (HECM)
A
special type of mortgage that enables
older home owners to convert the equity
they have in their homes into cash, using
a variety of payment options to address
their specific financial needs. Unlike
traditional home equity loans, a borrower
does not qualify on the basis of income
but on the value of his or her home. In
addition, the loan does not have to be
repaid until the borrower no longer occupies
the property. Sometimes called a reverse
mortgage.
home
equity line of credit
A
mortgage loan, which is usually in a subordinate
position, that allows the borrower to
obtain multiple advances of the loan proceeds
at his or her own discretion, up to an
amount that represents a specified percentage
of the borrower's equity in a property.
home
inspection
A
thorough inspection that evaluates the
structural and mechanical condition of
a property. A satisfactory home inspection
is often included as a contingency by
the purchaser. Contrast with appraisal.
HomeKeeperSM
Fannie
Mae's adjustable-rate conventional reverse
mortgage, which allows older homeowners
to borrow against the value of their homes
and receive the proceeds according to
the payment option they select. The amount
available is based on the number of borrowers
and their ages and the adjusted property
value. Anyone 62 years or older who either
owns his or her own home free and clear
or has very low mortgage debt is eligible.
homeowners'
association
A
nonprofit association that manages the
common areas of a planned unit development
(PUD) or condominium project. In a condominium
project, it has no ownership interest
in the common elements. In a PUD project,
it holds title to the common elements.
homeowner's
insurance
An
insurance policy that combines personal
liability insurance and hazard insurance
coverage for a dwelling and its contents.
homeowner's
warranty (HOW)
A
type of insurance that covers repairs
to specified parts of a house for a specific
period of time. It is provided by the
builder or property seller as a condition
of the sale.
HomeStyle®
Mortgage Loan
A
mortgage that enables eligible borrowers
to obtain financing to remodel, repair
and upgrade their existing homes or homes
that they are purchasing. See also HomeStyle
Standard Mortgage, HomeStyle Remodeler,
HomeStyle Community Mortgage and HomeStyle
Consumer Energy Loan.
housing
expense ratio
The
percentage of gross monthly income that
goes toward paying housing expenses.
HUD
median income
Median
family income for a particular county
or metropolitan statistical area (MSA),
as estimated by the Department of Housing
and Urban Development (HUD).
HUD-1
statement
A
document that provides an itemized listing
of the funds that are payable at closing.
Items that appear on the statement include
real estate commissions, loan fees, points
and initial escrow amounts. Each item
on the statement is represented by a separate
number within a standardized numbering
system. The totals at the bottom of the
HUD-1 statement define the seller's net
proceeds and the buyer's net payment at
closing. The blank form for the statement
is published by the Department of Housing
and Urban Development (HUD). The HUD-1
statement is also known as the "closing
statement" or "settlement sheet."
I
income
property
Real
estate developed or improved to produce
income.
index
A
number used to compute the interest rate
for an adjustable-rate mortgage (ARM).
The index is generally a published number
or percentage, such as the average interest
rate or yield on Treasury bills. A margin
is added to the index to determine the
interest rate that will be charged on
the ARM. This interest rate is subject
to any caps that are associated with the
mortgage.
in-file
credit report
An
objective account, normally computer-generated,
of credit and legal information obtained
from a credit repository.
inflation
An
increase in the amount of money or credit
available in relation to the amount of
goods or services available, which causes
an increase in the general price level
of goods and services. Over time, inflation
reduces the purchasing power of a dollar,
making it worth less.
initial
interest rate
The
original interest rate of the mortgage
at the time of closing. This rate changes
for an adjustable-rate mortgage (ARM).
Sometimes known as "start rate"
or "teaser."
installment
The
regular periodic payment that a borrower
agrees to make to a lender.
installment
loan
Borrowed
money that is repaid in equal payments,
known as installments. A furniture loan
is often paid for as an installment loan.
insurable
title
A
property title that a title insurance
company agrees to insure against defects
and disputes.
insurance
A
contract that provides compensation for
specific losses in exchange for a periodic
payment. An individual contract is known
as an insurance policy, and the periodic
payment is known as an insurance premium.
insurance
binder
A
document that states that insurance is
temporarily in effect. Because the coverage
will expire by a specified date, a permanent
policy must be obtained before the expiration
date.
insured
mortgage
A
mortgage that is protected by the Federal
Housing Administration (FHA) or by private
mortgage insurance (MI). If the borrower
defaults on the loan, the insurer must
pay the lender the lesser of the loss
incurred or the insured amount.
interest
The
fee charged for borrowing money.
interest
accrual rate
The
percentage rate at which interest accrues
on the mortgage. In most cases, it is
also the rate used to calculate the monthly
payments, although it is not used for
an adjustable-rate mortgage (ARM) with
payment change limitations.
interest
rate
The
rate of interest in effect for the monthly
payment due.
interest
rate buydown plan
An
arrangement wherein the property seller
(or any other party) deposits money to
an account so that it can be released
each month to reduce the mortgagor's monthly
payments during the early years of a mortgage.
During the specified period, the mortgagor's
effective interest rate is "bought
down" below the actual interest rate.
interest
rate ceiling
For
an adjustable-rate mortgage (ARM), the
maximum interest rate, as specified in
the mortgage note.
interest
rate floor
For
an adjustable-rate mortgage (ARM), the
minimum interest rate, as specified in
the mortgage note.
investment
property
A
property that is not occupied by the owner.
IRA
(Individual Retirement Account)
A
retirement account that allows individuals
to make tax-deferred contributions to
a personal retirement fund. Individuals
can place IRA funds in bank accounts or
in other forms of investment such as stocks,
bonds or mutual funds.
J
joint
tenancy
A
form of co-ownership that gives each tenant
equal interest and equal rights in the
property, including the right of survivorship.
judgment
A
decision made by a court of law. In judgments
that require the repayment of a debt,
the court may place a lien against the
debtor's real property as collateral for
the judgment's creditor.
judgment
lien
A
lien on the property of a debtor resulting
from the decree of a court.
judicial
foreclosure
A
type of foreclosure proceeding used in
some states that is handled as a civil
lawsuit and conducted entirely under the
auspices of a court.
jumbo
loan
A
loan that exceeds Fannie Mae’s mortgage
amount limits. Also called a nonconforming
loan.
L
late
charge
The
penalty a borrower must pay when a payment
is made a stated number of days (usually
15) after the due date.
lease
A
written agreement between the property
owner and a tenant that stipulates the
conditions under which the tenant may
possess the real estate for a specified
period of time and rent.
leasehold
estate
A
way of holding title to a property wherein
the mortgagor does not actually own the
property but rather has a recorded long-term
lease on it.
lease-purchase
mortgage loan
An
alternative financing option that allows
low- and moderate-income home buyers to
lease a home from a nonprofit organization
with an option to buy. Each month's rent
payment consists of principal, interest,
taxes and insurance (PITI) payments on
the first mortgage plus an extra amount
that is earmarked for deposit to a savings
account in which money for a downpayment
will accumulate.
legal
description
A
property description, recognized by law,
that is sufficient to locate and identify
the property without oral testimony.
liabilities
A
person's financial obligations. Liabilities
include long-term and short-term debt,
as well as any other amounts that are
owed to others.
liability
insurance
Insurance
coverage that offers protection against
claims alleging that a property owner's
negligence or inappropriate action resulted
in bodily injury or property damage to
another party.
lien
A
legal claim against a property that must
be paid off when the property is sold.
lifetime
payment cap
For
an adjustable-rate mortgage (ARM), a limit
on the amount that payments can increase
or decrease over the life of the mortgage.
See cap.
lifetime
rate cap
For
an adjustable-rate mortgage (ARM), a limit
on the amount that the interest rate can
increase or decrease over the life of
the loan. See cap, interest rate ceiling
and interest rate floor.
line
of credit
An
agreement by a commercial bank or other
financial institution to extend credit
up to a certain amount for a certain time
to a specified borrower. See home equity
line of credit.
liquid
asset
A
cash asset or an asset that is easily
converted into cash.
loan
A
sum of borrowed money (principal) that
is generally repaid with interest.
loan
commitment
See
commitment letter.
loan
origination
The
process by which a mortgage lender brings
into existence a mortgage secured by real
property.
loan-to-value
(LTV) percentage
The
relationship between the principal balance
of the mortgage and the appraised value
(or sales price if it is lower) of the
property. For example, a $100,000 home
with an $80,000 mortgage has a LTV percentage
of 80 percent.
lock-in
A
written agreement in which the lender
guarantees a specified interest rate if
a mortgage goes to closing within a set
period of time. The lock-in also usually
specifies the number of points to be paid
at closing.
lock-in
period
The
time period during which the lender has
guaranteed an interest rate to a borrower.
See lock-in.
M]
margin
For
an adjustable-rate mortgage (ARM), the
amount that is added to the index to establish
the interest rate on each adjustment date,
subject to any limitations on the interest
rate change.
master
association
A
homeowners' association in a large condominium
or planned unit development (PUD) project
that is made up of representatives from
associations covering specific areas within
the project. In effect, it is a "second-level"
association that handles matters affecting
the entire development, while the "first-level"
associations handle matters affecting
their particular portions of the project.
maturity
The
date on which the principal balance of
a loan, bond or other financial instrument
becomes due and payable.
maximum
financing
A
mortgage amount that is within 5 percent
of the highest loan-to-value (LTV) percentage
allowed for a specific product. Thus,
maximum financing on a fixed-rate mortgage
would be 90 percent or higher, because
95 percent is the maximum allowable LTV
percentage for that product.
merged
credit report
A
credit report that contains information
from three credit repositories. When the
report is created, the information is
compared for duplicate entries. Any duplicates
are combined to provide a summary of a
your credit.
modification
The
act of changing any of the terms of the
mortgage.
money
market account
A
savings account that provides bank depositors
with many of the advantages of a money
market fund. Certain regulatory restrictions
apply to the withdrawal of funds from
a money market account.
money
market fund
A
mutual fund that allows individuals to
participate in managed investments in
short-term debt securities, such as certificates
of deposit and Treasury bills.
monthly
fixed installment
That
portion of the total monthly payment that
is applied toward principal and interest.
When a mortgage negatively amortizes,
the monthly fixed installment does not
include any amount for principal reduction.
monthly
payment mortgage
A
mortgage that requires payments to reduce
the debt once a month.
mortgage
A
legal document that pledges a property
to the lender as security for payment
of a debt.
mortgage
banker
A
company that originates mortgages exclusively
for resale in the secondary mortgage market.
mortgage
broker
An
individual or company that brings borrowers
and lenders together for the purpose of
loan origination. Mortgage brokers typically
require a fee or a commission for their
services.
mortgagee
The
lender in a mortgage agreement.
mortgage
insurance
A
contract that insures the lender against
loss caused by a mortgagor's default on
a government mortgage or conventional
mortgage. Mortgage insurance can be issued
by a private company or by a government
agency such as the Federal Housing Administration
(FHA). Depending on the type of mortgage
insurance, the insurance may cover a percentage
of or virtually all of the mortgage loan.
See private mortgage insurance.
mortgage
insurance premium (MIP)
The
amount paid by a mortgagor for mortgage
insurance, either to a government agency
such as the Federal Housing Administration
(FHA) or to a private mortgage insurance
(MI) company.
mortgage
life insurance
A
type of term life insurance often bought
by mortgagors. The amount of coverage
decreases as the principal balance declines.
In the event that the borrower dies while
the policy is in force, the debt is automatically
satisfied by insurance proceeds.
mortgagor
The
borrower in a mortgage agreement.
multidwelling
units
Properties
that provide separate housing units for
more than one family, although they secure
only a single mortgage.
multifamily
mortgage
A
residential mortgage on a dwelling that
is designed to house more than four families,
such as a high-rise apartment complex.
multifamily
properties
Fannie
Mae provides financing for multifamily
(buildings with five or more units) rental
properties through a nationwide network
of mortgage lenders.
N
negative
amortization
A
gradual increase in mortgage debt that
occurs when the monthly payment is not
large enough to cover the entire principal
and interest due. The amount of the shortfall
is added to the remaining balance to create
"negative" amortization.
net
cash flow
The
income that remains for an investment
property after the monthly operating income
is reduced by the monthly housing expense,
which includes principal, interest, taxes
and insurance (PITI) for the mortgage,
homeowners' association dues, leasehold
payments and subordinate financing payments.
net
worth
The
value of all of a person's assets, including
cash, minus all liabilities.
no
cash-out refinance
A
refinance transaction in which the new
mortgage amount is limited to the sum
of the remaining balance of the existing
first mortgage, closing costs (including
prepaid items), points, the amount required
to satisfy any mortgage liens that are
more than one year old (if the borrower
chooses to satisfy them) and other funds
for the borrower's use (as long as the
amount does not exceed 1 percent of the
principal amount of the new mortgage).
nonliquid
asset
An
asset that cannot easily be converted
into cash.
note
A
legal document that obligates a borrower
to repay a mortgage loan at a stated interest
rate during a specified period of time.
note
rate
The
interest rate stated on a mortgage note.
notice
of default
A
formal written notice to a borrower that
a default has occurred and that legal
action may be taken.
O
original
principal balance
The
total amount of principal owed on a mortgage
before any payments are made.
origination
fee
A
fee paid to a lender for processing a
loan application. The origination fee
is stated in the form of points. One point
is 1 percent of the mortgage amount.
owner
financing
A
property purchase transaction in which
the property seller provides all or part
of the financing.
P
partial
payment
A
payment that is not sufficient to cover
the scheduled monthly payment on a mortgage
loan.
payment
change date
The
date when a new monthly payment amount
takes effect on an adjustable-rate mortgage
(ARM) or a graduated-payment adjustable-rate
mortgage (GPARM). Generally, the payment
change date occurs in the month immediately
after the adjustment date.
periodic
payment cap
For
an adjustable-rate mortgage (ARM), a limit
on the amount that payments can increase
or decrease during any one adjustment
period.
periodic
rate cap
For
an adjustable-rate mortgage (ARM), a limit
on the amount that the interest rate can
increase or decrease during any one adjustment
period, regardless of how high or low
the index might be.
personal
property
Any
property that is not real property.
PITI
See
principal, interest, taxes and insurance
(PITI) below.
PITI
reserves
A
cash amount that a borrower must have
on hand after making a down payment and
paying all closing costs for the purchase
of a home. The principal, interest, taxes
and insurance (PITI) reserves must equal
the amount that the borrower would have
to pay for PITI for a predefined number
of months.
planned
unit development
See
PUD below.
point
A
one-time charge by the lender for originating
a loan. A point is 1 percent of the amount
of the mortgage.
power
of attorney
A
legal document that authorizes another
person to act on one’s behalf. A
power of attorney can grant complete authority
or can be limited to certain acts and/or
certain periods of time.
prearranged
refinancing agreement
A
formal or informal arrangement between
a lender and a borrower wherein the lender
agrees to offer special terms (such as
a reduction in the costs) for a future
refinancing of a mortgage being originated
as an inducement for the borrower to enter
into the original mortgage transaction.
preforeclosure
sale
A
procedure in which the investor allows
a mortgagor to avoid foreclosure by selling
the property for less than the amount
that is owed to the investor.
prepayment
Any
amount paid to reduce the principal balance
of a loan before the due date. Payment
in full on a mortgage that may result
from a sale of the property, the owner's
decision to pay off the loan in full,
or a foreclosure. In each case, prepayment
means payment occurs before the loan has
been fully amortized.
prepayment
penalty
A
fee that may be charged to a borrower
who pays off a loan before it is due.
pre-qualification
The
process of determining how much money
a prospective home buyer will be eligible
to borrow before he or she applies for
a loan.
prime
rate
The
interest rate that banks charge to their
preferred customers. Changes in the prime
rate influence changes in other rates,
including mortgage interest rates.
principal
The
amount borrowed or remaining unpaid. The
part of the monthly payment that reduces
the remaining balance of a mortgage. More
principal
balance
The
outstanding balance of principal on a
mortgage. The principal balance does not
include interest or any other charges.
See remaining balance.
principal,
interest, taxes and insurance (PITI)
The
four components of a monthly mortgage
payment. Principal refers to the part
of the monthly payment that reduces the
remaining balance of the mortgage. Interest
is the fee charged for borrowing money.
Taxes and insurance refer to the amounts
that are paid into an escrow account each
month for property taxes and mortgage
and hazard insurance.
private
mortgage insurance (MI)
Mortgage
insurance that is provided by a private
mortgage insurance company to protect
lenders against loss if a borrower defaults.
Most lenders generally require MI for
a loan with a loan-to-value (LTV) percentage
in excess of 80 percent.
promissory
note
A
written promise to repay a specified amount
over a specified period of time.
public
auction
A
meeting in an announced public location
to sell property to repay a mortgage that
is in default.
PUD
(Planned Unit Development)
A
project or subdivision that includes common
property that is owned and maintained
by a homeowners' association for the benefit
and use of the individual PUD unit owners.
purchase
and sale agreement
A
written contract signed by the buyer and
seller stating the terms and conditions
under which a property will be sold.
purchase
money transaction
The
acquisition of property through the payment
of money or its equivalent.
Q
qualifying
ratios
Calculations
that are used in determining whether a
borrower can qualify for a mortgage. They
consist of two separate calculations:
a housing expense as a percent of income
ratio and total debt obligations as a
percent of income ratio.
quitclaim
deed
A
deed that transfers without warranty whatever
interest or title a grantor may have at
the time the conveyance is made.
R
radon
A
radioactive gas found in some homes that
in sufficient concentrations can cause
health problems.
rate-improvement
mortgage
A
fixed-rate mortgage that includes a provision
that gives the borrower a one-time option
to reduce the interest rate (without refinancing)
during the early years of the mortgage
term.
rate
lock
A
commitment issued by a lender to a borrower
or other mortgage originator guaranteeing
a specified interest rate for a specified
period of time. See lock-in.
real
estate agent
A
person licensed to negotiate and transact
the sale of real estate on behalf of the
property owner.
Real
Estate Settlement Procedures Act (RESPA)
A
consumer protection law that requires
lenders to give borrowers advance notice
of closing costs.
real
property
Land
and appurtenances, including anything
of a permanent nature such as structures,
trees, minerals and the interest, benefits
and inherent rights thereof.
REALTOR®
A
real estate broker or an associate who
holds active membership in a local real
estate board that is affiliated with the
NATIONAL ASSOCIATION of REALTORS®.
recission
The
cancellation or annulment of a transaction
or contract by the operation of a law
or by mutual consent. Borrowers usually
have the option to cancel a refinance
transaction within three business days
after it has closed.
recorder
The
public official who keeps records of transactions
that affect real property in the area.
Sometimes known as a "Registrar of
Deeds" or "County Clerk."
recording
The
noting in the registrar’s office
of the details of a properly executed
legal document, such as a deed, a mortgage
note, a satisfaction of mortgage or an
extension of mortgage, thereby making
it a part of the public record.
refinance
transaction
The
process of paying off one loan with the
proceeds from a new loan using the same
property as security.
rehabilitation
mortgage
A
mortgage created to cover the costs of
repairing, improving and sometimes acquiring
an existing property.
remaining
balance
The
amount of principal that has not yet been
repaid. See principal balance.
remaining
term
The
original amortization term minus the number
of payments that have been applied.
rent
loss insurance
Insurance
that protects a landlord against loss
of rent or rental value due to fire or
other casualty that renders the leased
premises unavailable for use and as a
result of which the tenant is excused
from paying rent.
rent
with option to buy
See
lease-purchase mortgage loan.
repayment
plan
An
arrangement made to repay delinquent installments
or advances. Lenders' formal repayment
plans are called "relief provisions."
replacement
reserve fund
A
fund set aside for replacement of common
property in a condominium, PUD, or cooperative
project -- particularly that which has
a short life expectancy, such as carpeting,
furniture, etc.
revolving
liability
A
credit arrangement, such as a credit card,
that allows a customer to borrow against
a preapproved line of credit when purchasing
goods and services. The borrower is billed
for the amount that is actually borrowed
plus any interest due.
right
of first refusal
A
provision in an agreement that requires
the owner of a property to give another
party the first opportunity to purchase
or lease the property before he or she
offers it for sale or lease to others.
right
of ingress or egress
The
right to enter or leave designated premises.
right
of survivorship
In
joint tenancy, the right of survivors
to acquire the interest of a deceased
joint tenant.
Rural
Housing Service (RHS)
An
agency within the Department of Agriculture,
which operates principally under the Consolidated
Farm and Rural Development Act of 1921
and Title V of the Housing Act of 1949.
This agency provides financing to farmers
and other qualified borrowers buying property
in rural areas who are unable to obtain
loans elsewhere. Funds are borrowed from
the U.S. Treasury.
S
sale-leaseback
A
technique in which a seller deeds property
to a buyer for a consideration, and the
buyer simultaneously leases the property
back to the seller.
second
mortgage
A
mortgage that has a lien position subordinate
to the first mortgage.
secondary
mortgage market
The
buying and selling of existing mortgages.
secured
loan
A
loan that is backed by collateral.
security
The
property that will be pledged as collateral
for a loan.
seller
take-back
An
agreement in which the owner of a property
provides financing, often in combination
with an assumable mortgage. See owner
financing.
servicer
An
organization that collects principal and
interest payments from borrowers and manages
borrowers’ escrow accounts. The
servicer often services mortgages that
have been purchased by an investor in
the secondary mortgage market.
servicing
The
collection of mortgage payments from borrowers
and related responsibilities of a loan
servicer.
settlement
See
closing.
settlement
sheet
See
HUD-1 statement.
single-family
properties
One-
to four-unit properties including detached
homes, townhomes, condominiums and cooperatives.
special
deposit account
An
account that is established for rehabilitation
mortgages to hold the funds needed for
the rehabilitation work so they can be
disbursed from time to time as particular
portions of the work are completed.
standard
payment calculation
The
method used to determine the monthly payment
required to repay the remaining balance
of a mortgage in substantially equal installments
over the remaining term of the mortgage
at the current interest rate.
step-rate
mortgage
A
mortgage that allows for the interest
rate to increase according to a specified
schedule (i.e., seven years), resulting
in increased payments as well. At the
end of the specified period, the rate
and payments will remain constant for
the remainder of the loan.
subdivision
A
housing development that is created by
dividing a tract of land into individual
lots for sale or lease.
subordinate
financing
Any
mortgage or other lien that has a priority
that is lower than that of the first mortgage.
subsidized
second mortgage
An
alternative financing option known as
the Community Seconds® mortgage for low-
and moderate-income households. An investor
purchases a first mortgage that has a
subsidized second mortgage behind it.
The second mortgage may be issued by a
state, county, or local housing agency,
foundation, or nonprofit corporation.
Payment on the second mortgage is often
deferred and carries a very low interest
rate (or no interest rate). Part of the
debt may be forgiven incrementally for
each year the buyer remains in the home.
survey
A
drawing or map showing the precise legal
boundaries of a property, the location
of improvements, easements, rights of
way, encroachments and other physical
features.
sweat
equity
Contribution
to the construction or rehabilitation
of a property in the form of labor or
services rather than cash.
T
tenancy
by the entirety
A
type of joint tenancy of property that
provides right of survivorship and is
available only to a husband and wife.
Contrast with tenancy in common.
tenancy
in common
A
type of joint tenancy in a property without
right of survivorship. Contrast with tenancy
by the entirety and with joint tenancy.
tenant-stockholder
The
obligee for a cooperative share loan,
who is both a stockholder in a cooperative
corporation and a tenant of the unit under
a proprietary lease or occupancy agreement.
third-party
origination
A
rocess by which a lender uses another
party to completely or partially originate,
process, underwrite, close, fund or package
the mortgages it plans to deliver to the
secondary mortgage market. See mortgage
broker.
title
A
legal document evidencing a person's right
to or ownership of a property.
title
company
A
company that specializes in examining
and insuring titles to real estate.
title
insurance
Insurance
that protects the lender (lender's policy)
or the buyer (owner's policy) against
loss arising from disputes over ownership
of a property.
title
search
A
check of the title records to ensure that
the seller is the legal owner of the property
and that there are no liens or other claims
outstanding.
total
expense ratio
Total
obligations as a percentage of gross monthly
income. The total expense ratio includes
monthly housing expenses plus other monthly
debts.
trade
equity
Equity
that results from a property purchaser
giving his or her existing property (or
an asset other than real estate) as trade
as all or part of the down payment for
the property that is being purchased.
transfer
of ownership
Any
means by which the ownership of a property
changes hands. Lenders consider all of
the following situations to be a transfer
of ownership: the purchase of a property
"subject to" the mortgage, the
assumption of the mortgage debt by the
property purchaser and any exchange of
possession of the property under a land
sales contract or any other land trust
device. In cases in which an inter vivos
revocable trust is the borrower, lenders
also consider any transfer of a beneficial
interest in the trust to be a transfer
of ownership.
transfer
tax
State
or local tax payable when title passes
from one owner to another.
Treasury
index
An
index that is used to determine interest
rate changes for certain adjustable-rate
mortgage (ARM) plans. It is based on the
results of auctions that the U.S. Treasury
holds for its Treasury bills and securities
or is derived from the U.S. Treasury's
daily yield curve, which is based on the
closing market bid yields on actively
traded Treasury securities in the over-the-counter
market. See adjustable-rate mortgage (ARM).
Truth-in-Lending
A
federal law that requires lenders to fully
disclose, in writing, the terms and conditions
of a mortgage, including the annual percentage
rate (APR) and other charges.
two-step
mortgage
An
adjustable-rate mortgage (ARM) that has
one interest rate for the first five or
seven years of its mortgage term and a
different interest rate for the remainder
of the amortization term.
two-
to four-family property
A
property that consists of a structure
that provides living space (dwelling units)
for two to four families, although ownership
of the structure is evidenced by a single
deed.
trustee
A
fiduciary who holds or controls property
for the benefit of another.
U
underwriting
The
process of evaluating a loan application
to determine the risk involved for the
lender. Underwriting involves an analysis
of the borrower's creditworthiness and
the quality of the property itself.
unsecured
loan
A
loan that is not backed by collateral.
V
VA
mortgage
A
mortgage that is guaranteed by the Department
of Veterans Affairs (VA). Also known as
a government mortgage.
vested
Having
the right to use a portion of a fund such
as an individual retirement fund. For
example, individuals who are 100 percent
vested can withdraw all of the funds that
are set aside for them in a retirement
fund. However, taxes may be due on any
funds that are actually withdrawn.
Department
of Veterans Affairs (VA)
An
agency of the federal government that
guarantees residential mortgages made
to eligible veterans of the military services.
The guarantee protects the lender against
loss and thus encourages lenders to make
mortgages to veterans.
W
what-if
analysis
An
affordability analysis that is based on
a what-if scenario. A what-if analysis
is useful if you do not have complete
data or if you want to explore the effect
of various changes to your income, liabilities,
or available funds or to the qualifying
ratios or down payment expenses that are
used in the analysis.
what-if
scenario
A
change in the amounts that is used as
the basis of an affordability analysis.
A what-if scenario can include changes
to monthly income, debts, or down payment
funds or to the qualifying ratios or down
payment expenses that are used in the
analysis. You can use a what-if scenario
to explore different ways to improve your
ability to afford a house.
wraparound
mortgage
A
mortgage that includes the remaining balance
on an existing first mortgage plus an
additional amount requested by the mortgagor.
Full payments on both mortgages are made
to the wraparound mortgagee, who then
forwards the payments on the first mortgage
to the first mortgagee. |
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