Real Estate Terminology
A
Acceleration
The right of the mortgagee (lender) to demand
the immediate repayment of the mortgage loan
balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale
Clause.
Additional principal payment
A payment made by a borrower of more than the
scheduled principal amount due. You might do
this if you want to more quickly reduce the
remaining balance owed.
Adjustable rate mortgage (ARM)
A mortgage in which the interest rate changes
periodically, according to corresponding fluctuations
in an index. All ARMs are tied to indexes.
Adjusted basis
The original cost of a property, plus the value
of any capital expenditures for improvements,
minus any depreciation.
Adjustment date
The date on which the interest rate changes for
an adjustable-rate mortgage (ARM).
Adjustment interval
On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly
payment -- typically one, three or five years,
depending on the index.
Affordability analysis
A detailed analysis of your ability to buy a
home. This includes your income, holdings,
and debts. It may also include the type of
mortgage you plan to use, the location of the
home, and your closing costs.
Agent
An individual who represents a seller, a buyer
or both in the purchase or sale of real estate.
Amenity
A nice feature of the house, but something which
isn't crucial to the house's very existence.
A roof, for instance, is not an amenity; it's
a necessity. An amenity might be a lovely view
of the sunset over the ocean, or a swimming
pool or tennis court.
Amortization
The loan payment consists of a portion which
will be applied to pay the accruing interest
on a loan, with the remainder being applied
to the principal. Over time, the interest portion
decreases as the loan balance decreases, and
the amount applied to principal increases so
that the loan is paid off (amortized) in the
specified time.
Amortization Means
Regular loan payments calculated to pay off the
debt at the end of a fixed period, including
accrued interest on the outstanding balance.
Amortization Schedule
A schedule that provides a breakdown of the principal
and interest payments, and the amount outstanding
at any given point during the amortization
period.
Amortize
To repay a mortgage with regular payments, both
the principal due and the interest.
Annual membership or participation fee
An amount that is charged annually for having
the line of credit available. It is charged
regardless of whether or not you use the line.
Annual percentage rate (A.P.R.)
An interest rate reflecting the cost of a mortgage
as a yearly rate.
This rate is likely to be higher than the stated
note rate or advertised rate on the mortgage,
because it takes into account points and other
credit costs. The APR allows home buyers to compare
different types of mortgages based on the annual
cost for each loan.
Application
A form used to apply for a loan, on which you'll
put relevant information about yourself. Also
refers to the whole process of applying for
a loan. Or, for that matter, of applying to
college (but that's a different story entirely).
Appraisal
An estimate of value of a Real Estate property
by a professional third party. Virtually all
non-owner financed mortgages will require an
appraisal and is generally paid for by the
buyer.
Appraised value
An opinion of a property's fair market value,
based on an appraiser's knowledge, experience,
and analysis of the property. Since an appraisal
is based primarily on comparable sales, and
the most recent sale is the one on the property
in question, the appraisal usually comes out
at the purchase price.
Appreciation
An increase in the value of a property due to
changes in market conditions, or for other
reasons. The opposite of depreciation.
Assessment
A local tax levied against a property for a specific
purpose, such as a sewer or street lights.
Assessment rolls
The public record of taxable property. Not something
you eat with butter and jam.
Assessor
A public official who establishes the value of
a property for purposes of taxation.
Asset
Anything with a dollar value that you own. Your
assets are tallied up when the bank is trying
to figure out what it can afford to lend you.
Assignment
The transfer of a mortgage from one individual
to another. This isn't always allowed.
Assumable mortgage
A mortgage that can be assumed by the buyer when
a home is sold. Usually, the borrower must "qualify" in
order to assume the loan.
Assumption
The agreement between buyer and seller in which
the buyer takes over the payments on an existing
mortgage from the seller.
Assuming a loan can usually save the buyer money,
since this is an existing mortgage debt, unlike
a new mortgage where closing costs as well as
new, possibly higher, market-rate interest charges
may apply.
Assumption fee
Fee usually paid by the buyer to a lender if
the buyer assumes, or takes on, an existing
mortgage.
B
Back-end ratio, or debt ratio
The amount you pay in monthly debt (credit cards,
student loans, etc.) divided by your gross
monthly income.
Balloon (payment) mortgage
Usually a short-term fixed-rate loan which involves
small payments for a certain period of time,
and one large payment for the remaining amount
of the principal at a time specified in the
contract.
Betterment
An improvement that increases property value,
as distinct from repairs that simply maintain
value. It's an upgrade, not just upkeep.
Bill of sale
A written document that transfers title to personal
property. For example, when selling an automobile
to acquire funds which will be used as a source
of down payment or for closing costs, the lender
will usually require the bill of sale (in addition
to other items) to help document this source
of funds.
Binder
A preliminary agreement, secured by an earnest
money deposit, through which the buyer offers
to purchase the home.
Biweekly payment mortgage
A mortgage that requires payments to be made
every two weeks (instead of monthly).
Blanket Mortgage
A mortgage covering at least two pieces of real
estate as security for the same mortgage.
Blended Payments
payments placed in an osterizer and mixed until
all the lumps are gone. Er... just kidding.
Actually, it's a repayment method by which
the same amount is paid each month, but the
composition of the interest and principal changes
with each payment. With each payment, the amount
allocated to the principal increases as the
amount allocated to interest decreases. Most
mortgages use blended payments because it provides
a consistent monthly payment amount for the
borrower.
Bona fide
In good faith, real, not fraudulent.
Bond Market
Usually refers to the daily buying and selling
of thirty year treasury bonds. Lenders follow
this market intensely because as the yields
of bonds go up and down, fixed rate mortgages
do approximately the same thing. The same factors
that affect the Treasury Bond market also affect
mortgage rates at the same time. That is why
rates change daily, and in a volatile market
can and do change during the day as well.
Borrower (Mortgagor)
One who applies for and receives a loan in the
form of a mortgage, with the intention of repaying
the loan in full. If you don't have the intention
to repay the loan, then there are other terms
that you might not want to see applied to you:
crook, deadbeat, scam artist, fugitive from
justice, etc.
Breach
A violation of any legal obligation. Not to be
confused with Henry V -- "Once more unto
the breach, dear friends!"
Broker
1) an individual in the business of helping to
arrange funding or negotiating contracts for
a client, but who does not loan the money himself.
This is a mortgage broker; mortgage brokers
usually charge a fee or receive a commission
for their services.
2) Someone who helps you find a house and charges
a fee for their services as well. This is a real
estate broker; the term is usually synonymous
with real estate agent, although there are, technically,
differences.
Building code
Local regulations having to do with design and
construction of a building. This means, of
course, that it's not OK to build a house made
of oatmeal, no matter what that builder may
tell you.
Buy-down
Usually refers to a fixed rate mortgage where
the interest rate is "bought down" for
a temporary period, usually one to three years.
After that time and for the remainder of the
term, the borrower's payment is calculated
at the note rate. In order to buy down the
initial rate for the temporary payment, a lump
sum is paid and held in an account used to
supplement the borrower's monthly payment.
These funds usually come from the seller (or
some other source) as a financial incentive
to induce someone to buy their property. A "lender
funded buydown" is when the lender pays
the initial lump sum. They can accomplish this
because the note rate on the loan (after the
buydown adjustments) will be higher than the
current market rate. One reason for doing this
is because the borrower may get to "qualify" at
the start rate and can qualify for a higher
loan amount. Another reason is that a borrower
may expect his earnings to go up substantially
in the near future, but wants a lower payment
right now.
Buyer's Agent
A Real Estate Agent that has made an agreement
to represent the buyer exclusively, rather
than the seller.
C
Call option
We're not talking stocks here. It's a clause
in your mortgage that gives the lender the
right to 'call' the mortgage due and payable
at the end of a given length of time, for whatever
reason. In other words, you've got to come
up with all the money owed at that time, and
repay the lender.
Capital expenditure
The cost of an improvement made either to lengthen
the useful life of a property or to add value
to it. It's a fancy term for the money you
pony up for improvements. See also capital
improvement.
Capital improvement
Any structure which is a permanent improvement
to the property.
Caps (interest)
Consumer safeguards which limit the amount that
the interest rate on an adjustable rate mortgage
may change per year and/or during the life
of the loan.
Caps (payment)
Consumer safeguards which limit the amount that
monthly payments on an adjustable rate mortgage
may change.
Cash Flow
The amount of cash derived over a certain period
of time from an income-producing property.
The cash flow should be large enough to pay
the expenses of the income-producing property
(including mortgage payment, maintenance, utilities,
etc.)
Certificate of Eligibility
The document given to qualified veterans which
entitles them to VA guaranteed loans for homes,
business, and mobile homes. Certificates of
eligibility may be obtained by sending DD-214
(Separation Paper) to the local VA office with
VA form 1880 (request for Certificate of Eligibility.
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property
being bought with a VA loan, the Veterans Administration
issues a CRV.
Certificate of title
A statement which confirms that the title to
the house is legally held by the current owner.
This is important, because you don't want to
buy something from someone who doesn't really
own it, now do you?
Certificate of Veteran Status
the document given to veterans or reservists
who have served 90 days of continuous active
duty (including training time). It may be obtained
by sending DD-214 to the local VA office with
form 26-8261a (request for certificate of veteran
status). This document enables veterans to
obtain lower down payments on certain FHA-insured
loans.
Chain of title
The history of all of the documents that transfer
title to a a piece of real estate. Think of
it as being a genealogy for the home since
it was built.
Change frequency
The frequency of payment and/or interest rate
changes in an adjustable-rate mortgage (ARM).
Generally expressed in months.
Chattel
Another name for personal property. You've probably
heard the expression 'goods and chattels.'
Meet 'chattels.'
Clear title
A title that is free of liens. You've probably
heard of 'you own it free and clear.
Closing
This has different meanings in different states.
In some states a real estate transaction is
not consider "closed" until the documents
record at the local recorders office. In others,
the "closing" is a meeting where
all of the documents are signed and money changes
hands.
Closing costs
Expenses incurred by buyers and sellers in transferring
ownership of a property. These may include
an origination fee, taxes, the costs of obtaining
title insurance, transfer fees, etc. They can
often total several, or many, thousands of
dollars.
Cloud on title
Anything found by the title search which indicates
that the property is not owned free and clear
by the purported owner.
Collateral
An asset (such as a car or a home) that can be
used to guarantee the repayment of a loan.
You, the borrower, risk losing that asset if
the loan is not repaid in a timely fashion.
Collection
The process of forcing a borrower to pay what
he owes on a loan and,if it comes to that,
to proceed with foreclosure.
Commitment
A promise by a lender to make a loan, on specific
terms or conditions, to a borrower or builder.
It can also be a promise by an investor to
purchase mortgages from a lender with specific
terms or conditions.
It can also be the agreement (or, in its absence,
the refusal) to engage in a long-term relationship
with someone with whom you may or may not be
in love. There are no easy answers here. However
(OK, we'll continue this digression) you might
consider the old 80/20 rule: if it's really good
80% of the time, it's probably love, and you
might as well commit.
Common Area Assessments
In some areas they are called Homeowners Association
Fees. They are charges paid to the Homeowners
Association by the owners of the individual
units in a condominium or planned unit development
(PUD) and are generally used to maintain the
property and common areas.
Comparable Market Analysis (CMA)
A comparison
of the prices of similar houses in the same general
geographic area. A CMA is used to help determine
the value of a property, either for a seller
or a buyer.
Condominium
A building or group of buildings in which each
unit owner has title to a specific unit. They
may also have the exclusive use of certain
common areas. See Also co-op.
Construction loan (or interim loan)
A loan to provide the funds necessary to pay
for the construction of buildings or homes.
The lender advances funds to the builder at
periodic intervals as the work progresses.
Contingency
A specified condition that must be met before
a contract is legally binding. The two most
common contingencies in home purchasing are
that 1) the house must pass the home inspection,
and 2) the borrower must get the loan.
Contract sale or deed
A contract between a buyer and a seller which
conveys title after certain conditions have
been met. It is a form of installment sale.
Conventional loan
A mortgage not insured by the FHA or guaranteed
by the VA.
Convertibility clause
A clause in certain adjustable-rate mortgages
(ARMs) which permit the borrower to switch
to a fixed-rate mortgage at specified time.
Not to be confused with Mustang Convertible.
Cooperative (co-op)
The residents of this type of housing complex
own shares in the cooperative corporation that
owns the property, and each has the right to
occupy a specific dwelling. They don't actually
own the dwelling; they own shares in the corporation.
Cost of funds index (COFI)
One of the indexes that is used to determine
interest rate changes for certain adjustable-rate
mortgages. It represents the weighted-average
cost of savings, borrowings, and advances of
the financial institutions such as banks and
savings & loans, in the 11th District of
the Federal Home Loan Bank.
Credit History
A record of an individual's repayment of debt.
Credit histories are reviewed my mortgage lenders
as one of the underwriting criteria in determining
credit risk.
Credit Limit
The maximum amount that you can borrow.
Credit Report
A report documenting the credit history and current
status of a borrower's credit standing.
If there are debts you owe which you never paid,
or times in which you've been delinquent in paying,
these items will presumably show up on your credit
report and can hurt your chances of getting approved
for a loan.
D
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results
when a borrower's monthly payment obligation
on long-term debts is divided by his or her
net effective income (FHA/VA loans) or gross
monthly income (conventional loans). See housing
expenses-to-income ratio.
Deed of trust
In many states, this document is used in place
of a mortgage to secure the payment of a note.
Some states, like California, do not record
mortgages. Instead, they record a deed of trust
which is essentially the same thing.
Default
Failure to meet legal obligations in a contract;
specifically, failure to make the monthly payments
on a mortgage. If this happens, you can end
up losing the house.
Deferred interest
When a mortgage is written with a monthly payment
that is less than required to satisfy the note
rate, the unpaid interest is deferred by adding
it to the loan balance. See also negative amortization.
Delinquency
Failure to make payments on time. This can lead
to foreclosure.
Department of Veterans Affairs (VA)
An independent agency of the federal government
which guarantees long-term, low-or no-down
payment mortgages to eligible veterans.
Depreciation
A decline in the value of property over time.
Discrimination in Advertising
Any printed or published material that uses words,
no matter how subtle, that are of a discriminatory
nature aren't allowed by HUD. Some of the examples
that HUD gives are "adult building, Jewish
home, restricted, private, integrated, or traditional."
Down payment
Money paid to make up the difference between
the purchase price and the mortgage amount.
Down payments usually are 10 percent to 20
percent of the sales price on conventional
loans.
Due-On-Interest
A clause inserted in a mortgage that allows the
lender, at its option, to call the loan due
and payable upon the transfer of the property.
Also known as "paragraph 17" in FNMA/FHLMC
mortgages.
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that
allows the lender to demand immediate payment
of the balance of the mortgage if the mortgage
holder sells the home.
E
Earnest Money
Money given by a buyer to a seller as part of
the purchase price, in order to bind a transaction
or to assure payment.
Easement
A right of way giving people other than the owner
access to a property. If there is one of these
on the house you're considering, make sure
you understand what it is, or you may have
troops of 1953 alien-landing devotees plodding
through your back yard on the way to that sacred
corn field just next door.
Encroachment
1) An improvement that intrudes illegally on
someone else's property. 2) defensive lineman
getting overanxious in a football game.
Encumbrance
Anything which limits the title to a property,
such as leases, mortgages, easements, or other
restrictions.
Entitlement
The VA home loan benefit is known as entitlement.
It is also known as eligibility.
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
The value an owner has in real estate over and
above the obligation against the property.
In other words, that portion of the property
which the owner actually owns, having already
paid for it. (It's also referred to as the
owner's interest.)
If a homeowner owns a house valued at $200,000.00
and has a mortgage of $50,000.00, the homeowner's
equity is $150,000.00 (the value less the mortgage).
As the value of the house increases or decreases,
the homeowner's equity increases or decreases
accordingly. The lender's equity is always equal
to the value of the outstanding loan.
Escrow
Funds held in reserve both prior to
closing (for example the earnest money and deposit)
by a third party and after closing by the mortgage
company to pay future taxes and homeowners insurance.
In some areas, "escrow" also refers
to the closing process.
F
Fannie Mae
(see Federal National Mortgage Association)
Farmers Home Administration (FmHA)
Organization which provides financing to farmers
and other qualified borrowers who are unable
to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
A regulatory and supervisory agency for federally
chartered savings institutions.
Federal Home Loan Mortgage Corporation
(FHLMC),
or "Freddie Mac"
A quasi-governmental agency that purchases conventional
mortgage from insured depository institutions
and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban
Development. Its main activity is the insuring
of residential mortgage loans made by private
lenders. FHA also sets standards for underwriting
mortgages.
Federal National Mortgage Association
(FNMA), or "Fannie Mae"
A tax-paying corporation created by Congress
that purchases and sells conventional residential
mortgages as well as those insured by FHA or
guaranteed by VA. This institution, which provides
funds for one in seven mortgages, makes mortgage
money more available and more affordable.
FHA loan
a loan insured by the Federal Housing Administration,
open to all qualified home purchasers. While
there are limits to the size of FHA loans,
they are generous enough to handle moderately
priced homes almost anywhere in the country.
FHA mortgage insurance
a way of insuring an FHA loan, this insurance
requires a small fee (up to 3.8 percent of
the loan amount) paid at closing, or a portion
of this fee added to each monthly payment of
an FHA loan. On a 9.5 percent $75,000 30-year
fixed rate FHA loan, this fee would amount
to either $2,850 at closing or an extra $31
a month for the life of the loan. In addition,
FHA mortgage insurance requires an annual fee
of 0.5 percent of the current loan amount,
paid in monthly installments. The lower the
down payment, the more years the fee must be
paid.
FHLMC
The Federal Home Loan Mortgage Corporation provides
a secondary market for savings and loans by
purchasing their conventional loans. Also known
as "Freddie Mac."
Firm commitment
The agreement by a lender to make a loan to a
specific borrower for a specific property.
Firm Commitment
A promise by FHA to insure a mortgage loan for
a specified property and borrower. A promise
from a lender to make a mortgage loan.
First mortgage
The mortgage which is the primary lien against
a property.
Fixed Rate Mortgage
A mortgage loan where the
interest rate is established at its origination
and continues unchanged through the life of the
loan.
Foreclosure
A legal process by which the lender or the seller
forces a sale of a mortgaged property because
the borrower has not met the terms of the mortgage.
Also known as a repossession of property.
Freddie Mac
See FHMLC, or Federal Home Loan Mortgage Corporation.
Front-end ratio
Your prospective monthly mortgage payments divided
by your gross monthly income. This comes out
to a percentage, and a lender uses this percentage
to get an idea of how much of your income will
be going to pay your loan. If they like the
number (say, below 29%) then they will be more
inclined to sell you the loan.
FSBO (For Sale By Owner)
Real Estate that is sold without the assistance
of an Agent. FSBO can refer to both the individual
selling the property "They are a FSBO," or
the property itself "that house is a FSBO."
G
Ginnie Mae
(see Government National Mortgage Association
Government mortgage
A mortgage insured by the Federal Housing Administration
(FHA) or guaranteed by the Department of Veterans
Affairs (VA) or the Rural Housing Service (RHS).
Government National Mortgage Association
(GNMA),
or Ginnie Mae
Provides sources of funds for residential mortgage,
insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the
payments increase for a specified period of
time and then level off. This type of mortgage
has negative amortization built into it.
Guarantee mortgage
A mortgage that is guaranteed by a third party.
Guaranteed loan
Another term for 'government mortgage.
Guaranty
A promise by one party to pay a debt or perform
an obligation contracted by another if the
original party fails to pay or perform according
to a contract.
H
Hazard Insurance
a form of insurance in which the insurance company
protects the insured from specified losses,
such as fire, windstorm and the like.
Home equity line of credit
A loan against the amount of equity you may have
in a property.
Home inspection
A complete and thorough inspection of the physical
condition of a property, including all major
systems and structural elements. It's conducted
by someone who knows what to look for, and
who will inform you of what he finds. If he
turns up something you don't like and which
the seller refuses to repair, you don't proceed
with the purchase of the home.
Homeowner's Association
An owners group, whether in a condominium, townhouse
or single family subdivision that establishes
general guidelines for the operation of the
community, as well as its standards.
Homeowner's insurance
An insurance policy, required when you take ownership,
that combines personal liability insurance
and hazard insurance for the home as well as
its contents.
Homeowner's warranty
A warranty which will cover repairs to specified
parts of a house for a specific period of time.
It is provided by the seller (or, if the place
is new, the builder) as a condition of the
sale.
Hot Market
A market in which houses are selling fast. Otherwise
known as a 'seller's market' -- the seller
is going to sell their house at very close
to the asking price, since there's a lot of
demand.
Housing Expenses-to-Income Ratio
the ratio, expressed as a percentage, which results
when a borrower's housing expenses are divided
by his/her net effective income (FHA/VA loans)
or gross monthly income (conventional loans).
See debt-to-income ratio.
HUD-1 statement
A document which sets forth an itemized listing
of whatever costs must be paid at closing,
such as real estate commissions, loan fees,
points, and initial escrow amounts. It's also
known as the "closing statement" or "settlement
sheet."
I
Impound
That portion of a borrower's monthly payments
held by the lender or servicer to pay for taxes,
hazard insurance, mortgage insurance, lease
payments, and other items as they become due.
Also known as reserves.
Index
a published interest rate against which lenders
measure the difference between the current
interest rate on an adjustable rate mortgage
and that earned by other investments. These
other investments may include one-, three-,
and five-year U.S. Treasury security yields,
the monthly average interest rate on loans
closed by savings and loan institutions, and
the monthly average costs-of-funds incurred
by savings and loans. This information is then
used to adjust the interest rate on an adjustable
mortgage up or down.
Initial interest rate
The interest rate of the mortgage at the time
of closing. This rate will change for an adjustable-rate
mortgage (ARM). Also known as the "start
rate" or "teaser."
Inspection
A whole house inspection of a home being considered
for purchase which looks for defects in the
property.
Interest
The amount of money, expressed as a percentage
of the principal, charged for the use of the
money borrowed.
Interest Adjustment
If the closing (the date on which the buyer takes
possession of the property) occurs at a time
of the month other than the date on which the
mortgage payment is due, the borrower will
pay an amount to cover interest from the "interest
adjustment date."
Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum
rate to which your loan can climb.
Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum
interest rate to which your loan can sink.
Interim Financing
A construction loan made during completion of
a building or a project. A permanent loan usually
replaces this loan after completion of the
project.
Investor
A money source for a lender.
J
Jumbo Loan
A loan which is larger than the limits set by
the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by these
two agencies, they usually carry a higher interest
rate.
L
Late charge
The penalty that must be paid by the borrower
when a payment is late. This must be spelled
out; make sure you know when you would incur
such a charge.
Lease-purchase mortgage loan
A financing option for low- and moderate-income
home buyers, by which they can lease a home,
with an option to buy, from a nonprofit organization.
Each month's rent payment consists of principal,
interest, taxes and insurance, plus an extra
amount that is sent to a savings account in
order to accumulate money for a down payment.
Lien
A claim upon a piece of property for the payment
or satisfaction of a debt or obligation.
Listing
A property for sale by a Real Estate Brokerage
and Agent.
Listing Price
The price at which the house is listed; the asking
price.
Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage
loan and the appraised value of the property
expressed as a percentage.
Lock-in
A written agreement from the lender to offer
a specified interest rate if the mortgage goes
to closing within a set period of time.
M
Margin
The amount a lender adds to the index on an adjustable
rate mortgage to establish the adjusted interest
rate.
Market Value
The highest price that a buyer would pay and
the lowest price a seller would accept on a
property. Market value may be different from
the price a property could actually be sold
for at a given time.
Maturity
The date on which the principal balance of a
loan is due and payable.
Minimum payment
The minimum amount that you must pay (usually
monthly).
MLS (Multiple Listing Service)
A listing (almost always computerized) of all
the properties for sale by Real Estate Brokerages
in a given geographical area.
Mortgage
A legal contract that is registered against the
title to a property in order to guarantee that
a loan will be repaid.
Mortgage banker
A company or loan officer at a bank that originates
mortgages for resale in the secondary mortgage
market.
Mortgage broker
A person or company that offers loans to borrowers
from numerous sources; they're generally paid
a commission for their services.
Mortgage Insurance
Money paid to insure the mortgage when the down
payment is less than 20 percent. See private
mortgage insurance, FHA mortgage insurance.
Mortgage Insurance Premium (MIP)
The one-half percent borrowers pay each month
on FHA insured mortgage loans. It is insurance
from FHA to the lender against incurring a
loss on account of the borrower's default.
On September 1, 1983, the MIP was changed to
a one-time charge to the borrowers.
Mortgagee
The lender.
Mortgagor
The borrower or homeowner.
N
Negative Amortization
Something which occurs when your monthly payments
are not large enough to pay all the interest
due on the loan. This unpaid interest is added
to the unpaid balance of the loan. The home
buyer ends up owing more than the original
amount of the loan.
Negotiable Rate Mortgage (RBM)
A loan in which the interest rate is adjusted
periodically. (See adjustable rate mortgage.)
Net Effective Income
The borrower's gross income minus federal income
tax.
No-doc loan
A loan requiring very little loan documentation.
The borrower generally puts down a sizable
down payment, usually at least 25%. These loans
tend to be more common among self-employed
people (those who have enough for the down
payment) whose tax returns might indicate earnings
substantially less than what would otherwise
be acceptable to the lender.
Non Assumption Clause
A statement in a mortgage contract forbidding
the assumption of the mortgage without the
prior approval of the lender.
Note
The signed obligation to pay a debt, as a mortgage
note.
O
Origination Fee
The fee charged by a lender to prepare loan documents,
make credit checks, inspect and sometimes appraise
a property, usually computed as a percentage
of the face value of the loan.
P
Permanent Loan
A long-term mortgage, usually ten years or more.
Also called an "end loan."
PITI
Principal, Interest, Taxes and Insurance. Also
called monthly housing expense.
Pledged account mortgage (PAM)
Money is placed in a pledged savings account
and this fund, plus earned interest, is gradually
used to reduce mortgage payments.
Points (loan discount points)
Prepaid interest assessed at closing by the lender.
Each point is equal to 1 percent of the loan
amount (e.g., two points on a $100,000 mortgage
would cost $2,000).
Power of Attorney
A legal document authorizing one person to act
on behalf of another.
Prepaid Expenses
Money necessary to create an escrow account or
to adjust the seller's existing escrow account.
Can include taxes, hazard insurance, private
mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage which permits the borrower
to make payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt.
Prepayment penalties are allowed in some form
(but not necessarily imposed) in 36 states
and the District of Columbia.
Pre qualification
The first stage of a mortgage application where
the lender will run a basic credit report and
determine your debt to income ratio in order
to see how much mortgage you qualify for.
Primary Mortgage Market
Lenders making mortgage loans directly to borrowers
such as savings and loan association, commercial
banks, and mortgage companies. These lenders
sometimes sell their mortgages into the secondary
mortgage markets such as to FNMA or GNMA, etc.
Principal
The amount of debt, not counting interest, left
on a loan.
Private Mortgage Insurance (PMI)
in the event that you do not have a 20 percent
down payment, lenders will allow a smaller
one - as low as 5 percent in some cases. With
the smaller down payment loans, however, borrowers
are usually required to carry private mortgage
insurance. Private mortgage insurance will
require an initial premium payment of 1.0 percent
to 5.0 percent of your mortgage amount and
may require an additional monthly fee depending
on you loan's structure.
On a $75,000 house with a 10 percent down payment,
this would mean either an initial premium payment
of $2,025 to $3,375, or an initial premium of
$675 to $1,130 combined with a monthly payment
of $25 to $30.
Property Tax
An annual or semi-annual tax paid
to one or more governmental jurisdictions based
on the amount of the property assessment. Generally
paid as part of the mortgage payment.
R
Radon
A radioactive gas which seeps up from the ground.
It may be found in some homes, and if it is
in sufficient concentration, then it can cause
health problems. A radon test is often part
of the home inspection.
Realtor
A real estate broker or an associate holding
active membership in a local real estate board
affiliated with the National Association of
Realtors.
Recision
The cancellation of a contract. With respect
to mortgage refinancing, the law that gives
the homeowner three days to cancel a contract
(in some cases) once it is signed, if the transaction
uses equity in the home as security.
Recording
The act of entering deed and/or mortgage information
into public record with your local government
jurisdiction.
Recording Fees
Money paid to the lender for recording a home
sale with the local authorities, thereby making
it part of the public records.
If you're in the recording studio singing your
heart out, then 'recording fees' no doubt refers
to something else entirely.
Redlining
The illegal practice of refusing to make mortgages
or issue insurance policies in specific areas
for reasons other than the economic qualifications
of the applicant.
Refinance
Obtaining a new mortgage loan on a property already
owned, often to replace existing loans on the
property.
RESPA
The Real Estate Settlement Procedures Act. RESPA
is a federal law that allows consumers to review
information on known or estimated settlement
cost once after application and once prior
to or at a settlement. The law requires lenders
to furnish the information after application
only.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes
periodic payments to the borrower using the
borrower's equity in the home as collateral.
S
Sale Price
The price at which the house actually sold. By
noting the difference between the sale price
and the listing price in houses that have recently
sold, comparable to the one you're interested
in, you can get an idea of how much below the
asking price you might be able to offer.
Satisfaction of Mortgage
The document issued by the mortgagee when the
mortgage loan is paid in full. Also called
a "release of mortgage."
Second Mortgage
A mortgage made subsequent to another mortgage
and subordinate to the first one.
Secondary Mortgage Market
The market in which primary mortgage lenders
sell the mortgages they make to obtain more
funds to originate more new loans. It provides
liquidity for the lenders.
Security interest
an interest that a lender takes in the borrower's
property to assure repayment of a debt.
Servicing
All the steps and operations a lender performs
to keep a loan in good standing, such as collection
of payments, payment of taxes, insurance, property
inspections and the like.
Settlement/Settlement Costs
See closing/closing costs.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market
interest rate in return for which the lender
(or another investor such as a family member
or other partner) receives a portion of the
future appreciation in the value of the property.
It may also apply to mortgage where the borrowers
shares the monthly principal and interest payments
with another party in exchange for part of the
appreciation.
Simple Interest
Interest which is computed only on the principal
balance.
Soft Market
A market where not much is selling, the sales
price is likely to be significantly lower than
the asking (listing) price. So, the price is
'soft' -- you can push it down, like a squishy
sponge.
Steering
The effort to maneuver home buyers into, or away
from, a particular area of town because they
won't "fit in." Telling a white couple, "You
don't want to live in Mount Pleasant because
that's where all the Latinos are" is an
example. Or not telling a black family that
a house that would otherwise be perfect for
them is available in an all-white neighborhood.
Both of these are illegal.
Sub-Agent
A Real Estate Agent who is working with a buyer
but who represents the seller in the transaction.
Survey
A measurement of land, prepared by a registered
land surveyor, showing the location of the
land with reference to know points, its dimensions,
and the location and dimensions of any buildings.
Sweat Equity
Equity created by a purchaser performing work
on a property being purchased. The idea is
that you're improving the property through
all the sweaty work you're putting into it.
T
Term
The life span of the contract to repay a loan.
Don't confuse "term" with "amortization." The
term can be 6 months to 10 years. For example,
a mortgage that is amortized over 20 years might
have a 5-year term. At the end of 5 years the
mortgage will mature. However, because the loan
is amortized over 20 years, there will still
be money owed on the loan. (This is sometimes
referred to as a "balloon" mortgage).
The borrower can either renew the loan, refinance
it with another lender, or pay it off completely.
Term mortgage
See balloon payment mortgage.
Title
A document that gives evidence of an individual's
ownership of property.
Title Insurance
A policy, usually issued by a title insurance
company, which insures a home buyer against
errors in the title search. The cost of the
policy is us ally a function of the value of
the property, and is often borne by the purchaser
and/or seller.
Title Search
An examination of municipal records to determine
the legal ownership of property. Usually is
performed by a title company.
Transaction fee
A fee charged each time you draw on your credit
line.
Truth-In-Lending
A federal law requiring disclosure of the Annual
Percentage Rate to home buyers shortly after
they apply for the loan.
Two-Step Mortgage
Mortgage in which the borrower receives a below-market
interest rate for a specified number of years
(most often seven or 10), and then receives
a new interest rate adjusted (within certain
limits) to market conditions at that time.
The lender sometimes has the option to call
the loan due with 30 days notice at the end
of seven or 10 years. also called "Super
Seven" or "Premier" mortgage.
U
Underwriting
The decision whether to make a loan to a potential
home buyer based on credit, employment, assets,
and other factors and the matching of this
risk to an appropriate rate and term or loan
amount.
Usury
Interest charged in excess of the legal rate
established by law.
V
VA Loan
A long-term, low-or no-down payment loan guaranteed
by the Department of Veterans Affairs. Restricted
to individuals qualified by military service
or other entitlements.
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on
the size of the down payment) paid on a VA-backed
loan. On a $75,000 fixed-rate mortgage with
no down payment, this would amount to $1,406
either paid at closing or added to the amount
financed.
W
Warranty
Covers either most of the house in
a new home, or selected items (for example the
heating and air conditioning system or the water
heater) in a used home. Warranties can vary widely
and are optional in used homes (paid for by either
the buyer or the seller).
Z
Zoning
Laws that govern specifically how a
zoned area can be used. For example, an area
may be zoned for single family residential, condominiums,
commercial or retail, or a mix of two or more
uses.
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