Seller Real Estate Word, Phrase and Acronym Glossary
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
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. This latter is,
of course, the opposite of the Santa Claus.
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 is adjusted periodically based on a
preselected index. Also sometimes known as the renegotiable rate
mortgage, the variable rate mortgage or the Canadian rollover mortgage.
The
Canadian rollover is not to be confused with the flying scissors kick,
the body slam, or the half-nelson, which are wrestling terms.
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.
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.
Amoritization
The period of time during which you will owe interest and principal to your lender.
Amoritization 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
the value of the property, made by a qualified professional called an
"appraiser". An appraisal is required by your bank to determine how
much money it will lend you.
Appraised value
An opinion of a property's fair market value, given by an appraiser, whose job it is to evaluate such things.
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 (on a home) that can be taken over by the buyer of the home.
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.
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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 the property.
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.
Blockbusting
The
attempt to induce someone to sell their home because someone from a
protected class is rumored to be moving into the neighborhood. The
classic example of this would be a real estate agent passing out her
card to neighbors while telling them that a minority family is moving
in down the block and they should sell now before the neighborhood gets
any worse. This is illegal.
Bona fide
In good faith, real, not fraudulent. We think this is a Latin phrase, but it may also have something to do with a dog.
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
- 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.
- 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
The
lender and/or the home builder subsidize the mortgage by lowering the
interest rate during the first few years of the loan. While the
payments are initially low, they will increase when the subsidy expires.
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C
Call option
We're
not talking stocks here. It's a clause 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)
An appraisal issued by the Veterans Administration showing the property's current market value.
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.' Meet 'clear.' See also cloud on title.
Closing
The
meeting between the buyer, seller and lender or their agents at which
the property and funds legally change hands. Also called 'settlement.'
See also Closing Costs.
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.
Comps
No,
these aren't free tickets to your favorite team's game. The word is
short for "comparable properties" -- properties which have recently
sold that are about the same size, in the same area, with similar
amenities. These help both you and the appraiser figure out what your
home ought to be worth.
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)
The
weighted-average cost of savings, borrowings, and advances of the 11th
District members of the Federal Home Loan Bank of San Francisco. It's
an index used, not surprisingly, for the type of ARMs known as COFI
loans. It's a slow-moving index, but often these types of ARMs have no
caps.
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.
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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.
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.
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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 that are set aside and held in trust, usually for payment of taxes and insurance on real property.
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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-Rated Mortgage
A
mortgage on which the interest rate is set for the term of the loan,
regardless of future interest rate fluctuations. This makes payments
precisely predictable, but it is not always the cheapest alternative.
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.
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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.
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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 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."
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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."
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.
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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.
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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 Price
The price at which the house is listed; the asking price.
Loan-to-Value Ratio
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.
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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).
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.
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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.
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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.
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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.
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.
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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 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.
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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.
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.
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T
Term
The lifespan 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.
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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.
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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.
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We would like to extend our thanks to The Motley Fool for permiting us to use their glossary.