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Houston Mortgage Company
Mortgage Dictionary
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Abstract (of Title)
-
A historical summary of all the
recorded transactions that affect
the title to the property. An
attorney or a title company will
review an abstract of title to
determine if there are any problems
affecting the title to the property.
All such problems must be cleared
before the buyer can be issued a
clear and insurable title.
-
Acceleration Clause
-
A loan provision giving the lender
the power to declare all sums owing
lender immediately due and payable
upon the violation of a specific
loan provision, such as the sale of
the property, or the failure to make
loan payments on time.
-
Example : John sells his property to
Mary who takes over John's mortgage
payments. They do not notify the
lender of this transaction. The
lender finds out that the title to
the property has transferred and
calls the loan, since the loan
documents state that the loan is due
on the sale of the property. John is
now liable to pay his lender in
full.
-
Accretion
-
The addition to land through natural
forces like wind or water.
-
Example : deposit of soil carried by
a river
-
Agreement of Sale
-
A written signed agreement between
the seller and the purchaser in
which the purchaser agrees to buy
certain real estate and the seller
agrees to sell upon terms of the
agreement. Also known as contract of
purchase, purchase agreement, offer
and acceptance, earnest money
contract or sales agreement.
-
Acknowledgment
-
Formal declaration before a public
official (typically a Notary Public)
that one has signed a document.
Required before recording real
estate legal documents, such as a
deeds of trust.
-
Acre
-
A measure of land equal to 43,560
square feet.
-
Adjustable Rate Mortgage (ARM)
-
Also known as a variable rate
mortgage. The interest rate on these
mortgages changes periodically.
-
Adjustment Period
-
This is the length of time for which
the interest rate is fixed on an
adjustable. Therefore if the
adjustment period is six months,
then the interest rate will remain
fixed for six months, after which
time it will adjust.
-
Amortization
-
A gradual paying off of a debt by
periodic installments which pay
principal and interest.
-
Annual
Percentage Rate - APR
-
The effective rate of interest for a
loan per year. This rate is
typically higher than the note rate
because it takes into account
closing costs. This is one way to
compare loan programs offered by
different lenders. Caution : the APR
is sometimes computed differently by
different lenders and can be
misleading.
-
Appraisal
-
An opinion or estimate of the value
of a property at a given date.
-
Arm's
length transaction
-
A transaction among parties each of
who acts in his or her own best
interest.
-
Example : A transaction between a
father and his son would
NOT
be an an Arm's length transaction
-
Assessment
-
A local tax levied against a
property for a specific purpose such
as street lights.
-
Assumable Mortgage
-
A mortgage loan which allows a new
home buyer to take over the
obligation of making loan payments
with no change in the terms of the
loan. Assumable loans do not have a
due-on-sale clause. The lender has
to be notified and agree to the
assumption. The lender may require
the buyer to qualify for the loan
and may charge an assumption fee.
The seller should obtain a written
release from the lender stating
clearly that he/she is no longer
liable to make mortgage payments.
-
Attorney
In Fact
-
One who is authorized to act for
another under a power of attorney
which may be general or limited in
scope.
-
Example : John wants to sell his
house but has to be out of the
country for 4 months. John gives
authorization to Mary to sign the
grant deed to sell the property to a
buyer. Mary becomes John's Attorney
In Fact.
-
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.
-
Example : A balloon mortgage for
$25,000 has interest only payments
for 5 years at 12% ($250 per month),
with the full principal of $25,000
due and payable after 5 years.
-
Bankruptcy
-
The financial inability to pay one's
debts when due. The debtor
surrenders his assets to the
bankruptcy court. An individual
typically files for Chapter 7 (all
debts wiped out) or Chapter 13
(establishes a payment plan to pay
off debts). A bankruptcy stays on an
individual's credit report for 7
years.
-
Beneficiary
-
The person who receives or is to
receive the benefits resulting from
certain acts.
-
Example : The lender is named as the
beneficiary on a mortgage loan.
-
Example : John has a life insurance
policy for $100,000 with Jane as his
beneficiary. Should John die - Jane
will receive the benefits i.e.
$100,000.
-
Binder
-
Definition #1:
A title insurance binder is the
written commitment of a title
insurance company to insure title to
the property subject to the
conditions and exclusions shown on
the binder.
-
Definition #2:
Preliminary agreement, normally
secured with earnest money, between
a buyer and a seller as an offer to
purchase real estate.
-
Bi-weekly Mortgage
-
A mortgage which requires 1/2 the
normal monthly payment every two
weeks. Over the course of the year,
26 half payments are made which is
equivalent to 13 full mortgage
payments. As a result of this extra
payment the loan amortizes much
faster than a loan with normal
monthly payments.
-
Blanket
Mortgage
-
A mortgage covering more than one
piece of property.
-
Example : A developer subdivides a
tract of land into lots and obtains
a blanket mortgage on the whole
tract.
-
Bond
-
1. A debt instrument in the capital
markets. The U.S. government,
corporations and municipalities use
bonds to raise money. Bonds can also
be backed by mortgages. The best
known bond is the 30-year treasury
bond issued by the U.S. government.
-
2. A sum of money given to a court
to guarantee against a loss. For
example if there is a lien on a
property, the owner may remove the
lien by posting a bond.
-
Borrower (Mortgagor)
-
One who applies for a loan secured
by real estate and is responsible
for repaying the loan (mortgage).
-
Bridge
Loan
-
An interim loan typically used when
the buyer is unable to sell his/her
house but needs money to close the
transaction on the house he/she is
buying. The bridge loan is made on
the buyers current residence to
finance the buyers new residence.
The loan is paid off when the buyers
current residence is sold.
-
Broker
-
See
Real Estate
Broker
or
Mortgage
Broker.
-
Buy
Down
-
Obtaining a lower interest rate
(buying down the rate) by paying
additional points to the lender. The
lower rate may apply for the full
duration of the loan or for just the
first few years. A buydown may be
used to qualify a borrower who would
otherwise not qualify . This is
because a buydown results in lower
payments which are easier to qualify
for.
-
Example : A very popular buydown is
the 2-1 buydown. If the interest
rate on the note is 9%, the buydown
results in the rate being 7% (9%-2%)
for the first year, 8% (9%-1%) for
the second year, and 9% thereafter.
-
Buyers
Broker
-
An agent hired by a buyer to locate
a property for purchase. The broker
represents the buyer and negotiates
with the sellers broker for the best
possible deal for the buyer.
-
Buyers
Market
-
Market conditions that favor buyers
i.e. there are more sellers than
buyers in the market. As a result
buyers have ample choice of
properties and may negotiate lower
prices. Buyers markets may be caused
by an economic slump or
overbuilding.
-
Bylaws
-
A set of regulations by which an
organization conducts its business.
-
Example : A condominium association
prepares bylaws that state the
minimum number of owners to conduct
a meeting to decide policies.
-
Capital
Gains
-
Profit earned from the sale of real
estate. A seller may defer taxes on
the capital gain of his/her primary
residence by buying a higher priced
residence within 2 years.
-
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 (mortgage payment,
maintenance, utilities, etc.).
-
Caveat
Emptor
-
A legal term meaning "let buyer
beware". The buyer must examine the
property and buy at his/her own
risk.
-
Example : A property may be offered
in an "as is" condition with no
expressed or implied guarantee of
quality or condition.
-
CC&Rs -
Covenants, conditions, and
restrictions.
-
The basic rules establishing the
rights and obligations of owners of
real property within a condominium,
townhouse, PUD, subdivision or other
tract of land. An association is
organized for the purpose of
operating and maintaining property
commonly owned by the individual
owners. The association is normally
made up of property owners.
-
Certificate of Eligibility
-
The document issued by the Veterans
Administration to those that qualify
for a VA loan which may be used to
buy a house with 0 down.
Certificates of eligibility may be
obtained by sending the form DD-214
to the local VA office along with VA
form 1880.
-
Certificate of Reasonable Value (CRV)
-
An appraisal performed by an VA
approved appraiser which establishes
the property's current market value.
This value establishes the ceiling
on the maximum VA mortgage loan
principal.
-
Certificate of Occupancy
-
Document issued by a local
governmental agency that states a
property meets the local building
standards for occupancy and is in
compliance with public health and
building codes. This document is
normally required by a lender prior
to closing the loan.
-
Certificate of Title
-
An opinion rendered by an attorney
as to the status of title to a
property, according to the public
records. This certificate does not
the same level of protection as
title insurance.
-
Chain
of Title
-
The chronological order of
conveyance of a parcel of land from
the original owner to the present
owner.
-
Example : An abstractor can research
title to property going back to the
date that the property was granted
to the United States.
-
Clear Title
-
A marketable title, free of clouds
and disputed interests. Most lenders
require a clear title prior to
closing.
-
Closing
-
1. The act of transferring ownership
of a property from seller to buyer
in accordance with a sales contract.
-
2. The time when a closing takes
place.
-
Closing
Costs
-
Expenses incurred by the buyer and
seller in a real estate or mortgage
transaction. There are two types of
costs : recurring and non recurring.
-
Non-recurring costs are one time
transactional costs which include
-
Discount and origination points
-
Lender fees - underwriting,
processing, document
preparations, flood certificate,
tax service, wire transfer,
courier, etc.
-
Title insurance fees
-
Escrow, attorney or closing
agent fees
-
Recording fees
-
Inspection and appraisal fees
-
Real estate brokerage
commissions
-
Recurring fees are costs associated
with owning the property and they
recur month after month. These costs
may include hazard insurance,
interest, property taxes, mortgage
insurance (PMI), and association
fees. A pro-rated amount of these
fees may have to be paid at closing
including
-
Pre-paid interest - interest
charges from the date of closing
to the end of the month
-
Property taxes if due
-
Hazard insurance, fire insurance
or homeowner's insurance has to
be paid for one year
-
Mortgage insurance (PMI) - may
be required if the loan amount
is more than 80% of the value of
the property. In the past a
whole year of PMI had to be paid
up front, however in recent
years many PMI companies only
require 1-2 months up front.
Mortgage insurance premiums are
normally paid every month with
the loan payment
-
Impound account may need money
to be set up for future payments
-
Cloud
on Title
-
An outstanding
claim or encumbrance that, if valid,
would affect or impair the owner's
title. Compare with
clear title.
-
Commitment
-
A written document provided by a
lender to agreeing to make a loan on
specific terms to a borrower or
builder.
-
Condemnation
-
1. Taking private property for a
public use with compensation to the
owner under eminent domain. Used by
governments to acquire land for
streets, schools, freeways, etc and
by utilities to acquire necessary
property.
-
2. Declaring a structure unfit for
use because of violations in housing
codes or other reasons.
-
Conditional Commitment
-
A written document provided by a
lender agreeing to make a loan
provided certain conditions are met
prior to closing.
-
Condominium
-
Individual ownership of a dwelling
unit and an individual interest in
the common areas and facilities
which serve the multi-unit project.
-
Construction loan
-
A short term
loan to pay for the construction of
buildings or homes. These loans
typically provide periodic
disbursements to the builder as each
stage of the building is completed.
When construction is completed a
take-out
or
permanent loan
is used to pay off the construction
loan.
-
Consideration
-
Anything of value given to induce
another to enter into a contract.
Earnest money deposit on a sales
contract is consideration.
-
Contingency
-
Conditions which must be satisfied
before the buyer can close the
purchase of a property.
Contingencies are generally outlined
in the purchase contract between the
buyer and seller.
-
Example : The buyer has 14 days to
remove the property contingency
under the sales contract. In this
case the buyer has 14 days to
inspect the property and request the
seller to perform repairs. If the
buyer is not satisfied with the
condition of the property or if the
buyer and the seller cannot agree on
repairs, the buyer may back out of
the contract with no penalty. After
14 days the buyer no longer has the
right to back out with no penalty as
a result of a problem with the
condition of the property.
-
Contract
-
An agreement between competent
parties to do or not do certain
things for consideration.
-
Example : To have a valid contract
for the sale of real estate there
must be :
-
an offer
-
an acceptance
-
competent parties
-
consideration
-
legal purpose
-
written documentation
-
description of the property
-
signatures by principals or
their attorney-in-fact
-
Contract of Sale
-
Same as the
Agreement of
Sale
-
Contract sale or deed
-
A real estate installment selling
arrangement where the buyer may
occupy the property but the seller
retains the title until the agreed
upon sales price has been paid. Also
known as an installment land
contract.
-
Example : John sells Mary a house.
Mary has to put $10,000 and pay
$1,000 per month for 24 months,
after which time she will receive
title to the property.
-
Conventional Loan
-
Any mortgage loan other than a VA or
an FHA loan. A convention loan may
be conforming or non-conforming.
-
Conveyance
-
The transfer of title of real from
one party to another.
-
Co-op -
cooperative
-
An apartment building or a group of
dwellings owned by a corporation,
the stockholders of which are the
residents of the dwellings. It is
operated for their benefit by their
elected board of directors. In a
cooperative, the corporation or
association owns title to the real
estate. A resident purchases stock
in the corporation which entitles
him to occupy a unit in the building
or property owned by the
cooperative. While the resident does
not own his unit, he has an absolute
right to occupy his unit for as long
as he owns the stock.
-
Convertible ARMs
-
Some variable loans come with
options to convert them to a fixed
loan based on a pre-determined
formula, during a given time period.
For example the 1-year T-bill
adjustable may be converted to a
fixed during the first five years on
the adjustment date. The means that
you could convert during the 13th,
25th, 37th, 49th and 61st months of
the loan.
-
Credit
Report
-
A report detailing a borrowers
credit history including payment
history on revolving accounts (e.g.
credit cards) and installment
accounts (e.g.. car loan). A credit
report also includes information
found from public records including
tax liens and judgments.
-
Deed
-
A written document by which title to
real property is transferred from
one owner to another. The deed
should contain an accurate
description of the property being
conveyed, should be signed and
witnessed according to the laws of
the State where the property is
located, and should be delivered to
the buyer at closing.
-
Deed of
Trust
-
Used in many states in lieu of a
mortgage to secure the payment of a
note. In a deed of trust there are
three parties - the borrower, the
trustee, and the lender, (or
beneficiary). In such a transaction,
the borrower transfers the legal
title for the property to the
trustee who holds the property in
trust as security for the payment of
the debt to the lender or
beneficiary. If the borrower pays
the debt as agreed, the deed of
trust becomes void. If, however,
he/she defaults in the payment of
the debt, the trustee may sell the
property without a court proceeding.
-
Deed
Restriction
-
A clause in a deed that limits the
use of land.
-
Example : A deed might require that
a road cannot be built on the land.
-
Default
-
Failure to meet legal obligations in
a contract - such as the failure to
make the monthly mortgage payment.
-
Defective Title
-
Any recorded instrument that would
prevent a grantor/seller from giving
a clear title.
-
Example : The seller has a
contractor lien on the property that
was filed when he/she failed to pay
the contractor for the kitchen
remodel. The seller may obtain clear
title by paying the contractor and
removing the lien.
-
Deficiency Judgment
-
Personal claim against the debtor
when the sale of foreclosed property
does not yield sufficient proceeds
to pay off the mortgages, accrued
interest, legal fees, etc.
-
Depreciation
-
Decline in the value of a house due
to wear and tear, obsolescence,
adverse changes in the neighborhood,
or any other reason.
-
Discount Points
-
Fees paid to a lender to reduce the
interest rate.
-
Documentary Tax Stamps
-
Stamps affixed to a deed showing the
amount of transfer tax.
-
Dower
-
The rights of a widow or child to
part of a deceased husband's or
fathers property.
-
Down
payment
-
The amount paid for the purchase of
a property in addition to the
mortgage, but not including any
closing costs.
-
Example : John buys a house for
$100,000 and obtains a loan for
$80,000. His down payment is
$20,000.
-
Due on
Sale Clause
-
A clause in the Deed of Trust or
Mortgage that states that the entire
loan is due upon the sale of the
property.
-
Dragnet
Clause
-
A provision in a mortgage that
pledges several properties as
collateral. A default in the
mortgage could lead to foreclosure
proceedings on any of the properties
in the dragnet.
-
Earnest
Money
-
A deposit made by a buyer of real
estate towards the down payment to
evidence good faith. This money is
typically held by the real estate
brokers or the escrow company.
-
Easement
-
The right to use the land of another
for a specific purpose. Easements
may be temporary or permanent.
-
Example : The utility company may
need an easement to run electric
lines.
-
Eminent
Domain
-
The right of the government or a
public utility to acquire property
for necessary public use by
condemnation, with proper
compensation to the owner.
-
Encroachment
-
A building, a part of a building, or
an obstruction (e.g.. a fence or a
wall) that physically intrudes upon
or overlaps into the property of
another.
-
Encumbrance
-
A legal right or interest in land
that affects a good or clear title,
and diminishes the land's value. It
can take numerous forms, such as
zoning ordinances, easement rights,
claims, mortgages, liens, charges, a
pending legal action, unpaid taxes,
or restrictive covenants. An
encumbrance does not legally prevent
transfer of the property to another.
A title search is all that is
usually done to reveal the existence
of such encumbrances, and it is up
to the buyer to determine whether he
wants to purchase with the
encumbrance, or what can be done to
remove it.
-
Equity
-
Equity=Property Value - Loans/Liens
Against the property.
Equity is typically expressed as a
percentage of the property value.
-
Equity
Sharing
-
Joint ownership of a property
between the owner/occupant and the
owner/investor, that results in tax
advantages for both parties. Upon
sale of the property the joint
owners split profits based on the
percentage they own.
-
Escrow
-
1. Neutral third party that handles
all funds in a real estate
transaction. The buyer puts his
deposit into escrow, the lender
funds the loan into escrow. Escrow
pays the real estate brokers
commission, pays off any loans/liens
against the property, pays real
estate taxes and any other fees
associated with the transaction and
sends the balance of the money to
the seller.
-
2. Escrow
payment - see
impound
account.
-
Escheat
-
The reversion of property to the
state in the event that the owner
dies without leaving a will and has
no legal heirs.
-
Executor (Executrix - feminine for
Executor)
-
A person named in a will to carry
out its provisions for the
disposition of the estate.
-
Federal
Home Loan Bank Board (FHLBB)
-
Provides financing to farmers.
-
Farmer's Home Administration (FmHA)
-
An agency, within the U.S.
Department of Agriculture, that
administers assistance programs for
purchasers of homes and farms in
small towns and rural areas.
-
Federal
Home Loan Mortgage Corporation (FHLMC,
Freddie Mac)
-
Purchase loans from members of the
Federal Reserve and the Federal Home
Loan Bank Systems, securitizes them
and sells FHLMC mortgage backed
securities on wall street.
-
Federal
Housing Administration (FHA)
-
An agency within the U.S. Department
of Housing and Urban Development
(HUD) that administers loan
programs, issues loan guarantees to
make more housing available.
-
Federal
Reserve System
-
The central federal banking system
that regulates and provides services
to member commercial banks. Also has
the responsibility for conducting
federal monetary policy.
-
Fee
Simple (Fee Absolute or Fee Simple
Absolute)
-
Absolute ownership of real property;
owner is entitled to the entire
property with unconditional power of
disposition during the owners life
and upon his death the property
descends to the owner's designated
heirs.
-
Fidelity Bond
-
An assurance, generally purchased by
an employer, to cover employees who
are entrusted with valuable property
or funds.
-
Example : A landlord employs a clerk
who collects rents. To safeguard
these funds during the collection
process, the landlord purchases a
fidelity bond the clerk.
-
Fiduciary
-
A person in a position of trust or
responsibility with specific duties
to act in the best interest of a
client. A real estate broker is a
fiduciary for his/her clients.
-
Finance
Charge
-
Interest charged by a lender.
-
First
Mortgage
-
A mortgage
that has priority as a lien over all
other mortgages. In the case of a
foreclosure the first mortgage will
be satisfied before other mortgages.
See also
second
mortgage.
-
Fixture
-
Improvements or personal property
attached to the land so as to become
a part of the real estate. Fixtures
are transferred to the buyer upon
sale of the property. To determine
whether an item is a fixture include
:
-
Intent (was it intended to be
part of the property)
-
How is it fixed ?
-
Is the fixture essential to the
property ?
-
Relationship - was the fixture
intended to be a part of the
tenant's business ?
-
Example : John sells his house to
Mary. John wants to take the
chandelier because he states it is
personal property. Mary wants the
chandelier to stay because she
believes it is a fixture.
-
Flood
Insurance
-
An insurance policy that covers
property damage due to natural
flooding. Flood insurance may be
required on properties in a flood
zone.
-
Foreclosure (Repossession)
-
A legal process by which the lender
forces a sale of a property because
the borrower has not met the terms
of the mortgage.
-
Free
and clear
-
A property that has no liens.
-
FSBO
-
For sale by owner. A property for
sale that is not listed with a real
estate broker.
-
Fully
indexed rate
-
The fully indexed rate=value of the
index + margin.
-
General
Warranty Deed
-
A deed in which the grantor (seller)
agrees to the protect the grantee
(buyer) against any other claim to
title of the property.
-
A government agency part of HUD that
buys VA and FHA loans from lenders,
securitizes them and sells Ginnie
Mae securities to investors.
-
Grantee
-
That party in the deed who is the
buyer or recipient.
-
Grantor
-
That party who is the seller or the
giver.
-
Graduated Payment Mortgage (GPM)
-
A mortgage that has lower payments
initially (with potential negative
amortization) which increase each
year until the loan is fully
amortized.
-
Grandfather Clause
-
The clause in a law permitting the
continuation of a use, business,
etc., which was permissible but
because of a change in the law is
now no longer permissible.
-
Hazard
Insurance (Fire Insurance,
Homeowner's insurance)
-
Insurance on a property against fire
and other risks. A homeowner's
policy may have additional coverage
for theft, liability, etc. that a
fire insurance policy may not cover.
-
Homeowners Association
-
An association of homeowners in a
particular subdivision, planned unit
development (PUD), or condominium
organized to manage the common area
of the development and to enforce
the association rules and
regulations.
-
Homestead
-
Status provided to a homeowner's
principal residence in some states
that protects the home against
judgments up to specified amounts.
-
Homestead Exemption
-
Available in some states - this
causes the assessed value of a
principal residence to be reduced by
the amount of the exemption for the
purposes of calculating property
tax.
-
Example : John's principal residence
is assessed at $100,000 and the
homestead exemption is $7,000. His
property taxes will be based on
$93,000.
-
Home
Warranty Plan
-
Insurance that covers appliances,
heating systems, etc. Typically
purchased at the time of closing.
-
Housing
and Urban Development
-
A U.S. government agency established
to implement certain federal housing
and community development programs.
-
Housing
Code
-
A local government ordinance that
sets minimum standards of safety and
sanitation for existing residential
buildings.
-
HUD 1
-
A closing document required by HUD
that outlines the settlement cost of
a loan. The closing agent prepares
this document and sends it to the
buyer upon closing.
-
Hypothecate
-
To pledge a property as security
without having to give up possession
of it.
-
Improvements
-
Additions to raw land such as
buildings, streets, etc. that add
value to the land.
-
Impound
Account
-
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.
-
Income
Approach
-
A method used by an appraiser to
estimate the value of a property
based on the income it generates.
-
Income
Property
-
Real estate that generates rental
income. Examples : apartment
buildings, office buildings and
shopping centers.
-
Index
-
A statistic
that indicates some current economic
of financial condition. Indexes are
used to make adjustments in
variable rate
loans.
-
Ingress
and Egress
-
The right to
go in and out over a piece of
property but not the right to park
on it. See also
Easements.
-
Installment Sale
-
See
land contract.
-
Joint
and Several Liability
-
A creditor can demand full repayment
from any and all of those who have
borrowed. Each borrower is liable
for the full debt, not just the
prorated share.
-
Joint
Tenancy
-
Ownership of a property by 2 or more
people, each of whom has an
undivided interest with the right of
survivorship.
-
Example : John and Mary own a house
in joint tenancy. Each owns half of
the entire (undivided) property. If
John dies, Mary will own the entire
property and vice versa.
-
Judgment
-
The decision of a court of law
stating that one individual is
indebted to another and fixing the
amount of indebtedness. Judgments,
when recorded, become a lien on real
property owned by the defendant.
-
Judgment Lien
-
The claim on the property of a
debtor resulting from a judgment.
-
Jumbo
Loan
-
Loan size that is larger than the
limit established by Fannie Mae or
Freddie Mac.
-
Junior
Mortgage
-
A mortgage subordinate to another
mortgage. In the case of a
foreclosure a senior mortgage will
be paid prior to a junior mortgage.
-
Kicker
-
A payment required by a mortgage in
addition to normal principal and
interest. Sometimes known as a
participation loan.
-
Land
Contract
-
A real estate installment selling
arrangement whereby the buyer may
use and occupy land, but no deed is
given by seller until the sales
price has been paid.
-
Lease
with Option to Purchase
-
A lease under which the lessee has
the right to purchase the property.
The option may run for a portion or
for the full length of the lease
-
Leasehold Estate
-
Tenant's right of possession for a
specific period of time under a
lease agreement.
-
Legal
Description
-
Legally acceptable identification of
real estate by one of the following:
-
the government rectangular
survey
-
metes and bounds
-
recorded plat (lot and block
number)
-
Lessee
-
A person to whom property is rented
under a lease. (Tenant)
-
Lessor
-
A person who rents property to
another under a lease. (Landlord)
-
Lien
-
A claim against the property for the
payment of a debt, judgment,
mortgage or taxes.
-
Example : Unpaid contractors may
file a mechanic's lien.
-
Life
Estate
-
An estate in real property for the
life of a living person. The estate
then reverts back to the grantor or
to a third party.
-
Lis
Pendens
-
Latin for "lawsuit pending."
Recorded notice that litigation is
pending on a property. Most lenders
will require the clearance of the
Lis Pendens prior to closing.
-
Loan
Application
-
A document required by a lender
prior to loan approval. The
application includes detailed
information about the borrower and
the property.
-
Loan
origination fee or points
-
Charge by a lender or broker
connected with originating a loan.
This is different from discount
points which are used to buy down
the rate of interest.
-
Loan to
Value Ratio (LTV)
-
The loan amount divided by the value
of the property.
-
Loan
Servicing
-
The act of collecting loan payments,
handling property tax and insurance
escrows, foreclosing on defaulted
loans and remitting payments to the
investors.
-
Margin
-
A fixed number added to the index to
compute the rate on an adjustable
rate mortgage.
-
Marketable Title
-
Title that is free of liens, clouds
and other legal defects and hence is
readily acceptable by a buyer.
-
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.
-
Mechanics Lien
-
The right of an unpaid contractor or
subcontractor to file a lien against
property to recover the amount due
to him/her.
-
Mortgage
-
A written instrument that creates a
lien upon real estate as security
for the payment of a specified debt.
-
Mortgage Backed Security (MBS)
-
A bond or other financial obligation
secured by a pool of mortgage loans.
-
Mortgage Banker
-
Specializes in originating and
servicing loans. They generally sell
their loans to investors, but may
continue to service them.
-
Mortgage Broker
-
Arranges financing for a borrower by
placing loans with lenders. Mortgage
brokers are paid a fee by the
borrower or the lender when a loan
closes.
-
Mortgagee
-
The lender.
-
Mortgagor
-
The borrower.
-
Mortgage Insurance
-
See
private
mortgage insurance
(PMI)
-
Mortgage Note
-
A written agreement to repay a loan.
The agreement is secured by a
mortgage, serves as proof of an
indebtedness, and states the manner
in which it shall be paid. The note
states the actual amount of the debt
that the mortgage secures and
renders the mortgagor personally
responsible for repayment.
-
Negative Amortization
-
An increase in principal balance
which occurs when the monthly
payments do not cover all of the
interest cost. The interest cost
which is not covered by the payment
is added to the unpaid principal
balance.
-
Net
Effective Income
-
The borrowers gross income minus
federal income tax.
-
Non-conforming loan
-
Loans that do not comply with Fannie
Mae or Freddie Mac guidelines.
-
Note
-
A written instrument that
acknowledges a debt and promises to
pay.
-
Notary
Public
-
One authorized to take
acknowledgments of certain types of
documents, such as deeds, contracts,
and mortgages.
-
Notice
of default
-
A letter sent to the defaulting
party as a reminder of the default.
-
Offer
-
An expression of willingness to
purchase a property at a specified
price.
-
Offeree
-
One who receives the offer. When the
buyer makes an offer to the seller
the seller is an offeree.
-
Offeror
-
One who makes the offer. When the
buyer makes an offer to the seller
the buyer is an offeror.
-
Office
of Comptroller Currency
-
The oldest federal financial
regulatory body that oversees the
nation's federally chartered banks.
-
Office
of Thrift Supervision
-
The OTS charters federal thrift
institutions and is the primary
regulator of all federal and many
state-chartered thrift institutions.
-
-
Open
House
-
A method of showing a home for sale
to prospective buyers where the home
is left open for inspection by those
who may be interested in making a
purchase.
-
Open
End Mortgage
-
A mortgage permitting the mortgagor
to borrow additional money under the
same mortgage, with certain
conditions.
-
Origination Fee
-
See
Loan
Origination Fee.
-
Optionee
-
One who receives or purchases an
option.
-
Optionor
-
One who gives or sells an option.
-
Oral
Contract
-
A verbal agreement. Verbal
agreements for the sale or use of
real estate are normally
unenforceable.
-
Owner
of Record
-
The individual named on a deed that
has been recorded at the county
recorders office.
-
Owner
Occupant
-
A tenant of a residence who also
owns the property.
-
Package
Mortgage
-
Mortgage covering both real and
personal property.
-
Paper
-
A mortgage, deed of trust or land
contract provided in lieu of cash.
-
Partial
Release
-
A provision in a mortgage that
allows some of the property secured
to be freed from serving as
collateral.
-
Participation Mortgage
-
A mortgage that allows the lender to
share in part of the income or
resale proceeds.
-
Pass
Through Certificates
-
Interests in a pool of mortgages
sold by mortgage bankers to
investors. Money collected as
monthly mortgage payments is
distributed to those who own
certificates..
-
Permanent Loan
or Mortgage
-
A mortgage for a long period of
time. Often referred to as the
mortgage that pays off a
construction loan on a completed
property.
-
Permit
-
A document issued by a government
regulatory authority that allows the
bearer to take some specific action.
-
An occupancy permit allows the owner
of a building to occupy or rent the
building.
-
PITI
-
Abbreviation for principal,
interest, taxes and insurance, which
may be combined in a single monthly
mortgage payment.
-
Planned
Unit Development (PUD)
-
A zoning classification that allows
flexibility in the design of a
subdivision. PUDs include
individually owned units as well as
some common space that is jointly
owned.
-
Plat
-
A plan or map of a specific land
area.
-
Plat
Book
-
A public record containing maps of
land, showing the division of the
land into streets, blocks, and lots
and indicating the measurements of
the individual parcels.
-
Points
-
Fees paid to
lenders. 1 point=1% of the loan
amount. On a $100,000 loan 1 point
is $1000. Points may be further
classified into
origination
points
or
discount
points.
-
Portfolio Loan
-
A loan that is held as an investment
by a bank or savings and loan, and
NOT
sold on the secondary market to
investors.
-
Power
of Attorney
-
A written
document authorizing a person to act
on the behalf of another person.
That person does not have to be an
attorney. See
Attorney-in-fact.
-
Prepaid
Interest
-
Prepaid interest is the interest
charged to borrowers at closing to
pay for the cost of borrowing for a
balance of the month. For example,
if a loan closes on the 19th of the
month and the first payment is due
on the 1st of the following month,
the lender will charge 12 days of
prepaid interest.
-
Prepayment
-
Full or partial payment of the
principal before the due date. This
might occur if the borrower makes
extra payments, sells the property,
or refinances the existing loan.
-
Prepayment Penalty
-
Fees paid by the borrower if they
pay the loan before its due date.
-
Primary
Mortgage Market
-
Companies that
originate and service mortgage loans
(banks, savings & loans, credit
union, mortgage bankers,
institutional lenders) make up the
primary mortgage market. See also
secondary
mortgage market.
-
Prime
Rate
-
The lowest commercial interest rate
charge by a bank on short term loans
to their most credit worthy
customers. View
current prime rate.
-
Principal
-
The outstanding balance 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 down payment - as low as 2
percent in some cases. With the
smaller down payment loans, however,
borrowers are usually required to
carry private mortgage insurance.
Private mortgage insurance payments
are normally made annual or monthly.
An
impound
account
may be required.
-
Probate
-
Court process to establish the
validity of the will of a deceased
person.
-
Purchase Money Mortgage
-
A mortgage used to finance the
purchase of a property.
-
Property Tax
-
A government levy based on the
market value (as assessed by the
county assessor's office) of the
property.
-
Public
Sale
-
An auction of property with notice
to the general public.
-
Purchase Agreement
-
See
Agreement of
Sale.
-
Quiet
Title
(Action)
-
A court action to settle a title
dispute.
-
Quit
Claim Deed
-
A deed which transfers whatever
interest the maker of the deed may
have in the particular parcel of
land. A quitclaim deed is often
given to clear the title when the
grantor's interest in a property is
questionable. By accepting such a
deed the buyer assumes all the
risks. Such a deed makes no
warranties as to the title, but
simply transfers to the buyer
whatever interest the grantor has.
-
Realtor
-
A real estate professional who is a
member of the National Association
of Realtors.
-
Real
Estate Broker
-
An individual who often owns a real
estate company or is in a management
position, and who is licensed to
represent a buyer or a seller in a
real estate transaction.
-
Real
Estate Settlement Procedure Act
(RESPA)
-
A law that states how mortgage
lenders must treat those who apply
for real estate loans on property
with 1-4 units.
-
Example : A lender is required to
provide a good faith estimate of
closing costs within 3 days of an
application being filed.
-
Redlining
-
The practice of refusing to provide
loans or insurance in a certain
neighborhood.
-
Refinancing
-
Repaying an existing loan from the
proceeds of a new loan on the same
property.
-
Reconveyance
-
When a mortgage is paid off in full,
the lender conveys the property back
to the owner.
-
Recording
-
The act of entering into a book of
public records instruments affecting
title to the real property. A lender
requires that a deed of trust or a
mortgage be recorded to evidence the
debt against the property.
-
Recision
-
The cancellation of a contract. When
refinancing a mortgage on a
principal residence the law gives
the homeowner three days to cancel
the contract
-
Recourse
-
The right of the holder of a note
secured by a mortgage or deed of
trust to claim money from the
borrower in default in addition to
the property pledged as a
collateral.
-
Regulation Z
(Reg Z)
-
A federal regulation requiring
creditors to provide full disclosure
of the terms of a loan including the
terms of the loan and the annual
percentage rate (APR).
-
Real
Estate Investment Trusts (REIT)
-
A trust that uses investors money to
purchase and manage real estate.
Investors realize some of the tax
advantages in owning real estate.
-
Right
of survivorship
-
The right of a surviving joint
tenant to acquire the interest of a
deceased joint owner.
-
Reverse
Mortgage
-
A mortgage used by the elderly that
provides income as long as they live
in exchange. Payments made cause the
loan principal to increase.
-
Rollover Loan
-
A loan that is amortized over a long
period of time (e.g. 30 years) but
the interest rate is fixed for a
short period (e.g. 5 years). The
loan may be extended or rolled over,
at the end of the shorter term,
based on the terms of the loan.
-
Restrictive Covenants
-
Private restrictions limiting the
use of real property. Restrictive
covenants are created by deed and
may "run with the land," binding all
subsequent purchasers of the land,
or may be "personal" and binding
only between the original seller and
buyer.
-
Sales
Agreement
or Sales Contract
-
See
Agreement of
Sale.
-
Savings
& Loan
-
Depository institutions that
specialize in originating, servicing
and holding mortgage loans primarily
on owner occupied residential
property.
-
Secondary Mortgage Market
-
The market where banks, savings &
loans and mortgage bankers can sell
mortgages to investors like Fannie
Mae or Freddie Mac.
-
Second
Home
-
Also known as a vacation home. This
home is different from an investment
property as it is not rented, but
used occasionally by the owners.
-
Second
Mortgage
-
A subordinated lien, created by a
mortgage loan, over the amount of a
first mortgage. Second mortgages
generally carry a higher rate than a
first mortgage since they represent
a higher risk for an investor.
-
Section
8 Housing
-
Privately owned rental units
participating in the low-income
rental assistance program. Landlords
receive subsidies on behalf of
qualified low-income tenants,
allowing the tenants to pay a
limited proportion of their incomes
toward the rent.
-
Section
1031
-
The section of the IRS that deals
with tax free exchanges of certain
property. General rules for tax free
exchanges are :
The properties must be :
-
Exchanged
-
Similar
-
Used for business or as an
investment
-
Security
-
Property that serves as collateral
for a debt.
-
Servicing
-
The act of billing, collecting
payment, filing reports, managing
impound accounts and handling
defaults on a mortgage.
-
Settlement Cost (HUD guide)
-
A booklet that provides an overview
of the lending process and is
required to be given to consumers
after the loan application is
completed.
-
Settlement Statement
-
See
HUD 1
-
Special
Assessment
-
A special tax imposed on property,
individual lots or all property in
the neighborhood to pay for
improvements - street lights,
sidewalks, etc.
-
Special
Warranty Deed
-
The grantor does not warrant against
title defects arising from
conditions that existed before
he/she owned the property. The
seller warrants that he/she has done
nothing to impair title.
-
Shared
Appreciation Mortgage
-
A residential loan with a fixed
interest rate that is below market,
with the lender entitled to a
specified share of appreciation of
the property over an agreed upon
time interval.
-
Sheriff's Deed
-
A deed given at the sheriff's sale
in the foreclosure of a mortgage.
-
Single
Family Housing (SFR)
-
A type of residential structure
designed to include one dwelling.
-
Example : Town houses, detached
units.
-
Spec
House
-
A single family dwelling constructed
by a builder in anticipation of
finding a buyer.
-
Specific Performance
-
A legal action in which the court
requires a party to a contract to
perform the terms of the contract
when the party has refused to
fulfill its obligations.
-
Standard Uniform Loan Application
(Form 1003)
-
A
-
standard loan application widely
used in the mortgage industry.
-
Subdivision
-
A tract of land divided into lots
suitable for home building purposes.
-
Subordination
-
A loan in a lower priority, for
example a second mortgage is
subordinate to a first.
-
Subject
To (Purchasing subject to a
mortgage)
-
The buyer agrees to make payments on
the existing mortgage, without
notifying the lender. The seller
remains liable for making payments
on the loan if the buyer does not
make the mortgage payment. The buyer
is not personally liable for
mortgage payments, but must make
payments to keep the property.
-
Survey
-
Map made by a licensed surveyor who
measures land and charts its
boundaries, improvements and
relationship to the property
surrounding it.
-
Sweat
Equity
-
Value added to a property due to
improvements made personally by the
owner.
-
Takeout
Financing
-
A commitment to provide permanent
financing upon completion of
construction. The take out loan
normally pays off the construction
loan.
-
Tax
Lien
-
Lien for nonpayment of taxes
-
Tax
Sale
-
Public sale of a property at an
auction by a government authority as
a result of non-payment of taxes.
-
Teaser
Rate
-
A low initial interest rate on a
mortgage.
-
Tenancy
at Sufferance
-
Tenancy established when a person
who had been a lawful tenant
wrongfully remains in possession of
property after expiration of a
lease.
-
Tenancy
at Will
-
A license to use or occupy land and
buildings at the will of the owner.
The tenant may decide to leave the
property at any time or must leave
at the landlords will.
-
Tenancy
by the Entirety
-
A form of ownership by husband and
wife whereby each owns the entire
property. In event of the death of
one, the survivor owns the property
without probate
-
Tenancy
for Years
-
Created by a lease for a fixed term,
such as 6 months, 2 years, etc.
-
Tenancy
in Common
-
Ownership of a property by 2 or more
persons, each of whom has an
undivided interest, without the
right of survivorship. Upon the
death of one of the owners, the
ownership share of the deceased is
inherited by the beneficiary
designated on the owner's will.
-
Tenancy
in Severalty
-
Ownership of property by one person.
-
Time is
of the Essence
-
Legal phrase in a contract requiring
all references to specific dates and
times noted in the contract be
interpreted exactly.
-
Time
Share
-
A form of property ownership under
which a property is held by a number
of people, each with the right of
possession for a specified time
interval. Time sharing is used
mostly for vacation properties.
-
Title
-
Evidence that the owner of the
property is in lawful possession.
Evidence of ownership.
-
Title
Insurance
-
An insurance policy which protects
the insured against loss arising
from defects in title. Title
insurance policies are typically
obtained for the buyer and the
lender.
-
Title
Report
-
A document indicating the current
state of title. The report includes
information on the current
ownership, outstanding deeds of
trust or mortgages, liens,
easements, covenants, restrictions,
and any defects.
-
Title
Search
-
An examination of the public records
to determine the ownership and
encumbrances affecting the property.
-
Town
House
-
Residence which normally has 2 or
more floors and is attached to other
similar units. Town houses are
commonly found in planned unit
developments (PUDs) and
condominiums.
-
Tract
-
A parcel of land, generally held for
subdividing.
-
Transfer Tax
-
Tax paid to the city, county, state
or other government entity upon sale
of a property.
-
Triple-Net Lease
-
One in which the tenant pays all
operating expense of the property.
The landlord receives the net rent.
-
Trust
Account
-
A separate bank account maintained
by a broker or escrow company to
handle all money collected for
clients. A broker may not commingle
these funds with his/her own funds.
-
Trust
Deed
-
See
Deed of Trust.
-
Trustee
-
A party who is given legal
responsibility to hold property in
the best interest of or "for the
benefit of" another. The trustee is
one placed in a position of
responsibility for another, a
responsibility enforceable in a
court of law.
-
Truth
in Lending
-
See
Regulation Z.
-
Two-Step Mortgage
-
A mortgage in which the borrower
receives a fixed rate for a
specified number of years (most
often 5 or 7), and then receives a
new interest rate based on the terms
in the note.
-
Underwriting
-
The decision whether to make a loan
to a potential home buyer based on
credit, income, employment history,
assets, etc.
-
Undivided Interest
-
An ownership right to use and
possess a property that is shared
among co-owners, with no one
co-owner having exclusive rights to
any portion of the property.
-
Unencumbered Property
-
Real estate with free and clear
title.
-
Unimproved Property
-
Land that has received no
development.
-
Unrecorded Deed
-
A document that transfers title from
the grantor to the grantee without
recording (i.e. providing public
notice).
-
Usury
-
Charging a rate of interest greater
than that permitted by law.
-
Vacation Home
-
See second home.
-
VA Loan
-
Home loan guaranteed by the U.S.
Veterans Administration, enabling a
veteran to buy a home with no money
down.
-
Variable Rate Mortgage
-
See
Adjustable
Rate Mortgage
-
Verification of Deposit (VOD)
-
A document signed by the borrower's
bank or other financial institution
verifying the account balance and
history.
-
Verification of Employment
-
A document signed by the borrower's
employer verifying his/her starting
date, job title, salary and
probability of continued employment.
-
Waiver
-
The voluntary renunciation,
abandonment, or surrender of some
claim, right, or privilege.
-
Warehousing
-
Mortgage bankers and other financial
institutions make loans that are
then periodically sold on the
secondary market. After the loan is
made but before it is sold - the
loan is said to be in the lenders
warehouse.
-
Warranty Deed
-
A deed conveying the title to a
property with a warranty of a clear
marketable title.
-
Wraparound Mortgage
-
A loan arrangement whereby the
existing loan is retained an a new
loan is added to the property.
-
Example : The seller sells his/her
property for $200,000. The buyer
puts $80,000 down. The seller has an
existing loan balance of $100,000
for a remaining period of 25 years
at an interest rate of 6%. The
seller then makes a wraparound
mortgage to the buyer, (where the
seller acts as a lender) for
$120,000 at 8%. The seller has to
continue making payments on his old
loan. They buyer has to pay the
seller on the new loan. The buyer
may at a later date refinance the
property and close both loans.
-
Zero
Lot Line
-
A form of housing where individual
units are on separate lots, but are
attached to one another. Example :
PUD, townhouse.
-
Zoning
-
Areas may be zoned to specify use of
a property i.e. residential,
commercial, agricultural. These
zoning ordinances are normally
enforced by the city or the county.
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Your Credit Rating
Although income and assets play a
major role in approving a mortgage
loan, your credit history is
critical in the outcome of this
process and the interest rate at
which credit is granted.
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Mortgage Programs
All
mortgage loan programs plans can be
divided into categories in two
different ways. First, conventional
and government loans. |
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Mortgage Calculator
Calculate your monthly mortgage
payment. You can change any amount
to see how it will affect your
mortgage payoff date.
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