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Acceptance
A legal term
referring to the acceptance of an offer. A
buyer offers to buy and the seller accepts the
offer.
Ad Valorem
A method of
imposing a tax on the ownership of real estate
property. Latin for, "according to value."
Adjustable-Rate Mortgage (ARM)
A home loan that
permits the lender to adjust its interest rate
periodically during the life of the loan on the
basis of changes in a specified financial index.
Adjusted Gross Income
Total income
including salary and bonuses, and any rental or
seasonal income.
Administrator
A person appointed
by the probate court to administer the estate of
a deceased person.
Agreement of Sale
A written document
in which a two parties (a buyer and seller) agree to
sell property under certain conditions.
Amortization
The process of
gradually paying down the principal balance of
a loan over a defined period of time.
Annual Percentage Rate (APR)
A measure
of the cost of credit, expressed as a yearly
rate. The APR takes into account the amount
financed, the loan interest rate,
finance charges (such as fees and points) and the
amounts and timing of the payments.
Appraisal Fees
A fee paid
to an appraiser for a property appraisal report.
Appraisal
A professional
estimate of your property's current market value
at a given point in time.
Assessed Value
A value placed upon
real property by a tax assessor - such as your
county's property appraiser's office.
Asset
Anything of
monetary value. Such assets
can include real estate property, personal property,
cash on hand, stocks and stock certificates, mutual funds, vehicles
and other tangible / non-tangible goods which
are deemed to have monetary value.
Assumption
When a buyer takes
over the loan payments and obligations of the
seller.
Balance Sheet
A financial
statement detailing the overall assets,
liabilities, and net worth of an individual or
entity as of a specific date in time.
Bankruptcy
A court action
under the United States Federal Bankruptcy Code
by which a debtor's debts may be excused or
rescheduled under specified circumstances.
Cap
A limit on how much
a loan interest rate may increase or decrease
per adjustment and/or over the term of the loan.
Very common to adjustable-rate mortgages.
Capital
Improvement
Any structure or
component erected as a permanent improvement to
real estate property.
Cash Flow
Income generated by
a rental property. It is determined by
subtracting vacancy allowances and collection
costs, operating expenses and debt-servicing
costs from the property's scheduled gross
income.
Certificate of
Eligibility
A document issued
by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs
mortgage.
Certificate of
Reasonable Value (CRV)
A document issued
by the Department of Veterans Affairs that
establishes the maximum value and loan amount
for a Veterans Affairs mortgage.
Certificate of
Title
A statement usually
provided by a title company or attorney stating
that the title to a piece of real property is
legally held by the current owner.
Clear Title
A title that is
free of liens or legal questions regarding
ownership of the property.
Closing
For a home
purchase, the time when loan documents are
signed, legal title is transferred from the
seller to the buyer, and funds are dispersed
from the buyer and the lender to the seller. For
a refinance, there is no transfer of ownership,
but the closing includes repayment in full of
all sums owed the old lender.
Commitment
Letter
A written offer by
a lender, which states the terms under which it
agrees to lend money to a home buyer. Also known
as a ’loan commitment.’
Conforming Home
Loan
The current
confirming loan limit for a single family
residence is $417,000 (as of November 2006). Alaska and Hawaii are 50% higher.
Construction
Loan
A short-term
interim loan for financing the cost of
construction.
Contingency
A clause in a
contract stating that the buyer or seller must
meet a given condition before the purchase can
be completed.
Credit History
A consumers past
history of meeting financial obligations on
time.
Debt Service
The combined
principal and interest due on your loan each
month over a period of time.
Debt-to-Income
Ratio
Lenders use this
ratio to determine how much of a loan a borrower
is qualified for. Debt-to-income ratio is the
total amount of monthly debt payments, including
credit cards and other loans, divided by total
gross monthly income.
Deed
The legal document
conveying title to a property.
Default
The act of failing to pay loan
payments when due.
Depreciation
Loss of value in
real property brought about by age, physical
deterioration, by changing neighborhood,
economic conditions, functional or economic
obsolescence.
Direct Lender
A bank or lending
institution that deals directly with its
customers.
Discount Points
Fees paid to the
lender for the loan - usually in turn for a
lower interest rate. One point equals one percent
of the loan amount.
Down Payment
The portion of the
purchase price that a buyer pays up front which reduces the amount of the loan
needed to purchase the property.
Due-on-Sale Provision
A provision in a
loan that allows the lender to demand repayment
of the loan amount in full if a borrower sells,
transfers or otherwise impairs legal title to
the property that serves as security for the
loan.
Earnest Money
A sum of money
given as evidence of one's good faith, used to
bind or secure a real estate sale. Also known as
a 'Binder.'
Easement
The right,
privilege or interest that one party has in the
land of another, created by grant or agreement
for a specific purpose. An example would be a
right of way.
Effective Gross
Income
Normal annual
income including overtime that is regular or
guaranteed. The income may be from more than one
source. Salary is generally the principal
source.
Endorsement
The signature on
the back of a check, bill, note or similar
document. It is required on negotiable
documents.
Equity
The difference
between the market value of a house and the
amount still owed on the mortgage. It's value of
a property minus outstanding mortgage debt and
other liens.
Escrow
An item of value,
money, or documents deposited with a neutral,
third party to be delivered to another party to
a transaction upon the fulfillment of a
condition. For example, a buyer’s earnest money
deposit is put into escrow and is not delivered
to the seller until the seller performs
concurrent obligations such as transferring
legal title into the buyer’s name and placing
the deed into escrow.
Fair Credit
Reporting Act
A consumer
protection law that regulates the disclosures of
consumer credit reports by consumer/credit
reporting agencies and establishes procedures
for correcting mistakes on one's credit report.
Fair Market
Value
The highest price
that a willing buyer would pay and the lowest
the willing seller willing would accept. Neither
party is compelled to buy or sell in this
situation.
Fannie Mae
A congressionally
chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage
funds. Also known as Federal National Mortgage
Association (FNMA).
FHA Loan
Also known as a
"government loan"," an FHA loan is guaranteed by
the Federal Housing Administration. FHA issues
specific guidelines for mortgages.
Fiduciary
A person in a
position of trust and confidence, for instance a
principal and broker. A broker as a fiduciary
owes certain loyalty that cannot be breached.
First Lien
In a home purchase
transaction, a lien is a legal claim held by the
lender against the property being purchased that
must be paid off when the property is sold. A
first lien is a claim holding the highest
priority, usually in favor of the lender, which
must be paid first, ahead of other liens against
the same property, when the property is sold.
Fixed-Rate
Mortgage
A loan with an
interest rate and monthly payment that stays the
same over the entire term of the loan.
Flood Insurance
Insurance that
would provide reimbursement for physical
property damage resulting from flooding. It is
required for properties that are located in
federally designated flood areas.
Foreclosure
The legal process
by which a borrower in default under a loan is
deprived of his or her right to ownership in the
property used as collateral for the loan. This
usually involves a sale of the property at
public auction with the proceeds of the sale
being applied to the mortgage debt.
Freddie Mac
A major secondary
mortgage market investor. It is a government
sponsored, privately owned corporation that is a
major purchaser of mortgages from lenders. Also
known as 'Federal Home Loan Mortgage
Corporation' (FHLMC).
Front-End Ratio
Also called a Top
Ratio. This is a calculation of your total
monthly housing expenses (principal, interest,
taxes and insurance payments) divided by your
income. Lenders use a front-end ratio as a
guideline to see if you qualify for a loan.
Fully Amortized
ARM
An adjustable-rate
mortgage (ARM) with a monthly payment of
principal and interest that is sufficient to pay
off the entire principal and interest over the
term of the loan.
Good Faith
Estimate
A disclosure that
must be given by the lender to all mortgage loan
applicants within three business days of an
application. It is an estimate of all settlement
charges likely to be incurred at closing.
Home Equity
Lines of Credit (HELOC)
A mortgage, usually
secured as a second or junior lien against the
property, set up as a line of credit against
which a borrower can draw up to a maximum
amount, as opposed to a loan for a fixed dollar
amount. For example, using a standard mortgage
you might borrow $150,000, which would be paid
out in its entirety at closing. Using a HELOC,
you receive the lender's promise to advance you
up to $150,000, in an amount and at a time of
your choosing. You can draw on the line by
writing a check, using a special credit card, or
in other ways permitted by the lender.
Home Equity Loan
A loan secured by a
second deed of trust on a house, typically used
as a home improvement loan.
Home Improvement
Loan
A loan made for the
purpose of paying for improvements to your home
such as remodeling a kitchen or bathroom. This
loan may or may not be secured the property.
HUD
Acronym for the
U.S. Department of Housing and Urban
Development.
HUD-1
A document that
gives a breakdown of costs that the seller and
buyer may pay at closing.
Income Property
Property that
produces income from residential or commercial
rentals.
Index Rate
The base rate used
by a lender to measure the difference between
the current interest rate charged on an
adjustable-rate mortgage (ARM) and that earned
by other types of investments. This difference
is then used to adjust the interest rate a
lender will charge on an ARM. The base rate is
externally set. Examples include LIBOR, the
Prime Rate and Treasury indices.
Interest Rate
Cap
A limit on the
amount that interest can rise or fall during a
specified period of time on an adjustable-rate
mortgage.
Involuntary Lien
A lien or charge
imposed against property without consent of
owner. Examples: taxes, assessments, federal
income tax liens, judgments, etc.
Lien
A legal hold or
claim of a creditor on the property of another.
Lifetime Cap
A limit on how high
the interest rate on an adjustable-rate mortgage
can rise over the lifetime of the loan.
Loan-to-Value
Ratio (LTV)
A percentage
computed by dividing the loan amount by the
lesser of the selling price or the appraised
value of the property. It is the percentage that
shows how much equity a borrower will have in a
home.
Lock-in
A written agreement
guaranteeing a home buyer a specific interest
rate on a home loan provide that the loan is
closed within a certain period of time, such as
30, 60 or 90 days.
Low-Documentation
Some loan products
require only that applicants state the source of
their income without providing supporting
documentation such as tax returns.
Margin
The number of
percentage points a lender adds to the index
rate to determine the interest rate applicable
for an ARM.
Mortgage
Insurance
Also known as
'Private Mortgage Insurance' (PMI). This insurance
protects mortgage lenders against loss in the
event of default by the borrower.
Mortgage
A loan used to
finance the purchase of real estate whereby the
borrower (mortgagor) gives the lender
(mortgagee) a lien on the property as collateral
for the loan.
Mortgagee
A person or
organization that lends money for a home.
Mortgagor
A person who
borrows money for a home.
Origination Date
The date on which
the loan is initiated or funded.
Origination Fees
or Points
The fees or points
a lender charges to set-up and process a loan
and which is usually paid at closing. Usually
based on the amount of the loan, one point
equals one percent of the loan amount.
Payoff
The complete
repayment of loan principal, interest and any
other sums due; payoffs occur either over the
full term of the loan through monthly
amortization or through prepayments.
Preliminary
Title Report
A report made by a
title company stating whether there are any
other claims to ownership of a property. It is a
necessary step before a mortgage loan can be
approved.
Pre-Payment
Penalty
A charge imposed by
the lender if the borrower pays off the loan
early. The charge is usually expressed as a
percent of the loan balance at the time of
prepayment, or a specified number of months
interest.
Pre-Qualification
An informal process
in which a lender offers an opinion on how much
money you may be able to borrow. This opinion is
based entirely on the financial information you
provide and is neither binding nor necessarily
accurate because lenders have not yet verified
your financial information.
Principal
The amount of money
you are borrowing, not including any fees, costs
or interest.
Private Mortgage
Insurance (PMI)
A type of insurance
which protects the lender in the event the
borrower defaults on the loan. PMI is generally
required where a borrower is unable to produce a
down payment equal to at least 20% of the total
purchase price.
Purchase
Contract
A written promise
to pay a specific amount for a property at a
specified time. The purchase contract is a
written statement of the offer, which both the
borrower and the seller will sign if the offer
is accepted.
Rate Cap
A limit on how much
the interest rate can change, either at each
adjustment period or over the life of the loan.
Refinance Loan
The process of
obtaining a new loan to pay off an existing
loan.
Second Mortgage
An additional loan
on a property which is secured by a lien junior
to the senior loan. These loans often carry a
shorter term and a higher interest rate than the
original first or senior loan.
Secondary
Mortgage Market
A market in which
existing mortgages and mortgage backed
securities are traded.
Seller Financing
When the current
owner of a house holds the mortgage loan for the
buyer.
Servicing (or
Loan Servicing)
Supervising and
administering a loan after it has been made.
This involves such things as collecting the
payments, keeping accounting records, computing
interest and principal, etc.
Term
The period of time
which covers the life of the loan.
Title Company
A company that
searches for titles and insures title claims.
Title Insurance
An insurance policy
that protects the owner of a title from loss
resulting from disputes over ownership claims.
Title
Evidence of a
person’s right to possession and ownership of a
property.
Total Debt Ratio
A ratio that
indicates what portion of a person’s monthly
income goes toward paying debts. It is
calculated as an individual's total monthly debt
divided by gross monthly income and expressed as
a percentage. Total monthly debt includes such
expenses as home loan payments (made up of PITI),
credit card payments, child support and other
loan payments.
Truth-in-Lending
Act
A Federal law that
requires lenders to fully disclose, in writing,
the terms and conditions of a home loan,
including the annual percentage rate (APR) and
other charges.
Underwriting
The analysis of
risk involved in making a loan to determine
whether the risk is acceptable to the lender.
Underwriting involves evaluating the property as
outlined in the appraisal, and also evaluating
the borrower's ability and propensity to repay
the loan.
Valuation
The estimation of a
property's value typically gathered by
conducting an appraisal.
Variable
Interest Rate
An interest rate
that fluctuates as the prevailing rate moves up
or down. In mortgages there are usually maximums
regarding the frequency and the amount of
fluctuation. |
