|
GLOSSARY Mortgage
and finance terminology can sometimes be confusing. Here are a few common terms
and their meanings. A
B C D E F
G H I J K
L M N O P
Q R S T U
V W A
& D Loan
Acquisition and Development Loans are used in purchasing
and developing raw land with the intent of future development.
Abstract
of Title
A written history of ownership showing verification or non-verification
of title.
Acceleration Clause
Requires the balance of a
loan to become due immediately. Occurs when regular payments are not made.
Acquisition Cost
The price to obtain property, including purchase
price and all nonrecurring closing costs, including discount points, FHA application
fee, service charge, credit report, FHA appraisal, escrow, document preparation,
title insurance, termite inspection, reconveyance and recording fees for FHA-insured
loans.
Ad Valorem
A Latin phrase used to describe a tax
charged in relation to the value of the property taxed meaning "according
to value".
Adjustable Rate Mortgage (ARM)
A loan with
an adjusted interest rated determined by a pre-selected index.
Adjustment
Period
The period between adjustments of an ARM interest rate.
Top
of Page All-inclusive
Trust Deed
Overriding trust deed; A financing tool where a lender
assumes payments on an existing mortgage or trust deed and takes from the borrower
a trust deed with a face value in an amount equal to the amount due on the old
instrument and the additional amount of money borrowed.
Amortization
A financial obligation paid in installments; An amortized loan includes both
principal and interest, usually due monthly, resulting in complete payment of
the amount borrowed, with interest, by the end of the loan term.
Annual Percentage Rate (APR)
The cost of credit including interest,
loan fees and discount points stated as an annual percentage.
Appraisal
A licensed appraiser’s estimate of a property’s monetary value on the open
market; Justifies the contract purchase price.
Arrearages
The
total delinquent principal, interest, taxes and insurance owed.
Balloon
Payment
An installment payment on a loan that is usually a larger payment
and due on a specified date.
Top
of Page Bond
Real Estate Bond. An obligation issued on security of a mortgage or trust
deed.
Cap
A limit on interest rate fluctuation
on an adjustable rate.
Certificate of Reasonable Value
Property
appraisal necessary for a VA-guaranteed loan.
Certificate of Redemption
Certificate issued by the county tax collector verifying payment of all past
due obligations.
Chattel Mortgage
Using personal property
to guarantee a promissory note.
Closing
The ending of a real
estate transaction resulting in title and fund conveyance.
Top
of Page
Closing Costs
Expenses resulting from the closing of a real estate mortgage
loan.
Closing Statement
Also known as a HUD-1 statement. Provides
a listing of all funds payable at closing.
Cloud on Title
Encumbrance
which affects the title marketability.
Compound Interest
Interest
payable on the principal loan amount and accrued interest.
Conventional
Loan
A secured loan that is not insured by FHA and VA loans.
Top
of Page Cost
Approach
An Appraisal method to determine market value calculated by adding
value less depreciation to the replacement value.
Deed
A legal document conveying title to real property.
Debt to Income
Ratio
Ratio comparing total monthly obligations, including home loan payments,
to total monthly gross income.
Discount Points
Fee charged
by the lender to decrease the interest rate on a loan.
Top
of Page Due
on Sale Clause
Mortgage provision stating that the entire note balance
is due if the borrower sells the property.
Easement
The right and use to a specific piece of land owned by someone else.
Encroachment
A property improvement that unlawfully intrudes on another’s
property.
Equity
Calculated by subtracting the balance owed
on a home from the market value.
Top
of Page Escrow
The holdings of documents or funds by a neutral third party on the behalf
of the borrower pending the closing of a loan or payment of real estate taxes,
insurance and any such agreements of a contract.
Escrow Impounds
Money paid at loan settlement and with monthly loan payments for the purpose
of paying future real estate taxes and homeowners insurance.
Escrow
Waiver
The borrower’s request to not pay taxes and insurance through impounds.
Equity positions play a role in the decision.
Fair
Credit Reporting Act
Law protecting consumers that establishes procedures
to correct errors on credit reports and gives consumers specific rights in dealing
with credit reporting agencies.
Top
of Page Fannie
Mae (FNMA)
The Federal National Mortgage Association. It purchases, sells
and guarantees conventional, VA or FHA mortgages.
Federal Home Loan
Mortgage Corporation (FHLMC)
Purchases conventional mortgage loans in
the secondary mortgage market.
Federal National Mortgage Association
(FNMA)
Purchases mortgage loans from primary lenders in the secondary
mortgage market.
Federal Truth In Lending Act
Requires disclosures
about terms and costs intended to give consumers cost vs. credit comparisons.
Top
of Page FHA
Federal Housing Authority. Provides home loan insurance for FHA loans.
Fico Score
Enables a credit grantor to identify credit prospects
with the best credit opportunities.
Fixed Rate Mortgage
The
interest rate on a loan that remains constant throughout the entire term.
Floating Interest Rate
The interest on a loan before it is guaranteed
by a lender.
Gift Letter
A signed letter or
statement from an individual providing a cash gift to a borrower in order to qualify
for a loan. The letter or statement states that the cash gift does not have to
be repaid.
Top
of Page
Ginnie Mae
Government National Mortgage Associations works with FHA facilitating
efficient secondary market activities for federally insured or guaranteed mortgages.
Graduated Payment Mortgage (GPM)
A mortgage based on payments
that will be increased over time dependent on a predetermined schedule.
Gross Income Multiplier
Using the gross annual income of a property
to calculate an estimate of a property’s value.
Good Faith Estimate
A document prepared by the lender showing borrowers the estimated cost they
will incur payable at closing.
Hazard Insurance
Insurance policy placed on property improvements that covers damage by fire
or other natural disasters.
Top
of Page HUD
The United States Department of Housing and Urban Development. Responsible
for all facets of the federal housing and urban development programs.
Index
A factor used to calculate the interest on an
adjustable rate mortgage.
Inheritance
Taxes
Taxes on real and personal property received through an inheritance.
Jumbo Loan
A home loan that is monetarily more
than the limits of Freddie Mac or Fannie Mae.
Land
Contract
A contract used in a real property sale where the seller keeps
the title to the property until the sales price has been paid.
Top
of Page Leverage
Use of debt financing to purchase an investment.
Lien
A
legal hold against the property as security for the payment of a debt, mortgages,
judgments or taxes.
Loan to Value Ratio
Ratio reflecting
the mortgage loan amount to the appraised value or purchase price of a home.
Market Value
The highest price that a buyer is
willing to pay and the lowest price that a seller is to accept for real estate.
Marketable
Title
Enables an owner to sell property without objection. It is free
of any clouds.
Mortgage
A guarantee of real estate from a
borrower as security for the payment of a loan to a lender.
Mortgage
Insurance
Insures the lender against non-payment of a government or conventional
loan.
Mortgagee
The lender for a home loan.
Top
of Page Mortgagor
The borrower in a home loan.
Negative Amortization
A loan schedule in which the principal increases due to a payment that does
not cover all of the interest.
Notice of Default
Written
notice to a borrower showing default on a mortgage.
Origination
Fee
Lender’s fee for processing and underwriting loan documents. Usually
1 point or 1%.
PITI
Principal, interest, taxes
and insurance, which combined make a monthly mortgage payment.
Top
of Page Points
A one-time payment to lower the interest rate on a mortgage.
Prepaid
Interest
The interest charged at closing calculated to pay for the cost
of borrowing for the remainder of the month.
Prepayment Penalty
Fee paid by the borrower if loan is paid before its due date.
Pre-qualification
A non-binding opinion of how much a borrower will be qualified to borrow.
Private Mortgage Insurance (PMI)
Insurance required by lender
from a non-governmental insurer if down payment is less than around 20%.
Real Estate Settlement Procedures Act (RESPA)
Requires
advance disclosure to consumers about mortgage loan settlements.
Top
of Page Redlining
The illegal practice of lending institutions denying loans to certain areas
of a community.
Refinancing
The borrower pays off one loan
with another.
Reverse Annuity Mortgage (RAM)
The homeowner
receives monthly payments based on accumulated equity. The loan must be repaid
at a prearranged date or upon the death of the owner or the sale of the property.
Right of Recission
The borrowers right to cancel a mortgage refinance
transaction within three days from the date the settlement documents were executed.
Sales Comparison Approach
The construction and
locations of homes comparable to the subject home are used to form an appraisal.
Top
of Page Satisfaction
Paying and being released from an obligation in its’ entirety before the end
of the term.
Second Mortgage
Mortgage that has a lien position
second to a first mortgage.
Secondary Mortgage Market
Market
in which investors buy and sell existing mortgages.
Security Instrument
The deed of trust or mortgage verifying the pledge of real property as security
for the repayment of the debt.
Top
of Page Servicing
The operational procedures related to the collection of home loan payments
and other payments related to mortgage loans.
Shared Appreciation
Mortgage (SAM)
Loan in which the lender participates in any profits when
the property is sold.
Simple Interest
Interest payable on
the principal amount of the loan only.
Subrogation
Substituting
the legal rights and claims from one creditor to another.
Suspended
A loan can neither be approved nor denied. More information is needed.
Takeout Loan
Loan in which the lender provides
financing to the builder or developer upon completion of construction.
Top
of Page Temporary
Buydown
Money paid at closing to temporarily reduce the interest rate
for the first and second year of the mortgage.
Title Insurance
Insurance policy protecting owner or lender against loss affecting title.
Title Search
An examination of public records to determine legal
ownership of property.
Usury
Charging an interest
rate greater than the rate permitted by law. <br>
Underwriting
Analyzing a homebuyer’s ability to repay a home loan.
VA
Loan
A home loan guaranteed by the Department of Veterans Affairs. Enables
a veteran to buy a home with no money down.
VOD
Verification
of Deposit
VOM
Verification of Mortgage
VOE
Verification of Employment
Wraparound Mortgage
A loan in which a new loan is added to the existing first mortgage loan.
Top
of Page |
