A
Abandonment
A disclaimer of ownership by the trustee or debtor in property deemed burdensome or inconsequential. Once property has been "abandoned," it is no longer the property of the estate, and creditors can seek to recover their money.
Abstract of Title
A written history of all the transactions that bear on the title to a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. Used by the title company to produce a title binder.
Acceptance
A property seller’s formal, written approval of a buyer’s offer.
Acquisition Indebtedness
A loan you get to build your house, a loan to buy your house or any loan you take out to substantially improve your home. Interest paid on such a loan is generally tax-deductible
Addendum
A change made to a contract.
Agreement of Sale
A document in which a property's buyer and seller approve the price and other terms of the transfer of title.
Amortization
The payment of a debt in installments over an agreed-upon period, during which principal and interest are paid off.
Amount Financed
The principal that is financed. It could include the cost of the purchase and other items rolled into the payments.
Annual Percentage Rate (APR)
Calculation that standardizes rates, point, and other costs of a mortgage loan. This figure is disclosed as part of the truth-in-lending statement, which is required by the Federal Truth-In-Lending Act. 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 such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. Annual Percentage Rate A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing. There is no APR in an automobile lease; instead, the cost of money is expressed as the money factor.
ARM
Mortgage in which the rate of interest is adjusted based on a standard rate index. Most ARMs have caps on how much the interest rate may increase. For more detailed information on ARM, see our article "Consumer Handbook of Adjustable Rate Mortgages."
B
Balloon Mortgage
A loan that has regular monthly payments which amortize over a stated term but call for a final lump sum (balloon payment) at the end of a specified term, or maturity date, such as 10 years.
Bankruptcy
A legal proceeding that protects a debtor from legal action by some creditors. There are two basic ways of filing for personal bankruptcy. A Chapter 7 bankruptcy declaration gets rid of all debts (except some taxes and maybe alimony payments); Chapter 13 allows a borrower with a steady income to pay off bills over a 36- to 60-month period.
Bilateral Contract
A legal agreement in which both parties promise to give each other something. A purchase agreement in which the buyer promises to give money and the seller promises to transfer property is a bilateral contract.
Biweekly Mortgage
A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner.
Breach of Contract
Failure to abide by terms of a legal agreement without a legal excuse.
Broker
A person who earns a commission or fee for bringing together buyers and sellers of real estate, or borrowers and lenders of mortgages.
Builder Upgrades
Refined features or materials that a builder offers for an extra charge.
Buyer Broker
One who earns a commission from the buyer of a property in exchange for finding a seller and assisting in negotiation.
Buyer’s Market
The condition when sellers significantly outnumber buyers, driving prices down.
Bylaws
The written rules governing an organization such as a homeowners association.
C
Cancellation Clause
A provision in a lease or other contract that spells out under what conditions the parties can call off the deal.
Capital Gains
The profit that an owner makes when selling real estate or other property.
Cash Out Refinance
The taking out of a new mortgage on the same property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is taken out in cash.
Certificate of Sale
An affidavit issued at a judicial or tax sale that entitles the buyer to the deed to the property purchased after court confirmation.
Collateral
Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money.
Certificate of Eligibility
A document given by the Veterans Administration to the veteran to verify his/her eligibility for a VA mortgage. 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 Title
A written confirmation by a title company or attorney that the property on title is legally vested to the present owner.
Chain of Title
The order of documents in which the title has been transferred from the original owner to the present owner.
Closing Costs
Fees and costs that both buyer and seller must pay at closing. They generally include origination fee, discount fee, appraisal fee, credit report, title search, recording fees and other costs described in the HUD I at settlement. For a more detailed explanation on closing costs, see our article "
Conforming Mortgage
A mortgage that can be purchased by Fannie Mae and Freddie Mac.
Construction Mortgage
A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
D
Debt-To-Income Ratio
This is a key ratio used to determine the amount of money an individual can borrow. It is the monthly debt (payment obligation) divided by your gross monthly income. This gives a percentage that is compared to the guidelines provided by the investor for approval on your loan.
Deed of Trust
A legal document that enables the lender, or mortgagee, to hold legal claim or titles to a property while the note is outstanding. The Deed of Trust transfers title to a trustee designated by the lender.
Department of Housing and Urban Development
A cabinet level Federal Agency which houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversees the activities of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).
Depreciation
The gradual loss of value of a building or other property because of age or natural wear.
Discount Points
A term used in government-subsidized loans, such as FHA and VA loans. Refers to any "points" (one percent of the loan amount) paid in addition to the one percent loan origination fee.
Distressed Property
Property that is in poor condition, or whose owner is in poor financial condition.
Down Payment
Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The amount of a property's purchase price that the buyer pays in cash and does not finance with a mortgage.
Dual Agency
The condition of a real-estate agent or broker representing both parties in a transaction.
Due on Sale Clause
This represents the restrictions of contract stated in the Mortgage. If you violate the restrictions the lender can call the note due and payable at any time. This clause restricts the borrower from letting another individual assume the loan.
E
Earnest Money Deposit
A deposit made by a potential homebuyer to show that they are serious about purchasing the property.
Easement
The right of limited use of land held by another. Examples include utility lines, driveways.
ECOA
Equal Credit Opportunity Act is 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 from public assistance programs.
Encumbrance
Any lien against a property or any restriction it its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
Equity
When you buy a property the difference between the appraised value and the amount you owe is considered your equity in the home. Your equity will continue to grow as you apply more payments against your loan and your property value increases by appreciation or as you make home improvements or additions. The difference between the current market value of a property and the principal balance of all outstanding loans.
Escrow
Money held by a third party on behalf of the first party to be utilized for requirements of a second party. A servicer is a third party, which holds an escrow on behalf of the borrower to pay taxes and insurance payments to the applicable entities when they become due.
Escrow Fee
These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing.
Estate
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.
Eviction
The legal removal of real property occupants for unlawful actions carried out by those occupants.
Executed Sales Contract
A contract where the buyer and seller have completed all the terms.
F
Fair Credit Reporting Act
A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.
Fannie Mae (FNMA)
The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation's largest supplier of home mortgage funds.
Federal Home Loan Mortgage Corporation (Freddie Mac)
A quasi-governmental agency that is a publicly traded corporation. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac are called conforming mortgages.
Federal Housing Administration (FHA)
Government agency located within the Department of Housing and Urban Development.
Fee Simple
The best title that one can obtain; unqualified and conveys the highest bundle of rights.
Fixed Rate Mortgage
A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.
Forbearance
Agreement between lender and borrower that legal action will not be taken against the borrower if the borrower agrees to make up the payments in arrears by a specific date.
Foreclosure
A legal procedure where if the loan is defaulted it can be sold through legal procedures to pay off any debt owed to the lender.
Forfeiture
Loss of property because of violation of law or contract.
Full Market Value
In reference to property taxes, usually refers to the tax rate applied to 100 percent of the property's value. Also full cash value.
G
General Contractor
The person or company that performs work on a construction project, hires subcontractors and suppliers, or both.
Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in connection with a loan closing.
Government National Mortgage Association (Ginny Mae)
Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.
Grace Period
A time allowed, usually 15 days, for making late payments without a penalty.
Graduated Payment Mortgage
A home loan that starts out with smaller payments that gradually increases over the first few years, then remain fixed.
Grantee
The person to whom the property is conveyed to.
Grantor
The person who is conveying the property.
Gross Monthly Income
A person's income before deduction for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
H
Home Equity Loan
This type of loan lets you borrow money against the difference between your first mortgage balance and the appraised value of your home. The loan will be placed of record as a lien against your property and must be paid in full when you sell the property.
Housing Ratio
This ratio is used to determine how much of your income will be used for your house payment, taxes and insurance by dividing your housing expense into your gross monthly income.
Home Ownership and Equity Protection Act
A federal law designed to discourage predatory lending in mortgages and home equity loans.
Homeowners Insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a residence and its contents.
Homeowners Association
An elected group that governs a subdivision or planned community. It collects fees from owners to maintain common areas and enforce covenants, conditions and restrictions set by the developer and the association itself.
Hud-1 Statement
A document with an itemized listing of closing costs payable at the closing or settlement meeting when buying property. The closing costs can include a commission, loan fees and points, and sums set aside for escrow payments, taxes and insurance. It is signed by both the buyer and the seller, who may be paying some of the closing costs. The statement form is published by the Department of Housing and Urban Development (HUD).
I
Income Property
Non-owner-occupied property that is rented to others.
Inspection Report
The documentation of a thorough examination of a house's visible structural parts and systems, conducted before purchase.
Interest only loan
An advance of money in which the installments pay only the interest that accumulates on the loan balance. The loan balance does not decrease with the payments. Usually the interest-only payments last for a limited period, after which payments rise and the borrower begins paying principal in addition to interest.
J
Joint Credit
Issued to a couple based on both of their assets, incomes and credit reports. It generally results in a higher credit limit, but makes both parties responsible for repaying the debt.
Joint Tenancy
A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
Judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Alternative spelling is "judgement."
Judicial Foreclosure
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.
Jumbo Loan
A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $333,700. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
K
Kicker
Additional compensation for a lender or investor, the right to share in the income from the property in addition to payments of principal and interest. Also known as "equity kicker" or "lender participation".
L
Lease
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold Estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
Lease Option
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Lender
A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."
Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Liability Insurance
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.
Lien
A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
Life Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.
Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
Liquid Asset
A cash asset or an asset that is easily converted into cash.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan Officer
Also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
Loan Origination
How a lender refers to the process of obtaining new loans.
Loan Servicing
After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
Loan-to-Value (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
Lock-in
An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.
Lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower.
M
Margin
The number of percentage points added to the index on a one-year adjustable rate mortgage (ARM). For example, if the index rate is 9 percent and the margin is 3 percent, then the fully indexed rate is 12 percent.
Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Merged Credit Report
A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.
Modification
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
Mortgage Banker
A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.
Mortgage Broker
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
Mortgagee
The lender in a mortgage agreement.
Mortgage Insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
Mortgage Life and Disability Insurance
A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability. Be careful to read the terms of coverage, however, because often the coverage does not start immediately upon the disability, but after a specified period, sometime forty-five days.
Mortgagor
The borrower in a mortgage agreement.
Multidwelling Units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
N
Negative Amortization
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
No Cash-out Refinance
A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."
No-cost Loan
Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate
The interest rate stated on a mortgage note.
No-cost Loan
Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.
Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
O
Office of Thrift supervision (OTS)
A division within the Treasury Department. They are responsible for the examination of state and federal charted regulations.
Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.
Origination Fee
On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.
P
Partial Payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Per-Diem Interest
Interest charged from the day of closing to the first day of your new monthly mortgage payment.
Periodic Payment Cap
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Personal Property
Any property that is not real property.
PITI
This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
PITI reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
Planned Unit Development (PUD)
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
Point
A point is 1 percent of the amount of the mortgage.
Power of Attorney
A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-approval
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
Pre-qualification
This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
Principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
Private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Promissory note
A written promise to repay a specified amount over a specified period of time.
Public Auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase money transaction
The acquisition of property through the payment of money or its equivalent.
Q
Qualification
The process which determines whether an applicant can be approved for a mortgage loan. Real Estate Settlement Procedures Act (RESPA) Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt.
Quitclaim deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
R
Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Real Property
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
Realtor
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
Recording
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Refinance Transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Remaining Balance
The amount of principal that has not yet been repaid. See principal balance.
Remaining Term
The original amortization term minus the number of payments that have been applied.
Rent Loss Insurance
Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.
Repayment Plan
An arrangement made to repay delinquent installments or advances.
Replacement Reserve Fund
A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.
Revolving Debt
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
Right of first refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Right of ingress or egress
The right to enter or leave designated premises.
Right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
S
Sale-Leaseback
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
Second Mortgage
A loan which is secured by real estate, which is already secured, by another loan referred to as the first mortgage.
Secondary Market
The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.
Secured Loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a loan.
Seller carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subordinate Financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Sweat Equity
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
T
Tax Lien
A claim against property for past due property taxes owed.
Tenancy in Common
As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.
Third-party Origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Title
A legal document evidencing a person's right to or ownership of a property. Ownership record of the property. A settlement agent will conduct a title search to make sure the seller has clear title to the property before conducting settlement. If there is not clear title, it is said that the title has defects. Title Insurance is typically required to cover the lender against such defects.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
Title Search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer of Ownership
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
Transfer Tax
State or local tax payable when title passes from one owner to another.
Treasury Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Two-step Mortgage
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
Two to four Family Property
A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.
Trustee
A fiduciary who holds or controls property for the benefit of another.
Truth-In-Lending
The TIL is required by law to be disclosed on a mortgage loan. The document includes the Annual Percentage Rate (APR) and other costs.
U
Uniform Residential Loan Application Form
A form accepted by all major mortgage sources for application of residential mortgage loans. It may also be referred too as Form 1003.
Uniform Residential Appraisal Report
The appraisal form that is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.
Uniform Settlement Statement (HUD-1)
Settlement summary form required by RESPA to be used by closing agents.
Underwriting
The process by which lenders analyze risk.
V
VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Verification of Deposit
Form, which verifies an applicant's liquid assets, held with a particular financial institution.
Verification of Employment
Form which verifies an applicant's job history, including employment date, salary, year-to-date income, income for the past year, and probability of continued employment. This form is sent directly from the lender to the applicant's employer.
Verification of Mortgage
Form which verifies an applicant's mortgage history with a financial institution, including the date of the mortgage, present balance, present payment, and history of late payments. The Verification of Loan and Verification of Rental History would garner similar information for personal loans and the applicant's landlord(if renting).
Vested
Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
Veterans Administration (VA)
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.
W
Waiver
To waive your respective rights.
Warranty
1. A document certifying clear title to real estate. 2. A guarantee from a dealer or a manufacturer that a vehicle or product will perform as expected or specified. An auto warranty usually covers specified mechanical problems for a set number of miles or period.
Wraparound Mortgage
A refinanced home loan in which the balances on all mortgages are combined into one loan.
X
Y
Yield
The ratio of investment income to the total investment amount over a given period of time.
Z
Zero Lot Line
Placement of a house on a lot so that one wall is on the property boundary.
Zoning
Areas within a local government's jurisdiction in which certain types of land uses are allowed. For example, a zoning ordinance might permit houses but not factories in a neighborhood.
Zoning Variance
An exception allowed in a zoning ordinance, granted case-by-case by local government.
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