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- Acceleration Clause
- A provision in a mortgage
that gives the lender the right to demand payment of the entire
principal balance if any monthly payments are missed.
- Acceptance
- An offer's consent to enter
into a contract and be bound by the terms of the offer.
- Additional Principal
Payment
- A payment by a borrower
of more than the scheduled principal amount due in order to reduce
the remaining balance on the loan.
- Adjustable Rate
Mortgage (ARM)
- A mortgage that permits
the lender to adjust its interest rate periodically on the basis
of changes in a specified index.
- Adjustment Date
- The date on which the interest
rate changes for an adjustable-rate mortgage (ARM).
- Adjustment Period
- The period that elapses
between the adjustment dates for an adjustable-rate mortgage (ARM).
- Amortization
- The gradual repayment of
a mortgage loan by installments.
- Amortization Schedule
- A timetable for payment
of a mortgage loan. An amortization schedule shows the amount
of each payment applied to interest and principal and shows the
remaining balance after each payment is made.
- Amortize
- To repay a mortgage with
regular payments that cover both principal and interest.
- Annual Percentage
Rate (APR)
- The cost of a mortgage stated
as a yearly rate; includes such items as interest, mortgage insurance,
and loan origination fees (points).
- Application
- A form used to apply for
a mortgage loan and to record pertinent information concerning
a prospective mortgagor and the proposed security.
- Appraisal
- A written analysis of the
estimated value of a property prepared by a qualified appraiser.
Contrast with home inspection.
- Appraised Value
- An opinion of a property's
fair market value, based on an appraiser's knowledge, experience,
and analysis of the property.
- Appraiser
- A person qualified by education,
training, and experience to estimate the value of real property
and personal property.
- Appreciation
- An increase in the value
of a property due to changes in market conditions or other causes.
The opposite of depreciation.
- Assessed Value
- The valuation placed on
property by a public tax assessor for purposes of taxation.
- Asset
- Anything of monetary value
that is owned by a person. Assets include real property, personal
property, and enforceable claims against others (including bank
accounts, stocks, mutual funds, and so on).
- Assignment
- The transfer of a mortgage
from one person to another.
- Assumable Mortgage
- A mortgage that can be taken
over ("assumed") by the buyer when the home is sold.
- Assumption Clause
- A provision in an assumable
mortgage that allows a buyer to assume responsibility for the
mortgage from the seller. The loan does not need to be paid in
full by the original borrower upon sale or transfer of the property.
- Assumption Fee
- The fee paid to a lender
(usually by the purchaser of real property) resulting from the
assumption of an existing mortgage.
- Attorney-In-Fact
Fee
- One who holds a power of
attorney from another to execute documents on behalf of the grantor
of the power.
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- Balance Sheet
- A financial statement that
shows assets, liabilities, and net worth as of a specific date.
- Balloon Mortgage
- A mortgage that has level
monthly payments that will amortize over a stated term but that
provides for a lump sum payment to be due at the end of an earlier
specified term.
- Bankruptcy
- A proceeding in the federal
courts in which a debtor, who owes more that his or her assets
can repay, can relieve those debts by transferring his or her
assets to a trustee.
- Beneficiary
- The person designated to
receive the income from a trust, estate, or a deed of trust.
- Binder
- A preliminary agreement
secured by the payment of an earnest money deposit, under which
a buyer offers to purchase real estate.
- Blanket Insurance
Policy
- A single policy that covers
more than one piece of property (or more than one person).
- BridgeLoan
- A form of second trust that
is collateralized by the borrower's present home (which is usually
for sale) in a manner that allows the proceeds to be used for
closing on a new house before the present home is sold. Also known
as "swing loan".
- Broker
- A person who, for a commission
or a fee, brings parties together and assists in negotiating contracts
between them. See mortgage
broker.
- Buydown Account
- An account in which funds
are held so that they can be applied as part of the monthly mortgage
payment as each payment comes due during the period that an interest
rate buydown plan is in effect.
- Buydown Mortgage
- A temporary buydown is a
mortgage on which an initial lump sum payment is made by any party
to reduce a borrower's monthly payments during the first few years
of a mortgage. A permanent buydown reduces the interest rate over
the entire life of a mortgage.
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- Call Option
- A provision in the mortgage
that gives the mortgagee the right to call the mortgage due and
payable at the end of a specified period for whatever reason.
- Cap
- A provision of an adjustable-rate
mortgage (ARM) that limits how much the interest rate or mortgage
payments may increase or decrease. See lifetime
payment cap, lifetime
rate cap, periodic
payment cap, and periodic
rate cap.
- Cash-Out-Refinance
- A refinance transaction
in which the amount of money received from the new loan exceeds
the total of the money needed to repay the existing mortgages,
closing cost, points, and the amount required to satisfy any outstanding
subordinate mortgage liens. In other words, a refinance transaction
in which the borrower receives additional cash that can be used
for other purposes.
- Certificate of Deposit
- A document written by a
bank or other financial institution that is evidence of a deposit,
with the issuer's promise to return the deposit plus earnings
at a specified interest rate within a specified time period.
- Certificate of Deposit
Index
- An index that is used to
determine interest rate changes for certain ARM plans. It represents
the weekly average of secondary market interest rates on six-month
negotiable certificates of deposit. See adjustable-rate
mortgage (ARM).
- Certificate of Eligibility
- A document issued by the
federal government certifying a veteran's eligibility for a Department
of Veterans Affairs (VA) mortgage.
- Certificate of Reasonable
Value
- A document issued by the
Department of Veterans Affairs (VA) that establishes the maximum
value and loan amount for a VA mortgage.
- Chain of Title
- The history of all of the
documents that transfer title to a parcel of real property, starting
with the earliest existing document and ending with the most recent.
- Change Frequency
- The frequency (in months)
of payment and/or interest rate changes in an adjustable-rate
mortgage (ARM).
- Clear Title
- A title that is free of
liens or legal questions as to ownership of the property.
- Closing
- A meeting at which the sale
of a property is finalized when the buyer signs the mortgage documents
and pays the closing costs. Also called "settlement".
- Closing Cost Item
- A fee or amount that a homebuyer
must pay at closing for a single service, tax, or product. Closing
costs are made up of individual closing cost items such as origination
fees and attorney's fees. Many closing cost items are included
as numbered items on the HUD-1 statement.
- Closing Costs
- Expenses (over and above
the price of the property) incurred by buyers and sellers in transferring
ownership of a property. Closing costs normally include an origination
fee, an attorney's fee, taxes, an amount placed in escrow, and
charges for obtaining title insurance and a survey. The closing
cost percentage will vary according to the area of the country;
lenders or realtors often provide estimates of closing costs to
prospective homebuyers.
- Closing Statement
- See HUD-1
statement.
- Cloud on Title
- Any conditions revealed
by a title search that adversely affects the title to real estate.
Usually clouds on title cannot be removed except by a quitclaim
deed, release, or court action.
- Collateral
- An asset (such as a car
or a home) that guarantees the repayment of a loan. The borrower
risks losing the asset if the loan is not repaid according to
the terms of the loan contract.
- Collection
- The efforts used to bring
a delinquent mortgage current and to file the necessary notices
to proceed with foreclosure when necessary.
- Co-Maker
- A person who signs a promissory
note along with the borrower. A co-maker's signature guarantees
that the loan will be repaid, because the borrower and the co-maker
are equally responsible for the repayment. See endorser.
- Commission
- The fee charged by a broker
or agent for negotiating a real estate or loan transaction. The
commission fee is generally a percentage of the price of the property
or loan.
- Commitment Letter
- A formal offer by the lender
stating the terms under which it agrees to lend money to the homebuyer.
Also known as a "loan commitment".
- Common Area Assessments
- Levies against individual
unit owners in a condominium or planned unit development (PUD)
project for additional capital to defray homeowner's association
costs and expenses and to repair, replace, maintain, improve,
or operate the common areas of the project.
- Common Areas
- Those portions of a building,
land, and amenities owned (or managed) by a planned unit development
(PUD) or condominium project's homeowner's association (or a cooperative
project's cooperative corporation) that are used by all of the
unit owners, who share in the common expenses of their operation
and maintenance. Common areas include swimming pools, tennis courts,
and other recreational facilities, as well as common corridors
of buildings, parking areas, means of ingress and egress, etc.
- Common Law
- An unwritten body of law
based on general custom in England and used to an extent in the
United States.
- Community Property
- In some western and southwestern
states, a form of ownership under which property acquired during
a marriage is presumed to be owned jointly unless acquired as
separate property of either spouse.
- Comparable
- An abbreviation for "comparable
properties"; used for comparative purposes in the appraisal process.
Comparables are properties like the property under consideration;
they have reasonably the same size, location, amenities, and have
recently been sold. Comparables help the appraiser to determine
the approximate fair market value of the subject property.
- Compound Interest
- Interest paid on the original
principal balance and on the accrued and unpaid interest.
- Condemnation
- The determination that a
building is not fit for use or is dangerous and must be destroyed;
the taking of private property for a public purpose through an
exercise of the right of eminent domain.
- Condominium
- A real estate project in
which each unit owner has title to a unit in a building, undivided
interest in the common areas of the project, and sometimes the
exclusive use of certain limited common areas.
- Condominium Conversion
- Changing the ownership of
an existing building (usually a rental project) to the condominium
form of ownership.
- Construction Loan
- A short-term, interim loan
for financing the cost of construction. The lender makes payments
to the builder at periodic intervals as the work progresses.
- Consumer Reporting
Agency (or Bureau)
- An organization that prepares
reports that are used by lenders to determine a potential borrower's
credit history. The agency obtains data for these reports from
a credit repository as well as from other sources.
- Contingency
- A condition that must be
met before a contract is legally binding. For example, home purchasers
often include a contingency that specifies that the contract is
not binding until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector.
- Contract
- An oral or written agreement
to do or to not do a certain thing.
- Conventional Mortgage
- A mortgage that is not insured
or guaranteed by the federal government. Contrast with government
mortgage.
- Convertibility Clause
- A provision in some adjustable-rate
mortgages (ARMs) that allows the borrower to change the ARM to
a fixed-rate mortgage at specified timeframes after loan origination.
- Convertible ARM
- An adjustable-rate mortgage
(ARM) that can be converted to a fixed-rate mortgage under specified
conditions.
- Cooperative (Co-Op)
- A type of multiple ownership
in which the residents of a multiunit housing complex own shares
in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit.
- Cost Of Funds Index
(COFI)
- An index that is used to
determine interest rate changes for certain adjustable-rate mortgage
(ARM) plans. It represents the weighted average cost of savings,
borrowings, and advances of the 11th District members of the Federal
Home Loan Bank of San Francisco. See adjustable-rate
mortgage (ARM).
- Credit
- An agreement in which a
borrower receives something of value in exchange or a promise
to repay the lender at a later date.
- Credit History
- A record of an individual's
open and fully repaid debts. A credit history helps the lender
to determine whether a potential borrower has a history of repaying
debts in a timely manner.
- Creditor
- A person to whom money is
owed.
- Credit Report
- A report of an individual's
credit history prepared by a credit bureau and used by a lender
in determining the loan applicant's creditworthiness. See merged
credit report.
- Credit Repository
- An organization that gathers,
records, updates, and stores financial and public records information
about the payment records of individuals who are being considered
for credit.
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- Debt
- An amount owed to another.
See installment
loan and revolving liability.
- Deed
- The legal document conveying
title to a property.
- Deed-In-Lieu
- A deed given by a mortgagor
to the mortgagee to satisfy a debt and avoid foreclosure. Also
called a "voluntary conveyance".
- Deed Of Trust
- The document used in some
states instead of a mortgage; title is conveyed to a trustee.
- Default
- Failure to make mortgage
payments on a timely basis or to comply with other requirements
of a mortgage.
- Delinquency
- Failure to make mortgage
payments when mortgage payments are due.
- Deposit
- A sum of money given to
bind the sale of real estate, or a sum of money given to ensure
payment or an advance of funds in the processing of a loan. See
earnest
money deposit.
- Depreciation
- A decline in the value of
a property; the opposite of appreciation.
- Discount Points
- See point.
- Down Payment
- The part of the purchase
price of a property that the buyer pays in cash and does not finance
with a mortgage.
- Due-On-Sale Provision
- A provision in a mortgage
that allows the lender to demand repayment in full if the borrower
sells the property that serves as a security for the mortgage.
- Due-On-Transfer
Provision
- This terminology is usually
used for second mortgages. See due-on-sale
provision.
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- Earnest Money Deposit
- A deposit made by the potential
homebuyer to show that he or she is serious about buying the house.
- Easement
- A right of way giving persons
other than the owner access to or through a property.
- Eminent Domain
- The right of a government
to take private property for public use upon payment of its fair
market value. Eminent domain is the basis for condemnation proceedings.
- Encroachment
- An improvement that intrudes
illegally onto another's property.
- Encumbrance
- Anything that affects or
limits the fee simple title to a property, such as mortgages,
leases, easements, or restrictions.
- Endorser
- A person who signs their
ownership interest over to another party. Contrast with co-maker.
- Equal Credit Opportunity
Act (ECOA)
- A federal law that requires
lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin,
age, sex, marital status, or receipt of income from public assistance
programs.
- Equity
- A homeowner's financial
interest in a property. Equity is the difference between the fair
market value of the property and the amount still owed on its
mortgage.
- Escrow
- An item of value, money,
or documents deposited with a third party to be delivered upon
the fulfillment of a condition. For example, the deposit by a
borrower with the lender of funds to pay taxes and insurance premiums
when they become due, or the deposit of funds or documents with
an attorney or escrow agent to be disbursed upon the closing of
a sale of real estate.
- Escrow Account
- The account in which a mortgage
servicer holds the borrower's escrow payments prior to paying
property expenses.
- Escrow Analysis
- The periodic examination
of an escrow account to determine if current monthly deposits
will provide sufficient funds to pay taxes, insurance, and other
bills when due.
- Escrow Collections
- Funds collected by the servicer
and set-aside in an escrow account to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses as
they become due.
- Escrow Payment
- The portion of a mortgagor's
monthly payment that is held by the servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments, and other
items as they become due. Known as "impounds" or "reserves" in
some states.
- Estate
- The ownership interest of
an individual in real property. The sum total of all the real
property and personal property owned by an individual at time
of death.
- Eviction
- The lawful expulsion of
an occupant from real property.
- Examinaiton Of Title
- The report on the title
of a property from the public records or an abstract of the title.
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- Government Mortgage
- A mortgage that is insured
by the Federal Housing Administration (FHA) or guaranteed by the
Department of Veterans Affairs (VA) or the Rural Housing Service
(RHS). Contrast with conventional mortgage.
- Grantee
- The person to whom an interest
in real property is conveyed.
- Grantor
- The person conveying an
interest in real property.
- Guaranteed Loan
- Also known as a government
mortgage.
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- Hazard Insurance
- Insurance coverage that compensates for
physical damage to a property from fire, wind, vandalism, or other
hazards.
- Home Equity Line
Of Credit
- A mortgage loan, which is
usually in a subordinate position, that allows the borrower to
obtain multiple advances of the loan proceeds at his or her own
discretion, up to an amount that represents a specified percentage.
- Home Inspection
- A thorough inspection that
evaluates the structural and mechanical condition of a property.
A satisfactory home inspection is often included as a contingency
by the purchaser. Contrast with appraisal.
- Homeowner's Association
- A nonprofit association
that manages the common areas of a planned unit development (PUD)
or condominium project. In the case of a condominium project,
the homeowner's association has no ownership interest in the common
elements. In a PUD project, the homeowner's association holds
title to the common elements.
- Homeowner's Insurance
- An insurance policy that
combines personal liability insurance and hazard insurance coverage
for a dwelling and its contents.
- Housing Expense
Ratio
- The percentage of gross
monthly income that goes toward paying housing expenses.
- HUD-1 Statement
- A document that provides
an itemized listing of the funds that are payable at closing.
Items that appear on this statement include real estate commissions,
loan fee points, and initial escrow amounts. Each item on the
statement is represented by a separate number within a standardized
numbering system. The totals at the bottom of the HUD-1 statement
define the seller's net proceeds and buyer's net payment at closing.
The blank form for the statement is published by the Department
of Housing and Urban Development (HUD). The HUD-1 statement is
also known as the "closing statement" or "settlement sheet".
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- Income Property
- Real estate developed or
improved to produce income.
- Index
- A number used to compute
the interest rate for an adjustable-rate mortgage (ARM). The index
is generally a published number or percentage, such as the average
interest rate or yield on Treasury bills. A margin is added to
the index to determine the interest rate that will be charged
on the ARM. This interest rate is subject to any caps that are
associated with the mortgage.
- In-File Credit Report
- An objective account, normally
computer generated, of credit and legal information obtained from
a credit repository.
- Initial Interest
Rate
- The original interest rate
of the mortgage at the time of closing. These rate changes for
an adjustable-rate mortgage (ARM). Sometimes known as "start rate"
or "teaser".
- Installment
- The regular periodic payment
that a borrower agrees to make to a lender.
- Installment Loan
- Borrowed money that is repaid
in equal payments, known as installments. A furniture loan is
often paid for as an installment loan.
- Insurance
- A contract that provides
compensation for specific losses in exchange for a periodic payment.
An individual contract is known as an insurance policy and the
periodic payment is known as an insurance premium.
- Insurance Holder
- A document stating that
insurance is temporarily in effect. Because the coverage will
expire by a specified date, a permanent policy must be obtained
before the expiration date.
- Insured Mortgage
- A mortgage that is protected
by the federal Housing Administration (FHA) or by private mortgage
insurance (PMI). If the borrower defaults on the loan, the insurer
must pay the lender the lesser of the loss incurred or the insured
amount.
- Interest
- The fee charged for borrowing
money.
- Interest Accrual
Rate
- The percentage rate at which
interest accrues on the mortgage. In most cases, it is also the
rate used to calculate the monthly payments, although it is not
used for an adjustable- rate mortgage (ARM) with payment change
limitations.
- Interest Rate
- The rate of interest in
effect for monthly payment due.
- Interest Rate Buydown
Plan
- An arrangement wherein the
property seller (or any other party) deposits money to an account
so that it can be released each month to reduce the mortgagor's
monthly payments during the early years of a mortgage. During
the specified period, the mortgagor's effective interest rate
is "bought down" below the actual interest rate.
- Interest Rate Ceiling
- For an adjustable-rate mortgage
(ARM), the maximum interest rate, as specified in the mortgage
note.
- Interest Rate Floor
- For an adjustable-rate mortgage
(ARM), the minimum interest rate, as specified in the mortgage
note.
- Investment Property
- A property that is not occupied
by the owner.
- IRA (Individual
Retirement Account)
- A retirement account that
allows individuals to make tax-deferred contributions to a personal
retirement fund. Individuals can place IRA funds in bank accounts
or in other forms of investment such as stocks, bonds or mutual
funds.
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- Joint Tenancy
- A form of co-ownership that
gives each tenant equal rights in the property, including the
right of survivorship.
- 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.
- Judgment Lien
- A lien on the property of
a debtor resulting from the decree of a court.
- Jumbo Loan
- A loan that exceeds Fannie
Mae's legislated mortgage amount limits. Also called a nonconforming
loan.
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- Late Charge
- The penalty a borrower must
pay when a payment is made a stated number of days (usually 15)
after the due date.
- Lease
- A written agreement between
the property owner and a tenant that stipulates the conditions
under which the tenant may possess the real estate for a specified
period of time and rent.
- 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 Purchase Mortgage
Loan
- An alternative financing
option that allows for low-and moderate- income homebuyers to
lease a home from a non-profit organization with an option to
buy. Each months rent payment consists of principal, interest,
taxes, and insurance (PITI) payments on the first mortgage plus
an extra amount that is earmarked for deposit to a savings account
in which money for a down payment will accumulate.
- Legal Description
- A property description recognized
by law that is sufficient to locate and identify the property
without oral testimony.
- Liabilities
- A person's financial obligations.
Liabilities include long-term and sort-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.
- Lien
- A legal claim against a
property that must be paid off when property is sold.
- Lifetime Payment
Cap
- For an adjustable-rate mortgage
(ARM), a limit on the amount that payments can increase or decrease
over the life of the mortgage. See cap.
- Lifetime Rate 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 loan. See cap.
- 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. See home equity
line of credit. An asset that is easily converted into cash.
- Loan
- A sum of borrowed money
(principal) that is generally repaid with interest.
- Loan Commitment
- See commitment
letter.
- Loan Origination
- The process by which a mortgage
lender brings into existence a mortgage secured by real property.
- Loan-To-Value (LTV)
Percentage
- The relationship between
the principal balance of the mortgage and the appraised value
(or sales price if it is lower) of the property. For example,
a $100,000 home with an $80,000 mortgage has a LTV percentage
of 80 percent.
- Lock-In
- A written agreement in which
the lender guarantees a specified interest rate if a mortgage
goes to closing within a set period of time. The lock-in also
usually specifies the number of points to be paid at closing.
- Lock-In Period
- The time period during which
the lender has guaranteed an interest rate to a borrower. See
lock-in.
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- Margin
- For an adjustable-rate mortgage
(ARM), the amount that is added to the index to establish the
interest rate on each adjustment date, subject to any limitations
on the interest rate change.
- Maturity
- The date on which the principal
balance of a loan, bond, or other financial instrument becomes
due and payable.
- Maximum Financing
- A mortgage amount that is
within 5 percent of the highest loan-to-value (LTV) percentage
allowed for a specific product. Thus, maximum financing on a fixed
rate mortgage would be 90 percent or higher, because 95 percent
is the maximum allowable LTV percentage for that product.
- Merged Credit Report
- A credit report that contains
information from three credit repositories. When the report is
created, the information is compared for duplicate entries.
- Modification
- The act of changing any
of the terms of the mortgage.
- Money Market Account
- A savings account that provides
bank depositors with many of the advantages of a money market
fund. Certain regulatory restrictions apply to the withdrawal
of funds from a money market account.
- Money Market Fund
- A mutual fund that allows
individuals to participate in managed investments in short-term
debt securities, such as certificates of deposit and Treasury
bills.
- Monthly Fixed Installment
- That portion of the total
monthly payment that is applied toward principal and interest.
When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction.
- Monthly Payment
Mortgage
- A mortgage that requires
payments to reduce the debt once a month.
- Mortgage
- A legal document that pledges
a property to the lender as security for payment of a debt.
- Mortgage Banker
- A company that originates
mortgages exclusively for resale in the secondary mortgage market.
- Mortgage Broker
- An individual or company
that brings borrowers and lenders together for the purpose of
loan origination. Mortgage brokers typically require a fee or
a commission for their services.
- Mortgagee
- The lender in a mortgage
agreement.
- Mortgage Insurance
- A contract that insures
the lender against loss caused by a mortgagor's default on a government
mortgage or conventional mortgage. Mortgage insurance can be issued
by a private company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of mortgage
insurance, the insurance may cover a percentage of or virtually
the entire mortgage loan. See Private
Mortgage Insurance (PMI).
- Mortgage Insurance
Premium (MIP)
- The amount paid by a mortgagor
for mortgage insurance, either to a government agency such as
Federal Housing Administration (FHA) or to a private mortgage
insurance (PMI) company.
- Mortgage Life Insurance
- A type of term life insurance
often bought by mortgagors. The amount of coverage decreases as
the principal balance declines. In the event that the borrower
dies while the policy is in force, the debt is automatically satisfied
by insurance proceeds.
- Mortgagor
- The borrower in a mortgage
agreement.
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- Negative Amortization
- A gradual increase in mortgage
debt that occurs when the monthly payment is not large enough
to cover the entire principal and interest due. The amount of
the shortfall is added to the remaining balance to create "negative"
amortization.
- Net Cash Flow
- The income that remains
for an investment property after the monthly operating income
is reduced by the monthly housing expense, which includes principal,
interest, taxes, and insurance (PITI) for the mortgage, homeowners'
association dues, leasehold payments, and subordinate financing
payments.
- Net Worth
- The value of all of a person's
assets, including cash, minus all liabilities.
- No Cash-Out Refinance
- A refinance transaction
where the new mortgage amount is limited to the sum of the remaining
balance of the existing first mortgage, closing costs (including
pre-paid items), points, the amount required to satisfy any mortgage
liens that are more than one year old (if the borrower chooses
to satisfy them), and others funds for the borrower's use (as
long as the amount does not exceed 1 percent of the principal
amount of the new mortgage).
- Non-Liquid Asset
- An asset that cannot be
easily converted into cash.
- 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.
- Notice of Default
- A formal written notice
to a borrower that their loan is in default and that legal action
may be taken.
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- Original Principal
Balance
- The total amount of principal
owned on a mortgage before any payments are made.
- Origination Fee
- A fee paid to originator
of the loan. The origination fee is stated in the form of points.
One point is 1 percent of the mortgage amount.
- Owner Financing
- A property purchase transaction
in which the property seller provides all or part of the financing.
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- Partial Payment
- A payment that is not sufficient
to cover the scheduled monthly payment on a mortgage loan.
- Payment Change Date
- The date when a new monthly
payment amount takes effect on an adjustable-rate (ARM), or a
graduated-payment adjustable period. See cap.
- Periodic Payment
Cap
- For an adjustable-rate mortgage
(ARM), a limit on the amount that the interest can increase or
decrease during any one adjustment period. See cap.
- Periodic Rate Cap
- For an adjustable-rate mortgage
(ARM), 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. See cap.
- Personal Property
- Any property that is not
real property.
- PITI
- See principal,
interest, taxes, and insurance (PITI).
- 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
- See PUD.
- Point
- One-time charge by the lender
for originating a loan. A point is 1 percent of the amount of
the mortgage.
- Power of Attorney
- A legal document that authorizes
one person to act on another's behalf. A power of attorney can
grant complete authority or can be limited to certain acts/or
certain periods of time.
- 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
- The process of determining
how much a prospective homebuyer will be eligible to borrower
before he or she applies for a loan.
- Prime Rate
- The interest rate that banks
charge to their preferred customers. Changes in the prime rate
influence changes in other rates, including mortgage interest
rates.
- 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. 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 too the amounts that are paid into an escrow account each
month for property taxes, mortgage insurance, and hazard insurance.
- Private Mortgage
Insurance (PMI)
- Mortgage insurance that
is provided by a private mortgage insurance company to protect
lenders against loss if a borrower defaults. Most lenders generally
require PMI for a loan with 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.
- Planned Unit Development (PUD)
- A project or subdivision
that includes common property that is owned and maintained by
a homeowner's association for the benefit and use of the individual
PUD unit owners.
- Purchase Money Transaction
- The acquisition of property
through the payment of money or it's equivalent.
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- Qualifying Ratios
- Calculations that are used in determining
whether a borrower can qualify for a mortgage. They consist of
two separate calculations: housing expense as a percentage of
income ratio and total debt obligations as a percentage of income
ratio.
- Quitclaim Deed
- A deed that transfers without
warranty whatever interest or title a grantor may have at the
time the conveyance is made.
- Rate Lock
- A commitment issued by the
lender to a borrower or other mortgage originator guaranteeing
a specified interest rate for a specified period of time. See
lock-in.
- Real Estate Agent
- A person licensed to negotiate
and transact the sale of estate on behalf of the property owner.
- 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 trees, minerals,
and the interest, benefits, and inherent rights thereof.
- Realtor
- A real estate broker or
an associate who holds active membership in a local real estate
board that is affiliated with the National Association of Realtors.
- Recession
- The cancellation or annulment
of a transaction or contract by the operation of a law or by mutual
consent. Borrowers usually have the option to cancel a refinance
transaction within three business days after it has closed.
- 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.
- Rehabilitation Mortgage
- A mortgage created to cover
the costs of repairing, improving, and sometimes acquiring an
existing property.
- Remaining Balance
- The amount of principal
that has not yet been repaid. See principal
balance.
- Rent with Option
to Buy
- See lease-purchase
mortgage loan.
- Repayment Plan
- An arrangement made to repay
delinquent installments or advances. Lenders' formal repayment
plans are called "relief provisions".
- 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
a designated premises.
- Right of Survivorship
- In joint tenancy, the right
of survivors to acquire the interest of a deceased joint tenant.
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- Second Mortgage
- A mortgage that has a lien
position subordinate to the first mortgage.
- Secondary Mortgage
Market
- The buying and selling of
existing mortgage.
- Secured Loan
- A loan that is backed by
collateral.
- Security
- The property that will be
pledged as collateral for a loan.
- Seller Take-Back
- An agreement in which the
owner of the property provides financing, often in combination
with an assumable mortgage. See owner
financing.
- 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 the loan
servicer.
- Settlement
- See closing.
- Settlement Sheet
- See HUD-1 statement.
- Standard Payment
Calculation
- The method used to determine
the monthly payment required to repay the remaining balance of
a mortgage in substantially equal installments over the remaining
term of the mortgage at the current interest rate.
- 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 using labor or services rather than cash.
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- Tenancy by the Entirety
- A type of joint tenancy
in a property that provides right of survivorship and is available
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