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Acceptance
A legal term referring to the acceptance of an offer. A buyer offers
to buy and the seller accepts the offer.
Accounts
Payable
A running record of business transactions showing the amount of
money owed. They are considered liabilities by lenders.
Accretion
An addition to land from natural causes (for example, from the
gradual action of the ocean or river waters).
Ad
Valorem
Latin for, "according to value." It is a method of
imposing a tax on the ownership of real estate property.
Adjustable-Rate
Mortgage (ARM)
A home loan that permits the lender to adjust its interest rate
periodically during the life of the loan on the basis of changes in
a specified financial index. ARMs typically start with a
particularly low interest rate that gradually rises over time. If
the overall level of interest rates drops, as measured by a variety
of different indexes, the interest rate of your ARM follows suit.
Similarly, if interest rates rise, so does your mortgage's interest
rate and monthly payment. The amount that the interest can fluctuate
is limited by caps.
Adjusted
Gross Income
Total income including your salary and bonuses, and any rental or
seasonal income.
Administrator
A person appointed by the probate court to administer the estate of
a deceased person.
Agreement
of Sale
A written document in which a purchaser agrees to buy property under
certain given conditions and the seller agrees to sell under certain
given conditions. Also known as a 'Sales Contract.'
Amortization
The process of gradually paying down the principal of the loan. As
each payment toward principal is made, the mortgage amount is
reduced or amortized by that amount. This is in contrast to an
interest-only payment where the principal balance is never reduced.
Annual
Percentage Rate (APR)
The rate of interest to be paid on a loan over its projected life;
sometimes referred to as the "true" rate of interest. The
APR is the annual cost of a loan, including interest, loan fees, and
other costs.
Annuity
A sum of money received at fixed intervals, such as series of equal
or nearly equal payments to be made over a period of time, or it may
be a lump sum payment to be made at some time in the future. The
installment payments due to a landlord under the terms of a lease
are an example of an annuity. The installment payments due to a
lender on a note are another such example.
Appraisal
A professional evaluation of the value of a home or other piece of
property made by a professional who is familiar with local real
estate prices and markets.
Appreciation
The amount by which the value of a piece of property increases over
time.
APR
See Annual Percentage Rate.
ARM
See Adjustable Rate Mortgage.
Assessed
Value
A value placed upon property by a tax assessor.
Assessment
Determining the value of property for the purpose of imposing a tax,
or the amount of the tax imposed.
Asset
Anything of monetary value that is owned by a person. Assets include
real estate property, personal property, and enforceable claims
against others including bank accounts, stocks, mutual funds, and so
on.
Assumption
When a buyer takes over the loan payments and obligations of the
seller. If the buyer defaults, however, both the buyer and seller
are responsible for the debt.
Back-End
Ratio
See Total Debt Ratio.
Balance
Sheet
A financial statement that shows assets, liabilities, and net worth
as of a specific date.
Balloon
Mortgage
A balloon mortgage offers lower interest rates for shorter-term
financing, usually five, seven or ten years. At the end of this
term, the borrower requires refinancing or must pay off the
outstanding balance in a lump-sum (balloon) payment.
Bankruptcy
A court action under the Federal Bankruptcy Code by which a debtor's
debts may be excused, usually by transferring assets to a trustee,
or rescheduled.
Beneficiary
(1) A person entitled to the proceeds of a trust; (2) A person who
receives profit from an estate, the title of which is entrusted to a
trustee; (3) The lender on the security of a note and deed of trust.
Bill
of Sale
A written document that serves as evidence of the transfer of title
to personal property.
Binder
An agreement to consider the purchase of real estate. The agreement
is backed by a cash deposit as evidence of good faith on the part of
the purchaser.
Broker
A person who, for a commission, brings parties together and assists
in negotiating contracts between them.
Building
Line
A line set by law or deed restriction a certain distance from the
street line, in front of which an owner cannot build on his lot.
Also called a setback line.
Buydown
Mortgage
A temporary buydown is a mortgage on which an initial lump sum
payment is made by a party to reduce a borrower's monthly payment
during the first few years of a mortgage. A permanent buydown
reduces the interest rate over the entire life of a mortgage.
Cap
A limit on how much a mortgage interest rate may increase or
decrease for an adjustable-rate mortgage.
Capital
Gain
Income from the sale of an asset rather than from the general
business activity. Capital gains are generally taxed at a lower rate
then ordinary income.
Capital
Improvement
Any structure or component erected as a permanent improvement to
real estate property that adds to its value and useful life.
Cash
Flow
Income generated by a rental property. It is determined by
subtracting vacancy allowances and collection costs, operating
expenses and debt-servicing costs from the property's scheduled
gross income.
Certificate
of Eligibility
A document issued by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs mortgage.
Certificate
of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs that
establishes the maximum value and loan amount for a Veterans Affairs
mortgage.
Certificate
of Title
A written document stating that the title to a piece of property is
legally vested owned by the title holder (the person named on the
certificate) in the present owner.
Clear
Title
A title that is free of liens or legal questions regarding ownership
of the property.
Closing
In real estate, Closing is the delivery of a deed, the payment of
the purchase price, the signing of promissory notes, and the paying
of closing costs, which completes a real estate transaction.
Closing
Costs
The miscellaneous expenses involved in closing a real estate
transaction that are over and above the purchase price. Some of the
closing costs include title insurance, appraisal fee, and credit
report.
Commitment
Letter
A formal offer by a lender, which states the terms under which it
agrees to lend money to a home buyer. Also known as a 'loan
commitment.' This letter will indicate the contingencies that must
be cleared prior to funding the loan.
Common
Areas
Portions of a building, land and amenities owned (or managed) by a
planned unit development (PUD) or condominium project's homeowners'
association. Common areas are used by a group of the unit owners,
who share in the common expenses of their operation and maintenance.
They include swimming pools, tennis courts and other recreational
facilities, as well as common corridors of buildings or parking
areas.
Comparables
An abbreviation for "comparable properties," in the
appraisal process. Comparables are properties similar to the one
under consideration for appraisal.
Compound Interest
Interest paid on the original principal and on interest accrued from
time it became due.
Conforming
Mortgage Loan
The current conforming loan limit is $359,650 and below.
Construction
Loan
A short-term interim loan for financing the cost of construction.
The lender builder makes payments to the builder lender at periodic
intervals as the work progresses.
Consumer
Reporting Agency
An organization that creates reports used by lenders to help
determine a potential borrower's credit history. The agency gets
this information from many sources.
Contingency
A clause in a contract stating that the buyer or seller must meet a
given condition before the purchase can be completed.
Conventional
Mortgage
A home loan that follows a fixed rate. It's neither guaranteed nor
insured by the Federal Housing Administration (FHA) or Department of
Veterans' Affairs (VA).
Credit
History
The financial worthiness of a borrower. Credit history is the
history of whether the borrower has met financial obligations on
time in the past.
Credit
Report
A full listing of debts and credit that tracks on a loan applicant's
willingness and ability to make payments in a timely manner in the
past. This report is provided to the bank by an outside agency.
CRV
See
Certificate of Reasonable Value.
Debt-to-Income
Ratio
The ratio of a borrower's monthly debt payments to his or her
monthly gross income. Lenders use this ratio to determine how much
of a loan a borrower is qualified for.
Debt-to-income is the total amount of debt, including credit cards
and other loans, divided by total gross monthly income.
Deed
The legal document conveying title to a property.
Deed
of Trust
An document that transfers the bare legal title of a property to a
trustee to be held pending fulfillment of an obligation, usually the
repayment of a loan to a beneficiary.
Default
Failure to pay mortgage payments over a specified period of time.
Delinquency
Being late with loan payments.
Depreciation
Loss of value in real property brought about by age, physical
deterioration, by changing neighborhood, economic conditions,
functional or economic obsolescence.
Discount
Points
A percentage of the mortgage paid to the lender to lower the
interest rate on a loan. One point equals one percent.
Down
Payment
The portion of the purchase price that a buyer pays up front, in
cash, at the time the loan originates.
Due-on-Sale
Provision
A provision in a mortgage that allows the lender to demand repayment
in full if a borrower sells the property that serves as security for
the mortgage.
Earnest
Money
A sum of money given as evidence of one's good faith, used to bind
or secure a real estate sale. Also known as a 'Binder.'
Easement
The right, privilege or interest that one party has in the land of
another, created by grant or agreement for a specific purpose. An
example would be a right of way.
Effective
Gross Income
Normal annual income including overtime that is regular or
guaranteed. The income may be from more than one source. Salary is
generally the principal source.
Endorsement
The signature on the back of a check, bill, note or similar
document. It is required on negotiable documents.
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
The difference between the market value of a house and the amount
still owed on the mortgage. It's value of a property minus
outstanding mortgage debt and other liens. Increased equity
positions you as a safer risk to lenders and enhances your financial
position by lowering or eliminating some expenses, such as insurance
and rates.
Escrow
Money and documents deposited in a trust account to be held by one
party for another. Often used by brokers to hold deposit money prior
to closing. Also used by lenders to hold money for taxes and
insurance on a home.
Exclusive
Agency Listing
A written document giving one agent the right for a specified time
to sell a property, but reserving the right of the owner to sell the
property himself or herself without payment of a commission to the
agent.
Exclusive
Right to Sell Listing
A written agreement between an owner and an agent giving the agent
the right to collect a commission if the property is sold by anyone
during the term of his or her agreement.
Fair
Credit Reporting Act
A consumer protection law that regulates the disclosures of consumer
credit reports by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit report.
Fair
Market Value
The highest price that a willing buyer would pay and the lowest the
willing seller willing would accept. Neither party is compelled to
buy or sell in this situation.
Fannie
Mae
A congressionally chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage funds. Also known as
Federal National Mortgage Association (FNMA).
FHA
Loan
Also known as a "government loan"," an FHA loan is
guaranteed by the Federal Housing Administration. FHA issues
specific guidelines for mortgages.
FHLMC
See Freddie Mac.
Fiduciary
A person in a position of trust and confidence, for instance a
principal and broker. A broker as a fiduciary owes certain loyalty
that cannot be breached.
Finder's
Fee
A fee paid to a mortgage broker for finding a mortgage loan for a
prospective borrower.
First
Mortgage
The original loan taken out to purchase a home.
Fixed-Rate
Mortgage
A loan with an interest rate that never changes.
FNMA
See Fannie Mae.
Flood
Insurance
Insurance that would provide reimbursement for physical property
damage resulting from flooding. It is required for properties that
are located in federally designated flood areas.
Foreclosure
The legal process by which a borrower in default under a mortgage is
deprived of his or her right to ownership in the mortgaged property.
This usually involves a forced sale of the property at public
auction with the proceeds of the sale being applied to the mortgage
debt.
Freddie
Mac
A major secondary mortgage market investor. It is a government
sponsored, privately owned corporation that is a major purchaser of
mortgages from lenders. Also known as 'Federal Home Loan Mortgage
Corporation' (FHLMC).
Front-End
Ratio
Also called a Top Ratio. This is a calculation of your total monthly
housing expenses divided by your income. Lenders use a front-end
ratio as a guideline to see if you qualify for a loan.
Fully
Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest
accrual rate, over the amortization term.
Good
Faith Estimate
A disclosure that must be given by the lender to all mortgage loan
applicants within three business days of an application. It is an
estimate of all settlement charges likely to be incurred at closing.
Home
Equity Loan
A loan secured by a second deed of trust on a house, typically used
as a home improvement loan.
Housing-to-income
Income Ratio
A ratio used by lending institutions to determine whether a person
is qualified for a mortgage. Housing-to-income is the ratio of the
monthly housing payment in total (PITI -- Principal, Interest, Taxes
and Insurance) divided by the gross monthly income. This ratio is
sometimes referred to as the 'top ratio' or 'front-end ratio.'
HUD
Acronym for the U.S. Department of Housing and Urban Development.
HUD-1
A document that gives a breakdown of costs that the seller and buyer
may pay at closing.
Income
Property
Property that produces income from residential or commercial rentals
and profits attributable to real estate other than rent. Residential
or commercial property that produces income and profits in ways
other than rents.
Index
An economic indicator that lenders use to calculate interest rate
adjustments for adjustable-rate mortgages (ARMs). The index used is
outside the lender's control.
Interest
The amount charged per year on a home loan. The rate varies
according to the type of loan.
Interest
Rate Cap
A limit on the amount that interest can rise or fall during a
specified period of time on an adjustable-rate mortgage.
Involuntary
Lien
A lien or charge imposed against property without consent of owner.
Examples: taxes, assessments, federal income tax liens, judgments,
etc.
Jumbo
Mortgage
Also known as a 'non-conforming' mortgage. Non-conforming loans
usually incur a rate and origination fee premium. The current
conforming loan limit is $359,650 and below for a single-family
residence, $460,400 and below for a 2-unit property, $556,500 and
below for a 3-unit property, and $691,600 and below for a 4-unit
property. Loan amounts greater than this are considered
non-conforming or jumbo mortgages.
Lender
The bank or mortgage company offering the loan.
Lien
A legal hold or claim of a creditor on the property of another.
Lifetime
Cap
A limit on how high the interest rate on an adjustable-rate mortgage
can rise over the lifetime of the loan.
Loan-to-Value
Ratio (LTV)
The amount of the loan divided by the purchase price of the house.
It is the percentage that shows how much equity a borrower will have
in a home. The LTV determines which products are available to the
borrower.
Lock-in
Allows the borrower to be assured a given rate of interest for a
mortgage. This usually involves paying a fee to the lender. Mortgage
rates not "locked in" are subject to changing market
conditions.
Low-Documentation
Some loan products require only that applicants state the source of
their income without providing supporting documentation such as tax
returns.
LTV
See Loan-to-Value Ratio.
Margin
A set number of percentage points a lender adds to the index rate to
determine the interest rate for an ARM.
Mortgage
Insurance
Also known as 'Private Mortgage Insurance' (PMI). Insurance that
protects mortgage lenders against loss in the event of default by
the borrower.
Mortgage
A lien or claim against real property given by the buyer to the
lender as security for money borrowed.
Mortgage
Broker
A person who, for a fee, brings together a borrower and lender and
handles the necessary applications for the borrower to obtain a loan
against real estate property by giving a mortgage or deed of trust
as security. Also called loan broker.
Mortgagee
A person or organization that lends money for a home.
Mortgagor
A person who borrows money for a home.
Net
Worth
Value remaining after subtracting the liabilities from the assets of
a company or an individual.
Non-Conforming
Loan
Also known as a 'Jumbo Mortgage.' Non-conforming loans usually incur
a rate and origination fee. The current conforming loan limit is
$359,650 and below for a single family residence, $460,400 and below
for a 2-unit property, $556,500 and below for a 3-unit property, and
$691,600 and below for a 4-unit property. Loan amounts greater than
this are considered non-conforming or jumbo mortgages.
Note
A signed written instrument acknowledging a debt and promising
payment.
Obligations-to-Income
Ratio
See Total Debt Ratio.
Origination
Date
The date on which the loan is initiated or funded.
Origination
Fee
A fee imposed by a lender to cover the administrative costs of
setting up a mortgage. This will include the preparation of
documents and certain processing expenses in connection with making
a real estate loan. This is usually charged as a percentage of the
amount loaned, such as one point or one percent.
PITI
Principal, interest, taxes and insurance-the components of a monthly
mortgage payment.
PMI
See Private Mortgage Insurance.
Payoff
The complete repayment of loan principal, interest and any other
sums due; payoffs occur either over the full term of the loan
through monthly amortization or through prepayments.
Points
An upfront fee that is collected in addition to the interest on a
loan. One point is equal to one percent of the mortgage. The use of
points allows the lender to raise its yield above the apparent
interest rate and reduce the rate by lowering the origination costs.
Points may also be referred to as an 'origination fee' or 'discount
points' depending on the purpose.
Prepayment
Penalty
A fee imposed on a borrower who pays off a mortgage before it is
due.
Pre-Approval
A process that mortgage lenders use to determine how much money they
would lend you based on a thorough review of your financial
situation. Lenders issue a pre-approval letter, which strengthens
your position when bidding on a home, as it shows sellers that you
will be able to raise the funds needed to purchase the home.
Pre-Qualification
An informal process in which a lender will offers an opinion on how
much money you may be able to borrow. This opinion is based entirely
on the financial information you provide and is neither binding nor
necessarily accurate because lenders have not yet verified your
financial information.
Preliminary
Title Report
A report made by a title company stating whether there are any other
claims to ownership of a property. It is a necessary step before a
mortgage loan can be approved.
Pre-paids
Those expenses of property that are paid in advance of their due
date and will usually be prorated upon sale, such as taxes,
insurance, rent, etc.
Prime
Rate
The best interest rate available to a lender's most qualified
customers.
Principal
The original balance of money lent on an outstanding loan and fees,
excluding interest. Also the remaining balance of a loan, excluding
interest.
Private
Mortgage Insurance (PMI)
Insurance coverage obtained from mortgage insurance companies to
protect lenders against the risk of making higher loan-to-value
loans. Typically required on all first mortgages with an LTV that
exceeds 80%. percent. The borrower usually pays the PMI premiums.
Promissory
Note
The document signed by a borrower promising repayment of a loan. It
shows the amount of monthly payments, interest rate, first payment
date, last payment date, and the late charge and prepayment
provisions.
Purchase
Contract
A written promise to pay a specific amount for a property at a
specified time. The purchase contract is a written statement of the
offer, which both the borrower and the seller will sign if the offer
is accepted.
Rate
Cap
A limit on how much the interest rate can change, either at each
adjustment period or over the life of the loan.
Rate
Lock
The amount of time that a lender will guarantee a loan's interest
rate. Once you've locked in the interest rate on a loan, the lender
will guarantee that rate for a certain period of time, usually for
30, 45 or 60 days.
Refinancing
A way of obtaining a better interest rate, lower monthly payments or
to borrow cash on the equity in a property that has built up on a
loan. A second loan is taken out to pay off the first, higher-rate
loan.
Second
Mortgage
An additional mortgage on a property, the second mortgage. It often
carries a shorter term and a higher interest rate than the original
mortgage.
Secondary
Mortgage Market
A market in which existing mortgages are resold.
Seller
Take-Back
An agreement in which the owner of a property provides financing,
often in combination with an assumed mortgage.
Seller
Financing
When the current owner of a house holds the mortgage loan for the
buyer.
Servicing
(or Loan Servicing)
Supervising and administering a loan after it has been made. This
involves such things as collecting the payments, keeping accounting
records, computing interest and principal, etc.
Term
The period of time which covers the life of the loan. For example, a
30-year fixed loan has a term of 30 years.
Title
Evidence of a person's right to possession ownership of a property.
Title
Company
A company that searches for titles and insures title claims.
Title
Insurance
A policy that protects the owner of a title from loss resulting from
disputes over ownership claims.
Top
Ratio
Also called a Front-End Ratio. This is a calculation of your total
monthly housing expenses divided by your income. Lenders use a
front-end ratio as a guideline to see if you qualify for a loan.
Total
Debt Ratio
Monthly debt and housing payments divided by gross monthly income.
Also known as 'Obligations-to-Income Ratio' or 'Back-End Ratio.'
Truth-in-Lending
Act
A U.S. federal law requiring lenders to reveal all of the terms of a
mortgage.
Underwriting
The analysis of risk involved in making a mortgage loan to determine
whether the risk is acceptable to the lender. Underwriting involves
evaluating the property as outlined in the appraisal report, and
also evaluating the borrower's ability and willingness to repay the
loan.
VA
Loan
A loan guaranteed by the Department of Veterans Affairs. To obtain a
VA loan, the borrower must have served in the armed forces.
Valuation
The estimation of a property's price value through an appraisal.
Variable
Interest Rate
Interest rate that fluctuates as the prevailing rate moves up or
down. In mortgages there are usually maximums regarding the
frequency and the amount of fluctuation.
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