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adjustment date
The date on which the interest rate changes for an adjustable-rate
mortgage (ARM).
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adjustable-rate mortgage
(ARM)
A mortgage whose interest rate changes periodically based on the changes
in a specified index.
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adjustment period
The period that elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).
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amortization
The repayment of a mortgage loan by installments with regular payments
to cover the principal and interest.
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amortization term
The amount of time required to amortize the mortgage loan. The
amortization term is expressed as a number of months. For example, for a
30-year fixed-rate mortgage, the amortization term is 360 months.
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annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as
interest, mortgage insurance, and loan origination fee (points).
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application
A form, commonly referred to as a 1003 form, used to apply for a
mortgage and to provide information regarding a prospective mortgagor
and the proposed security.
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appraisal
A written analysis of the estimated value of a property prepared by a
qualified appraiser.
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appraiser
A person qualified by education, training, and experience to estimate
the value of real property and personal property.
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appreciation
An increase in the value of a property due to changes in market
conditions or other causes. The opposite of depreciation.
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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).
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assignment
The transfer of a mortgage from one person to another.
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assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer
when a home is sold.
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assumption
The transfer of the seller's existing mortgage to the buyer.
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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.
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assumption fee
The fee paid to a lender (usually by the purchaser of real property)
resulting from the assumption of an existing mortgage.
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B
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balance sheet
A financial statement that shows assets, liabilities, and net worth as
of a specific date.
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balloon mortgage
A mortgage that has level monthly payments that will amortize it over a
stated term but that provides for a lump sum payment to be due at the
end of an earlier specified term.
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balloon payment
The final lump sum payment that is made at the maturity date of a
balloon mortgage.
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bankrupt
A person, firm, or corporation that, through a court proceeding, is
relieved from the payment of all debts after the surrender of all assets
to a court-appointed trustee.
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bankruptcy
A proceeding in a federal court in which a debtor who owes more than his
or her assets can relieve the debts by transferring his or her assets to
a trustee.
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basis point
A basis point is 1/100th of a percentage point. For example, a fee
calculated as 50 basis points of a loan amount of $100,000 would be
0.50% or $500.
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before-tax income
Income before taxes are deducted.
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beneficiary
The person designated to receive the income from a trust, estate, or a
deed of trust.
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binder
A preliminary agreement, secured by the payment of an earnest money
deposit, under which a buyer offers to purchase real estate.
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biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks
(instead of the standard monthly payment schedule). The 26 (or possibly
27) biweekly payments are each equal to one-half of the monthly payment
that would be required if the loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted from the borrower's bank account.
The result for the borrower is a substantial savings in interest.
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blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the
share loans on individual units within the project.
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bond
An interest-bearing certificate of debt with a maturity date. An
obligation of a government or business corporation. A real estate bond
is a written obligation usually secured by a mortgage or a deed of
trust.
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breach
A violation of any legal obligation.
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bridge loan
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."
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broker
A person who, for a commission or a fee, brings parties together and
assists in negotiating contracts between them.
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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.
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cap
A provision of an adjustable-rate mortgage (ARM) that limits how much
the interest rate or mortgage payments may increase or decrease.
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capital improvement
Any structure or component erected as a permanent improvement to real
property that adds to its value and useful life.
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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
first mortgage, closing costs, 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 any purpose.
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Certificate of Eligibility
A document issued by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs (VA) mortgage.
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Certificate of Reasonable
Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
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certificate of title
A statement provided by an abstract company, title company, or attorney
stating that the title to real estate is legally held by the current
owner.
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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.
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change frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
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clear title
A title that is free of liens or legal questions as to ownership of the
property.
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closing
A meeting at which a sale of a property is finalized by the buyer
signing the mortgage documents and paying closing costs. Also called
"settlement."
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closing cost item
A fee or amount that a home buyer 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.
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closing statement
Also referred to as the HUD-1. The final statement of costs incurred to
close on a loan or to purchase a home.
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cloud on title
Any conditions revealed by a title search that adversely affect the
title to real estate. Usually clouds on title cannot be removed except
by a quitclaim deed, release, or court action.
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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.
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collection
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when necessary.
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combination loan
With this type of loan, you receive a first mortgage for 80 percent of
the loan amount, and a second mortgage at the same time for the
remainder of the balance. If avoiding PMI (mortgage insurance) is
important to you, consider combination loans--known as 80/10/10 loans or
80/20's.
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combined loan-to-value
(CLTV)
The relationship between the unpaid principal balances of all the
mortgages on a property (first and second usually) and the property's
appraised value (or sales price, if it is lower.)
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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.
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commission
The fee charged by a broker or agent for negotiating a real estate or
loan transaction. A commission is generally a percentage of the price of
the property or loan.
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commitment letter
A formal offer by a lender stating the terms under which it agrees to
lend money to a home buyer. Also known as a "loan commitment."
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common areas
Those portions of a building, land, and amenities owned (or managed) by
a planned unit development (PUD) or condominium project's homeowners'
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.
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Community Home Improvement
Mortgage Loan
An alternative financing option that allows low- and moderate-income
home buyers to obtain 95 percent financing for the purchase and
improvement of a home in need of modest repairs. The repair work can
account for as much as 30 percent of the appraised value.
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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.
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comparables
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 , and amenities and have recently been sold.
Comparables help the appraiser determine the approximate fair market
value of the subject property.
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condominium
A real estate project in which each unit owner has title to a unit in a
building, an undivided interest in the common areas of the project, and
sometimes the exclusive use of certain limited common areas.
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condominium conversion
Changing the ownership of an existing building (usually a rental
project) to the condominium form of ownership.
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conforming loan
The current conforming loan limit is $252,700 and below. Conforming loan
limits change annually.
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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.
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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.
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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.
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contract
An oral or written agreement to do or not to do a certain thing.
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conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
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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.
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convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate
mortgage under specified conditions.
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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.
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corporate relocation
Arrangements under which an employer moves an employee to another area
as part of the employer's normal course of business or under which it
transfers a substantial part or all of its operations and employees to
another area because it is relocating its headquarters or expanding its
office capacity.
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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.
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covenant
A clause in a mortgage that obligates or restricts the borrower and
that, if violated, can result in foreclosure.
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credit
An agreement in which a borrower receives something of value in exchange
for a promise to repay the lender at a later date.
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credit history
A record of an individual's open and fully repaid debts. A credit
history helps a lender to determine whether a potential borrower has a
history of repaying debts in a timely manner.
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credit report
A report of an individual's credit history prepared by a credit bureau
and used by a lender in determining a loan applicant's creditworthiness.
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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.
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deed
The legal document conveying title to a property.
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deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid
foreclosure.
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deed of trust
The document used in some states instead of a mortgage; title is
conveyed to a trustee.
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default
Failure to make mortgage payments on a timely basis or to comply with
other requirements of a mortgage.
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delinquency
Failure to make mortgage payments when mortgage payments are due.
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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.
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depreciation
A decline in the value of property; the opposite of appreciation.
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down payment
The part of the purchase price of a property that the buyer pays in cash
and does not finance with a mortgage.
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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 security for the
mortgage.
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E
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earnest money deposit
A deposit made by the potential home buyer to show that he or she is
serious about buying the house.
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easement
A right of way giving persons other than the owner access to or over a
property.
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effective age
An appraiser's estimate of the physical condition of a building. The
actual age of a building may be shorter or longer than its effective
age.
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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, but other income may qualify if it is significant and
stable.
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eighty-ten-ten loan
See "combination loan".
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eighty-fifteen-five
See "combination loan" |
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encumbrance
Anything that affects or limits the fee simple title to a property, such
as mortgages, leases, easements, or restrictions.
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endorser
A person who signs ownership interest over to another party. Contrast
with co-maker.
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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.
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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.
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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.
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escrow account
The account in which a mortgage servicer holds the borrower's escrow
payments prior to paying property expenses.
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escrow analysis
The periodic examination of escrow accounts to determine if current
monthly deposits will provide sufficient funds to pay taxes, insurance,
and other bills when due.
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escrow collections
Funds collected by the servicer and set aside in an escrow account to
pay the borrower's property taxes, mortgage insurance, and hazard
insurance.
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escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
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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.
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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.
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eviction
The lawful expulsion of an occupant from real property.
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examination of title
The report on the title of a property from the public records or an
abstract of the title.
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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer
credit reports by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit record.
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fair market value
The highest price that a buyer, willing but not compelled to buy, would
pay, and the lowest a seller, willing but not compelled to sell, would
accept.
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Fannie Mae
A congressionally chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage funds.
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Fannie Mae's Community Home
Buyer's Program
An income-based community lending model, under which mortgage insurers
and Fannie Mae offer flexible underwriting guidelines to increase a low-
or moderate-income family's buying power and to decrease the total
amount of cash needed to purchase a home. Borrowers who participate in
this model are required to attend pre-purchase home-buyer education
sessions.
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Federal Housing
Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD).
Its main activity is the insuring of residential mortgage loans made by
private lenders. The FHA sets standards for construction and
underwriting but does not lend money or plan or construct housing.
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fee simple
The greatest possible interest a person can have in real estate.
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FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA).
Also known as a government mortgage.
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finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage
loan for a prospective borrower.
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first adjustment
When you can expect the first rate adjustment in your ARM loan.
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first mortgage
A mortgage that is the primary lien against a property.
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fixed-rate mortgage
(FRM)
A mortgage in which the interest rate does not change during the entire
term of the loan.
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fixed second mortgage
See home equity loan.
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flood insurance
Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated
flood areas.
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foreclosure
The legal process by which a borrower in default under a mortgage is
deprived of his or her interest 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.
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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.
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G
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good faith estimate
An estimate of charges which a borrower is likely to incur in connection
with a settlement.
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hazard insurance
Insurance protecting against loss to real estate caused by fire, some
natural causes, vandalism, etc., depending upon the terms of the policy.
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home equity line of credit
a credit line that is secured by a second deed of trust on a house.
Equity lines of credit are revolving accounts that work like a credit
card, which can be paid down or charged up for the term of the loan. The
minimum payment due each month is interest only.
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home equity loan
a loan secured by a second deed of trust on a house, typically used as a
home improvement loan.
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housing ratio
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.
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HUD
The U.S. Department of Housing and Urban Development.
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I
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index
A published interest rate to which the interest rate on an Adjustable
Rate Mortgage (ARM) is tied. Some commonly used indices include the 1
Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
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J
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jumbo mortgage
The current loan limit for a conforming loan is $252,700. Loans for
amounts above $252,700 are considered non-conforming or jumbo mortgages.
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