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| Mortgage
Glossary: |
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| A
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| Abstract
(of title)
A
written summary of the title history of a particular piece
of real estate.
Acceleration
Clause
A
provision of a mortgage or note which provides that the entire
outstanding balance will become due and payable in the event
of default.
ARM
(Adjustable Rate Mortgage)
A
mortgage in which the interest rate is adjusted periodically,
based on the movement of a financial index.
Amortization
Repayment
of loan by installment payments. As the payments are made,
the debt is reduced so that at the end of fixed period or
term, no money will be owed.
APR
(Annual Percentage Rate)
The
annual percentage rate refers to the total cost of the loan,
expressed as a yearly rate.
Application
Fee
That
part of the closing costs pre-paid to the lender at time of
application to cover initial expenses.
Appraisal
A
report made by a qualified person as to the value of a property
as of a given date.
Assessed
Value
The
value placed on a piece of real estate by the taxing authority
for the purpose of taxation. Also called an assessment.
Assumption
of Mortgage
The
purchaser takes over mortgage payments for the balance of
the loan, assuming primary liability. Unless specifically
released by the lender, the seller remains secondarily liable.
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| B
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| Balloon
Mortgage
A
mortgage with periodic payments that do not fully amortize
the loan. The outstanding balance of the mortgage is due in
a lump sum at the end of the term.
Bridge
Loan
A
short-term loan secured by the equity in an as-yet-unsold
house, with the funds to be used for a down payment and/or
closing costs on a new house. There is no payment of principal
until the house is sold or the end of the loan term, whichever
comes first. Interest payments may or may not be deferred
until the house is sold.
Broker
The
person who, for a commission or a fee, brings parties together
and assists in negotiating contracts between them.
Buydown
Money advanced by an individual (e.g. builder, seller, buyer,
lender, developer) to lower monthly mortgage payments for
a few years or the whole term. |
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| Cap
(interest rate)
The
maximum interest rate increase allowable on an adjustable
rate mortgage. Does not result in negative amortization. See
Negative amortization.
Cap
(payment rate)
The
maximum payment amount increase allowable on an adjustable
rate mortgage. May result in negative amortization. See Negative
amortization.
Certificate
Of Title
A
statement that shows ownership of property, stating that the
seller has clear legal title.
Closing
The
concluding day of the real estate transaction, when title
and deed pass from seller to buyer, the buyer signs the mortgage
and pays the purchase price and closing costs.
Closing
Costs
Expenses (over and above the price of the property) incurred
by buyers and sellers in transferring ownership of a property.
Also called "settlement costs."
Closing
Statement
A financial disclosure giving an account of all funds received
and expected at closing, including the escrow deposit for
taxes, hazard insurance and mortgage insurance for the escrow
account.
Commission
An
agent's or broker's fee for bringing the principals together
and helping to negotiate a real estate transaction, often
a percentage of the sales price or flat fee.
Commitment
An
agreement, frequently in writing, between a lender and a borrower
to loan money at a future date, subject to certain conditions.
Comparables
Refers
to similar properties used for comparison purposes in the
appraisal process. These properties will be reasonably the
same size and location, with similar amenities and characteristics,
so that the approximate fair market value of the subject property
can be determined.
Condominium
Ownership
of a single unit in a multiunit building or complex of buildings.
Along with this goes a share of ownership of the common areas.
Contingency
A
condition that must be met for a contract or a commitment
to remain binding.
Conventional
Mortgage
Any
mortgage loan that is not insured by FHA, guaranteed by VA,
of funded by a government authorized bond sale or grant.
Convey
To
transfer real estate from one person to another.
Credit
Report
The
report to a prospective lender on the credit standing of a
prospective borrower. |
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| D
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| Deed
A
legal written document by which title to property is transferred.
Default
Failure
to fulfill the terms as agreed to in the mortgage of note.
Down
Payment
The
difference between the sale price of a property and the mortgage
amount.
Due-On-Sale
A clause in a mortgage which gives the lender the right to
require immediate repayment of a mortgage balance if the property
changes hands. |
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| Earnest
Money
The
deposit money given to seller or his agent by the potential
buyer at the time of the purchase offer. If the offer is accepted,
the money will become part of the down payment.
Easement
A
right to the limited use of land owned by another. An electric
company, for example, could have an easement to put up electric
power lines over someone's property.
Encumbrance
Anything that affects or limits the title to a property, such
as outstanding mortgages, easement rights or unpaid property
taxes.
Equity
The
value in which the owner has in real estate over and above
the mortgages against it. When the mortgage and all other
debts against the property are paid in full, the owner has
100% equity in his property.
Escrow
Funds and/or deed left in trust to a third party. Generally,
a portion of the monthly mortgage payment is held in escrow
by the lender to pay for taxes, hazard insurance and yearly
mortgage insurance premiums. |
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| F
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| First
Mortgage
A
mortgage that has a primary lien against a property.
Fixed-Rates
Mortgage
A
mortgage with an interest rate and monthly payments that remain
constant over the life of the loan.
Fixture
Property,
such as a hot water heater or plumbing fixture, that has become
permanently attached to piece of real estate and goes with
the property when it is sold.
Flood
Certification
An independent agency report required by the lender to determine
whether a property is located in a flood hazard zone, which
would then require a federally mandated flood insurance policy.
Foreclosure
A
legal procedure in which property mortgaged as security for
a loan is sold to pay the defaulting borrower's debt.
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| G
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| Graduated
Payment Mortgage
A
fixed rate loan with monthly payments that start low, increasing
by a fixed amount for a specific number of years. After that
period, the payments typically remain constant for the duration
of the loan.
Gross
Income
Normal
income, including overtime, prior to any payroll deductions,
that is regular and dependable. This income may come from
more than one source. |
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| H
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| Hazard
Insurance
Insurance
protection against damage to a property from fire, windstorms,
and other common hazards.
Homeowner's
Insurance
An
insurance policy that covers the dwelling and its contents
in case of fire or wind damage, theft, liability for property
damage and personal liability.
HUD-1
Form
See
Real Estate Settlement Statement. |
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| Income
Property
Real
estate that is owned for investment purposes and not used
as the owner's residence.
Interest
A
charge paid for the use of money.
Interim
Financing
See
Bridge Loan. |
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| L
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| Land
Contract
When
the buyer agrees to make payments directly to the seller at
pre-negotiated terms. The seller agrees to deed the property
to the buyer upon completion of the agreement. The buyer becomes
the owner of equity in this type of sale. (Also see Owner
Financing.)
Lien
A
legal claim on a property used as security for a debt.
Loan-To-Value
Ratio
The
relationship between the amount of the mortgage and property
value, usually shown as a percentage. |
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| M
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| Market
Value
The
price at which a property will sell, assuming a knowledgeable
buyer and seller, both operating without undue pressure.
Mortgage
A
contract in which a borrower's property is pledged as security
for a loan which is to be repaid on an installment basis.
Mortgage
Note
A
written promise to pay a debt at a stated interest rate during
a specified term. The agreement is secured by a mortgage.
Mortgagee
The
lender in a mortgage contract.
Mortgagor
The
borrower in a mortgage contract. |
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| N
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| Negative
Amortization
A
loan in which the outstanding principal balance goes up instead
of down because the monthly payments are not large enough
to cover the full amount of interest due. Also called deferred
interest. |
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| Offer
to Purchase
A
written proposal to buy a piece of real estate that becomes
binding when accepted by the seller. Also called a sales contract.
Origination
Fee
A
fee charged for the work involved in the evaluation preparation
and submission of a proposed mortgage loan.
Owner
Financing
A
purchase in which the seller provides all or part of the financing.
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| P
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| PITI
An
acronym for payments to lender that cover principal, interest,
taxes and insurance on a property.
Plat
A
map of a piece of land showing boundary lines, streets, actual
measurements and easements.
Point
A
fee paid to the lender on closing day to increase the effective
yield of the mortgage. A point is one percent of the amount
of the mortgage loan. Also called a discount point.
Prepayment
Penalty
A
charge paid to the lender by the borrower if a mortgage loan
is repaid before its term is over.
Pre-Approval
A
commitment by a lender to extend credit provided that specific
conditions are met.
Pre-Qualification
A
preliminary assessment of a buyer's ability to secure a loan,
based on a specific set of lending guidelines and buyer representations
made. This is not a guarantee or commitment by a lender to
extend credit.
Prime
Rate
The
interest rate charged by banks to their preferred corporate
customers, it tends to be an estimator for general trends
in short term interest rates.
Principal
The
amount borrowed or remaining unpaid; also, that part of the
monthly payment that reduces the outstanding balance of a
mortgage.
PMI
(Private Mortgage Insurance)
Insurance
written by a private mortgage insurance company to protect
the lender against losses caused by mortgage default. This
is commonly required on loan transactions involving less than
a 20% down payment or equity position. |
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| Qualifying
Ratios
Guidelines
used by lenders to determine how much of a loan a home buyer
qualifies for. Often referred to as debt-to-income ratios
(or DTI). |
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| R
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| Real
Estate Settlement Statement
Final
settlement statement often referred to as the HUD-1 form,
used to itemize buyer, seller, broker, and lender charges
and credits at closing.
Realtor
A
real estate broker or sales associate affiliated with the
National Association of Realtors.
Recording
Fee
The
charges made by the register of deeds to record the legal
documents.
Refinancing
Repaying
a debt with the proceeds of a new loan, using the same property
as collateral or security. |
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| S
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| Second
Mortgage
A
loan issued on property that is already encumbered by an existing
mortgage (ie: the first mortgage). The second mortgage is
subordinate to the first.
Secondary
Mortgage Market
The
market wherein home loans are sold by the lender after closing
to Fannie Mae, Freddie Mac or a variety of other institutional
investors.
Survey
A
map prepared by an engineer or surveyor charting a particular
piece of real estate. |
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| T
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| Title
Ownership
of a property. A clear title is one without any outstanding
liens or encumbrances. A cloud on title refers to any outstanding
liens or encumbrances which could impair the title.
Title
Insurance Policy
A
policy designed to protect the buyer or lender after closing
from financial losses arising from any defects in the title
that may have occurred prior to purchase.
Title
Search
A
check of public record to disclose the past and current facts
regarding ownership of a particular piece of property.
Transfer
Tax
In
some areas city, county or state taxes imposed when property
passes from one person to another.
Truth-In-Lending
Federal
law that requires lenders to disclose the terms and conditions
of a mortgage, including the APR, based on certain charges
incurred by the borrower. If the charges were $0, the APR
would be equal to that actual interest rate on the loan.
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| Underwriting
The
process of evaluating a loan application to determine the
risk involved for the lender. |
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