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Glossary of Real Estate Terms
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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 a monthly
payment is missed.
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AcceptanceAn
offeree's consent to enter
into a contract and be bound
by the terms of the offer. |
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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. |
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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 |
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Adjusted Basis
The original cost of a
property plus the value of
any capital expenditures for
improvements to the property
minus any depreciation
taken. |
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Adjustment Date
The date on which the
interest rate changes for an
adjustable-rate mortgage
(ARM). |
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Adjustment Period
The period that elapses
between the adjustment dates
for an adjustable-rate
mortgage (ARM).
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Administrator
A person appointed by a
probate court to administer
the estate of a person who
died intestate.
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Affidavits
As part of the closing
process, you're likely to
sign numerous affidavits.
You may be required, for
example, to sign an
affidavit of occupancy. It
states that you will use the
property as a principal
residence. Or, you and the
seller may have to sign an
affidavit stating all of the
improvements to the property
required in the sales
contract were completed
before closing.
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Affordability Analysis
A detailed analysis of your
ability to afford the
purchase of a home. An
affordability analysis takes
into consideration your
income, liabilities, and
available funds, along with
the type of mortgage you
plan to use, the area where
you want to purchase a home,
and the closing costs that
you might expect to pay.
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Amenity
A feature of real property
that enhances its
attractiveness and increases
the occupant's or user's
satisfaction although the
feature is not essential to
the property's use. Natural
amenities include a pleasant
or desirable location near
water, scenic views of the
surrounding area, etc.
Human-made amenities include
swimming pools, tennis
courts, community buildings,
and other recreational
facilities |
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Amortization
The gradual repayment of a
mortgage loan by
installments.
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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.
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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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Amortize
To repay a mortgage with
regular payments that cover
both principal and interest.
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Annual Mortgagor
Statement
A report sent to the
mortgagor each year. The
report shows how much was
paid in taxes and interest
during the year, as well as
the remaining mortgage loan
balance at the end of the
year. |
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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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Annuity
An amount paid yearly or at
other regular intervals,
often on a guaranteed dollar
basis. |
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Application
A form used to apply for a
mortgage loan and to record
pertinent information
concerning 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.
Contrast with home
inspection.
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Appraised Value
An opinion of a property's
fair market value, based on
an appraiser's knowledge,
experience, and analysis of
the property. |
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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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Assessed Value
The valuation placed on
property by a public tax
assessor for purposes of
taxation.
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Assessment
The process of placing a
value on property for the
strict purpose of taxation.
May also refer to a levy
against property for a
special purpose, such as a
sewer assessment.
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Assessment Rolls
The public record of taxable
property. |
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Assessor
A public official who
establishes the value of a
property for taxation
purposes. |
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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. A
provision in an assumable
mortgage 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
the sale or transfer of the
property.
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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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Attorney-in-fact
One who holds a power of
attorney from another to
execute documents on behalf
of the grantor of the power.
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Automated Underwriting
After you complete your loan
application with a lender, it is
sent to "underwriting" for
review. In short, underwriting
is the process used to analyze
how you have managed credit
obligations in the past, whether
you have the ability to repay
the mortgage loan you are
applying for (i.e., your income
and assets), and whether the
price you are willing to pay for
the home is supported by the
price of the property.
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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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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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Bequeath
To transfer personal
property through a will.
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Betterment
An improvement that
increases property
value as
distinguished from
repairs or
replacements that
simply maintain
value.
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Bill of Sale
A written document that
transfers title to personal
property.
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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. |
Biweekly Mortgages
Your lender will probably
tell you that a biweekly
mortgage is structured just
like a traditional
fixed-rate, level-payment,
fully amortizing mortgage.
However, you make your
payments every 14 days
instead of once a month. The
monthly payment is split in
half, resulting in the same
total monthly mortgage, but
the resulting 26 and
sometimes 27 biweekly
payments a year translate
into 13 monthly payments, or
one extra monthly payment
per year.
Borrowers can qualify for a
30-year monthly payment
amount, but get a loan that
pays off in approximately 22
years at current interest
rates. At higher rates, the
actual term declines.
If you are looking to build
up equity in your home
faster without the higher
mortgage payments that come
with a shorter-term
mortgage, you may want to
consider the biweekly
mortgage. Payments can be
deducted from your bank
account and scheduled to
coincide with your payroll
deposits to simplify
budgeting. Lenders may
charge an initial set-up fee
to automatically debit your
checking account.
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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 Insurance Policy
A single policy that covers
more than one piece of
property (or more than one
person).
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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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Bona Fide
In good faith, without
fraud.
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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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Budget
A detailed plan of income
and expenses expected over a
certain period of time. A
budget can provide
guidelines for managing
future investments and
expenses.
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Budget Category
A category of income or
expense data that you can
use in a budget. You can
also define your own budget
categories and add them to
some or all of the budgets
you create. "Rent" is an
example of an expense
category. "Salary" is a
typical income category.
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Building Code
Local regulations that
control design,
construction, and materials
used in construction.
Building codes are based on
safety and health standards
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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.
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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. See
lifetime payment cap,
lifetime rate cap, periodic
payment cap, and periodic
rate cap.
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Capacity
Lenders will want to know if
you can repay the mortgage
debt you incur -- this is
known as your capacity.
Lenders will base their
evaluation on employment
information, how long you've
worked, and how much you are
paid. Lenders will also
review your expenses and any
other debt obligations you
have. This means they'll
want to know how many
dependents you have and
whether you pay any alimony
or child support, for
example.
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Capital
(1) Money used to create
income, either as an
investment in a business or
an income property. (2) The
money or property comprising
the wealth owned or used by
a person or business
enterprise. (3) The
accumulated wealth of a
person or business. (4) The
net worth of a business
represented by the amount by
which its assets exceed
liabilities.
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Capital Expenditure
The cost of an improvement
made to extend the useful
life of a property or to add
to its value.
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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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CD-Indexed (Certificate
of Deposit) ARMs
The Certificate of Deposit
index represents the weekly
average of secondary market
interest rates on six-month
negotiable CDs. The initial
interest rate and payments
adjust every six months
after an initial six-month
period. ARMs with this index
typically come with a
per-adjustment cap of 1
percent and a lifetime rate
cap of 6 percent.
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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.
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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.
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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). |
Change Orders
After construction begins,
you may discover that you
need to make unplanned and
necessary changes to the
work. The contingency
reserve covers unforeseen
repairs or deficiencies
found during renovation.
Unnecessary additions or
changes are treated
differently.
These change orders are
considered discretionary and
must first be approved by
your lender. You must
deposit additional funds to
pay for the work in the
escrow account before work
on the changes begins. These
change orders -- as well as
any that result from
unforeseen repairs -- must
be added as amendments to
your construction contract.
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Chattel
Another name for personal
property.
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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 Agent
As a potential home buyer,
you will need a closing (or
"settlement") agent to
coordinate the various
closing activities. These
can include but are not
limited to preparing and
recording the closing
documents and disbursing
funds.
The types of services
provided by a closing agent
depend on the person you
hire, but typically the
closing is conducted by
title companies, escrow
companies or attorneys. It
is usually held at the
lender's or real estate
sales professional's office. |
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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 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.
Closing costs percentage
will vary according to the
area of the country; lenders
or realtors® often provide
estimates of closing costs
to prospective homebuyers.
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Closing Date
After your lender has
approved your mortgage and
you accept the commitment
letter, the next step is to
set a closing date. Many
times, your real estate
sales professional
coordinates the setting of
this date with you, the
seller, the closing agent,
and your lender.
You may be able to move up
the time frame for your
closing by working with a
lender who uses Desktop
Underwriter® -- our advanced
automated underwriting
system -- because it can cut
the time it takes to process
your mortgage.
Remember, you need to ensure
that the closing occurs
before your lender's
commitment letter -- and the
rate lock-in, if there is
one -- expire. You can now
finalize your moving plans.
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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.
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Coinsurance
A sharing of insurance risk
between the insurer and the
insured. Coinsurance depends
on the relationship between
the amount of the policy and
a specified percentage of
the actual value of the
property insured at the time
of the loss.
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Coinsurance Clause
A provision in a hazard
insurance policy that states
the amount of coverage that
must be maintained -- as a
percentage of the total
value of the property -- for
the insured to collect the
full amount of a loss.
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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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Commercial Banks
Commercial banks, like
thrifts, originate and
service mortgage loans. In
some cases, commercial banks
may have mortgage banking
subsidiaries that perform
this function. Banks may
choose to hold a loan in
their own portfolio or sell
the loan to an investor.
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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 Area Assessments
Levies against individual
unit owners in a condominium
or planned unit development
(PUD) project for additional
capital to defray
homeowners' association
costs and expenses and to
repair, replace, maintain,
improve, or operate the
common areas of the project. |
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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. |
Common Law
An unwritten body of law
based on general custom in
England and used to an
extent in the United States.
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Community Land Trust
Mortgage Option
An alternative financing
option that enables low- and
moderate-income home buyers
to purchase housing that has
been improved by a nonprofit
Community Land Trust and to
lease the land on which the
property stands.
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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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Community Seconds
An alternative financing
option for low- and
moderate-income households
under which an investor
purchases a first mortgage
that has a subsidized second
mortgage behind it. The
second mortgage may be
issued by a state, county,
or local housing agency,
foundation, or nonprofit
organization. Payment on the
second mortgage is often
deferred and carries a very
low interest rate (or no
interest rate at all). Part
of the debt may be forgiven
incrementally for each year
the buyer remains in the
home. |
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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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Compound Interest
Interest paid on the
original principal balance
and on the accrued and
unpaid interest.
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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.
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Condition of the Home
Potential homeowners should know
of major problems in a home
before they make an offer. As a
potential buyer, you should
carefully examine all elements
of the home. Ask questions to
the seller and the real estate
sales professional about any
concerns you may have. Both the
seller and the real estate agent
can be held liable if they do
not disclose any defects they
know about in the home. |
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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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Condominium Hotel
A
condominium project that has
rental or registration desks,
short-term occupancy, food and
telephone services, and daily
cleaning services and that is
operated as a commercial hotel
even though the units are
individually owned. |
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Construction Contract
The terms and conditions of any
major renovation job should be
part of a formal, legally
binding contract between you and
your contractor -- this is
called the construction
contract. The lender you choose
will likely want to review this
contract before you sign it. |
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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. |
Contingencies for Repairs
In your purchase offer, you may
consider stating that the seller
must make sure the electrical
systems, heating and cooling,
plumbing, and mechanical systems
are functioning properly at the
closing. You may also state that
your purchase is contingent upon
the satisfactory completion of a
professional home inspection,
which will check these systems
and other elements more
completely. These are both ways
to ensure that surprises don't
arise when your moving day
arrives.
If you do not include this
clause in your contract, you are
essentially accepting the house
"as is." |
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Contract
An oral or written agreement to
do or not to do a certain thing. |
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Contractor
A
general contractor is a person
who oversees a construction
project and handles aspects such
as scheduling workers and
ordering supplies. |
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Conventional Mortgage
A
mortgage that is not insured or
guaranteed by the federal
government. Contrast with
government mortgage. |
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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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Cooperative Corporation
A
business trust entity that holds
title to a cooperative project
and grants occupancy rights to
particular apartments or units
to shareholders through
proprietary leases or similar
arrangements. |
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Cooperative Mortgages
Mortgages related to a
cooperative project. This
usually refers to the
multifamily mortgage covering
the entire project but
occasionally describes the share
loans on the individual units. |
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Cooperative Project
A
residential or mixed-use
building wherein a corporation
or trust holds title to the
property and sells shares of
stock representing the value of
a single apartment unit to
individuals who, in turn,
receive a proprietary lease as
evidence of title. |
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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. See
adjustable-rate mortgage (ARM). |
Costs for Settling Into Your
Home
When figuring out how much home
you can afford, you need to
account for the costs associated
with getting into your home.
These can include the cost for
repairs that need to be made
before you can occupy your
residence. There may also be the
cost of purchasing appliances,
such as a washer and dryer,
refrigerator, or stove.
The bottom line is you do not
want to spend all your money on
purchasing the home and not have
any left to pay these types of
costs. |
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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. |
Credit Bureau
The three main credit reporting
agencies, or credit bureaus, are
Equifax, Experian, and Trans
Union. You can order a copy of
your credit report (a nominal
fee may apply) via telephone at:
* Equifax: (800) 685-1111
* Trans Union: (800) 916-8800
* Experian: (800) 682-7654 |
|
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 |
|
Credit Life Insurance
A
type of insurance often bought
by mortgagors because it will
pay off the mortgage debt if the
mortgagor dies while the policy
is in force. |
Credit Profile
There are several ways to ensure
you have a good credit report
and credit score. One of the
most effective is to manage your
existing credit in a positive
way.
Ask your lender for suggestions
about ways to control the amount
of money you owe. Or, you can
choose a credit counselor from
the list provided on this site.
Some lenders may view consumers
as a greater risk if they have
used most or all of their
available credit. Consumers who
are considered "overextended"
may be viewed this way even if
they have made all their debt
payments on time.
Missing a payment on a bill
should be avoided, as should
late payments on any of your
credit obligations. Experiencing
a mortgage foreclosure, filing
for bankruptcy, or having your
vehicle repossessed can also
affect your credit score and
credit report, limiting your
ability to get new credit at a
reasonable rate. |
|
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. |
Credit Report Fee
The credit report fee covers the
lender's cost for ordering your
credit report from a credit
bureau.
This report will verify some of
the information you provided on
your loan application as well as
additional information from the
credit agency's files and from
public records.
When a credit report is
received, your lender will check
it against your application and
look for any discrepancies. You
may be asked to explain
information in your credit
report. |
Credit Reporting Agency
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.
The three main credit reporting
agencies, or credit bureaus, are
Equifax, Experian, and Trans
Union. You can order a copy of
your credit report (a nominal
fee may apply) via telephone at:
* Equifax: (800) 685-1111
* Trans Union: (800) 916-8800
* Experian: (800) 682-7654 |
|
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. |
|
Credit Scoring
Your credit score is based on
all the information in your
credit report. This information
is converted into a number -- a
credit score -- that the lender
uses to determine whether you
are likely to repay your loan in
a timely manner. The scores used
in mortgage lending are
typically in the 300 to 900
range. A general guide is that
the higher your score the
better. But you should keep in
mind that your credit score is
just one of several factors that
will be used to evaluate your
mortgage loan application. |
|
Credit Unions
A
credit union is a financial
institution that is owned and
run by its members. It is a
nonprofit, cooperative
institution that offers members
a place to save and borrow. A
credit union often works by
having its members pool their
funds so additional loans can be
made to other members. |
|
Creditor
A
person to whom money is owed. |
|
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. |
|
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. |
|
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 |
|
Contingency for Clear Title
Your purchase contract should
include a contingency that the
purchase is subject to your
receiving clear title to the
property. This process includes
a title search and title
insurance. |
Contingency for Financing
When you make a formal offer on
a house, your contract should
include a financing contingency.
It specifies if you don't get
the money you need to purchase
the house at the terms you want,
the offer is void and you will
be refunded your deposit.
Don't be surprised if the seller
includes a clause in the
contract that states you must
make a "good-faith effort" to
get the mortgage. This is the
seller's way to ensure that you
explore all options to get a
mortgage loan. |
|
Contingency for Personal
Property
Your purchase contract should
specify appliances, fixtures,
and other personal property that
must remain in the home. You can
avoid any surprises by listing
in your contract everything that
is to be left behind when the
seller moves out.
|
|
Contingency Reserve
Most mortgages for
purchase-renovation require an
additional 10 percent of the
total cost of the project to be
put aside into a reserve
account. This contingency
reserve is only used when
unforeseen repairs or
deficiencies are found during
renovation. |
|
Debt
An amount owed to another. See
installment loan and revolving
liability. |
Deed
The legal document conveying
title to a property.
The deed is the document that
transfers ownership from the
seller to you. Only the seller
signs the deed at closing, and
you'll receive a copy of it.
The closing agent will record
the deed with you listed as the
new property owner. Your name
and the names of any other
buyers appear on the deed, and
it will be sent to you after it
is recorded. |
Deed of Trust
The document used in some states
instead of a mortgage; title is
conveyed to a trustee.
In some states, a "deed of
trust" is used instead of a
mortgage. When homeowners sign a
deed of trust, they receive
title to the property but convey
title to a neutral third party
-- called a trustee -- until the
loan balance is paid in full. |
|
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. |
Department of Veternas
Affairs (VA)
An agency of the federal
government that guarantees
residential mortgages made to
eligible veterans of the
military services. The guarantee
protects the lender against loss
and thus encourages lenders to
make mortgages to veterans.
The Veterans Administration is a
federal government agency
authorized to guarantee loans
made to eligible veterans under
certain conditions. To obtain
more information, you can
contact the U.S. Department of
Veterans Affairs.
The VA guarantee allows
qualified veterans to buy a
house costing up to $203,000
with no down payment. Moreover,
the qualification guidelines for
VA loans are more flexible than
those for either the Federal
Housing Administration (FHA) or
conventional loans.
If you are a qualified veteran,
this can be an attractive
mortgage program. To determine
whether you are eligible, check
with your nearest VA regional
office. |
|
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
property; the opposite of
appreciation. |
Discount Points
Discount points are often used
to describe a type of fee that
lenders charge. Discount points
are additional funds you pay the
lender at closing to get a lower
interest rate on your mortgage.
A point equals 1 percent of the
loan amount. So, if you and your
lender agree to a mortgage of
$100,000, one point would equal
$1,000.
Typically, each point you pay
for a 30-year loan lowers your
interest rate by .125 of a
percentage point. If the current
interest rate on a 30-year
mortgage is 7.75 percent, paying
one point would lower the
interest rate to 7.625.
Ask your lender if you have the
option of paying 1, 2, or 3
discount points -- or you can
choose not to pay any discount
points. It often makes more
sense to pay discount points if
you plan to stay in your home
for a long time.
|
|
Detached Single-Family Home
The most traditional type of
single-family home is one that
is "detached." This type of home
stands separate from any other
housing structure and serves as
a place of residence for the
occupants. |
Direct Leveraging Loan
Program
The Direct Leveraging Loan
Program makes it easier and more
economical for rural residents
to own a home through lower
interest rates and no down
payment.
Under this program, the lender
offers up to 50 percent of the
mortgage amount as a
conventional 30-year, fixed-rate
first mortgage and the Rural
Housing Service (RHS) offers the
balance as a second mortgage at
an interest rate that is
generally below market.
The RHS is part of the U.S.
Department of Agriculture |
Down Payment
The part of the purchase price
of a property that the buyer
pays in cash and does not
finance with a mortgage.
Saving for a down payment is
usually one of the most
difficult parts of preparing to
buy a home. If you believe you
have the needed funds, you are
in a better position to seek
pre-qualification from a lender
to get the mortgage that is
right for you.
Most homeowners rely on a
mortgage from a financial
institution, and most mortgage
products require buyers to
include a portion of their own
funds towards the purchase of
the home. This is called the
down payment. Lenders feel more
secure when buyers include a
down payment, indicating they
are less likely to walk away
from their investment if their
finances take a downturn.
Historically, buyers usually
made a down payment that totaled
20 percent of the home's
purchase price. Under this
scenario, a down payment for a
$100,000 home is $20,000. But
today, new mortgage products
allow buyers to put down as
little as 3 percent to 5
percent, provided private
mortgage insurance is obtained.
The down payment for a $100,000
home with 5 percent down payment
is just $5,000.
Sources for down payments may
come from buyers' savings
accounts, checking accounts,
stocks and bonds, life insurance
policies, and gifts. |
|
Dower
The rights of a widow in the
property of her husband at his
death. |
|
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 |
|
Due-on-transfer Provision
This terminology is usually used
for second mortgages. See
due-on-sale provision. |
|
Deed-in-Lieu
A
deed given by a mortgagor to the
mortgagee to satisfy a debt and
avoid foreclosure. Also called a
"voluntary conveyance." |
|
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.
|
Earnest Money Deposit
A
deposit made by the potential
home buyer to show that he or
she is serious about buying the
house.
The earnest money deposit is a
"good-faith" payment you submit
with your offer on a home to
show the seller you are serious
about proceeding.
The earnest money is deposited
in an escrow account and will be
applied to your closing costs.
Sometimes, your lender will want
you to bring a receipt for the
earnest money deposit along with
your sales contract to the
initial loan application
meeting. |
|
Easement
A
right of way giving persons
other than the owner access to
or over a property. |
|
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. |
|
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. |
|
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 on 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 ownership
interest over to another party.
Contrast with co-maker. |
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.
A lender determines how much
equity you have in your home by
taking the appraised value of
the home and subtracting any
mortgage debt.
For example, if your house is
valued at $150,000 and your
mortgage balance is $80,000, you
have $70,000 equity in the
house. |
Errors in Credit Report
Your credit report may contain
inaccuracies. The best way to
ensure there are no errors in
your credit report is to request
copies and review the
information.
Since each of the main credit
bureaus keeps its own records,
you may want to request copies
from all three: Trans Union,
Equifax, and Experian.
If you have been turned down for
credit because of the
information in your credit
report, you are entitled to
receive a free copy of your
report within 60 days of the
denial. If you haven't been
denied credit, you can still
request a copy of your credit
report, usually for a nominal
fee.
If you find errors in your
report, follow the directions in
the credit report and contact
the agencies to have the errors
corrected. They will investigate
the targeted items and remove
incorrect information.
You don't have to delay applying
for a mortgage while errors in
your report are being corrected.
Explain the discrepancies in the
report to your lender and state
that the credit agency is
correcting them. |
|
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.
An escrow account is money that
is deposited with a third party
-- outside the buyer and the
seller -- to be used to pay
various fees. A borrower
typically provides funds that
will pay taxes, mortgage
insurance, lease payments,
hazard insurance premiums, and
other payments when they are
due.
An escrow payment by the holder
of a mortgage is also known as
"impounds" or "reserves" in some
states.
When escrow funds are used to
pay taxes, hazard insurance, and
other fees, it is called an
escrow disbursement.
Periodically, an escrow analysis
will be performed to determine
if current monthly deposits
provide sufficient funds to pay
bills when they are due. |
|
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. |
|
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. |
|
Escrow Disbursements
The use of escrow funds to pay
real estate taxes, hazard
insurance, mortgage insurance,
and other property expenses as
they become due. |
|
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.
|
|
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. |
Establishing a Credit Report
It is possible to establish a
credit history even if you do
not have a traditional credit
record that shows credit card
payments or payments on a
student or car loan.
You can build a nontraditional
credit history, for example, by
documenting your monthly
payments to previous and current
landlords; to utility companies
for your gas, water and
telephone services; and to
insurance companies for medical,
life, and automobile coverage.
Your lender can provide further
details on how you can
effectively establish a credit
record. |
|
Eviction
The lawful expulsion of an
occupant from real property.
|
|
Examination of Title
The report on the title of a
property from the public records
or an abstract of the title. |
|
Exclusive Listing
A
written contract that gives a
licensed real estate agent the
exclusive right to sell a
property for a specified time,
but reserving the owner's right
to sell the property alone
without the payment of a
commission |
|
Executor
A
person named in a will to
administer an estate. The court
will appoint an administrator if
no executor is named.
"Executrix" is the feminine
form. |
|
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. |
|
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. |
Fannie Mae (FNMA)
A
New York Stock Exchange company
and the largest non-bank
financial services company in
the world. It operates pursuant
to a federal charter and is the
nation's largest source of
financing for home mortgages.
Over the past 31 years, Fannie
Mae has provided nearly $2.8
trillion of mortgage financing
for over 34 million families. |
|
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. |
Fee Simple
The greatest possible interest a
person can have in real estate.
Fee simple ownership provides
the owner with unrestricted
powers to dispose of the owned
property as the owner sees fit.
Of all types of ownership a
person can have in real estate,
fee simple provides the greatest
amount of personal control |
|
Fee Simple Estate
An unconditional, unlimited
estate of inheritance that
represents the greatest estate
and most extensive interest in
land that can be enjoyed. It is
of perpetual duration. When the
real estate is in a condominium
project, the unit owner is the
exclusive owner only of the air
space within his or her portion
of the building (the unit) and
is an owner in common with
respect to the land and other
common portions of the property. |
|
FHA Coinsured Mortgage
A
mortgage (under FHA Section 244)
for which the Federal Housing
Administration (FHA) and the
originating lender share the
risk of loss in the event of the
mortgagor's default. |
FHA Loans
With FHA insurance, you can
purchase a home with a low down
payment from 3 percent to 5
percent of the FHA appraised
value or the purchase price,
whichever is lower.
FHA mortgages have a maximum
loan limit that varies depending
on the average cost of housing
in a given region. In general,
the loan limit is less than what
is available with a conventional
mortgage through a lender. |
FHA Mortgage
A
mortgage that is insured by the
Federal Housing Administration
(FHA). Also known as a
government mortgage.
With FHA insurance, you can
purchase a home with a low down
payment from 3 percent to 5
percent of the FHA appraised
value or the purchase price,
whichever is lower.
FHA mortgages have a maximum
loan limit that varies depending
on the average cost of housing
in a given region. In general,
the loan limit is less than what
is available with a mortgage
through a lender. |
Final Walk-Through Inspection
Your sales contract should
include a clause that allows you
to examine the property you want
to purchase within the 24 hours
before closing.
This walk-through, during which
you will be accompanied by the
real estate sales professional,
is your chance to ensure that
the seller has vacated the house
and left behind whatever
property was agreed upon.
Make sure to check that all
lights, appliances, and plumbing
fixtures are in working order.
You will also want to make sure
that all conditions of the sales
contract have been met. If they
aren't, or you observe major
problems, you have the right to
delay the closing until the
problems are corrected.
One other option is to make sure
money to correct the problems is
placed in an escrow account at
closing to cover the cost of
repairs. |
|
Firm Commitment
A
lender's agreement to make a
loan to a specific borrower on a
specific property. |
Financial Index
An index is a number to which
the interest rate on an
adjustable rate mortgage (ARM)
is tied. It is generally a
published number expressed as a
percentage, such as the average
interest rate or yield on U.S.
Treasury bills. A margin is
added to the index to determine
the interest rate that will be
charged on ARMs. This interest
rate is subject to any caps
associated with the mortgage.
The interest rate changes on an
ARM are tied to some type of
financial index. Some of the
most common type of indexed ARMs
are:
-- Treasury-Indexed ARMs
-- CD-Indexed ARMs (Certificate
of Deposit)
-- Cost of Funds-Indexed ARMs
(COFI)
-- LIBOR-Based ARMs
When comparing ARMs, look at how
the index to which it is tied
has performed recently. Your
lender can provide information
on how to track the index and a
history of the index they use. |
|
Finder's Fee
A
fee or commission paid to a
mortgage broker for finding a
mortgage loan for a prospective
borrower. |
First Mortgage
A
mortgage that is the primary
lien against a property.
A "first mortgage" is the
primary lien against a property.
The term is usually coined
"first mortgage" only when a
"second mortgage" is obtained on
a property. A "second mortgage"
is a lien that is subordinate to
the first mortgage. Usually, the
interest rates on second
mortgages are slightly higher
than the interest rates on a
first mortgage. The amount of a
second mortgage you can take out
will depend on the equity you
have built up in your home, the
appraised value of your
property, your credit history,
and any other liens you may have
against your property, such as a
home equity line of credit.
Borrowers will typically get a
second mortgage to tap into the
equity they've built in their
home -- and use that for home
improvements, debt
consolidation, medical bills, or
other purposes. You apply for a
second mortgage with the same
process you follow for a first
mortgage. However, some of your
closing costs may be less.
When you have a first and second
mortgage, you theoretically have
two loans, both requiring
interest and principal payments |
First and Second Mortgages
A "first mortgage" is the
primary lien against a property.
The term is usually coined
"first mortgage" only when a
"second mortgage" is obtained on
a property. A "second mortgage"
is a lien that is subordinate to
the first mortgage. Usually, the
interest rates on second
mortgages are slightly higher
than the interest rates on a
first mortgage. The amount of a
second mortgage you can take out
will depend on the equity you
have built up in your home, the
appraised value of your
property, your credit history,
and any other liens you may have
against your property, such as a
home equity line of credit.
Borrowers will typically get a
second mortgage to tap into the
equity they've built in their
home -- and use that for home
improvements, debt
consolidation, medical bills, or
other purposes. You apply for a
second mortgage with the same
process you follow for a first
mortgage. However, some of your
closing costs may be less.
When you have a first and second
mortgage, you theoretically have
two loans, both requiring
interest and principal payments. |
|
Fixed Installment
The monthly payment due on a
mortgage loan. The fixed
installment includes payment of
both principal and interest. |
Fixed-Rate Mortgage
A
mortgage in which the interest
rate does not change during the
entire term of the loan.
Fixed-rate mortgages, the most
popular type of mortgage, offer
the peace of mind that your
interest rate will remain the
same for as long as you have
your loan. If you expect to live
in your home for many years,
having the same interest rate
may be your key concern. If you
decide that you like the stable,
predictable payments of a
fixed-rate loan, you have the
option of choosing from a
variety of repayment terms: 15,
20, and 30 years are the most
common. Typically, the longer
the term of the mortgage, the
more interest you pay over the
life of your loan. However,
stretching out your repayment
term means your monthly mortgage
payments will be less than they
would be with a comparable
shorter-term mortgage. Lenders
offer a wide array of fixed-rate
mortgages:
* Balloon Mortgages
* Biweekly Mortgages |
Fixed-Period Adjustable-Rate
Mortgages
This type of adjustable-rate
mortgage (ARM) maintains the
same initial interest rate for
the first three, five, seven, or
10 years of your loan, depending
on the term you choose. Your
interest rate then adjusts
annually, and can move up or
down as market conditions
change. Be sure to ask your
lender about the interest rate
caps for both the annual
adjustments and for the life of
the loan.
Advantages:
-- Your initial interest rate
will be lower than a fixed-rate
mortgage, so you may be able to
afford more home.
-- You are protected against
interest rate increases for the
first three, five, seven, or 10
years of the loan, depending on
which type of fixed-period ARM
you choose.
-- You may have the option to
convert your ARM to a fixed-rate
mortgage at the first, second,
or third interest rate
adjustment dates.
-- You have time to improve your
financial position (i.e., salary
increases) or accumulate
additional assets before the
interest rate adjusts at the end
of the fixed period.
Details:
-- The lifetime interest rate
cap for fixed-period ARMs is
typically 5 to 6 percentage
points above your initial rate.
Your annual cap during the
adjustable period is typically 1
to 2 percentage points above or
below over the current rate.
-- Can be used to buy one- to
four-family residences including
second homes and condos, co-ops
and planned unit developments.
Manufactured homes are also
eligible. (Manufactured housing
units must be built on a
permanent chassis at a factory
and then transported to a
permanent site and attached to a
foundation.) |
|
Fixture
Personal property that becomes
real property when attached in a
permanent manner to real estate. |
|
Flood Insurance
Insurance that compensates for
physical property damage
resulting from flooding. It is
required for properties 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 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.
If you repeatedly do not make
your mortgage payments on time,
your lender could sell your home
and evict you from it in a legal
procedure called foreclosure. A
foreclosure on your property can
result in the loss of your home
and your good credit rating.
Foreclosure is most often a last
resort effort that lenders will
take if you repeatedly don't
make your mortgage payments.
Before going to foreclosure,
lenders will work with you if
you are facing financial
hardships to come up with
repayment plans that will let
you get back on track and remain
in your home. |
|
Forfeiture
The loss of money, property,
rights, or privileges due to a
breach of legal obligation. |
|
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. |
General Contractor
A
general contractor is someone
whom you may work closely with
during your home improvement
project. The general contractor
is the person who oversees the
construction project and handles
various aspects such as
scheduling workers and ordering
supplies.
If you are borrowing mortgage
funds to renovate a home, your
lender may need to review
whether your contractor meets
all federal, state, and local
registration, licensing and
certification standards. |
Good Faith Estimate
The good-faith estimate is a
report from your lender that
outlines the costs you will
incur to get your mortgage. It
is based on the lender's typical
loan origination costs for the
area where your home is located.
The estimate usually changes
between application and closing,
so you'll want to review your
settlement form before the
closing meeting.
The settlement form will list
the actual amount of money
you'll need to bring to closing.
You'll need to pay your closing
costs in the form of a certified
or cashier's check because
personal checks usually are not
accepted. |
|
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. |
|
Government National Mortgage
Association
A
government-owned corporation
within the U.S. Department of
Housing and Urban Development
(HUD). Created by Congress on
September 1, 1968, GNMA assumed
responsibility for the special
assistance loan program formerly
administered by Fannie Mae.
Popularly known as Ginnie Mae. |
|
Grantee
The person to whom an interest
in real property is conveyed. |
|
Grantor
The person conveying an interest
in real property. |
|
Ground Rent
The amount of money that is paid
for the use of land when title
to a property is held as a
leasehold estate rather than as
a fee simple estate. |
|
Group Home
A
single-family residential
structure designed or adapted
for occupancy by unrelated
developmentally disabled
persons. The structure provides
long-term housing and support
services that are residential in
nature |
|
Growing-Equity Mortgage (GEM)
A
fixed-rate mortgage that
provides scheduled payment
increases over an established
period of time, with the
increased amount of the monthly
payment applied directly toward
reducing the remaining balance
of the mortgage. |
|
Guarantee Mortgage
A
mortgage that is guaranteed by a
third party. |
|
Guaranteed Loan
Also known as a government
mortgage. |
|
Hazard Insurance
Insurance coverage that in the
event of physical damage to a
property from fire, wind,
vandalism, or other hazards |
Home Equity Conversion
Mortgage (HECM)
A
special type of mortgage that
enables older home owners to
convert the equity they have in
their homes into cash, using a
variety of payment options to
address their specific financial
needs. Unlike traditional home
equity loans, a borrower does
not qualify on the basis of
income but on the value of his
or her home. In addition, the
loan does not have to be repaid
until the borrower no longer
occupies the property. Sometimes
called a reverse mortgage.
A Home Equity Conversion
Mortgage (HECM) is a type of
home loan that lets homeowners
aged 62 or over with little or
no remaining balance on their
mortgage convert their equity
into cash. The equity can be
paid to the homeowner in a lump
sum, in a stream of payments,
draws from a line of credit, or
a combination of monthly
payments and line of credit.
Whatever payment plan you
select, you do not have to repay
any part of this reverse
mortgage until you sell the home
or vacate it for another reason.
At that time, you pay the loan
balance, plus any accrued
interest. Any proceeds above
that amount go to you or to your
estate.
Developed by the Federal Housing
Administration (FHA), the HECM
mortgage provides a cash growth
feature not found with some
other reverse mortgages -- check
with your Fannie Mae approved
lender to see how this works
based on your personal needs and
your payment plan.
Advantages:
-- The funds are yours to spend
in any way you choose.
-- There are no monthly payments
with a HECM.
-- Your loan funds do not affect
Social Security or Medicare
benefits. (If you receive
Supplemental Social Security or
Medicaid, these benefits may be
affected.)
-- You do not have to pay back
the loan until you sell your
home or no longer use it for
your primary residence. Then,
you or your estate will repay
the cash you received from the
HECM, plus interest and other
finance charges to the lender.
This means that the remaining
equity in your home can be
passed on to your heirs through
the sale of the property.
-- You will never owe more than
the value of the home at the
time of repayment, even if the
loan balance exceeds the value
of your property. This means no
debt will ever be passed along
to the estate or your heirs.
Details:
-- You and any co-borrowers must
be at least 62 years old.
-- You must own your home
outright -- or carry a small
mortgage balance.
-- Eligible properties include a
single-family home, a two- to
four-unit dwelling, a
condominium or a manufactured
home. All housing types must
meet Federal Housing
Administration (FHA) guidelines.
(Ask your lender if your
property qualifies.)
-- Your home must be your
principal residence, which means
you must live in it more than
half the year.
-- You must attend
pre-application mortgage
counseling before you apply for
the loan.
-- You must keep applicable
taxes current, as well as
maintain insurance coverage on
your home.
-- The amount you can borrow
with a HECM depends on the age
of the youngest borrower(s), the
interest rate, how much your
house is worth, and the maximum
claim amount. In general, you
can get between one-third and
one-half of your equity as a
line of credit or as a lump sum
payment.
-- The balance of funds advanced
against the equity in your home
is due and payable when you
relinquish your home as a
primary residence, or if the
borrower(s) pass away. You may
have to pay off the debt if you
fail to pay property taxes or
insurance or if you do not
maintain your property. |
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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 of the borrower's
equity in a property. |
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.
The home inspection reviews the
structural and mechanical
condition of the property. This
is not an evaluation of the
market value of the home or a
determination of whether the
home complies with applicable
building and safety codes. The
inspection does not include a
recommendation on whether you
should or should not buy the
house.
The inspector bases the findings
on observable structural
elements of the home. Potential
home buyers are urged to be
present during the inspection --
this will allow you to ask
questions and be in a better
position to learn more about any
problems that arise.
You should expect to see an
evaluation of:
-- roof and siding,
-- windows and doors,
-- foundation,
-- insulation,
-- ventilation,
-- heating and cooling systems,
-- plumbing and electrical
systems,
-- walls, floors, and ceilings,
-- and any common areas if you
are purchasing a condominium or
cooperative.
You should view the home
inspection report as a way to
identify problems before you buy
the home, to help negotiate
adjustments in the purchase
price if problems exist, and to
help get the buyer to make any
needed improvements before you
buy the home.
Lastly -- and for some buyers
most importantly -- the home
inspection report is a way to
make you feel confident that the
home you are buying includes
systems that are in good working
condition. |
Homeowner's Insurance
Homeowner's insurance -- also
called "hazard insurance" --
should be equal to at least the
replacement cost of the property
you want to purchase.
Replacement cost coverage
ensures that your home will be
fully rebuilt in case of a total
loss.
Most home buyers purchase a
homeowner's insurance policy
that includes personal liability
insurance in case someone is
injured on their property;
personal property coverage for
loss and damage to personal
property due to theft or other
events; and dwelling coverage to
protect the house against fire,
theft, weather damage, and other
hazards.
If the home you want to buy is
located near water, you may be
able to get flood insurance as
part of your homeowner's
protection. In fact, it may be
required in some areas, so check
with your real estate
professional or an approved
lender for further information.
Seek out and compare rates from
several insurance companies
before making your final
decision.
Lenders often want the first
year's premium to be paid at or
before closing. Your lender may
add the insurance cost to your
monthly mortgage payments and
keep this portion of your
payments in an escrow account.
The lender then pays your
insurance bill out of escrow
when it receives premium notices
from your insurance company. |
Homeowner's Insurance for
Reverse Mortgages
Homeowner's insurance (also
called "hazard insurance") is
required and should be equal to
at least the replacement cost of
the home you want to purchase.
Replacement cost coverage
ensures that your home will be
fully rebuilt in case of a total
loss.
Most home buyers purchase a
homeowner's insurance policy
that includes personal liability
insurance (though this personal
liability insurance is not
required) in case someone is
injured on their property;
personal property coverage for
loss and damage to property due
to theft or other events; and
dwelling coverage to protect the
house against fire, theft,
weather damage, and other
hazards.
If the home is near water, you
may be able to get flood
insurance as part of your
homeowner's protection. In fact,
it may be required in some
areas, so check with your real
estate professional or an
approved lender for further
information.
Seek out and compare rates from
several insurance companies
before making your final
decision. |
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Homeowners' Association
A
nonprofit association that
manages the common areas of a
planned unit development (PUD)
or condominium project. In a
condominium project, it has no
ownership interest in the common
elements. In a PUD project, it
holds title to the common
elements. |
|
Homeowner's Warranty (HOW)
A
type of insurance that covers
repairs to specified parts of a
house for a specific period of
time. It is provided by the
builder or property seller as a
condition of the sale. |
HomeStyle
Construction-to-Permanent
MortgageThis
mortgage gives you the financial
power to build your own home --
you can borrow money to build a
home from the ground up or to
finish building a home that's
currently under construction.
This loan provides financing
from the construction through
the purchase phases of your new
home.
Advantages:
-- You enjoy peace of mind by
locking in fixed interest rates
on both the construction and
permanent mortgage financing
phases of your home purchase in
one convenient loan.
-- You can borrow a minimum of
95 percent of the construction
cost or the as-completed value
of the property (which means
your down payment can be as low
as 5 percent).
-- You can use this mortgage to
purchase land upon which you
build your home.
-- You save money because there
is one set of closing costs,
compared to those associated
with separate loans for
construction and occupancy.
-- You pay interest only on the
funds disbursed during
construction.
-- This mortgage can be used for
construction that's already
under way.
Details:
-- A minimum down payment of 5
percent for a one-unit home and
10 percent for two-unit homes.
-- Construction phases of six,
nine, or 12 months, with
extensions available up to six
months, are allowed.
-- This loan is available for
one- and two-unit owner-occupied
homes, one-unit second homes,
and one-unit investor homes.
-- You can choose a 15- or
30-year fixed-rate mortgage. You
can also include the
construction phase in these
terms, or not, depending on your
preference.
-- You can also finance with
fixed-period ARMs. |
|
HomeStyle Mortgage Loan
A
mortgage that enables eligible
borrowers to obtain financing to
remodel, repair, and upgrade
their existing homes or homes
that they are purchasing. See
also HomeStyle Standard
Mortgage, HomeStyle Remodeler,
HomeStyle Community Mortgage and
HomeStyle Consumer Energy Loan |
|
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 the
statement include real estate
commissions, loan fees, 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
the 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."
The HUD-1 Settlement Statement
itemizes the amounts to be paid
by the buyer and the seller at
closing. The (blank) form is
published by the U.S. Department
of Housing and Urban Development
(HUD).
Items on the statement include:
-- real estate commissions,
-- loan fees,
-- points, and
-- escrow amounts.
The form is filled out by your
closing agent and must be signed
by the buyer and the seller. The
buyer should be allowed to
review the HUD-1 Settlement
Statement on the business day
before the closing meeting to
know the closing costs in
advance.
The HUD-1 Settlement Statement
is also known as the "closing
statement" or "settlement
sheet." |
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HUD Median Income
Median family income for a
particular county or
metropolitan statistical area
(MSA), as estimated by the
Department of Housing and Urban
Development (HUD). |
|
In-File Credit Report
An objective account, normally
computer-generated, of credit
and legal information obtained
from a credit repository. |
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Income Property
Real estate developed or
improved to produce income |
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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. |
|
Inflation
An increase in the amount of
money or credit available in
relation to the amount of goods
or services available, which
causes an increase in the
general price level of goods and
services. Over time, inflation
reduces the purchasing power of
a dollar, making it worth less. |
|
Initial Interest Rate
The original interest rate of
the mortgage at the time of
closing. This 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.
The regular periodic payment
that a borrower agrees to make
to a lender. The installment is
more often referred to as your
monthly mortgage payment.
Installments, or monthly
payments, can be made either
monthly or biweekly, depending
on your mortgage type. Your
approved lender may also offer
additional payment plans
tailored to fit your needs. |
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Installment Loan
Borrowed money that is repaid in
equal payments, known as
installments. A furniture loan
is often paid for as an
installment loan. |
|
Insurable title
A
property title that a title
insurance company agrees to
insure against defects and
disputes. |
|
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 Binder
A
document that states 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. |
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Insured Mortgage
A
mortgage that is protected by
the Federal Housing
Administration (FHA) or by
private mortgage insurance (MI).
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.
Simply put, this is the fee that
is charged for borrowing money
from lenders.
The interest rate is the rate of
interest that is in effect when
the monthly payment is due. An
interest rate ceiling -- for an
adjustable-rate mortgage (ARM)
-- is the maximum interest rate,
as specified in the mortgage
note; the interest rate floor is
the minimum interest rate, as
specified in the mortgage note. |
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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. |
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Interest Rate
The rate of interest in effect
for the monthly payment due |
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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. |
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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. |
|
Interest Rate for HECMs
The interest rate on a Home
Equity Conversion Mortgage
(HECM) adjusts monthly or
yearly. It is tied to the weekly
average yield of U.S. Treasury
securities adjusted to a
constant maturity of one year.
The interest charged on the HECM
loan will be payable to your
lender when the loan terminates. |
InterestFirstSM Mortgage
If you're looking to leverage
your mortgage to expand
purchasing power, this mortgage
offers the benefit of a low,
fixed-rate monthly payment.
Advantages:
-- For the first 15 years,
monthly payments are lower than
a comparable 30-year fixed-rate
loan.
-- Gain control of your cash
flow.
-- Ideal if you plan to stay in
your home no more than 15 years
and want the lowest monthly
payment for that period.
-- Flexible cash flow for
college costs, home
improvements, IRA contributions,
consumer debt reduction, or
optional principal payments.
Details:
-- For the first 15 years, you
pay only the interest due every
month.
-- Any prepayments will reduce
your principal balance and
reduce future monthly payments.
-- Prepayment of principal may
be made without penalty.
-- Payment adjusts at the start
of year 16 to cover all interest
and principal due on the loan
for the remaining 15 years.
-- Monthly payment is fixed
during years 16 through 30 |
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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. |
|
Joint Tenancy
A
form of co-ownership that gives
each tenant equal interest and
equal rights in the property,
including the right of
survivorship. |
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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. |
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Judgment Lien
A
lien on the property of a debtor
resulting from the decree of a
court. |
|
Judicial Foreclosure
A
type of foreclosure proceeding
used in some states that is
handled as a civil lawsuit and
conducted entirely under the
auspices of a court. |
|
Jumbo Loan
A
loan that exceeds mortgage
amount limits. Also called a
nonconforming loan. |
|
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. |
Lease-purchase Mortgage Loan
An alternative financing option
that allows low- and
moderate-income home buyers to
lease a home from a nonprofit
organization with an option to
buy. Each month's 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 downpayment will
accumulate.
Nonprofit organizations may use
the lease-purchase option to
purchase a home that they then
rent to a consumer, or
"leaseholder." The leaseholder
has the option to buy the home
after a designated period of
time (usually three or five
years). Part of each rent
payment is put aside toward
savings for the purpose of
accumulating the down payment
and closing costs. |
|
Lease-purchase Option
Nonprofit organizations may use
the lease-purchase option to
purchase a home that they then
rent to a consumer, or
"leaseholder." The leaseholder
has the option to buy the home
after a designated period of
time (usually three or five
years). Part of each rent
payment is put aside toward
savings for the purpose of
accumulating the down payment
and closing costs. |
|
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. |
|
Legal Description
A
property description, recognized
by law, that is sufficient to
locate and identify the property
without oral testimony. |
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Liabilities
A
person's financial obligations.
Liabilities include long-term
and short-term debt, as well as
any other amounts that are owed
to others. |
|
Liability Insurance
Insurance coverage that offers
protection against claims
alleging that a property owner's
negligence or inappropriate
action resulted in bodily injury
or property damage to another
party. |
LIBOR-based ARMs
The London Interbank Offered
Rate (LIBOR) is based on the
interest rate that major
international banks are willing
to lend and borrow funds for a
specified period of time in the
London interbank market. The
LIBOR is similar to the
prime-lending rate posted by
major U.S. banks.
You can select an adjustable
rate mortgage (ARM) that adjusts
to the LIBOR at specified
periods, usually every six
months. This type of ARM
typically has a per-adjustment
period cap of 1 percent and is
offered with either a 5 percent
or a 6 percent lifetime rate
cap. |
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Lien
A
legal claim against a property
that must be paid off when the
property is sold. |
|
Lifetime Payment Cap
For an adjustable-rate mortgage
(ARM), a limit on the amount
that the enterest rate can
increase or decrease over the
life of the mortgage. |
|
Line of Credit
An agreement by a commercial
bank or other financial
institution to extend credit up
to a certain amount for a
certain time to a specified
borrower. |
|
Liquid Asset
A
cash asset or an asset that is
easily converted into cash. |
|
Loan
A
sum of borrowed money
(principal) that is generally
repaid with interest. |
Loan Application
The loan application is a
detailed form designed to
provide information from you
that your lender will need.
Lenders use the application to
evaluate whether or not they can
give you a loan, and if so, the
amount of money they can lend
you. The "four Cs" of credit
come into play when filling out
an application -- they are
capacity, credit history,
capital and collateral.
The loan application form
requests information such as:
-- bank account balances and
account numbers, as well as bank
branch address;
-- information about where you
work or what sources of income
you have;
-- outstanding debts (including
loans and credit cards with
names and addresses of
creditors).
Information needed for the loan
application may vary from lender
to lender, so prior to filling
out the application it's
important to discuss with your
lender what items your lender
will need.
If your an approved lender uses
Desktop Underwriter, an
automated underwriting system,
they will not have to ask you
for as much information
regarding your employment,
credit, or residence history. As
a result, you won't need to
provide as much documentation to
back-up the information. Ask
your lender if the lender uses
this time-saving system. |
Loan Commitment
The commitment letter states the
dollar amount of the loan being
offered, the number of years you
have to repay the loan, the loan
origination fee, the points, the
annual percentage rate, and the
monthly charges.
The letter also states the time
you have to accept the loan
offer and to close the loan.
Make sure you understand all
aspects of the commitment letter
because by signing it, you
indicate your acceptance of its
terms and conditions. |
Loan Limit
We operate exclusively in the
secondary mortgage market, where
we help to ensure that money for
mortgages is available to home
buyers in every state across the
country. In keeping with the
mission to help more low-,
moderate-, and middle-income
people buy homes, our loan
limits are adjusted each year,
in response to changes in
housing affordability
nationwide.
The current loan limit for a
single-family home is $322,700.*
The maximum amount for any
mortgage in Alaska, Hawaii, and
the U.S. Virgin Islands is 50
percent higher than our loan
limits in the rest of the
country.
Generally, any mortgage above
this limit is considered a
"jumbo loan," and will carry a
higher interest rate. The amount
of money you would save buying a
home with a 30-year mortgage
financed by Fannie Mae can range
from several thousand dollars to
as much as $24,600 over the life
of a 30-year mortgage.
*The loan limit is $413,100 for
a two-family home; $499,300 for
a three-family home; and
$620,500 for a four-family home. |
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Loan Origination
The process by which a mortgage
lender brings into existence a
mortgage secured by real
property. |
Loan Origination Fee
The loan origination fee covers
the administrative costs of
processing the loan. It is often
expressed in points. One point
is 1 percent of the mortgage
amount.
For example, a $100,000 mortgage
with a loan origination fee of 1
point would mean you pay $1,000. |
Loan Terms and Conditions
With a reverse mortgage, a
lender can call in your loan
under certain conditions. But,
if you occupy the property as
your primary residence, are not
absent from the property for 12
consecutive months.
You may instruct the lender to
pay the taxes and insurance on
your behalf from your reverse
mortgage funds. The lender will
set aside funds from your
reverse mortgage to pay for
future taxes and insurance, as
long as funds are available.
Furthermore, as long as you
comply with the terms noted
above, you can't be forced to
sell your home to pay off the
reverse mortgage, even if the
loan balance grows to exceed the
value of your property. |
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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. |
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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. |
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Lock-in Period
The time period during which the
lender has guaranteed an
interest rate to a borrower. |
Manufactured Housing
Homes and dwellings that are not
built at the home site and are
moved to the location are
considered manufactured housing.
Manufactured housing units must
be built on a permanent chassis
at a factory and then
transported to a permanent site
and attached to a foundation.
All manufactured homes must be
built to meet standards set
forth by the U.S. Department of
Housing and Urban Development
(HUD). The standards focus on
such aspects as design,
strength, energy efficiency, and
fire resistance.
Manufactured housing represents
one of the fastest-growing
housing markets in the United
States. Nearly all of the
mortgage products are available
for owners of manufactured
housing. |
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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. |
Market Value
You can get a good feel for the
market value of a home by asking
whether the listing agent
compiled a "comparative market
analysis" (CMA). This written
report on the property examines
comparable homes in the area
that have recently been sold,
are currently on the market, or
are currently under contract.
The CMA will help you figure out
whether the asking price is in
line with other comparable
houses in the neighborhood. |
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Master Association
A
homeowners' association in a
large condominium or planned
unit development (PUD) project
that is made up of
representatives from
associations covering specific
areas within the project. In
effect, it is a "second-level"
association that handles matters
affecting the entire
development, while the
"first-level" associations
handle matters affecting their
particular portions of the
project. |
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Maturity
The date on which the principal
balance of a loan, bond, or
other financial instrument
becomes due and payable. |
Maximum Claim Amount
Your maximum claim amount is the
lesser of two figures:
-- Your home's appraised value.
-- HUD 203(b) limit.
The HUD 203(b) limit is the
maximum loan amount that FHA
will insure for residences in
your geographical area. Check
with your lender to get the
latest figures for your area. |
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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. |
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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.
Any duplicates are combined to
provide a summary of a your
credit. |
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Modification
The act of changing any of the
terms of the mortgage. |
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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. |
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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. |
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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.
Your monthly mortgage payment is
composed of four components.
Principal refers to the part of
the monthly payment that reduces
the remaining balance of the
mortgage.
Interest is the fee charged for
borrowing money.
Taxes and insurance refer to the
amounts that are paid into an
escrow account each month for
property taxes and mortgage and
hazard insurance.
All four of these elements are
often referred to as PITI.
Your monthly mortgage payment
due may be mailed to you in a
book of coupons each year, or in
a separate coupon every month.
Ask your lender if the automated
underwriting system is used,
which may reduce costs
associated with your mortgage. |
Mortgage
A
legal document that pledges a
property to the lender as
security for payment of a debt.
Simply put, the mortgage is the
legal document that gives the
lender a legal claim against
your house should you default on
your loan payments. The mortgage
indicates that a specific amount
of money will be loaned at a
specific interest rate so that
you can buy your home. Another
way of thinking of the mortgage
is that you have possession of
the property but the lender has
ownership until you have repaid
your loan.
The items stated in the mortgage
include the homeowner's
responsibility to:
-- pay principal
-- pay interest
-- pay taxes,
-- pay insurance on time,
-- pay to maintain hazard
insurance on the property, and
-- adequately maintain the
property.
The mortgage also includes the
basic information found in the
note.
Should you consistently fail to
meet these requirements, your
lender can seek full repayment
of the balance of the loan,
foreclose on the property, or
sell the property and use the
proceeds to pay off the loan
balance and foreclosure costs.
A deed of trust is used instead
of a mortgage in some states. |
Mortgage Banker
A
company that originates
mortgages exclusively for resale
in the secondary mortgage
market.
Mortgage companies originate and
service mortgages. In other
words, they make loans to
consumers. Mortgage companies
then typically sell these loans
to other lenders and investors.
Some mortgage companies may be
subsidiaries of depository
institutions or their holding
companies but do not receive
money from individual
depositors. |
Mortgage Banking Companies
Mortgage companies originate and
service mortgages. In other
words, they make loans to
consumers. Mortgage companies
then typically sell these loans
to other lenders and investors.
Some mortgage companies may be
subsidiaries of depository
institutions or their holding
companies but do not receive
money from individual
depositors. |
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.
The National Association of
Mortgage Brokers defines a
mortgage broker as "an
independent real estate
financing professional who
specializes in the origination
of residential and/or commercial
mortgages."
There are an estimated 20,000
mortgage brokerage operations
from coast to coast. They
originate more than half of the
residential loans in the U.S.
A mortgage broker has
professional expertise that can
assist mortgage seekers in
finding the best loan for them.
The mortgage broker is also
experienced in offering many
applicable financing options for
a consumer's specific needs.
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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 all of the
mortgage loan. |
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Mortgage Insurance Premium
(MIP)
The amount paid by a mortgagor
for mortgage insurance, either
to a government agency such as
the Federal Housing
Administration (FHA) or to a
private mortgage insurance (MI)
company. |
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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. |
Mortgage-Related Closing
Costs
Mortgage-related closing costs
generally are costs associated
with your loan application. They
vary, but here are some of the
most common ones:
-- Loan origination fee: This
fee covers the administrative
costs of processing the loan. It
may be expressed as a percentage
of the loan (for example, 1
percent of the mortgage amount).
-- Loan discount points: These
points are additional funds you
pay the lender at closing to get
a lower interest rate on your
mortgage. Typically, each point
you pay for a 30-year loan
lowers your interest rate by
.125 of a percentage point. If
the current interest rate on a
no-point, 30-year mortgage is
7.75 percent, paying one point
would lower the interest rate to
7.625. Each point is one percent
of the mortgage (for example, if
your mortgage is $200,000, one
point equals $2,000).
-- Appraisal fee: This fee pays
for the appraisal, which the
lender uses to determine whether
the value of the property
secures the loan should you
default. The home buyer usually
pays this fee. It may appear on
the settlement form as "POC," or
"paid outside closing."
-- Credit report fee: This
covers the cost of the credit
report, which the lender uses to
determine your creditworthiness.
-- Assumption fee: This fee is
charged if you take over the
payments on the seller's
existing loan. It may range from
hundreds of dollars to one
percent of the loan amount.
-- Prepaid interest: You are
charged interest when you borrow
money from a lender, and you
will pay interest on the
mortgage amount from the date of
settlement to the beginning of
the period covered by the first
monthly mortgage payment. At
closing, you may be required to
pay in advance the interest for
the period.
-- Escrow accounts: Also called
reserves, these accounts are
required if your lender will be
paying your homeowner's
insurance and property taxes.
Your lender sets up the escrow
account by adding the cost of
the insurance and taxes to your
monthly mortgage payments. It is
kept in reserve until the bills
are due. The bills are sent
directly to your lender, who
makes the payments for you. |
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Mortgagee
The lender in a mortgage
agreement. |
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Mortgagor
The borrower in a mortgage
agreement. |
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Multidwelling Units
Properties that provide separate
housing units for more than one
family, although they secure
only a single mortgage.
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Multifamily Properties
We provide financing for
multifamily (buildings with five
or more units) rental properties
through a nationwide network of
mortgage lenders. |
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Multifamily Mortgage
A
residential mortgage on a
dwelling that is designed to
house more than four families,
such as a high-rise apartment
complex. |
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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. |
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No Cash-Out Refinance
A
refinance transaction in which
the new mortgage amount is
limited to the sum of the
remaining balance of the
existing first mortgage, closing
costs (including prepaid 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 other funds for the
borrower's use (as long as the
amount does not exceed 1 percent
of the principal amount of the
new mortgage). |
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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. |
Note
A
legal document that obligates a
borrower to repay a mortgage
loan at a stated interest rate
during a specified period of
time.
One way to think of the mortgage
note is that it is a legal
"IOU." Often called the
promissory note, it represents
your promise to pay the lender
according to the agreed upon
terms of the loan, including
when and where to send your
payment.
The note lists any penalties
that will be assessed if you
don't make your monthly mortgage
payments. It also warns you that
the lender can "call" the loan
-- demand repayment of the
entire loan before the end of
the term -- if you violate the
terms of your mortgage. |
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Nonliquid Asset
An asset that cannot easily be
converted into cash. |
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Note Rate
The interest rate stated on a
mortgage note. |
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Notice of Default
A
formal written notice to a
borrower that a default has
occurred and that legal action
may be taken. |
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Occupancy Date
This provision is a good way to
help ensure that your home will
be ready for occupancy after the
closing takes place. As part of
your formal purchase offer,
consider including a provision
that holds the seller
responsible for paying you rent
should they not move out on or
prior to the agreed-upon date.
This allows you, for example, to
use the money you receive to pay
your own rent if you are leasing
your current residence. |
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Offer
When you make an offer on a
house, it means you are making a
formal bid to buy a home. You
can work with your real estate
sales professional to put
together a written bid that
abides by the laws in your
state. Your offer should include
such aspects as the address of
the home, the sales price, the
type of mortgage financing you
will use to purchase the home,
any personal property that might
be included as part of the sale,
and a target date for closing
and occupancy. An earnest money
deposit typically accompanies
the offer. Y | |
