Abstract Of Title - A summary of recorded transactions
concerning a property. (An attorney or title insurance company examines an
abstract of title for any title defects which must be cleared before a buyer can
purchase clear, marketable, and insurable title.)
Acceleration Clause - Condition in a mortgage that gives the lender the
right to require immediate repayment of the loan balance if regular mortgage
payments are not made, or for breach of other conditions of the mortgage.
Accrued Interest - Interest which has been incurred but not paid.
Ad Valorem - Latin for "according to value." Used in connection with real
state taxation.
Ad Valorem Taxes - Real estate taxes (property taxes)
based on the county appraisers assessed value of the real property. These taxes
are levied on a calendar basis (January 1st - December 31st) and paid in arrears
(at the end of the tax year). They become a lien on January 1st each year. Taxes
are payable on or after November 1st each year. If paid in November, December,
January or February, the property owner receives a discount of 4%, 3%, 2% or 1%
respectively. If paid on or after March 1st, the full amount must be paid. Taxes
for the previous year become delinquent on April 1st.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is
adjusted periodically based on a pre-selected index. Subject to certain
limitations, the rate and payments on an ARM loan rise and fall with the market.
Adjustment Interval or Adjustment Period - The length of time between
rate adjustments on an Adjustable Rate Mortgage (ARM).
Agreement Of Sale - Contract signed by buyer and seller stating the terms
and conditions under which a property will be sold.
Amortization - The process of paying off a mortgage in regular
increments.
Amortization Schedule - A monthly repayment schedule outlining how a loan
will be paid off in fixed payments combining principal and interest.
Annual Escrow Analysis - A report prepared by a mortgage servicer showing
a change in your monthly mortgage payment due to ny increase that you might have
received in your hazard insurance policy and property taxes.
Annual Percentage Rate (APR) - A calculation that expresses the total
cost of a mortgage loan as a yearly rate (according to a federally mandated
procedure). The APR calculation takes into account monthly interest payments,
mortgage insurance, points, and certain fees paid at origination. It generally
results in a rate slightly higher than the stated interest rate on the loan.
Anti-Coercion Letter - The right of borrower to choose an insurance
company that meets the requirements of the lender.
Application - An initial statement of personal and financial information
required to approve a loan provided by the borrower and necessary to intitiate
the approval process for a loan.
Application Fee - Fees charged by lender at loan closing to cover the
initial costs of processing a loan application.
Appraisal - A written estimate of a property’s current market value,
based on recent sales information for similar properties, the condition of the
property, and the neighborhood’s impact on future property value.
Appraisal Fee - A fee charged by a licensed, certified appraiser to
provide an appraisal.
Appreciation - An increase in value.
APR - See Annual Percentage Rate.
ARM - See Adjustable Rate Mortgage.
Assessed Valuation - The valuation placed upon real or personal property
for purposes of taxation.
Assessment - A local tax levied against a property for a specific
purpose, such as road or sidewalk construction or sewer or street light
installation.
Assignment - The transfer of property rights by one person, the assignor,
to another, the assignee.
Assumability - A loan feature that allows the loan to be transferred from
the seller to the purchaser of a home with the same terms and conditions,
subject to lender approval.
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Balance Sheet - A document showing the financial
situation (assets, liabilities, and net worth) of a company at a specific point
in time.
Balloon Mortgage - A short-term, fixed-rate loan with low payments for a
set number of years and a large balloon payment of the remainder of the
principal due at the end of the term.
Bankruptcy - Proclamation by a court of an individual’s (or
organization’s) state of insolvency, or inability to pay debts. Petition may be
brought by an individual or creditors, with a goal of orderly and equitable
settlement of obligations.
Basis Points - 100 basis points = 1%
Bearer - The legal owner of a piece of property.
Bequest - A gift of personal property by will.
Bill Of Sale - A document by which one transfers ownership of goods to
another.
Bi-weekly Mortgage - A payment plan under which the borrower pays one
half of a monthly payment every two weeks.
Binder - A memorandum given subject to the writing of a formal contract
for sale, usually acknowledging receipt of a portion of the down payment for
purchase of real property.
Blanket Mortgage - A mortgage covering at least two or more pieces of
real estate, both of which together serve as collateral for the loan.
Boilerplate - Form language used in deeds, mortgages and other
documents. Details can be added by individual parties.
Bona Fide - In good faith.
Bond - A document representing a right to certain payments on underlying
collateral.
Borrower (or Mortgagor) - An individual who applies for and receives a
loan in the form of a mortgage with the intention of repaying the loan in full.
Breach of Contract - The failure to perform provisions of a contract
without a legal excuse.
Breach of Covenant - The failure to obey a legal agreement.
Breach of Warranty - A seller's inability to pass clear title to a buyer.
Bridge Loans - Borrowing against the equity in one's present home to
enable the purchase of another home before the existing home sells.
Broker - An individual who assists in arranging funding or negotiating
contracts for a client but does not loan money himself.
Budget - The budget is comprised of the total costs involved in the
construction of the home, the amount of costs that the borrower may have already
paid, and the costs remaining to be paid to complete the home. This will quickly
identify the borrower’s equity already paid, and the amount of borrower funding
needed at closing, if any.
Buy-Down - A situation in which the seller contributes money, allowing
the lender to give the buyer a lower rate and payment, usually in exchange for
an increase in sales price.
Buyer’s Broker - An agent hired by a buyer to locate a property for
purchase and to represent the buyer in negotiations with the seller’s broker.
Buyers’ Market - Market conditions that favor buyers. With more sellers
than buyers in the market, buyers have ample choice of properties and can
negotiate lower prices.
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Call Option - A loan feature that allows the lender to
require repayment of the loan in full before the term of the loan is up.
Caps - Limits on changes in ARM interest rates or monthly payments,
either in an adjustment period or over the life of the loan.
Caps (Interest) - Consumer safeguards which limit the amount the interest
rate on an adjustable rate mortgage can change in an adjustment interval and/or
over the life of the loan.
Caps (Payment) - Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change. Since they do not limit the
amount of interest the lender is earning, payment caps may cause negative
amortization.
Cash Out - A refinance for more than the balance of the current mortgage.
The excess money taken out reduces the borrower’s equity.
Cashier’s Check (or Bank Check) - A check whose payment is guaranteed
because it was paid for in advance and is drawn on the bank’s account instead of
the customer’s.
CC&Rs - See Covenants, Conditions and Restrictions.
Ceiling - The maximum allowable interest rate of an adjustable rate
mortgage.
Certificate Of Eligibility - Document issued by the Veterans
Administration to qualified veterans which entitles them to VA-guaranteed loans.
Obtainable through local VA offices by submitting form DD-214 (Separation Paper)
and VA form 1880 (request for Certificate of Eligibility).
Certificate Of Occupancy - Document issued by local government agency
stating that a property meets the requirements of health and building codes.
Certificate Of Reasonable Value (CRV) - A property appraisal performed by
a VA approved appraiser which establishes the limit on the principal of the VA
loan.
Certificate Of Title - Written opinion of the status of title to a
property, given by an attorney or title company. This certificate does not offer
the protection given by title insurance.
Certificate Of Veteran Status - Document given to veterans or reservists
who have served 90 days of continuous active duty (including training time)
which enables them to obtain lower down payments on certain FHA/VA-insured
loans. This certificate is obtainable through local VA offices by submitting
form DD-214 (Separation Paper) with form 26-8261a (request for certificate of
veteran status).
Certified Check - A check drawn on the issuer's account for funds that
have been segregated by the bank, thus guaranteeing sufficient funds for
payment.
Chain of Title - The chronological order of conveyance of a property from
the original owner to the present owner.
Clear Title - A marketable title, free of clouds and disputes.
Closing (or Settlement) - The meeting between the buyer, seller and
lender or their agents where the property and funds legally change hands.
Closing costs usually include an origination fee, discount points, appraisal
fee, title search and insurance, survey, taxes, deed recording fee, credit
report charge and other costs assessed at settlement. The cost of closing
usually are about 3 percent to 6 percent of the mortgage amount.
Closing Agent - Neutral third party appointed to act as a custodian
for documents and funds during the transfer of property from seller to buyer.
Depending on local law and custom, this could be an attorney, escrow agent, or
title company.
Closing Costs - Costs associated with the closing of the loan (e.g. title
costs, loan fees, discount fees, inspection fees, appraisals, etc.).
Closing/Settlement Statement - A form prepared by the closing agent that
itemizes the closing costs associated with purchasing or refinancing a home.
Also see HUD-1.
Cloud on Title - An outstanding claim or encumbrance that, if valid,
would affect or impair the owner's title.
Combined Loan To Value (CLTV) - The percentage of the property value
borrowed through a combination of more than one loan (for example, first
mortgage and home equity line of credit). Mathematically, the combined loan and
line of credit amounts divided by property value equals Combined Loan To Value
Ratio.
COFI - See Cost of Funds Index.
Collateral - Assets that secure a loan. (In the case of a mortgage, real
property serves as collateral.)
Commission- Money paid to a real estate agent or broker by the seller.
Commitment - A formal offer by a lender to a borrower to make a loan
under certain terms or conditions.
Condominium - A form of property ownership in which the homeowner holds
title to an individual dwelling unit and an interest in common areas and
facilities of a multi-unit project.
Conforming Loan - A mortgage loan eligible for purchase by the two
federally sponsored housing agencies, Fannie Mae and Freddie Mac.
Construction APR - A calculation that expresses the cost of a mortgage
loan as a yearly rate (according to a federally mandated procedure) over the
life of the loan, including the construction phase. The APR calculation takes
into account monthly interest payments, mortgage insurance, points, and certain
fees paid at origination. It generally results in a rate higher than the stated
interest rate on the Note, as well as the estimated APR disclosed on the
permanent financing phase of the loan term. You may receive two APRs, one for
the construction period of your loan and the other for the permanent financing
of your loan, or the APR can be combined for both the construction and permanent
periods of your loan.
Construction Costs - These are the costs to complete the construction of
a home: off-site, on-site, land value, closing costs, contingency, and interest
reserves.
Construction Loan - A short-term interim loan to fund the construction of
buildings or homes, which usually advances the money in installments as work
progresses.
Contract Of Sale - The agreement between the buyer and seller on the
purchase price, terms, and conditions of a sale.
Contingency - A condition which must be satisfied before a contract is
legally binding - before a sale can close.
Conventional Loan Loan - A mortgage not insured by the FHA or
guaranteed by the VA.
Conversion Clause - A provision in some ARMs that allows changing an ARM
to a fixed-rate loan, usually after the first adjustment period. The new fixed
rate is based on a formula tied to current rates, and there may be a charge for
the conversion feature.
Convertible ARMs - ARMs with the option of conversion to a fixed loan
during a given time period (see "Conversion Clause").
Conveyance - The transfer of a deed, lease, or mortgage.
Cost Of Funds Index (COFI) -A common index used in adjustable rate loans
based on the weighted-average interest rate paid for deposits by savings
institutions that are members of the 11th Federal Home Loan Bank District.
Course Of Construction - This policy is in the form of an "all risk"
policy with fire, extended coverage, builder's risk, replacement cost,
vandalism, and malicious mischief insurance coverage. The owner is named insured
with insurable value equal to the replacement cost of the improvement or the
loan amount, whichever is lower. Once the improvements are completed and the
permanent mortgage begins, the course of construction policy is usually
converted to a standard "all risk" policy.
Covenants, Conditions, and Restrictions (CC&Rs) - A document that defines
the use, requirements and restrictions of a condominium or Planned Unit
Development (PUD).
Credit Report - A report detailing the credit history of a prospective
borrower, used by lenders to help determine creditworthiness.
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Debt-To-Income Ratio - A figure, expressed as a ratio,
that compares the amount of recurring debt payments a borrower is obligated to
make to the amount of their income.
Deed - Legal document by which title to a property is transferred from
one owner to another. The deed contains a description of the property and is
signed, witnessed, and delivered to the buyer at closing.
Deed Of Trust - Document creating a lien on a property as security for
the payment of a debt. In some states, a mortgage is used instead.
Default - Failure to meet legal obligations in a contract, including
failure to make payments on a loan. A mortgage is generally considered to be in
default when a payment is 30 days past due.
Deferred Interest - Amount added to the balance of a loan when monthly
payments are insufficient to cover the interest incurred. This results in
negative amortization.
Delinquency - Failure to make required payments on time.
Deposit - Cash paid to the seller when a formal sales contract is
signed.
Depreciation - Decline in property value.
Discount Points - See Points.
Documentary Stamps - A state tax, in the forms of stamps, required on
deeds and mortgages when real estate title passes from one owner to another.
Document Review - Fee charged by lender for review of documents necessary
to fund a loan.
Down Payment - In a home purchase, the difference between the purchase
price and the mortgage amount.
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Earnest Money - Deposit made by a buyer toward the down
payment as evidence of good faith when the purchase agreement is signed.
ECOA - See Equal Credit Opportunity Act.
Effective Interest Rate - The cost of a mortgage expressed as a yearly
rate, usually higher than the interest rate on the mortgage since this figure
factors into the up-front costs of acquiring the loan.
Encumbrance - A legal right or interest in a property that affects
title and may lessen the property value.
Equal Credit Opportunity Act (ECOA) - Federal law requiring creditors to
make credit equally available without discrimination based on race, color,
religion, national origin, age, sex, marital status, or receipt of income from
public assistance programs.
Equity - The difference between the current market value of a property
and the outstanding mortgage balance.
Equity Loan - A loan based on the borrower's equity in his or her home.
Escrow - (1) Neutral third party appointed to act as a custodian for
documents and funds during the transfer of property from seller to buyer or in
the course of refinancing property. (2) Account held by lender containing funds
collected in conjunction with monthly mortgage payments. The funds in the escrow
account are used by the lender to pay annual expenses such as taxes and
insurance on behalf of the borrower.
Escrow Account - Account held by lender containing funds collected in
conjunction with monthly mortgage payments. Also known as impounds, the funds in
this account are held in trust by the lender on behalf of the borrower, and are
used to pay expenses such as property taxes and homeowner’s insurance.
Escrow Officer - See Closing Agent
Estimated Settlement (or Closing) Statement - A document provided by the
closing agent a few days before closing, detailing all costs and indicating the
final sum the buyer will be required to bring to the closing.
Expense-To-Income Ratio - Also known as Back-End Ratio and Debt-to-Income
Ratio. The figure derived by dividing a borrower’s monthly financial obligations
by his/her gross monthly income.
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Fannie Mae (FNMA) - Corporation created by Congress that
buys and sells residential mortgages. Fannie Mae provides funds for one in seven
mortgages.
Farmer's Home Administration (FmHA) - An agency of the U.S. Department of
Agriculture that provides financing for purchasers of homes and farms in small
towns and rural areas.
FDIC - See Federal Deposit Insurance Corporation.
Federal Deposit Insurance Corporation (FDIC) - Independent deposit
insurance agency created by Congress to maintain stability and public confidence
in the nation's banking system.
Federal Home Loan Bank Board (FHLBB) - Former name for the regulatory and
supervisory agency of federally chartered savings institutions, now called the
Office of Thrift Supervision.
Federal Housing Administration (FHA) - Government agency, division of the
Department of Housing and Urban Development, which insures residential mortgage
loans made by private lenders and sets standards for underwriting mortgage
loans.
Federal Reserve - Central bank of the United States and major regulatory
agency for many commercial banks.
Fee Simple - Absolute ownership of real property. FHA - See Federal
Housing Administration.
FHA - See Federal Housing Administration.
FHA Loan - Loan insured by the FHA for low to middle income homes, open
to all qualified home purchasers.
FHLBB - See Federal Home Loan Bank Board.
FHLMC - See Federal Home Loan Mortgage Corporation.
First Mortgage - The primary lien against a property.
Fixed Rate - An interest rate that is fixed for the term of the loan.
Fixed-Rate Mortgage - A mortgage whose interest rate does not change for
the life of the loan. Payments are also fixed.
Federal Home Loan Mortgage Corporation (FHLMC) - See Freddie Mac.
Flood Insurance - A form of hazard insurance required by the federal
government to cover property damage or loss in flood zones.
Floor - The minimum interest rate payable on an Adjustable Rate Mortgage.
Federal National Mortgage Association (FNMA) - See Fannie Mae.
FICO Score - A credit evaluation score developed by Fair, Isaac, and Co.,
used by lenders as one factor in making a loan decision. Some methods of
improving a score are to establish and maintain a payment history on credit
accounts, keep public records (bankruptcies, judgments, etc.) and collection
accounts to a minimum, pay down loans, keep credit cards well below their
limits, avoid late payments, and limit applying for new credit.
Fixed Price Contract - A construction contract between the borrower and
contractor defining the cost of building and improving a residence. The contract
should have a start date and a finish date.
Forbearance - Grace period given when a lender postpones foreclosure to
give the borrower time to catch up on overdue payments.
Foreclosure (or Repossession) - Legal process by which the lender forces
the sale of a property when the borrower has not met the mortgage terms.
Freddie Mac (FHLMC) - Quasi-governmental agency that purchases
conventional mortgages from insured depository institutions and HUD-approved
mortgage bankers.
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Ginnie Mae - See Government National Mortgage
Association.
GNMA - See Government National Mortgage Association.
Government National Mortgage Association (GNMA, or Ginnie Mae) -
Government agency that provides funds for VA and FHA loans.
Good Faith Estimate - Written estimate of costs the borrower will pay at
closing, provided by a lender within three days of loan application.
Graduated Payment Mortgage (GPM) - Mortgage in which initial low payments
(with potential negative amortization) increase regularly for several years and
then level off.
Grace Period - Period of time during which a loan payment may be made
after its due date without incurring a late penalty.
Gross Income - Total income before taxes or expenses are deducted.
Growing Equity Mortgage - A fixed-rate loan in which payments increase by
a predetermined amount each year, reducing the outstanding balance of the loan.
This accelerated payment plan allows repayment of a 30-year loan in 15 to 20
years.
Guarantee or Guaranty - A promise by one party to pay a debt or perform
an obligation contracted by another in the event of that person's default.
Gross Monthly Income - Total monthly income before taxes or expenses are
deducted. Used in the loan origination process to calculate borrower’s ability
to make payments on a loan.
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Hazard Insurance - A policy that protects the insured
against loss due to fire or certain natural disasters in exchange for a premium
paid to the insurer. Also known as Home Owner’s Insurance or fire insurance.
Home Equity Loan - An additional mortgage secured by the equity in the
home. All funds for this loan are disbursed at closing. (In contrast, see Home
Equity Line Of Credit).
Home Equity Line Of Credit - A revolving line of credit secured by the
equity in the home. Unlike a Home Equity Loan, these funds may be drawn and
repaid like a credit card.
Home Inspection - An examination of a home's construction, condition
and internal systems by an inspector or contractor prior to purchase.
Homeowner's Warranty - A type of insurance that covers repairs to
specified parts of a house for a specific period of time.
Home Protection Policy - A service policy that provides limited
protection against failure of the basic systems of plumbing, heating, electrical
and other components on a home. Available in a variety of coverages and costs.
Housing and Urban Development (HUD) - A U.S. government agency
established to implement federal housing and community development programs;
oversees the Federal Housing Administration.
Housing Code - Local government ordinance that sets minimum standards of
safety and sanitation for existing residential buildings.
Housing Expense-To-Income Ratio - The ratio, expressed as a percentage,
that is result of dividing a borrower's housing expenses by his/her gross
monthly income. HUD - See Housing and Urban Development.
HUD - See Housing and Urban Development.
HUD-1 Settlement Statement - A form mandated by the federal government
that itemizes the closing costs associated with purchasing a home. Also see
Estimated Settlement Statement.
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Impound (or Reserves) - Portion of a borrower's monthly
payments held by the lender to pay for taxes, insurance, and other items as they
become due.
Impound Account - See Escrow Account.
Index - A published rate used by lenders to calculate interest
adjustments on adjustable rate mortgages (Index + Margin = Interest Rate).
Common indexes include 1-Year Treasury securities, COFI (Cost Of Funds Index),
and Six-Month LIBOR (London Interbank Offered Rate).
Initial Rate - The rate charged during the first interval of an
adjustable rate mortgage.
Insolvency - Condition of a person unable to pay debts as they fall due.
Inspection Report - An examination of a home's exterior, foundation,
framing, plumbing, electrical system, heating, air conditioning, fireplace,
kitchen, bathroom, roofing and interior.
Interest - Charge paid for borrowing money.
Interest Rate - The rate, expressed as a percentage, of the outstanding
balance used to calculate interest charges.
Interest Rate Cap - A safeguard built into ARMs to prevent drastic
changes in interest rates.
Interest Reserve - During the construction period, an account is
established to pay the estimated interest costs during the construction of the
home. Since the borrower is only charged interest on the amount of funds
disbursed, an estimate of the average disbursed amount is made.
Interim Financing - A construction loan made during completion of a
building or a project. A permanent loan usually replaces this loan after
completion.
Investor Rehab Financing - This program is designed to provide a loan for
investors to acquire and rehabilitate a property for future rental use.
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Joint Liability - Liability shared among two or more
people, each of whom is liable for the full debt.
Joint Tenancy - The ownership of property by two or more persons with
the survivor taking the share of the deceased.
Jumbo Loan - A mortgage with a principal balance that exceeds $417,000
the amount eligible for purchase by Fannie Mae and Freddie Mac. Jumbo loans
generally carry a higher interest rate.
Junior Mortgage - A mortgage subordinate or secondary to another
mortgage. In the case of a foreclosure, a senior mortgage will be paid first.
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Late Charge - Penalty paid by a borrower when a payment
is made after the due date.
Lease-Purchase Mortgage Loan - An alternative financing option that
allows low- and moderate-income homebuyers to lease a home from a nonprofit
organization with an option to buy. Monthly rental payments cover mortgage
payments and include an additional amount that is saved toward a down payment.
Lender - The bank, mortgage company, or mortgage broker offering the
loan.
Lender’s Contingency - This is a reserve to cover unforeseen
circumstances in the construction of the home. At a minimum, 5% of the "on-site
costs" will be established in the contingency account (separate from the
contractor’s).
Liabilities - A borrower's debts and financial obligations.
Liability Insurance - A policy that protects owners against any claims of
negligence, personal injury or property damage.
LIBOR (London Interbank Offered Rate) - The interest rate charged among
banks for short-term Eurodollar loans, and a common index for adjustable rate
mortgages.
Lien - A legal claim against a property that must be paid when the
property is sold.
Lifetime Interest Rate Cap - The highest interest rate that can be
charged for an adjustable rate mortgage during the life of the loan.
Loan Administration (or Loan Servicing) - The collection of mortgage
payments from borrowers and related responsibilities (such as handling escrows
for property tax and insurance, foreclosing on defaulted loans and remitting
payments to investors).
Loan Application - Document required by lenders prior to loan approval
containing detailed information about the borrower and property.
Loan Application Fee - Fee paid by prospective buyer to lender when
applying for a mortgage.
Line Item Cost Breakdown - This is the form that a contractor furnishes
to a consumer detailing the costs of building the home. This form serves as the
basis of a percentage of completion disbursement schedule.
Loan Origination Fee (or Processing Fee) - Fee charged by a lender that
compensates for the work in evaluating and processing the loan.
Loan Servicing (or Loan Administration) - The collection of mortgage
payments from borrowers and related responsibilities (such as handling escrows
for property tax and insurance, foreclosing on defaulted loans and remitting
payments to investors).
Lock (or Lock In) - A lender's guarantee of an interest rate and related
points for a set period of time, usually between loan application and loan
closing. Protects borrower against rate increases during that time.
Loan To Value (LTV) Ratio - The percentage of the property value
borrowed (loan amount/property value = loan to value ratio).
Lot Value/Cost - If the borrower already owns the land, include a copy of
the HUD-1 closing statement, regardless of when the lot was purchased. If the
lot has been owned for more than 12 months, enter the appraised value of the lot
in the first column. If the borrower has owned the lot for less than 12 months,
indicate the purchase price from the HUD-1 in the first column. If the borrower
has an existing lien against the lot, indicate the borrower’s equity in the
second column (cost or appraised value minus the lien amount).
LTV - See Loan To Value Ratio.
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Margin - The percentage amount added to an index to
calculate the interest rate of an adjustable rate mortgage at each adjustment.
Marketable Title - A title that is free and clear of liens, clouds, or
other defects which would prevent the sale of the property.
Market Value - The value that a willing seller would accept and a willing
buyer would offer given a reasonable time for the seller to market a property.
MIP (Mortgage Insurance Premium) - Insurance purchased by borrower to
insure against default on government (FHA or VA) loans.
Monthly Housing Expense - Total monthly expense of principal, interest,
taxes, and insurance.
Mortgagee - The lender in a mortgage loan transaction.
Mortgage - Document creating a lien on a property as security for the
payment of a debt. In some states, a Deed of Trust is used instead.
Mortgage Banker - A lender that originates and funds, then sells and
services mortgage loans.
Mortgage Broker - A person or entity that arranges financing for
borrowers, but places loans with lenders rather than funding them with the
broker’s own money. The mortgage broker receives payment from the lender for
services.
Mortgage Loan - A loan for which real estate serves as collateral to
provide for repayment in case of default.
Mortgage Note - Legal document obligating a borrower to repay a loan at a
stated interest rate during a specified period of time. The agreement is secured
by a mortgage.
Mortgagor - The borrower in a mortgage loan transaction.
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Negative Amortization - Increase in principal balance
that occurs when monthly payments are not large enough to pay all interest
incurred on a loan, usually caused when payment caps prevent sufficient payment
increases. Deferred interest is added to the loan balance, resulting in the
borrower owing more than the original amount of the loan.
Net - After taxes.
Net Effective Income - Gross income minus federal income tax.
Non-Assumption Clause - A statement in a mortgage contract forbidding the
assumption of the mortgage by another borrower without the prior approval of the
lender.
Nondischargeable Debt - Debt, such as taxes, that cannot be forgiven in a
bankruptcy liquidation.
Notice Of Default - Written notice to a borrower that a default has
occurred and that legal action may be taken.
No Doc Loan - A loan for which neither income, employment, or assets are
stated on application. Borrowers must have a perfect credit history.
No Ratio Loan - This loan program is offered for borrowers who have a
strong asset base and perfect credit history; the loan application must be fully
completed except for any reference to income.
Note - Legal document stating the terms of a debt and a promise to repay
it.
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Office Of Comptroller Of The Currency - The oldest
federal financial regulatory body which oversees the nation's federally
chartered banks.
Office Of Thrift Supervision - Regulatory and supervisory agency for
federally chartered savings institutions.
Off-Site Costs - These are indirect site costs. Permit fees, engineering
fees, architectural fees, and other costs associated with building the home but
not directly a part of the actual construction costs. Many times the borrower
has already paid some of these costs. To consider these paid items as “equity,”
the borrower must document the cost with a bill and a cancelled check or a paid
receipt.
One Time Close - Often, getting approved for a construction loan can be
tricky. In many cases, two loans are required: one for construction and one for
permanent financing. Usually you will have to pay closing costs on both loans,
not to mention the extra paperwork, time, and hassle involved.
On-Site Costs - These are direct site costs. The actual cost of
construction covering all materials and labor associated with the building of
the home. Typically the borrower will enter into a contract with a contractor to
build the property. Like a purchase contract for an existing home, this contract
will set forth the work to be done and the costs associated with that work. All
contracts must be for a fixed price; “Cost Plus” contracts are not acceptable.
To support this cost, we require a signed and dated copy of the contract along
with a budget (Cost Breakdown) form prepared by the contractor. All contracts
and budgets must be reviewed by and contain terms acceptable to Home
Construction Lending.
Origination Fee - See Loan Origination Fee.
Owner Financing - A purchase in which the seller provides all or part of
the financing.
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Payment Cap - Limit on the amount by which a borrower’s
adjustable rate mortgage payments may increase, regardless of rise in interest
rates. May result in negative amortization.
Per Diem Interest - Interest calculated per day. Depending on the day of
the month on which closing takes place, borrower pays interest from the date of
closing to the end of the month. The first mortgage payment of a loan is
generally due on the first of the following month.
Periodic Interest Rate Cap - A limit on the amount that interest rates
can change at each adjustment period.
Permanent Loan - A long term mortgage of 10 years or more.
Pledged Account Mortgage (PAM) - Money is placed in a pledged savings
account. This fund, plus earned interest, is used to gradually reduce mortgage
payments.
PITI - Abbreviation for Principal, Interest, Taxes, and Insurance, the
components of a monthly mortgage payment; also called Monthly Housing Expenses.
Plans/Specifications - These documents consist of a legible set of
architectural drawings (building plans) usually prepared by an architect and
approved through city or county plan check. They typically include a floor plan
showing all dimensions, a foundation plan showing all dimensions, outside
elevations of the building, electrical and plumbing details, as well as other
details of the actual construction of the improvements. You will need to obtain
two sets of plans signed by both the borrower and the contractor; one will be
provided to the appraiser and one to HCL in your loan submission package. It is
necessary to have them signed so that all parties acknowledge that these are the
plans that will be used to construct the home.
Points (or Discount Points) - Money paid to a lender at closing in
exchange for a lower interest rate. Each point is equal to 1% of the loan
amount.
Power Of Attorney - Legal document authorizing one person to act on
behalf of another.
Predatory Lending - Practice of using a borrower’s ignorance against
them for profit. Predatory lending takes many forms: high interest rates,
exorbitant fees, financing for insurance products, misleading advertising,
failure to disclose pertinent loan information, and simply lending money without
regard to a customer's ability to pay.
Prepaid Expenses - Taxes, insurance, and assessments paid in advance of
due dates.
Prepaid Interest - Interest charged to a borrower at closing to cover
interest on the loan between closing and the end of the month in which the loan
closes.
Prepayment - Full or partial payment of the principal before the due
date. This might occur if the borrower makes extra payments, sells the property,
or refinances the existing loan.
Prepayment Penalty - Fee that may be charged by a lender for early
payment of debt.
Prequalification - The process of estimating how much money a prospective
homebuyer will be eligible to borrow prior to application for a loan.
Prime Rate - Lowest commercial interest rate charged by a bank on
short-term loans to its most credit-worthy customers. Often used as an index for
home equity lines of credit.
Principal - The amount of debt, not counting interest, left on a loan;
also means, the amount of money borrowed upon which interest is being charged.
Principle of Conformity - The idea that a house will more likely
appreciate in value if its size, age, condition and style are similar to, or
conform to, other houses in the neighborhood.
Principle of Progression - An appraisal term which states that real
estate of lower value is enhanced by the proximity of higher-end properties.
Principle of Regression - An appraisal term which states that the value
of higher-end real estate can be brought down by the proximity of too many
lower-end properties.
Private Mortgage Insurance (PMI) - In the event that you do not have a
20 percent down payment, lenders will allow a smaller down payment - as low as 5
percent in some cases. With the smaller down payment loans, however, borrowers
are usually required to carry private mortgage insurance. Private mortgage
insurance will usually require an initial premium payment and may require an
additional monthly fee depending on you loan's structure.
Profit and Loss Statement - Financial statement showing sales, expenses,
and profits over a period of time. Often a requirement for self-employed
borrowers.
Property Tax - A government tax based on the market value of a property.
PUD (Planned Unit Development) - A project or subdivision that includes
common property that is owned and maintained by a homeowners’ association for
the benefit and use of the individual PUD unit owner.
Purchase Agreement - Contract signed by buyer and seller stating the
terms and conditions under which a property will be purchased.
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Rate Lock (or Lock In) - A lender’s guarantee of an
interest rate and related points for a set period of time, usually between loan
application and loan closing. Protects borrower against rate increases during
that time.
Real Estate Broker - An agent who represents a buyer or seller in a real
estate transaction.
Real Estate Settlement Procedures Act - Law requiring lenders to give
borrowers advance notice of closing costs.
Real Property - Land and everything that is permanently affixed to it.
Realtor - Real estate professional who is a member of the National
Association of Realtors.
Re-Amortize - The function to provide a new graduated payment amount as
it relates to a new loan amount or a new interest rate.
Recision - The cancellation of a mortgage loan, permitted by law within
three days of signing when the loan is not used to purchase a home.
Reclamation - The right of the person with title to a property to recover
it from the debtor in the event of a bankruptcy.
Reconveyance - The transfer of property back to the owner when a mortgage
is fully repaid.
Recording - The act of entering documents concerning title to a property
into the public records.
Recording Fee - Money paid to an agent for entering the sale of a
property into the public records.
Refinancing - The process of paying off one loan with the proceeds from a
new loan secured by the same property.
Rent With Option To Buy - See Lease-Purchase Mortgage Loan.
Repossession (or Foreclosure) - Legal process by which the lender forces
the sale of a property because the borrower has not met the mortgage terms.
Re-Pricing - The function of taking the current loan and re-qualifying it
at the current market mortgage interest rate.
Rescission - Federal law that guarantees the consumer the right to cancel
a mortgage for a period of three business days following the signing of the
documents if the subject loan is a refinance of the borrower’s primary
residence.
RESPA - See Real Estate Settlement Procedures Act.
Reverse Annuity Mortgage (RAM) - Type of mortgage applicable to senior
citizens in which the lender makes periodic payments to the borrower from the
borrower's equity in their home, thus providing the borrower with a cash
annuity.
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Sale Agreement - Contract signed by buyer and seller
stating the terms and conditions under which a property will be sold.
Satisfaction - The payment of a debt which satisfies an obligation.
Second Mortgage - A subordinate mortgage made in addition to a first
mortgage.
Secondary Mortgage Market - The market into which primary mortgage
lenders sell the mortgages to obtain funds to originate more new loans. Includes
investors like Fannie Mae and Freddie Mac.
Servicing (or Loan Administration) - The collection of mortgage payments
from borrowers and related responsibilities (such as handling escrows for
property tax and insurance, foreclosing on defaulted loans, and remitting
payments to investors).
Settlement (or Closing) - Meeting between the buyer, seller, and closing
agent at which property and funds legally change hands.
Settlement Costs - See Closing Costs
Settlement Sheet - The computation of costs payable at closing which
determines the seller's net proceeds and the buyer's net payment.
Shared Appreciation Mortgage (SAM) - Loan in which the borrower is given
a below-market interest rate and the lender receives a portion of the future
appreciation of the property value.
Simple Interest - Interest computed only on the principal balance.
Subsidized Second Mortgage - Alternative financing option for low- and
moderate-income households that also includes a down payment and a first
mortgage, with funds for the second mortgage provided by city, county, or state
housing agencies, foundations, or nonprofit corporations. Payment on the second
mortgage is often deferred and carries a low interest rate (if any). Part of the
debt may be forgiven for each year the family remains in the home.
Sweat Equity - Value added to a property by improvements made by the
owner.
Settlement Cost (HUD guide) - Booklet published by the department of
Housing and Urban Development (HUD) that provides an overview of the lending
process, given to consumers after completing their loan applications.
Survey - A measurement of land, prepared by a licensed surveyor, showing
a property’s boundaries, elevations, improvements, and relationship to
surrounding tracts.
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Tax Impound - See Escrow Account.
Tax Lien - Claim against a property for unpaid taxes.
Tax Sale - Public sale of property by a government authority as a result
of non-payment of taxes.
Term - The number of years it will take to pay off a loan.
Title - Document which gives evidence of ownership of a property and the
rights of ownership and possession of that property.
Title Company - A company that insures title to property.
Title Insurance - Insurance which protects the lender (lender’s policy)
or the buyer (owner’s policy) against loss due to disputes over ownership of a
property.
Title Search - Examination of municipal records to ensure that the seller
is the legal owner of a property and that no liens or other claims exist against
the property.
Transfer Tax - Tax paid when title passes from one owner to another. Not
applicable in all jurisdictions.
Trust Account - Account maintained by a broker or escrow company to
handle all money collected for clients.
Trustee - Someone given legal responsibility to hold property in the best
interest of another.
Truth-In-Lending Act - Federal law requiring written disclosure of the
terms of a mortgage by a lender to a prospective borrower within three business
days of application.
Two-Step Mortgage - Mortgage with a low fixed interest rate for 5, 7, or
10 years, which is then adjusted to a new rate for the rest of the loan.
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Underwriting - The process of verifying data and
evaluating a loan for approval.
Usury - Interest charged in excess of the legal rate established by law.
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VA Loan - Home loan available to veterans with little or
no down payment and guaranteed by the U.S. Veteran's Administration.
Variable Rate Mortgage - See Adjustable Rate Mortgage.
Variable Rate - Interest rate that changes periodically in relation to an
index.
Verification Of Deposit (VOD) - Document signed by the borrower's bank or
other financial institution verifying the borrower's account balance and
history.
Verification Of Employment (VOE) - Document signed by the borrower's
employer verifying the borrower's position and salary.
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Waiver - Voluntary relinquishment or surrender of some
right or privilege.
Walk-Through - A final inspection of a home to check for problems that may
need to be corrected before closing.
Worker’s Compensation - This is a policy or endorsement covering the
contractor, subcontractor and others who will be working on the subject
property. This policy is typically provided by the contractor, thus the
contractor should be named as the insured. It states that in cases in which
worker’s comp insurance is not required or the borrower is acting as his or her
own general contractor, a waiver is required to
be executed.
Wrap-Around Mortgage - Loan arrangement in which an existing loan is
combined with a new loan, resulting in an interest rate somewhere between the
old rate and the current market rate.
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Zoning Ordinances (or Zoning Regulations) - Local law
establishing building codes and usage regulations for properties in a specified
area.
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