Mortgage Dictionary

An alternative financing plan that enables households whose earnings are no more than 115 percent of the medium income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or a 2 percent grant or unsecured loan from a nonprofit or state or local government program.

A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title.

A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time.

Example : John sells his property to Mary who takes over John's mortgage payments. They do not notify the lender of this transaction. The lender finds out that the title to the property has transferred and calls the loan, since the loan documents state that the loan is due on the sale of the property. John is now liable to pay his lender in full.

Formal declaration before a public official (typically a Notary Public) that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust.

A measure of land equal to 43,560 square feet.

Also known as a variable rate mortgage. The interest rate on these mortgages changes periodically.

This is the length of time for which the interest rate is fixed on an adjustable. Therefore if the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust.

A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement.

A gradual paying off of a debt by periodic installments which pay principal and interest.

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance on the loan.

The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading.

An initial statement of personal and financial information which is required to approve your loan.

Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

An opinion or estimate of the value of a property at a given date.

An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., to the property and surroundings.

An increase in the value of a house due to changes in market conditions or other causes.

A transaction among parties each of who acts in his or her own best interest.

Example : A transaction between a father and his son would NOT be an Arm's length transaction

The valuation placed upon a property by a public tax assessor for purposes of taxation.

A local tax levied against a property for a specific purpose such as street lights.

A mortgage loan which allows a new home buyer to take over the obligation of making loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender may require the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments. See also Subject To.

The transfer of the seller's existing mortgage to the buyer.

One who is authorized to act for another under a power of attorney which may be general or limited in scope.

Example : John wants to sell his house but has to be out of the country for 4 months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John's Attorney In Fact.

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Example : A balloon mortgage for $25,000 has interest only payments for 5 years at 12% ($250 per month), with the full principal of $25,000 due and payable after 5 years.

A lump sum payment of the unpaid balance of the loan

The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for 7 years.

The person who receives or is to receive the benefits resulting from certain acts.

Example : The lender is named as the beneficiary on a mortgage loan.

Example : John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die - Jane will receive the benefits i.e. $100,000.

A mortgage which requires 1/2 the normal monthly payment every two weeks. Over the course of the year, 26 half payments are made which is equivalent to 13 full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments.

A mortgage covering more than one piece of property.

Example : A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract.

1. A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is the 30 yr. treasury bond issued by the U.S. government.

2. A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond.

One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage).

An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyers current residence to finance the buyers new residence. The loan is paid off when the buyers current residence is sold.

See Real Estate Broker or Mortgage Broker.

Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify. This is because a buydown results in lower payments which are easier to qualify for.

Example: A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9%, the buydown results in the rate being 7% (9%-2%) for the first year, 8% (9%-1%) for the second year, and 9% thereafter.

An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the seller's broker for the best possible deal for the buyer.

Market conditions that favor buyers i.e. there are more sellers than buyers in the market. As a result buyers have ample choice of properties and may negotiate lower prices. Buyer's markets may be caused by an economic slump or overbuilding.

A set of regulations by which an organization conducts its business.

Example: A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies.

Profit earned from the sale of real estate. A seller may defer taxes on the capital gain of his/her primary residence by buying a higher priced residence within 2 years.

Consumer safeguard which limits the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.  

Consumer safeguard which limits the amount monthly payments on an adjustable rate mortgage may change.   

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).

Receiving money back when refinancing your present mortgage.

A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

A legal term meaning "let buyer beware". The buyer must examine the property and buy at his/her own risk.

Example: A property may be offered in an "as is" condition with no expressed or implied guarantee of quality or condition.

The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners.

The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

The document issued by the Veterans Administration to those that qualify for a VA loan which may be used to buy a house with 0 down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan.

An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance.

A professional designation in the mortgage banking industry.

The chronological order of conveyance of a parcel of land from the original owner to the present owner.

Example: An abstractor can research title to property going back to the date that the property was granted to the United States.

A marketable title, free of "clouds" and disputed interests. Most lenders require a clear title prior to closing.

A closed-end loan is an agreement in which the borrower agrees to pay a specific loan amount plus finance charges over a definite period of time. It may have either a fixed or adjustable interest rate. The borrower cannot receive additional loan advances in this type of agreement.

1. The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.

2. The time when a closing takes place.

Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs: recurring and nonrecurring.

Non-recurring costs are one time transactional costs which include:

• Discount and origination points

• Lender fees - underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc

• Title insurance fees

• Escrow, attorney or closing agent fees

• Recording fees

• Inspection and appraisal fees

• Real estate brokerage commissions

Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including

• Pre-paid interest - interest charges from the date of closing to the end of the month

• Property taxes if due

• Hazard insurance, fire insurance or homeowners insurance has to be paid for one year

• Mortgage insurance (PMI) - may be required if the loan amount is more than 80% of the value of the property. In the past a whole year of PMI had to be paid up front, however in recent years many PMI companies only require 1-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment

• Impound account may need money to be set up for future payments

An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Compare with clear title.

Property pledged to secure a loan.

Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price ranging from 5 to 10 percent.

A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder.

An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payments cash reserves at closing.

An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs.

An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a non-profit Community Land Trust, and to lease the land on which the property stands.

1. Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc and by utilities to acquire necessary property.
2. Declaring a structure unfit for use because of violations in housing codes or other reasons.

A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing.

Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.

A conventional mortgage under $203,150 that conforms to the loan amounts and mortgage guidelines used by Fannie Mae (FNMA) and/or Freddie Mac (FHLMC).

A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed, a take-out or permanent loan is used to pay off the construction loan.

Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Conditions which must be satisfied before the buyer can close the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller.

Example: The buyer has 14 days to remove the property contingency under the sales contract. In this case the buyer has 14 days to inspect the property and request the seller to perform repairs. If the buyer is not satisfied with the condition of the property or if the buyer and the seller cannot agree on repairs, the buyer may back out of the contract with no penalty. After 14 days, the buyer no longer has the right to back out with no penalty as a result of a problem with the condition of the property.

An agreement between competent parties to do or not do certain things for consideration.

Example: To have a valid contract for the sale of real estate there must be:

A real estate installment selling arrangement where the buyer may occupy the property but the seller retains the title until the agreed upon sales price has been paid. Also known as an installment land contract.

Example: John sells Mary a house. Mary has to put $10,000 and pay $1,000 per month for 24 months, after which time she will receive title to the property.

Same as the Agreement of Sale.

Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.

Any mortgage that is not insured or guaranteed by the federal government.

A provision in some Adjustable Rate Mortgages that permit converting the ARM to a fixed rate loan under specified conditions at a predetermined time. Sometimes available for an additional cost.

Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 yr T bill adjustable may be converted to a fixed during the first five years on the adjustment date. The means that you could convert during the 13th, 25th, 37th, 49th and 61st months of the loan.

The transfer of title of real from one party to another.

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

The maximum amount you can borrow under a home equity plan.

A report detailing a borrower's credit history including payment history on revolving accounts (e.g. credit cards) and installment accounts (e.g. car loan). A credit report also includes information found from public records including tax liens and judgments

Combining all your debt payments into one payment through a loan.

The total amount of credit card, auto, mortgage or other debt upon which you must pay.

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).  

A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.

A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

Used in many states in lieu of a mortgage to secure the payment of a note. In a deed of trust there are three parties: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he/she defaults in the payment of the debt, the trustee may sell the property without a court proceeding.

A clause in a deed that limits the use of land.

Example: A deed might require that a road cannot be built on the land.

Failure to meet legal obligations in a contract - such as the failure to make the monthly mortgage payment.

Any recorded instrument that would prevent a grantor/seller from giving a clear title.

Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.

Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.

Failure to make payments on time. Can lead to foreclosure.

The final, unconditional and absolute transfer of a deed to the Grantee so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.  

An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.  

Cash paid to the seller when a formal sales contract is signed.

Decline in the value of a house due to wear and tear, obsolescence, adverse changes in the neighborhood, or any other reason.

The difference between face value of an installment note and mortgage or deed of trust, and the present cash value.

Fees paid to a lender to reduce the interest rate.

Stamps affixed to a deed showing the amount of transfer tax.

The rights of a widow or child to part of a deceased husband's or father's property.

The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs.

Example: John buys a house for $100,000 and obtains a loan for $80,000. His down payment is $20,000.

A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage  

A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.

The right to use the land of another for a specific purpose. Easements may be temporary or permanent.

Example: The utility company may need an easement to run electric lines.

The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner.

A building, a part of a building, or an obstruction (e.g. a fence or a wall) that physically intrudes upon or overlaps into the property of another.

A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.  

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs  

Equity = Property Value - Loans/Liens Against the property.
Equity is typically expressed as a percentage of the property value.

A loan based on the borrower's equity in his or her home.

Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own.

The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

1. Neutral third party that handles all funds in a real estate transaction. The buyer puts his deposit into escrow; the lender funds the loan into escrow. Escrow pays the real estate brokers commission, pays off any loans/liens against the property, pays real estate taxes and any other fees associated with the transaction and sends the balance of the money to the seller.

2. Escrow payment - see impound account.

A person named in a will to carry out its provisions for the disposition of the estate.

See Federal National Mortgage Association.

A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.

Purchases loans from lenders, securitizes them and sells FNMA mortgage backed securities on wall street.

Provides financing to farmers.

Purchase loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities on wall street.

An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available.

The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs.

a loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($124,875), they are generous enough to handle moderately-priced homes almost anywhere in the country.  

Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.  

An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.

Example: A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.

Interest charged by a lender.

A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.  

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage.

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.  

Improvements or personal property attached to the land so as to become a part of the real estate. Fixtures are transferred to the buyer upon sale of the property. To determine whether an item is a fixture include:

• Intent (was it intended to be part of the property)

• How is it fixed?

• Is the fixture essential to the property?

• Relationship - was the fixture intended to be a part of the tenant's business?

Example: John sells his house to Mary. John wants to take the chandelier because he states it is personal property. Mary wants the chandelier to stay because she believes it is a fixture.

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.

The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

A legal process by which the lender forces a sale of a property because the borrower has not met the terms of the mortgage.

See Federal Home Loan Mortgage Corporation.

A property that has no liens.

For sale by owner. A property for sale that is not listed with a real estate broker.

The fully indexed rate = value of the index + margin.

A deed in which the grantor (seller) agrees to protect the grantee (buyer) against any other claim to title of the property. See also warranty deed.

See Government National Mortgage Association.

A written estimate of closing costs which a lender must provide you within three days of submitting an application.

A government agency part of HUD that buys VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities to investors

A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

That party in the deed who is the buyer or recipient.

That party who is the seller or the giver.

A mortgage that has lower payments initially (with potential negative amortization) which increase each year until the loan is fully amortized.

The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.

For qualifying purposes, the income of the borrower before taxes or expenses is deducted.

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.  

Insurance on a property against fire and other risks. A homeowners policy may have additional coverage for theft, liability, etc that a fire insurance policy may not cover.

An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

A loan allowing you to borrow funds as needed and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Intended to replace or substitute for consumer loans where interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and student loans.

Status provided to a homeowner's principal residence in some states that protects the home against judgments up to specified amounts.

Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax.

Example: John's principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.

Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing.

A U.S. government agency established to implement certain federal housing and community development programs.

A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.

To pledge a property as security without having to give up possession of it.

Additions to raw land such as buildings, streets, etc that add value to the land.

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

A method used by an appraiser to estimate the value of a property based on the income it generates.

Real estate that generates rental income. Examples: apartment buildings, office buildings and shopping centers.

A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans.

The right to go in and out over a piece of property but not the right to park on it. See also easement.

See land contract.

A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

The periodic charge, expressed as a percentage, for use of credit.

A provision of an ARM limiting how much interest rates my increase in a given adjustment period. See also lifetime cap.

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion

A money source for a lender.

A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.

An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between and investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes.

Ownership of a property by two or more people, each of whom has an undivided interest with the right of survivorship.

Example: John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa.

The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments, when recorded, become a lien on real property owned by the defendant.

The claim on the property of a debtor resulting from a judgment.

Loan size that is larger than the limit established by Fannie Mae or Freddie Mac.

A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.

A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

A real estate installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid.

The penalty a borrower must pay when a payment is made after the due date.

A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease.

Tenant's right of possession for a specific period of time under a lease agreement.

Legally acceptable identification of real estate by one of the following:

• the government rectangular survey
• metes and bounds
• recorded plat (lot and block number)

A person to whom property is rented under a lease. (Tenant)

A person who rents property to another under a lease. (Landlord)

A claim against the property for the payment of a debt, judgment, mortgage or taxes.

Example: Unpaid contractors may file a mechanic's lien.

An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.

A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Latin for "lawsuit pending." Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.

A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.

See Commitment (Letter).

Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.

The loan amount divided by the value of the property.

The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.

A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

A fixed number the lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Title that is free of liens, clouds and other legal defects and hence is readily acceptable by a buyer.

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

The termination or due date of a note, time, draft, acceptance, bill of exchange, or bond. The date a time instrument or indebtedness becomes due and payable.

The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.

The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

A bond or other financial obligation secured by a pool of mortgage loans.

Specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.

Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

The packaging or mortgage loans secured by real property to be sold to a permanent investor with servicing retained for the life of the loan for a fee. The origination, sale, and servicing of mortgage loans by a firm or individual. The investor-correspondent system is the foundation of the mortgage banking industry and the Secondary Market.

Like mortgage bankers, mortgage brokers take loan applications and process the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment bankers.

The lender.

Money paid to insure the mortgage when the down payment is less than 20 percent.

One-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On September 1, 1983, the MIP was changed to a one-time charge to the borrowers.

Term life insurance designed to pay off the mortgage balance if the insured person dies.

A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

The borrower.

An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.

Loan in which the interest rate is adjusted periodically.

The borrowers gross income minus federal income tax.

The value of all assets, including cash, less total liabilities. It is often used as an underwriting guideline to indicate an individual's creditworthiness and financial strength.

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Loans that do not comply with Fannie Mae or Freddie Mac guidelines.

A written instrument that acknowledges a debt and promises to pay.

One authorized to take acknowledgments of certain types of documents, such as deeds, contracts, and mortgages.

A letter sent to the defaulting party as a reminder of the default.

An expression of willingness to purchase a property at a specified price.

One who receives the offer. When the buyer makes an offer to the seller the seller is an offeree.

One who makes the offer. When the buyer makes an offer to the seller the buyer is an offeror.

The oldest federal financial regulatory body that oversees the nation's federally chartered banks.

The OTS charters federal thrift institutions and is the primary regulator of all federal and many state-chartered thrift institutions.

A method of showing a home for sale to prospective buyers where the home is left open for inspection by those who may be interested in making a purchase.

A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

See Loan Origination Fee.

One who receives or purchases an option.

One who gives or sells an option.

A verbal agreement. Verbal agreements for the sale or use of real estate are normally unenforceable.

A purchase in which the seller provides all or part of the financing.

The individual named on a deed that has been recorded at the county recorders office.

A tenant of a residence who also owns the property.

Mortgage covering both real and personal property.

A mortgage, deed of trust or land contract provided in lieu of cash.

A provision in a mortgage that allows some of the property secured to be freed from serving as collateral.

A mortgage that allows the lender to share in part of the income or resale proceeds.

Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed to those who own certificates.

See Cap (payment).

A mortgage for a long period of time. Often referred to as the mortgage that pays off a construction loan on a completed property.

A document issued by a government regulatory authority that allows the bearer to take some specific action.

An occupancy permit allows the owner of a building to occupy or rent the building.

Abbreviation for principal, interest, taxes and insurance, which may be combined in a single monthly mortgage payment.

A zoning classification that allows flexibility in the design of a subdivision. PUD's include individually owned units as well as some common space that is jointly owned.

A plan or map of a specific land area.

A public record containing maps of land, showing the division of the land into streets, blocks, and lots and indicating the measurements of the individual parcels.

Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

See Private Mortgage Insurance.

Fees paid to lenders. 1 point = 1% of the loan amount. On a $100,000 loan 1 point is $1000. Points may be further classified into origination points or discount points.

A loan that is held as an investment by a bank or savings and loan, and NOT sold on the secondary market to investors.

A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. See Attorney-in-fact.

The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.

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.

Fees paid by the borrower if they pay the loan before its due date.

Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market. See also secondary mortgage market.

The lowest commercial interest rate charge by a bank on short term loans to their most credit worthy customers. View current prime rate.

Amount of debt, not including interest. The face value of a note, mortgage, etc.

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly. An impound account may be required.

Court process to establish the validity of the will of a deceased person.

A government levy based on the market value (as assessed by the county assessor's office) of the property.

To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.

An auction of property with notice to the general public.

See Agreement of Sale.

A mortgage used to finance the purchase of a property.

Qualifying Ratios

Comparisons of a borrower's debts and gross monthly income.

A court action to settle a title dispute.

A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Your lender may require a radon check on your home.

See Lock.

Land and anything permanently affixed to the land, and those things attached to the building.

A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both partied.

An individual who often owns a real estate company or is in a management position, and who is licensed to represent a buyer or a seller in a real estate transaction.

A trust that uses investors' money to purchase and manage real estate. Investors realize some of the tax advantages in owning real estate.

A law that states how mortgage lenders must treat those who apply for real estate loans on property with 1-4 units.

Example: A lender is required to provide a good faith estimate of closing costs within 3 days of an application being filed.

A real estate professional who is a member of the National Association of Realtors.

When a mortgage is paid off in full, the lender conveys the property back to the owner.

The act of entering into a book of public records instruments affecting title to the real property. A lender requires that a deed of trust or a mortgage be recorded to evidence the debt against the property.

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

The cancellation of a contract. When refinancing a mortgage on a principal residence the law gives the homeowner three days to cancel the contract

The right of the holder of a note secured by a mortgage or deed of trust to claim money from the borrower in default in addition to the property pledged as collateral.

The practice of refusing to provide loans or insurance in a certain neighborhood.

Repaying an existing loan from the proceeds of a new loan on the same property.

A federal regulation requiring creditors to provide full disclosure of the terms of a loan including the terms of the loan and the annual percentage rate (APR).

A charge for a title insurance policy if previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

See Lease-Purchase Mortgage Loans.

See Real Estate Settlement Procedure Act.

Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer.

Form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

A mortgage used by the elderly that provides income as long as they live in exchange. Payments made cause the loan principal to increase.

The right of a surviving joint tenant to acquire the interest of a deceased joint owner.

A loan that is amortized over a long period of time (e.g. 30 yrs) but the interest rate is fixed for a short period (e.g. 5 yrs). The loan may be extended or rolled over, at the end of the shorter term, based on the terms of the loan.

See Agreement of Sale.

Depository institutions that specialize in originating, servicing and holding mortgage loans primarily on owner occupied residential property.

The market where banks, savings & loans and mortgage bankers can sell mortgages to investors like Fannie Mae or Freddie Mac.

Also known as a vacation home. This home is different from an investment property as it is not rented, but used occasionally by the owners.

A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first mortgage since they represent a higher risk for an investor.

Privately owned rental units participating in the low-income rental assistance program. Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited proportion of their incomes toward the rent.

The section of the IRS that deals with tax free exchanges of certain property. General rules for tax free exchanges are that the properties must be:

• Exchanged

• Similar

• Used for business or as an investment

The federal agency which regulates securities and the securities business. It is involved in real estate and mortgage lending when MBS are issued.

Property that serves as collateral for a debt.

An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

The act of billing, collecting payment, filing reports, managing impound accounts and handling defaults on a mortgage.

See Closing.

A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed.

See HUD 1

A residential loan with a fixed interest rate that is below market, with the lender entitled to a specified share of appreciation of the property over an agreed upon time interval.

A deed given at the sheriff's sale in the foreclosure of a mortgage.

A type of residential structure designed to include one dwelling.

Example: Town houses, detached units.

A special tax imposed on property, individual lots or all property in the neighborhood to pay for improvements - street lights, sidewalks, etc.

The grantor does not warrant against title defects arising from conditions that existed before he/she owned the property. The seller warrants that he/she has done nothing to impair title.

A single family dwelling constructed by a builder in anticipation of finding a buyer.

A legal action in which the court requires a party to a contract to perform the terms of the contract when the party has refused to fulfill its obligations.

A standard loan application widely used in the mortgage industry.

A tract of land divided into lots suitable for home building purposes.

A loan in a lower priority, for example a second mortgage is subordinate to a first.

The buyer agrees to make payments on the existing mortgage, without notifying the lender. The seller remains liable for making payments on the loan if the buyer does not make the mortgage payment. The buyer is not personally liable for mortgage payments, but must make payments to keep the property.

An 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, carries no or low interest rates, and part of the debt may be forgiven for each year the family remains in the home.

Map made by a licensed surveyor who measures land and charts its boundaries, improvements and relationship to the property surrounding it.

Value added to a property due to improvements made personally by the owner.

A commitment to provide permanent financing upon completion of construction. The take out loan normally pays off the construction loan.

Lien for nonpayment of taxes.

Public sale of a property at an auction by a government authority as a result of non-payment of taxes.

A low initial interest rate on a mortgage.

Tenancy established when a person who had been a lawful tenant wrongfully remains in possession of property after expiration of a lease.

A license to use or occupy land and buildings at the will of the owner. The tenant may decide to leave the property at any time or must leave at the landlords will.

A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate.

Created by a lease for a fixed term, such as 6 months, 2 years, etc.

Ownership of a property by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the deceased is inherited by the beneficiary designated on the owner's will.

Ownership of property by one person.

The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

Legal phrase in a contract requiring all references to specific dates and times noted in the contract be interpreted exactly.

A form of property ownership under which a property is held by a number of people, each with the right of possession for a specified time interval. Time sharing is used mostly for vacation properties.

Evidence that the owner of the property is in lawful possession. Evidence of ownership.

A company that specializes in title searches and insuring title to property.

An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.

A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions, and any defects.

An examination of the public records to determine the ownership and encumbrances affecting the property.

Residence which normally has 2 or more floors and is attached to other similar units. Town houses are commonly found in planned unit developments (PUDs) and condominiums.

A parcel of land, generally held for subdividing.

A fee which may be charged each time you draw on a home equity credit line.

Tax paid to the city, county, state or other government entity upon sale of a property.

One in which the tenant pays all operating expense of the property. The landlord receives the net rent.

A separate bank account maintained by a broker or escrow company to handle all money collected for clients. A broker may not commingle these funds with his/her own funds.

See Deed of Trust.

A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

See Regulation Z.

A mortgage in which the borrower receives a fixed rate for a specified number of years (most often 5 or 7), and then receives a new interest rate based on the terms in the note.

The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.

An ownership right to use and possess a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Real estate with free and clear title.

Land that has received no development.

A document that transfers title from the grantor to the grantee without recording (i.e. providing public notice).

Charging a rate of interest greater than that permitted by law.

See second home.

Long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

See Adjustable Rate Mortgage

A document signed by the borrower's bank or other financial institution verifying the account balance and history.

A document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.

The voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.

Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee. wraparound results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

Mortgage bankers and other financial institutions make loans that are then periodically sold on the secondary market. After the loan is made but before it is sold - the loan is said to be in the lenders warehouse.

A deed conveying the title to a property with a warranty of a clear marketable title.

A loan arrangement whereby the existing loan is retained and a new loan is added to the property.

Ratio of income from an investment to the total cost of the investment over the period of the investment.

A form of housing where individual units are on separate lots, but are attached to one another. Example: PUD, townhouse.

Areas may be zoned to specify use of a property i.e. residential, commercial, agricultural. These zoning ordinances are normally enforced by the city or the county.