Abstract Of
Title
A
historical summary provided by a title insurance company of public records
affecting the title to a property.
Acceleration Clause
Allows
a lender to declare the entire outstanding balance of a loan immediately due
and payable should a borrower violate specific loan provisions or default on
the loan.
Adjustable Rate Mortgage (ARM)
A
variable rate mortgage with an interest rate that adjusts periodically
according to the financial index it is based upon plus a margin. To limit the
borrower's risk, the ARM may have a payment or rate cap.
Amortization
The
reduction of a debt by regular, usually monthly, installments of principal and
interest. An amortization schedule is a table showing the payment, the amounts
applied to interest and principal and the unpaid balance.
Annual Cap
See:
Cap.
Annual Percentage Rate (APR)
The
cost of credit expressed as a yearly rate, taking into account interest,
points, and other finance charges. Disclosure of the APR is required by the federal
Truth-in-Lending Act and allows borrowers to compare the costs of different
mortgage loans.
Annual Fees
A
yearly membership or maintenance fee for having the home equity line of credit
available. It is charged whether or not the line is used.
Appraisal
An
estimate of a property's value as of a given date, determined by a qualified
professional appraiser. The value may be based on replacement cost, the sales
of comparable properties or the property's ability to produce income. Appraisal alternatives may be
available for some products and property types. These include automated
valuation models, drive-by appraisals and tax assessed value.
Appreciation
A
property's increase in value due to inflation or economic factors.
APR
See: Annual
Percentage Rate.
ARM
See: Adjustable Rate Mortgage.
Arrears
Mortgage
interest is paid at the end of the period during which it accrues, i.e. the
interest portion of the payment due on the first of the month is for funds
outstanding during the previous month. Delinquent payments are also known as
being "in arrears".
Assessment
Charges
levied against a property for tax purposes or to pay for municipality or
association improvements such as curbs, sewers, or grounds maintenance.
Assignment
A
means of transferring a contract right or other asset to another person or
entity.
Assumption
An
agreement between a buyer and a seller which may require lender approval, where
the buyer takes over the payments for a mortgage and accepts the liability.
Assuming a loan can be advantageous for a buyer because there are no closing
costs and the loan's interest rate may be lower than current market rates.
Depending on the terms of the mortgage or deed of trust, the lender may raise
the interest rate or require the buyer to qualify for the mortgage.
Automated Valuation Model
A
computer model used to estimate the current market value of a home using
property records and various analytic methodologies such as comparable sales
prices, home characteristics and historical home price appreciation.
Available Cash
This
is typically your cash on hand or assets that can be turned into cash quickly,
like 401k plans, stocks, proceeds from the sale of a home or other equity, etc.
Balance Transfer
The
movement of outstanding balances from other lenders to a home equity line of
credit.
Balloon Mortgage
A
mortgage that has level monthly payments which are insufficient to amortize the
loan so that a balloon, or lump sum payment is due at the end of the term.
Frequently, balloon mortgages contain an opportunity to refinance when the
balloon payment is due.
Bankruptcy
A
proceeding in a federal court in which a debtor (who owes more than his/her
assets or cash flow) is relieved from the payment of debts. This can affect the
borrower's personal liability or the mortgage debt but not the lien of a
mortgage.
Basis Points
Used
to describe mortgage yield, one basis point equals one 100th of 1% or 0.01%. A
mortgage yield increase from 9.50% to 9.75% is an increase of 25 basis
points.
Biweekly Mortgage
A
loan requiring payments of principal and interest at two-week intervals. Each
biweekly payment is half the amount of a monthly payment. The borrower makes
the equivalent of 13 monthly payments each year. As a result, this type of loan
amortizes much faster than monthly payment loans.
Bridge Loan
A
loan, usually a second mortgage, that is collateralized by the borrower's
present home (that is usually for sale).
Broker
A
mortgage broker takes applications from consumers and delivers them to a lender
which will underwrite and make the loan. A real estate broker lists properties
that are for sale and helps bring buyers and sellers together and assists in
negotiating contracts between them.
Buy-Down
Where
the buyer pays additional discount points in return for a below market interest
rate; or the buyer or seller deposits sufficient funds with the lender to reduce
the rate during the first one to three years of the loan; or pays closing costs
such as the origination fee. During times of high interest rates, buy-downs may
induce buyers to purchase property they may not otherwise have purchased.
Buyer's Market
Economic
conditions in which the supply of available housing exceeds demand. This may
occur during periods where interest rates are high and can drive down housing
prices.
Cap
A
limit on how much an adjustable rate mortgage's monthly payment or interest
rate can increase. A cap is meant to protect the borrower from large increases
and may be a payment cap, an interest cap, a life-of-loan cap or periodic cap.
§
A payment
cap is a limit on the monthly payment.
§
An
interest cap is a limit on the amount the interest rate can
increase.
§
A life-of-loan
cap restricts the amount the interest rate can increase over the entire
term of the loan.
§
A periodic cap limits the amount the interest rate can
change at the time of each periodic adjustment.
Certificate Of Occupancy (CO)
Written
authorization given by a municipality that allows a structure to be
inhabited. Many municipalities only require a C of O for new construction
or improvements; however, some require a C of O anytime title to the property
changes.
Certificate Of Reasonable Value (CRV)
A
Veteran's Administration appraisal that establishes the maximum VA mortgage
loan amount for a specified property.
Clear Title
Title
to real property that is free of liens, claims or encumbrances except for items
such as property taxes that are not yet due and payable or routine utility
easements.
Closed-End Mortgage
A
mortgage principal amount that is fixed and cannot be increased during the life
of the loan.
Closing
The
process of finalizing the purchase of property or making of a mortgage loan. At
the closing of a purchase money loan, the deed is delivered, the mortgage and
note are signed, financial adjustments are made, and loan proceeds are
disbursed. For refinances and home equity lines and loans, funds are disbursed
after the 3 business day rescission period has expired. For home equity
lines of credit, checks are generally sent to the borrower 7 to 10 business
days after closing.
Closing Costs
Costs
payable by either seller or buyer at the time of settlement when the purchase
of a property is finalized, or by borrower when a loan is refinanced. They
include expenses such as points, taxes, title insurance, mortgage insurance and
attorneys' fees. You will receive more specific information about types and amounts
of closing costs applicable to your transaction and the state where your
property is located when you apply for a loan.
Co-Borrower/Co-Applicant
One
who is individually and jointly obligated to repay a mortgage loan and may or
may not share ownership of the property with one or more borrowers.
Collateral
Something
of value pledged as security for a loan. In mortgage lending, the property
itself serves as collateral for a mortgage loan.
Commitment Fee
A
fee charged when an agreement is reached between a lender and a borrower for a
loan on specific terms and conditions. Rate and points may be locked-in or may
be "floating".
Condominium
A
form of ownership where the dwelling units are individually owned and
homeowners share ownership of common areas such as the grounds, the parking
facilities and the tennis courts.
Conforming Loan
A
loan that conforms to Federal National Mortgage Association (FNMA) or Federal
Home Loan Mortgage Corporation (FHLMC) guidelines.
Construction Loan
A
short-term loan financing improvements to real estate, such as the building of
a new home. The lender advances funds to the borrower as needed while
construction progresses. Upon completion of the construction, the borrower must
obtain permanent financing or pay the construction loan in full.
Conventional Loan
A
mortgage loan that is not insured, guaranteed or funded by the Veterans
Administration (VA), the Federal Housing Administration (FHA) or Rural Economic
Community Development (RECD) (formerly Farmers Home Administration).
Convertible Mortgage
An
adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate
mortgage during a specified period.
Convertibility Option
The
ability to convert all or part of a home equity line of credit to a fixed rate
loan. A minimum conversion amount often applies, as may other conversion
requirements.
Co-Operative
A
co-op is a form of ownership in which a corporation or business entity holds
title to a property and grants the occupancy rights to particular apartments or
units to shareholders by means of proprietary leases or similar arrangements. A
loan granted for a co-op is collateralized by an assignment of the proprietary
lease and a pledge of the shares of stock allocated to the unit.
Credit Bureau
A
company that is engaged in the preparation of reports that are used by credit
grantors to determine the credit of an individual. The agency obtains data for
these reports from national repositories and other sources (e.g., Experian,
TransUnion, Equifax, and public record data).
Credit Limit
The
maximum amount that can be borrowed under a home equity line of credit.
Credit Repository
An
organization that compiles credit history data directly from lenders and
creditors to build in-file credit reports for individuals; the main
repositories are Experian, TransUnion, & Equifax.
Credit Score
A
rating given to a person by a credit bureau, or credit repository, based upon
payment history for existing and past debt. (For more details, see the FAQ
page)
Credit Report
A
report to a prospective lender on the credit standing of a prospective
borrower, used to aid in the determination of creditworthiness.
Debt Consolidation
The consolidation and payment of multiple debts with one home equity
loan or line.
Debt-To-Income Ratio (D/I)
The
ratio of the borrower's total monthly obligations, including housing expenses
and recurring debts, to monthly income. It is used to determine the borrower's
capacity to repay the mortgage and all other debts.
Deed Of Trust
A document,
used in many states in place of a mortgage, whereby title to the property is
held by a trustee pending repayment of the
loan.
Default
A
breach or nonperformance of the terms of a note or the covenants of a mortgage.
Department Of Housing And Urban Development (HUD)
The
U.S. government agency that administers FHA, GNMA and other housing
programs.
Discount Point
An
amount of money paid at the close of escrow to allow a borrower to obtain a
lower interest rate. One point is equal to 1% of the loan amount.
Down Payment
The
difference between the purchase price and mortgage amount. The down payment
becomes your property equity. Typically it should be cash savings, but it can
also be a gift that is not to be repaid or a borrowed amount secured by assets.
Draw Period
For
a home equity line of credit, this is the length of time during which the
mortgagor can borrow money - usually ten years. During this time period,
funds can be borrowed up to the available credit limit, usually by drawing on
the line using special checks.
Drive-By Appraisals
An estimate of the current market value of a home as determined by a
broker, real estate professional or appraiser by using comparable values of
similar homes in the area and an exterior examination or "drive-by"
of the property.
Earnest Money
Cash
given to a seller by a buyer as good faith assurance that the buyer intends to
go through with the purchase of a property.
Environmental Hazard
Natural
or man-made forces that may be hazardous to the health or safety of the
homeowner. Examples include: hazardous wastes, toxic substances, radon gas and
materials containing asbestos. These types of hazards can adversely affect the
value and marketability of the property.
Equal
Credit Opportunity Act
A
federal law prohibiting lenders and other creditors from discriminating based
on race, color, sex, religion, national origin, age, marital status, receipt of
public assistance or because an applicant has exercised his or her rights under
the Consumer Credit Protection Act.
Equity
The
difference between the value of a property and any outstanding mortgage
balance(s) or liens against it. Also referred to as owner's interest.
Escrow Analysis
Once
a year, the servicer reviews escrow funds on hand, monthly tax and insurance
payments, and tax and insurance bills to determine if the amount collected each
month should be increased or decreased, or whether excess funds should be
refunded to the mortgagor.
Escrow Closing
In
certain regions, an escrow agent holds in escrow funds as well as documents to
be signed by both buyer and seller. Once all conditions of the closing have
been satisfied, the documents and the funds are distributed by the escrow agent
to the interested parties.
Escrow Funds
Money
held by the lender for payment of the taxes and insurance on your home.
Fair Market Value
The
price established in a free market between a buyer and seller in an arms length
transaction where neither one is compelled to buy or sell. In an appraisal,
this is the final value derived after examining the Sales Comparison, Cost, and
if applicable, Income approaches; sometimes referred to as "Market
Value."
Fannie Mae
Nickname
for Federal National Mortgage
Association (FNMA).
Federal Emergency
Management Agency (FEMA)
Federal
agency which oversees the administration of flood insurance programs and the
designation of certain areas as flood prone.
Federal Home Loan Mortgage Corporation (FHLMC
or Freddie Mac)
A quasi
governmental, federally sponsored organization that acts as a secondary market
investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for
conventional mortgage loans, as does FNMA.
Federal Housing Administration
(FHA)
An
agency within the Department of Housing and Urban Development that sets
standards for underwriting and insures residential mortgage loans made by
private lenders. One of FHA's objectives is to make available affordable
mortgages to those with low or moderate income. FHA loans may be high
loan-to-value, and they are limited by loan amount. FHA mortgage insurance
requires a fee of up to 3.8 percent of the loan amount to be paid either at
closing or added to each monthly payment, as well as an annual fee of 0.5
percent of the loan amount added to each monthly payment.
Federal National Mortgage Association (FNMA
or Fannie Mae)
A private
corporation that acts as a secondary market investor to buy and sell mortgage
loans. FNMA sets many of the guidelines for
conventional mortgage loans, as does FHLMC. The major purpose of this
organization is to make mortgage money more affordable and more
available.
Fee Simple
The
maximum form of ownership, with the right to occupy a property and sell it to a
buyer at any time. Upon the death of the owner, the property goes to the
owner's designated heirs. Also known as fee simple absolute.
FHA
See:
Federal Housing Administration.
FHLMC
See:
Federal Home Loan Mortgage Corporation.
Fifteen-Year
Mortgage
A
loan with a term of 15 years. Although the monthly payment on a 15-year
mortgage is higher than that of a 30-year mortgage, the amount of interest paid
over the life of the loan is substantially less.
Fixed Rate
An
interest rate that is constant for the life of the loan.
FNMA
See:
Federal National Mortgage Association.
Forbearance
Agreement
not to initiate legal proceedings against a delinquent mortgagor provided the
mortgagor complies with alternate repayment arrangements.
Foreclosure
The
legal process by which a borrower in default under a mortgage or deed of trust,
loses his/her interest in the mortgaged property; this process usually involves
a forced sale of the property at public auction with the proceeds of the sale
being applied to the mortgage debt.
Freddie Mac
Nickname
for Federal Home Loan Mortgage Corporation (FHLMC).
Gift Funds
Funds
donated to the borrower from certain eligible sources to assist the borrower in
meeting closing costs. Generally, eligible sources are: a relative, church,
municipality, or nonprofit organization.
Ginnie Mae
Nickname
for Government National Mortgage Association (GNMA).
Government National Mortgage Association
(GNMA or Ginnie Mae)
A
government organization that participates in the secondary market, buying,
selling and guaranteeing FHA and VA loans.
Grace Period
A
period of time (usually measured in days) after an obligation is due during
which a borrower can perform without incurring a penalty and without being
considered in default.
Graduated Payment
Mortgage (GPM)
A
mortgage that has initial monthly payments set at an amount lower than that
required for full amortization of the debt. The payments are then increased by
a specified percentage each year during the graduated payment period. At the end
of the period, payments are in an amount that will fully amortize the
mortgage.
Hazard Insurance
A
form of insurance that protects the insured property against physical damage
such as fire, tornadoes, earthquakes, etc. Mortgage lenders often require a borrower
to maintain an amount of hazard insurance on the property that is equal to the
amount of the mortgage loan.
Home Equity Line Of
Credit (HELOC)
A
real estate loan, usually in a subordinate position, that allows a borrower to
borrow against equity in real estate owned (usually a primary residence or
second/vacation home) with specific limitations. This is an open-end loan that
permits the borrower to repay and re-borrow the funds available.
Home Equity Loan
A
mortgage on the borrower's principal residence (or second/vacation home)
usually for the purpose of making home improvements or non-housing expenditures
such as debt consolidation or tuition. This is a closed-end loan repayable in
accordance with a fixed schedule.
Homeowner's
Association (HOA)
A
nonprofit association, whose directors and officers are elected by the unit
owners of a condominium or PUD project; primary responsibilities are to manage
the common areas, expenses and services of the project.
Homeowners
Insurance
A
form of insurance that protects the insured property against loss from theft,
liability and most common disasters.
Also referred to as hazard insurance.
Housing and Urban Development (HUD)
The
U.S. government agency that administers FHA, GNMA and other housing programs.
HUD
See:
Housing and Urban Development.
Index
A
published rate compiled from current economic or financial indicators such as
U.S. Treasury bills or the prime rate published in the major daily newspapers.
Mortgage lenders use the index to establish interest rates on adjustable rate
mortgages and home equity lines of credit with periodic interest rate
adjustments.
Individual Retirement
Account (IRA)
Accounts
that can be established by individuals who meet IRS qualifications to build
retirement funds, deferring the tax liability until funds are withdrawn. Under
permitted circumstances, they may deduct their annual contributions from their
taxable income.
Installment Debt
Debt
that is repaid in installments at regular intervals, usually monthly.
Interest Rate
The
interest rate, stated as a percentage, charged by a lender on the principal
amount of borrowed money.
Introductory Rate
A
temporarily discounted rate for home equity lines of credit or adjustable rate
mortgage loans - a rate that is usually low and lasts only for an introductory
period.
Jumbo Loan
A
loan that is for a larger dollar amount than the limits set by the Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines.
Keogh
A
retirement plan for self-employed individuals. Similar to an IRA, contributions
may be deductible and the tax liability is deferred until the funds are
withdrawn; sometimes known as HR 10 plans.
Lien
A
claim against a property for the payment of a debt. A mortgage is a lien; other
types of liens a property might have include a tax lien for overdue taxes, or a
court judgment lien, or a mechanics lien for unpaid debt to a contractor.
Liquidity
Cash
or cash equivalents that a borrower has accumulated or the ability to readily
convert other assets or investments
into cash; a.k.a. cash reserves.
Loan Discount
See:
Points.
Loan Guaranty Certificate
Evidence
that a portion of a loan is guaranteed by the Veterans Administration.
Loan Origination Fee
See:
Origination Fee.
Loan-To-Value Ratio (LTV)
The
relationship, expressed as a percentage, between the amount of the proposed
loan and a property's appraised value or purchase price. For example, a $75,000
loan on a property appraised at $100,000 is a 75% loan-to-value.
Lock-In
The
guarantee of a specific interest rate and/or points for a specific period of
time. Some lenders will charge a fee for locking in an interest rate.
Margin
The
amount a lender adds to (or subtracts from) the index for the purpose of adjusting
the interest rate on a variable rate product (ARM or HELOC). For example, a
margin of 1.50 added to a 7 percent index establishes an interest rate of 8.50
percent. The margin remains the same throughout the loan. The exception
is home equity lines of credit with an introductory variable rate which has two
margins - one for the introductory period and another that becomes effective
after the introductory period expires.
Market Value
The
price a property can realistically sell for based upon comparable selling
prices of other properties in the same area.
Maturity
The
date on which full payment of the mortgage loan is due.
Minimum Payment
The
minimum monthly amount required to be paid on a home equity line of
credit. The minimum payment may be interest only or may include both
principal and interest.
Mortgage
A
legal instrument in which a lien on real property is granted as security for
the repayment of a loan. In some states, a deed of trust is used rather
than a mortgage.
Mortgage Banker
A
lender that originates, closes, services and sells mortgage loans to the secondary market.
Mortgage Broker
An
intermediary between a borrower and a lender. A broker's expertise is to help
borrowers find financing that they might not otherwise find themselves.
Mortgage Insurance (MI)
Insurance
that protects a mortgage lender against loss in the event of default by the
borrower. This insurance allows lenders to make loans with lower down payments
(LTVs above 80%, in most cases). The cost is usually borne by the borrower.
Mortgage Insurance Premium (MIP)
The
amount paid to FHA or to a private company for mortgage insurance.
Mortgage Note
A
written promise to repay funds advanced by the mortgage lender on the agreed
upon terms.
Mortgagee
The
lender.
Mortgagor
The
borrower.
Negative Amortization
A
situation in which a borrower is paying less interest than what is actually
being charged for a mortgage loan. The unpaid interest is added to the loan's
principal. The borrower may end up owing more than the original amount of the
mortgage.
Net Rental Income
The
remaining income generated by an investment property after deducting all
mortgage related expenses, including HOA fees (if applicable) and
operating expenses from the gross rental income.
Net Worth
The
amount by which an individual's assets (or assets of a business) exceed total
liabilities.
No Income Verification
Option
This
option limits the need to produce K-1s or other income documentation which is
typically required for credit approval, but which is sometimes problematic for
self-employed applicants and applicants with a complicated financial
picture. The applicant may need to meet certain additional requirements
to qualify, such as having a certain level of verified liquid assets.
Non-Conforming Loan
A
loan that does not conform to Federal National Mortgage Association (FNMA) or
Federal Home Loan Mortgage Corporation (FHLMC) guidelines either because the
loan amount is too high or FNMA/FHLMC underwriting or other criteria are not
met. Jumbo loans are non-conforming.
Non-Permanent Resident
Alien
A
non-U.S. citizen who resides in the United States on a temporary basis on a
government issued work visa.
Non-Resident Alien
A
non-U.S. citizen who resides outside of the United States.
Note
See:
Mortgage Note
Open End Mortgage
A
mortgage that permits the outstanding loan amount to be increased.
See:
Home Equity Line of Credit
Origination Fee
The
amount charged by a lender or broker to originate a mortgage loan. Origination
fees are usually expressed in points.
Pay Back Period Or
Repayment Period
On
HELOCs, the period of time after expiration of the access period over which all
outstanding balances must be repaid, usually 10 to 20 years.
Permanent Buydown
A
permanent reduction to the interest rate for the life of the loan. The funds
for the buydown may come from the borrower, lender, seller or a third party.
PITI
Abbreviation
for principal, interest, taxes and insurance.
Planned Unit
Development (PUD)
A
real estate project in which each unit owner has title to a residential lot and
building and a non-exclusive easement on the common areas of the project.
Points
Charges
levied by the lender (or broker) based on the loan amount. Each point is one
percent of the loan amount; for example, two points of a $100,000 mortgage is
$2,000. Discount points are used to buy down the interest rate. Points can also
include a loan origination fee, which is usually one point.
Power Of Attorney
A
legal document authorizing one person to enter into agreements and sign
documents on behalf of another. Lenders may permit a mortgage loan to be closed
using a power of attorney under certain circumstances if arrangements are made
in advance.
Pre-Qualification
Tentative
establishment of a borrower's qualification for a mortgage loan of a specific
amount or ability to make monthly payments at a certain level, based solely on
debt-to-income ratios. Pre-qualification is an estimate only and is
subject to debt and income verification, credit history, property appraisal and
other factors.
Prepaid Items
Items
that generally must be paid for at the time of closing and are generally
recurring charges. Prepaid items may include the following:
§
first
year premiums for hazard, flood and mortgage insurance, as applicable to the
transaction,
§
prorated
interest,
§
any
special assessments which must be prepaid (i.e., water/sewer connection, etc.)
and
§
escrow
account for any of the above.
Prepayment
The
borrower's ability to make full or partial payments on a loan's principal
before they are due. Paying a mortgage in full or in part before it is due may
incur a penalty if so specified in the mortgage's prepayment clause.
Prime Rate
The
interest rate designated by a lender as its prime rate and which serves as a
basis for the interest rate charged to certain customers.
Principal
The
amount of the mortgage loan, not counting interest.
Private Mortgage
Insurance
Insurance
coverage that many lenders, investors, and government agencies require the
borrower to obtain to protect the lender against loss in the event of a
mortgage default for higher LTV mortgages.
Prorate
To
proportionally divide amounts owed by the buyer and the seller at closing.
Qualification
As
determined by a lender, the ability of the borrower to repay a mortgage loan
based on the borrower's credit history, employment history, assets, debts,
income and other factors.
Qualifying Ratios
The
percentage of payment to income (P/I) and debt-to-income (D/I) that is used to
measure the borrower's capacity to repay the mortgage debt.
Refinance
Retirement
of an existing debt from the proceeds of a new loan, using the same collateral
as security.
Rental Income
Income
generated by renting property to a tenant.
Reserves
Sometimes
referred to as "cash reserves" or "post-closing reserves";
this is the amount of liquid assets the borrower has remaining after completion
of the mortgage loan transaction and payment of any other debt(s) that had to
be satisfied in order for the borrower to qualify for the loan.
Resident Alien
A
non-U.S. citizen who is granted most of the rights of a U.S. citizen, including permanent residency in the United States. Resident Alien status is usually
evidenced by a "Green Card."
RESPA
Abbreviation
for the federal Real Estate Settlement Procedures Act, which requires lenders
to disclose information on the nature and costs of the real estate settlement
process, limits certain fees and charges, and regulates the amount home buyers
are required to place in escrow.
Revolving Debt
A
debt that does not have a fixed payment, although repayment is usually a
percentage of the outstanding balance and made at regular intervals; most
common are credit cards issued by banks or department stores.
Sales Contract
The
agreement between buyer and seller for the sale of a property.
Second Mortgage
A
loan that is junior to a primary or first mortgage and often has a higher
interest rate and a shorter term.
Second/Vacation Home
A
second home/vacation home that is occupied by the borrower for some portion of
the year for his/her exclusive use and enjoyment but which is suitable for year
round occupancy. It cannot be subject to a mandatory rental pool and the
borrower does not intend to use the property for income producing purposes.
Secondary Market
A
market in which investors like GNMA, FHLMC, FNMA and private organizations
buy large numbers of mortgages from the primary lenders and either hold them in
a portfolio or package them for sale to others. By selling loans in the
secondary market, lenders obtain the funds needed to make new loans.
Self-Employed Borrower
A
borrower whose income is derived from a business in which he/she has an
ownership interest of 25% or more.
Servicing
The
responsibility of collecting monthly mortgage payments and properly crediting
them to the principal, interest, taxes and insurance, as well as keeping the
borrower informed of any changes in the status of the loan.
Settlement
See:
Closing.
Settlement Costs
See:
Closing Costs.
Subdivision
An
area of land that is platted and sub-divided into individual lots.
Simple Interest Loan
A
loan on which interest is computed and charged on the actual balance each day
instead of on a monthly accrual where interest is charged from one scheduled
payment due date to the next, without regard to the date on which the borrower
actually pays. The interest paid on simple interest loans will be higher
if the borrower's payments are made later than scheduled and lower if the
borrower's payments are made earlier than scheduled.
Survey
A
physical measurement of property done by a registered professional showing the
boundaries, dimensions and location of any buildings as well as easements,
rights of way, roads, etc.
Tax Assessed Value
The
value of a taxable property as determined by the county or municipal property
assessor. This information is maintained in a database and updated
periodically by the county or municipality.
Tax Lien
A
claim against property for unpaid taxes. A municipality's claim against a
property for real estate taxes is a first and paramount lien, whether or not
the taxes are due. A lien can also attach to property for non-payment of
federal or state income taxes.
Temporary Buydowns
A
loan on which the interest rate has been "bought down" for a
temporary period of time at the beginning of the loan by escrowing funds at the
time of closing, which will be applied to the total monthly mortgage payment as
each becomes due.
Title
A
formal document establishing ownership of property.
Title Insurance
A
policy issued by a title insurance company insuring that the borrower has clear
title to the property and that the lender has a valid mortgage, subject only to
liens, claims and exceptions disclosed in the title insurance policy.
Townhouse
A
row house or other attached housing. Often "townhouse" is the
designation used for a non-apartment style condominium with more than one
floor.
Trust Deed
See:
Deed Of Trust.
Truth-in-Lending
The
Truth-in-Lending Act requires lenders to disclose the cost of credit and other
loan terms to consumers, and also provides a 3 day right of rescission on
refinancing of owner-occupied primary residences.
Underwriter
A
professional who approves or denies a loan to a potential home buyer based on
the home buyer's credit history, employment history, assets, debts, property
appraisal and other factors such as loan guidelines.
Uniform Settlement
Statement
A
standard document prescribed by the Real Estate Settlement Procedures Act
disclosing all costs paid in connection with the settlement of a real estate
transaction. Also called a HUD-1 or a HUD-1A.
VA loan
See:
Veterans
Administration.
Vacation Home
See:
Second/Vacation Home.
Variable Rate
An
interest rate that adjusts periodically according to the financial index it is
based upon plus a margin. A variable rate must be based on a publicly
available index such as the Prime Rate published in major daily newspapers or
US Treasury Bills. The interest rate may increase or decrease based on
changes in the index.
Veterans Administration (VA)
The
federal agency responsible for the VA loan guarantee program as well as other
services for eligible veterans. In general, qualified veterans can apply for
home loans with no down payment and a mortgage insurance premium of 1 percent
of the loan amount.
Walk-Through
An
inspection of a property by the prospective buyer prior to closing on a
mortgage.
Warranty Deed
A
document protecting a home buyer against any and all claims to the property.
Wraparound Mortgage
A
junior mortgage taken back by the seller for the amount of the property's
purchase price less the buyer's down payment. The existing loan is retained and
combined with a new, larger loan and the interest rate is set somewhere between
the old rate and the current market rate. A typical wraparound is an interest
only loan with a 5-year balloon or less.
Zoning
The
ability of local governments to specify the use of property in order to control
development within designated areas of land. For example, some areas of a
neighborhood may be designated only for residential use and others for commercial
use such as stores, gas stations, etc.
