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Abstract of Title - A written history of all the
transactions that bear on the title to a specific piece of
land. An abstract of title covers the time from when the
property was first sold to the present.
Acceleration Clause - The section in a mortgage
document that allows the lender to speed up the payment date
in the event of a default, making the entire principal amount
due.
Adjustable Rate Mortgage (ARM) - A mortgage in which
the interest rate varies during the term of the mortgage. Also
called a Variable Rate Mortgage.
Amortization Schedule - A timetable for payment of a
mortgage reflecting the amount of each payment applied to
interest and principal and the balance remaining.
Annual Percentage Rate (APR) - The total yearly cost of
a mortgage stated as a percentage of the loan amount; includes
such items as the base interest rate, primary mortgage
insurance, and loan origination fee (points)
Appraisal - A professional opinion or estimate of the
market value of a property.
Appreciation - An increase in the value of a property
due to changes in market conditions or improvements to the
property.
Assumable Mortgage - A mortgage that a buyer can assume
or take over from the seller of the property.
Balloon Note - A note that usually calls for a final
payment greater than that of the regular periodic payments.
Binder - A preliminary agreement secured by the payment
of earnest money under which a buyer offers to purchase real
estate.
Biweekly Mortgage - 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.
Blanket Mortgage - A mortgage encumbering more than one
piece of property.
Bridge Loan - A short-term loan in effect from the end
of one loan to the beginning of another loan, or prior to
permanent financing.
Broker Premium - Premium paid to mortgage broker as the
"middleman" in the mortgage process between the lender and the
borrower. Lenders offer brokers wholesale rates; brokers add a
surcharge to cover the cost of underwriting to arrive at the
rates charged to borrowers.
Buy Down - Obtaining a lower interest rate by paying
additional points to the lender.
Cap - A provision of an Adjustable Rate Mortgage
limiting how much the interest rate or mortgage payments may
increase or decrease.
Certificate of Occupancy - Document issued by a local
governmental agency that states a property conforms to local
building standards for occupancy and is in compliance with
public health and building codes.
Certificate of Title - A statement provided by a title
company or attorney atating that the title to the real estate
is legally held by the current owner.
Clear Title - A title that is free of liens or legal
questions as to ownership of a piece of property.
Closing - Time when new mortgage and note are signed by
parties in title or parties taking title to real property.
Closing Costs - Costs associated with securing a
mortgage loan. On a purchase loan, funds are usually brought
to closing whereas, in a refinance or 2nd mortgage, the costs
are usually borne from the loan proceeds.
Commission - Fee paid to a mortgage broker for
assisting in a mortgage transaction. Real estate brokers
receive a commission based on the sales price of a property.
Commitment - see Mortgage Commitment
Comparables or "comps" - Refers to "comparable
properties," which are used for comparative purposes in the
appraisal process. Comps are recently sold properties that are
similar in size, location and amenities to the home for sale.
Comps help an appraiser determine the fair market value of a
property.
Conforming Loan - Amount A Fannie Mae(FNMA) established
maximum loan amount based on the property's legal number of
units(1 family, 2 family, etc.) Loan amounts up to this
maximum dollar amount are considered "conforming loans."
Contract of Sale - Wriiten contract signed by both
parties in which the seller agrees to sell and the buyer
agrees to buy under certain specific terms and conditions.
Conventional Mortgage - A mortgage made by a bank or
other private institution and not insured by a governmental
agency.
Covenant - A written restriction on the use of land,
most commonly in use today in homeowners associations.
Credit Report - A report detailing a consumers credit
history including payment history on revolving and installment
accounts. A credit report may also include information found
from public records such as judgements, tax liens, and
bankruptcies.
Debt-to-Income Ratio - The percentage of a person's
monthly earnings used to pay all debt obligations. Lenders
consider two ratios, constructed in slightly different ways.
The first, called the front-end-ratio, the ratio of the
monthly housing expenses including principal, interest
property taxes and insurance (PITI) is compared to the
borrower's gross, pretax monthly income. In the
back-end-ratio, a borrower's other debts such as auto loans
and credit cards, are also figured in. Lenders usually take
both into account and set an acceptable ratio. Some lenders
take only the back-end-ratio into account.
Deed - An instrument in writing duly executed and
delivered that conveys title to real property.
Depreciation - A decline in the value of property: the
opposite of appreciation.
Discount Points - A charge made by the lending
institution to the borrower that is based on the mortgage
amount. A point is one percent of the principal mortgage
amount.
Down Payment - The amount paid for the purchase of a
property in addition to the mortgage, but not including any
closing costs.
Easement - The right to enter or use a portion of the
land of another for a specific purpose.
Encroachment - Construction, such as a wall, fence,
building, etc., on the property of another.
Encumbrance - A lien, charge or liability against a
property.
Equal Credit Opportunity Act - 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 - The interest or value which the owner has in
real estate over and above the liens against it.
Escrow - A written agreement between two or more
parties providing that certain instruments or property be
placed with a third party to be delivered to a designated
person upon the fulfillment or performance of some act or
condition.
Fair Credit Reporting Act - A consumer protection law
that regulates the disclosure os consumer credit reports by
credit reporting agencies and establishes procedures for
correcting mistakes on a person's credit record.
Fair Market Value - A fair price for a home based on
recent sales of properties of similar size and quality in the
neighborhood.
Federal Housing Administration (FHA) Mortgage - A
mortgage loan made by a lender and insured by the Federal
Housing Administration.
FHLMC (Freddie Mac) Federal Home Loan Mortgage Corporation
- A federal agency purchasing first mortgages, both
conventional and federally insured, from members of the
Federal Reserve system and the Federal Loan Bank System.
First Mortgage - The primary mortgage on a property. If
a foreclosure occurs, the first mortgage is repaid before any
"junior" mortgages.
Fixed Rate Mortgage - A mortgage in which the monthly
payments remain the same for the term of the loan. This loan
is self-liquidating.
Flood Insurance - Insurance indemnifying against loss
by flood damage, required by lenders in areas
designated(federally) as potential flood areas.
FNMA (Fannie Mae) - A quasi-government agency, now
publicly owned, which purchases mortgages from the original
mortgage lenders.
Foreclosure - A procedure whereby property pledged as security
for a debt is sold to pay the debt in the event of default in
payment or terms.
Free and Clear - A property that has no liens.
Ginnie Mae (GNMA) - Nickname for the Government
National Mortgage Association. A government-owned corporation
within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress in 1968,GNMA offers a special
assistance loan program.
Good Faith Estimate (GFE) - A written estimate of
closing costs that a lender must provide a prospective home
buyer within three days of submitting a mortgage loan
application.
Hard Money Loans - Mortgage loans that are made to
borrowers who have significantly adverse credit. These loans
are usually made by private investors or funding companies.
Hazard Insurance - Insurance protecting against loss to
real estate caused by fire, natural causes, vandalism, etc.,
depending upon the terms of the policy.
Home Equity Line Of Credit (HELOC) - A mortgage loan,
usually in second position, that allows the borrower to obtain
cash drawn against the equity of his home, up to a
predetermined amount.
Home Equity Loan - A home equity loan is a second
mortgage or lien on your home. Home equity loans can be a very
powerful tax-deductible financial tool. Since home equity
credit is a type of mortgage, it shares lower interest rates
and the tax advantages of mortgages. You can borrow up to
$100,000 of your available home equity for virtually any
purpose, and, in most cases, 100% of the interest paid each
year is tax deductible (ask your tax advisor).
Homeowner's Insurance - An insurance policy that
combines personal liability insurance and hazard insurance
coverage for a residence and its contents.
Housing Ratio - The ratio of the monthly housing
payment (PITI) to total gross monthly income, Also called
Payment-to-Income Ratio or Front-End-Ratio.
HUD - The U.S. Department of Housing and Urban
Development.
HUD-1 Statement - A document with an itemized listing
of closing costs payable at the closing or settlement meeting
when mortgaging property. The closing costs can include a
commission, loan fees and points, and sums set aside for
escrow payments, taxes and insurance. It is signed by the
mortgagor(s). This statement form is published by the
Department of Housing and Urban Development (HUD).
In Rem - A proceeding against the realty directly; as
distinguished from a proceeding against a person. (Used in
taking land from nonpayment of taxes, etc.)
Index - A published interest rate not controlled by the
lender to which the interest rate on an Adjustable Rate
Mortgage(ARM) is tied. The index and the interest rate linked
to it may increase or decrease.
Interest - The amount of money earned by the principal
during a specified period of time.
Interest Rate - A percentage that when multiplied by
the principal determines the amount of money that the
principal earns over a period of time, usually one year.
Joint-Tenancy - A form of ownership where two parties
own a property equally.
Judgement - The decision of a court of law stating that
one individual is indebted to another and fixing the amount of
indebtedness. Judgements when recorded, become a lien on real
property owned by the defendant.
Jumbo Loan - Loan size that is larger than the limit
established by Fannie Mae or Freddie Mac.
Junior Mortgage - A mortgage of lesser rank than the
first mortgage. A mortgage second in lien to a previous
mortgage. Also see "first mortgage".
Lease-Purchase Mortgage - A financing option that
allows a potential home buyer to lease a property with the
option to buy. Often constructed so the monthly rent payment
covers the owner's first mortgage payment, plus an additional
amount as a savings deposit to accumulate cash for a
downpayment. A seller may agree to a lease-purchase option if
the housing market is saturated and the seller is having
difficulty selling the property
Lessee - A person to whom property is rented under a
lease ("tenant").
Lessor - A person who rents property to another under a
lease("landlord").
Lien - A legal right or claim upon a specific property
which attaches to the property until a debt is satisfied.
Life Estate - 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.
Lis Pendens - A legal document filed in the office of
the county clerk giving notice that an action or proceeding is
pending in the courts affecting the title to the property.
Loan Application - A document required by a lender
prior to loan approval. The application includes detailed
information about the borrower and the property.
Loan Origination Fee or Points - Cahrage by a lender or
broker connected with originating a loan. This is different
than discount points which are used to buy down the rate of
interest.
Loan to Value (LTV) - The percentage of loan available
toward the value of the property.
Lock-in - A written agreement guaranteeing the home
buyer/owner a specified interest rate provided the loan is
closed within a set period of time. There is sometimes a point
that is paid in advance to lock-in at a specific rate/time.
Margin - The number of percentage points added to the
index on a one year adjustable rate mortgage (ARM). For
example, if the index rate is 9 percent and the margin is 3
percent, than the fully indexed rate is 12 percent.
Market Value - 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 of property could
actually be sold for at a given time.
Mortgage - A legal document that establishes real
estate as the security for the loan which finances that real
estate. Colloquially, the term "mortgage" is sometimes used to
refer to the loan itself.
Mortgage Banker - The lender that originates the
mortgage loan; the one making the loan directly and closing
the loan.
Mortgage Broker - An individual or company that brings
borrowers and lenders together for the purpose of loan
origination. Unlike a mortgage banker, brokers do not fund the
loan but work on behalf of several lenders. Brokers typically
require a fee or a commission for their services.
Mortgage Commitment - A written offer of a mortgage
loan by a lending institution . Often in the form of a letter,
the commitment specifies the terms and conditions of the
mortgage loan being offered to the prospective borrower.
Mortgage Note - 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 should be
paid. The note states the actual amount of the debt that the
mortgage secures and renders the mortgagor personally
responsible for repayment.
Mortgagee - The institution or person who is the lender
or creditor on a mortgage loan.
Mortgagor - The institution or person who is the
borrower or debtor on a mortgage loan.
Negative Amortization - 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.
No Income Check Loan - This program is designed for the
entrepreneur or self-employed that choose not to have their
income revealed or just have difficulty proving their income.
The rate tends to be higher on a No Income Check Loan.
No-Documentation Loans or NO-DOC - NO-DOC means No
verification of income or even job. Rates will vary depending
on LTV and credit scores.
Note - A written instrument that acknowledges a debt
and promise to pay.
Origination Fee - A fee imposed by a lender to cover
certain processing expenses in connection with making a real
estate loan. It is usually a percentage of the loan amount.
Owner Financing or Seller-take-back - A property
purchase transaction in which the seller of the property
provides all or part of the financing.
Owner of Record - The individual named on a deed that
has been recorded at the county recorders office.
Part 41 - Regulations on High Cost Mortgages in NY. For
more information, visit
http://www.banking.state.ny.us/41ppt/index.htm
Piggy Back Loan - A second loan on a home, usually up
to 15%-20% of the property's purchase price. If you make a 10%
downpayment on a home, one way to avoid paying for private
mortgage insurance (PMI) is to get two loans. Here's how it
works: you get a loan for 80% of a property's purchase price
at a standard interest rate and then get a second, "piggy
back" loan at 10% of the purchase price, though at a higher
rate. This type of financing is commonly called 80-10-10. If
the first loan is less than $227,150, you can opt for a
75-15-10 arrangement, which will give you a lower interest
rate on the first loan. To figure out if getting a second
makes sense for you, compare your monthly costs with a piggy
back loan versus PMI.
PITI - Principal, interest, taxes and insurance- the
components of a monthly mortgage payment.
Planned Unit Developments (PUD) - A subdivision of five
or more individually owned lots with one or more other parcels
owned in common or with reciprocal rights in one or more other
parcels.
Points - Charges levied by the broker or lender and
usually payable at closing. One point represents 1% of the
face value of the mortgage loan.
Power of Attorney - A written document authorizing a
person to act on the behalf of another person. That person
does not have to be an attorney.
Pre-approval - The process goes a step further than
prequalification. It means the broker or lender has verified
the borrower's earnings(unless stated), assets, etc. The
borrower receives a letter stating the lender is willing to
grant a mortgage for a specified amount, within a period of
time.
Pre-qualification - An early evaluation by a lender of
a potential home buyer's credit report plus earnings, savings,
and debt information. The home buyer gets a nonbinding
estimate of the mortgage amount the borrower would qualify
for, or how much house the borrower can afford. Buyers who
pre-qualify can go a step further and seek pre-approval.
Pre-paids - Those expenses of property which are paid
in advance of their due date and will usually be prorated upon
sale, such as taxes, insurance, rent, etc.
Prepayment Penalty - A charge imposed by a mortgage lender on
a borrower who pays off the mortgage loan early in its term.
The prepayment penalty is specified in the note.
Prime Rate - The lowest commercial interest rate charge
by a bank on short term loans to their most credit worthy
customers.
Private Mortgage Insurance (PMI) - Insurance provided
by non-government insurers that protects lenders against loss
if a borrower defaults. Fannie Mae generally requires private
mortgage insurance for loans with loan-to-value(LTV)
percentages greater than 80%.
Processor - An employee at a mortgage company
responsible for collecting documentation from borrowers and
banks. Their duties include the gathering of income
information, mortgage verifications/payoffs, homeowners
insurance, ordering appraisal and title or any other
conditions that a lender requests to facilitate the closing of
a mortgage loan.
Purchase Money Mortgage - A mortgage given by a
guarantee in part payment of the purchase price of real
estate.
Quit Claim Deed - A deed which transfers whatever
interest the maker of the deed may have in the particular
parcel of land. A quit claim 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.
Rate Lock - A commitment issued by a lender to a
homebuyer/homeowner guaranteeing a specific interest rate for
a specified amount of time.
Real Estate Agent - A person licensed to negotiate and
transact the sale of real estate on behalf of the property
owner.
Real Estate Settlement Procedures Act (RESPA) - A
consumer protection law that requires lenders to give home
buyers advance notice of closing costs, which are payable at
closing or settlement meeting.
Real Property - Land and generally whatever is erected
upon or affixed thereto.
Realtor - A real estate broker or an associate who
holds active membership in a local real estate board that is
affiliated with the National Association of Realtors.
Recision - The cancellation of a contract. When
refinancing a mortgage on a principal residence, the law gives
the homeowner three days (recision period) to cancel the
contract.
Recording - The act of writing or entering in a book of
public record instruments affecting the title to real
property.
Refinance - A mortgage which replaces an existing
mortgage.
Reverse 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.
Sales Agreement - A written contract signed by the
buyer and the seller of a house stating the terms and
conditions under which the property will be sold.
Second Mortgage - 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 since
they represent a higher risk for an investor.
Secondary Mortgage Market - The buying and selling of
existing mortgages.
Section 32 Mortgages - What Loans Are Covered? A loan
is covered by the law if it meets the following tests: the
annual percentage rate (APR) exceeds by more than 10
percentage points the rates on Treasury securities of
comparable maturity; or the total fees and points payable by
the consumer at or before closing exceed the larger of $451 or
8 percent of the total loan amount. (The $451 figure is for
2000. This amount is adjusted annually by the Federal Reserve
Board, based on changes in the Consumer Price Index.) The
rules primarily affect refinancing and home equity installment
loans that also meet the definition of a high-rate or high-fee
loan. The rules do not cover loans to purchase or initially
construct your home, reverse mortgages, or home equity lines
of credit (similar to revolving credit accounts).
Servicer - An organization that collects monthly
mortgage principal and interest payments from homeowners and
manages escrow accounts for paying taxes and homeowner's
insurance premiums. The servicer often services mortgages that
have been purchased by an investor in the secondary mortgage
market.
Settlement - See closing
Stated Loan - A mortgage product available to borrowers
who do not wish to prove their income. It is usually designed
for self-employed borrowers or borrowers that would rather
state their income rather than submit proof of income.
Sub-Prime or sub prime - A sub-prime loan is any loan
in which the borrower has challenges in obtaining mortgage
financing because of poor credit, hard to document income or
assets, or any unique situation that would prevent them from
obtaining funding through "conforming" lenders.
Subordination Clause - A clause which permits the
placing of a mortgage at a later date which takes priority
over an existing mortgage.
Survey - Map made by a licensed surveyor who measures
land and charts its boundaries, improvements and relationship
to the property surrounding it.
Tax Lien - Lien for nonpayment of taxes.
Tax Sale - Public sale of property at an auction by a
government authority as a result of nonpayment of taxes.
Teaser Rate - A low initial rate on a mortgage. This is
often used to induce people into the loan since the start rate
is low.
Tenants-by-Entirety - A form of ownership in which
husband and wife are co-owners with rights of survivorship.
Tenants-in-Common - An undivided interest in property
taken by two or more persons. The interest need not be equal.
Upon death of one or more persons, there is no right of
survivorship.
Title - Evidence that an owner of land is in lawful
possession thereto; evidence of ownership.
Title Insurance - A policy of insurance which
indemnifies the holder for any loss sustained by reason of
defects in the title.
Title Search - An examination of the public records to
determine the ownership and encumbrances affecting real
property.
Transfer Tax - Tax paid to the city, county, state or
other government entity upon sale of a property.
Truth-in-Lending Act or Regulation Z - A federal law
requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the
lending terms of different financial institutions.
Underwriting - The decision whether to make a loan to a
buyer/homeowner based on credit, income, employment history,
assets, etc.
Unencumbered - Free of liens and other encumbrances.
Free and clear.
Unmarketable Title - Not saleable. A title which has
serious defects.
Unrecorded Deed - A document that transfers title from
the grantor to the grantee without recording( e.g. providing
public notice).
Vendor - The person who transfers property by sale.
Another word for "seller". Commonly used in land contract
sales.
Verification of Deposit (VOD) - A document signed by
the borrower's bank or other financial institution verifying
the account balance and history.
Verification of Employment (VOE) - A document signed by
the borrower's employer verifying his/her employment. Some
investor's will accept a VOE verbally from an employer.
Verification of Mortgage (VOM) or Mortgage Verification
- A form sent to a potential investor or lender that provides
a loan summary which includes payments made and detailed loan
statistics and information.
Veterans Administration (VA) - A government agency
guaranteeing mortgage loans with no down payment to qualified
veterans.
Waive - To knowingly abandon, relinquish, or surrender
a right, benefit, or claim.
Wraparound Mortgage - A new mortgage that includes the
remaining balance on an old mortgage, plus a new amount.
Yield - Ratio of income from an investment to the total
cost of the investment over a given period of time.
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Glossary of Terms
