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Abstract (Of abce)
A summary of the public records relating to the title to a particular piece of land. An attorney
or title insurance company reviews an abstract of title to determine whether there are any title
defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause
A contract stating that the unpaid balance becomes due and payable if specific actions transpire,
such as failure to make interests payments on time
Acceptance
Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the
word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity.
Adjustable-Rate Mortgage (ARM)
A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based
on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index
value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to
life-of-loan interest rate and/or payment rate caps.
Adjustment Period
This is the length of time for which the interest rate is fixed on an adjustable rate mortgage. After
that period it will be adjusted. Typically, once or twice a year depending on the index.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement, or sales agreement according
to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy,
under certain specific terms and conditions spelled out in writing and signed by both parties.
Alienation Clause
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.
American Option
An option, which may be exercised at any valid business date through out the life of the option.
Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.
Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because
all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with
a good basis for comparing the cost of loans, including mortgage plans.
Appraisal
An expert judgment or estimate of the quality or value of real estate as of a given date.
Arbitrage
A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in
order to cash in on the difference in these markets.
Assessed Value
A figure in dollars determined for tax purposes by an assessor, which reflects a property's worth and which, unless
exempt, is used to compute a tax dollar obligation by multiplying it by a tax rate.
Assessing Unit
A city, county, town or village with the authority to value real property for purposes of taxation.
Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the
seller. The lender has to be notified and agree to the assumption. Assuming a loan can usually save a money
since the buyer isn't required to pay most of the closing costs.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage.
In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the
original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually
required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully
released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person
assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject
to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original
mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor
remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They
may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Attached Home
A real property that has one or more common walls adjoining with another property. Condominiums and row houses are
attached homes.
Balloon Mortgage
A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for
the entire amount of the outstanding principal. Usually they have terms of 3,5, and 7 years.
Bank Regulation
The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the
conduct and structure of banking.
Bank Notes
Paper issued by the central bank, redeemable as money and considered to be full legal tender.
Bear
A person who believes that prices will decline.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase
real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the
buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides
that it is to be refunded.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bridge Loan
An interim loan is made to finance a buyer's new residence if the buyer is unable to sell his/her current residence
but needs money to close the transaction.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be
established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by
zoning ordinances.
Buydown
A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of
the consumer's periodic payments to repay the indebtedness.
Caps
A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life
of the mortgage. Most ARMs have an interest rate caps to protect you from enormous increases in monthly payments.
A lifetime cap limits the interest rate increase over the life of the loan. Lifetime caps can vary by lender,
but most ARM's have caps of 5% or 6%. A periodic or adjustment cap limits how much your interest rate can rise
at one time. Generally, a 6 month ARM will have a cap of 1% while a 1 year ARM will have a 2% cap.
ARMs which have an initial fixed period -- 30/3/1, 30/5/1, 30/7/1 and 30/10/1 -- can have also first adjustment cap.
It limits the interest rate you will pay the first time your rate is adjusted. These ARMs are quoted as three numbers
as in 5/2/5 which would mean that the first adjustment cap is 5%, adjustment cap thereafter is 2%, and the lifetime
cap is 5%.
Capital Gains
Profit earned from the sale of real estate. The new tax code does not tax the profits from the sale of a home if the
proceeds are used to buy another house costing at least as much as the sales price of the old one.
Certificate of Eligibility
The document issued by the U.S. Department of Veterans Affairs. It is required when applying for VA loans.
Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the local building standards for occupancy.
Certificate of deposit (CD)
A time deposit at a bank or savings institution. A time deposit cannot be withdrawn before a specified maturity date
without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by
individuals. Usually, Large CDs of $100,000 or more are in negotiable form. In other words, large CD's can be sold or
transferred among holders before maturity.
Certificate of Reasonable Value
An appraisal issued by the VA approved appraiser, which establishes the property's current market value.
Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable
and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against
any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of
title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is
not as great as that offered in a title insurance policy.
Clear Title
A title that free of clouds and disputed interests.
Closing Costs
The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of
real estate. These costs are in addition to price of the property and are items prepaid at the closing day.
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the
above costs.
Closing Day
The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are
generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and
closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability of title.
Commission
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--6 to 7 percent on houses, 10 percent on land.
Commitment
A written agreement between a lender and a borrower to loan money on specific terms or conditions.
Condemnation
The taking of private property for public use by a government unit, against the will of the owner, but with payment of just
compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental
agency that a particular building is unsafe or unfit for use.
Condominium
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit
project.
Construction loan
A short-term loan to finance building costs.
These loans usually provide periodic disbursements to the builder as each stage of the building is completed. Generally
followed by long term financing called a "take out" loan issued upon completion of construction.
Contingency
A condition put on an offer to buy a home; such as the perspective buyer making an offer contingent on his or her sale of a
present home.
Contractor
In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors
for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and
others.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by
the lending institution and State statutes. The mortgage rates may vary with different institutions and between States.
(States have various interest limits.)
Conversion Option
Some ARM,s come with options to convert them to a fixed rate mortgage during a given time period without having to go through
a refinancing, which could cost up to 5 percent or 6 percent of the loan amount. For example popular conversion options for 1
year treasury-indexed ARM,s include:
1. option to convert on the third, fourth, or fifth adjustment date, i.e. during the 37th, 49th and 61th months of the loan.
2. option to convert during the first five years on the adjustment date, i.e. during the 13th, 25th, 37th, 49th and 61th months
of the loan.
The interest rate or points may be somewhat higher for a convertible ARM. Also, a convertible ARM may require a small fee at
the time of conversion.
Conveyance
The transfer of title from one party to another.
Cooperative Housing
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.
Correspondent Bank
A bank that accepts deposits of and performs banking services for other depository institutions.
Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
Credit Report
A report documenting the history of how you paid back the companies you have borrowed money from, or how you have met
other financial obligations.
Deed
A formal written instrument, 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 purchaser at closing day. There are two parties
to a deed: the grantor and the grantee.
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust
there are three parties to the instrument: 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 defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms
of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his
property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust
like a mortgage.
Default
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth
in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment
prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage
is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take
possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other
conditions in the mortgage or deed of trust.
Deferred interest
When the monthly payments do not cover all of the interest cost, the unpaid interest is deferred by adding
it to the loan balance.
Deficiency Judgment
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to
pay off the mortgages.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Discount
An amount deducted from the regular price for those who purchase with cash instead of credit. Don't confuse this with
the discount on a bond, which is different.
Discount Rate
The interest rate at which eligible depository institutions may borrow funds, usually for short periods, directly from
the Federal Reserve Banks. The law requires the board of directors of each Reserve Bank to establish the discount rate
every 14 days subject to the approval of the Board of Governors.
Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to
another. The amount of stamps required varies with each State.
Down payment
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement
of sale will refer to the downpayment amount and will acknowledge receipt of the downpayment. Downpayment is the
difference between the sales price and maximum mortgage amount. The downpayment may not be refundable if the purchaser
fails to buy the property without good cause. If the purchaser wants the downpayment to be refundable, he should insert
a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement
does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires
the seller to return the downpayment and to pay interest and expenses incurred by the purchaser.
Due-on-Sale Clause
A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.
Earnest Money
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to
show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the
downpayment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer
to purchase expressly provides that it is refundable.
Easement Rights
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company
obtaining a right-of-way across private property is a common example.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private
or public land, or a building extending beyond the building line.
Encumbrance
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.
Equal Credit Opportunity Act
Prohibits discrimination in any aspect of a credit transaction on the basis of race, religion, age, color, national
origin, receipt of public assistance funds, sex, or marital status.
Equity
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's
fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property.
A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage
and all other debts against the property are paid in full the homeowner has 100% equity in his property.
Escrow
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which
the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to
the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust
fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures
for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.
Fair Housing Act
Prohibits discrimination in housing sales or loans on the basis of race, religion, color, national origin, sex, familial
status, or handicap.
Federal Funds
Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds
include certain other kinds of borrowings by depository institutions from each other and from federal agencies.
Federal Deposit Insurance Corporation (FDIC)
Agency of the federal government that insures accounts at most commercial banks and mutual savings banks. The FDIC also has
primary federal supervisory authority over insured state banks that are not members of the Federal Reserve System.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
A stockholder-owned corporation chartered by Congress to create a continuous flow of funds to mortgage lenders in support of
homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages from lenders
and packages them into securities that are sold to investors.
Federal Housing Administration (FHA)
A part of the U.S. Department of Housing and Urban Development (HUD). FHA assists first-time home buyers and others who
might not be able to meet down payment requirements for conventional loans by providing mortgage insurance to private
lenders. It also insures loans for home improvements and buying manufactured (mobile) homes. These programs operate
through FHA approved lending institutions which submit applications to have the property appraised and have the buyer's
credit approved.
Federal National Mortgage Association (FNMA, Fannie Mae)
A stockholder-owned federally chartered corporation. Fannie Mae purchases residential home loans from mortgage lending
institutions, packages the mortgages into securities and sells the securities to investors. The largest source of
residential mortgage funds in the United States.
Fed wire
An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository
institutions.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. Interest rates on FHA loans
are generally market rates, while down payment requirements are lower than for conventional loans. FHA loans cannot
exceed the statutory limit.
First Mortgage
A mortgage that has priority as a lien over all other mortgages.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located
in federally designated flood areas.
Foreclosure
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed
of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession.
General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants
that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or
mechanic's liens against it) the grantee may hold the grantor liable.
Government National Mortgage Association (GNMA, Ginnie Mae)
A wholly-owned government corporation within the U.S. Dept. of Housing and Urban Development helping to finance
government-assisted housing programs. Ginnie Mae guarantees securities backed by pools of mortgages. The mortgages are
insured by the Federal Housing Administration (FHA), or guaranteed by the Veterans Administration (VA) or by the Rural
Housing Service (RHS). Ginnie Mae securities are bought and sold through financial institutions that trade government
securities.
Graduated Payment Mortgage
A type of a mortgage that has lower payments initially and then payments increase each year until the loan is fully amortized.
Grantee
The recipient of the deed.
Grantor
That party in the deed who is the seller or giver.
Gross Domestic Product
Total value of a country's output, income or expenditure produced within the country's physical borders.
Gross National Product
Gross domestic product plus " factor income from abroad" - income earned from investment or work abroad.
Hazard Insurance
Protects against damages caused to property by fire, windstorms, and other common hazards.
Homestead Exemption
The assessed value of a owner-occupied residential property may be reduced by the amount of the exemption for the purposes
of calculating property tax. Not available in some states.
HUD
U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home
mortgage loans made by lenders and sets minimum standards for such homes.
HUD-1 Settlement Statement
A standard form that shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows
the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement.
Impound
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.
Index
A published measure of economic conditions usually relative to other financial instruments such as Treasury notes or Treasury
bills. The lender uses a particular index to calculate the interest rate on an adjustable rate mortgage (ARM) by adding a
fixed margin to the index. The most common indexes are:
- Prime Rate
- Treasury Bill (T-Bill)
- Certificates of Deposit (CD) Indexes
- 12-Month Treasury Average (MTA)
- 11th District Cost of Funds Index (COFI)
- London Inter Bank Offering Rates (LIBOR)
- Constant Maturity Treasury (CMT)
Industrial Production Index
A coincident indicator measuring physical output of manufacturing, mining and utilities.
Inflation
Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as
an excessive movement in such price levels.
Interest
A charge paid for borrowing money.
Joint Tenancy
Joint tenancy is one of the methods available for two or more people to hold title to real estate or personal property. It
includes a right of survivorship, meaning that on the death of one joint tenant, his/her interests transfer to the
remaining joint tenants.
Jumbo Loan
A loan that is larger than the conforming loan limit established by Fannie Mae or
Freddie Mac.
Normally, interest rates on jumbo loans are higher than on conforming loans.
LIBOR
The London Interbank Offered Rate, the rate charged by one bank to another for lending money.
Lien
A claim by one person on the property of another as security for money owed. Such claims may include obligations not met
or satisfied, judgments, unpaid taxes, materials, or labor.
Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the value of the real property expressed as a percentage.
For purchase loans the value of the property is the appraised value or the purchase price, whichever is less.
For refinance loans the value is the appraised value.
A LTV of 80% means that you can borrow a maximum of 80% of the property
value. If a LTV exceeds 80%, a Private Mortgage Insurance (PMI) -- that insures the lender in the event a borrower
defaults -- is generally required.
Down payment is the difference between the purchase price and the mortgage amount.
Lock
A lender's promise to hold a certain interest rate and points for you, for a given number of days, while your loan application
is processed. The interest rates quoted to you may stay the same, decrease, or increase from the day you apply for your
mortgage. Lock-ins on rates and points might offer you a way to ensure that what you shop for is what you get.
However, a locked-in rate could also prevent you from taking advantage of rate decreases. If you think that rates will remain
level or even go down, you may choose to bet on interest rates decreasing by electing to float until you go to closing.
Lock-ins of 30-60 days is common. If your lock-in period expires before you go to closing, you might lose the interest rate
and the number of points you had locked-in. You may ask lender for a longer lock-in period. But bear in mind that lenders
may charge you a fee for a longer lock-in period.
M1
Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by
national financial authorities.
M2
Includes demand deposits, time deposits and money market mutual funds excluding large CD's.
M3
In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
M4
In the US it is M2 plus negotiable CDs.
Monetary Policy
A central bank's management of a country's money supply. Economic theory underlying monetary policy suggests that
controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation.
However, central banks' monetary capability is severely limited by global money movements. This forces them to use the
indirect tool of exchange rate manipulation.
Marketable Title
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to
sell his property freely to others and which others will accept without objection.
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Money Market
A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.
Money Market Operations
Comprises the acceptance and re-lending of deposits on the money market.
Money Supply
The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.
Mortgage
A loan secured by the collateral of some specified real estate property, which obliges the
borrower to make a predetermined series of payments.
Mortgage Broker
A person (not an employee of a lender) who brings a borrower and a lender together to obtain a federally-related mortgage loan.
A mortgage broker has access to a variety of lenders and often offers the most choice in loan programs. Mortgage brokers are
paid a fee by the borrower or the lender when a loan closes.
Mortgage Commitment
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount
to enable a buyer to purchase a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance
program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA
insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
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 shall be paid. The note states the actual amount of the debt that the mortgage secures
and renders the mortgagor personally responsible for repayment.
Mortgage (Open-End)
A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying
additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance
to the original loan figure.
Mortgagee
The lender of a loan secured by real property.
Mortgagor
The borrower of the loan secured by real property
Multiple Listing Service (MLS)
A service offered to participating real estate brokers that lists available homes for sale. The listings are published
and distributed among the member brokers to assist in sales efforts.
Negative Amortization
Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned, but unpaid
interest is added to the principal, increasing the debt. At some point in the future, payments must be rescheduled to
fully repay the debt
Non-conforming loan
Loans, which do not comply with Fannie Mae or Freddie Mac guidelines. These guidelines establish the maximum loan amount,
down payment, borrower credit and income requirements, and suitable properties. Loans that does conform to these guidelines
may be sold to Fannie Mae or Freddie Mac.
Note
A financial instrument consisting of a promise to pay rather than an order to pay or a certificate of indebtedness.
Official Settlements Account
A U.S. balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also
referred to as reserve transaction account.
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions.
Open Market Operations
Central Bank operations in the markets to influence exchange and interest rates.
Overheated (Economy)
Is an economy where high-growth rates placing pressure on production capacity resulting in increased inflationary
pressures and higher interest rates.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.
Package Mortgage
A mortgage covering both real and personal property.
Parcel
A separately assessed for tax purposes lot or piece of real property.
PITI
Principal, Interest, Taxes and Insurance. These components are usually included in the monthly mortgage payment.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for
the benefit and use of the individual PUD unit owners.
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on
the land, and easements.
Points
Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. Finance charges paid by
the borrower at the beginning of a loan in addition to monthly interest; each point equals one percent of the loan amount.
Power of Attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be
limited to certain acts and/or certain periods of time.
Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either
by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. Lenders who impose
prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the
regular schedule. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.
Prime Rate
(1) The rate from which lending rates by banks are calculated in the US.
(2) The rate of discount of prime bank bills in the UK.
Principal
The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal
is the amount upon which interest is paid.
Private Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from non-payment of the loan.
Prorations
The allocation of expenses, such as taxes between buyer and seller at closing based on the number of days the property
is owned during the month of closing.
Processing, Underwriting and Document Fees
Charges for the lender's services associated with making the loan.
Quitclaim Deed
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.
Qualifying Ratios
Lenders use certain guidelines to determine a potential borrower's credit-worthiness. The two guidelines used are the housing
and debt ratios. They are expressed as two numbers like 30/31 where 30 would be the housing ratio and 31 would be the debt
ratio. It means that:
1. Your housing expenses should not exceed 28 percent of your gross monthly income and
2. Housing expenses plus long- term debt should not exceed 36 percent of your gross monthly income.
The housing expenses include monthly mortgage principal, interest payments, property taxes and homeowner's insurance. There
may be other expenses, such as condominium fees, homeowners fees, special assessments, etc., that are included. Long-term
debt is defined as monthly expenses extending more than 10 months into the future. The qualifying ratios may vary from lender
to lender.
Please note that qualifying ratios are only a rough guidelines and underwriters consider many variables in their analysis.
Many times, borrowers fall outside the guidelines, but have strong compensating factors that reflect low credit risk. Some
compensating factors are history of savings, long-term job stability, a substantial down payment or excellent credit history
will influence the decision to approve or deny a particular loan.
Quota
(1) A limit on imports or exports.
(2) A country's subscription to the IMF.
Rate
Assessment of the credit worthiness of an institution.
Rate Reduction Option
A mortgage loan with rate reduction option can be adjusted, under the right conditions, to a lower interest rate with a
payment of small fee. This allows the borrowers to adjust the interest rate on the loan without having to go through a
refinancing, which could cost up to 5 percent or 6 percent of the loan amount. The interest rate or points may be
somewhat higher for a loan with rate reduction option.
Reaction
A decline in prices following an advance.
Real
A price, interest rate or statistic that has been adjusted to eliminate the effect of inflation.
Real Estate
A piece of land and whatever physical property is on it.
Real estate appraisal
An estimate of the value of property using various methods.
Real Estate Broker
A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection statute designed to help consumers be better shoppers in the home buying process. It requires
that borrowers receive disclosures at various times. RESPA also prohibits certain practices that increase the cost of
settlement services.
Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar
of Deeds" or "County Clerk."
Refinancing
The process of the same mortgagor paying off one loan with the proceeds from another loan.
Rescission
The cancellation of a contract. When you use your home as collateral for a loan, you generally have the right to cancel the
credit transaction within three business days. This is called your "right of rescission," and it is guaranteed by the Federal
Truth in Lending Act. See FTC publication.
Reserve Requirement
The ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including the United
States.
Restrictive Covenants
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.
The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent
of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are
encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings
per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or
minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and
has been declared unenforceable by the U.S. Supreme Court.)
Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.
Right of Survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Risk
The degree of uncertainty associated with an investment. The main elements that contribute to the risks of an investment are
volatility, liquidity and leverage. All things being equal, a high degree of volatility and leverage makes an investment more
risky. An illiquid market, where sellers do not always match buyers, also increases risk-investors can be left holding an
asset that is falling in price.
Risk/Return
The relationship between the risk and return on an investment. Usually, the more risk you are prepared to take, the higher the
return you can expect. Depositing your money in a bank is safe and therefore a low return is regarded as sufficient. Investing
in stock market exposes you to more risk (from capital losses) and so investors will expect a higher return.
Second mortgage
A mortgage in addition to the first mortgage. Home equity loans, credit lines, home improvement loans are second mortgage loans.
Second mortgage is subordinate to the first one. Second mortgage loans are non-conforming loans, so, they usually carry a higher
interest rate, and they often are for a shorter time.
Secondary (subordinate) financing
Borrowing additional money toward the down payment. If it is acceptable, usually subject to a maximum combined LTV. Secondary
financing is used as an alternative to obtaining
Section 1031
Under section 1031 of the IRS, owners or real estate held for investment or for use in a trade or business can exchange their
property tax-free for "like-kind" real estate.
Servicing
Servicing means the collection of payments, handling your escrow accounts and management of operational procedures, related to
mortgages, that a lender performs.
Set Back Ordinance
Regulates the distance from the lot line to the point where improvements may be constructed.
Shared Appreciation Mortgage
A residential loan in which a borrower receives a below-market interest rate in return for which the lender receives a specified
share of the future appreciation in the value of the property.
Short-Term Interest Rates
Normally the 90-day rate.
Soft Market
More potential sellers than buyers, which creates an environment where rapid price falls are likely.
Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks,
sewers, street lights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a
right to retain something of value belonging to another person as compensation for labor, material, or money expended in that
person's behalf. In some localities it is called "particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims
asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor
held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during
the time he held title to the property which has, or which might in the future, impair the grantee's title.
Squeeze
Action by a central bank to reduce supply in order to increase the price of money.
Survey
A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements,
boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him
that a building is actually sited on the land according to its legal description.
Tax
As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The
governing body in turn utilizes the funds in the best interest of the general public.
Taxable Assessed Value
The assessed value of a parcel against which the tax rate is applied to compute the tax due. In case of a partial exemption,
the exempt amount is subtracted from the assessed value in order to determine the taxable assessed value.
Teaser Rate
A low initial interest rate on a mortgage.
Tight Money
A condition where there is a shortage of credit as a result of monetary policy restricting the supply of credit normally through
raising interest rates.
Title
As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the
instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership
interest one has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may
be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy,
so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.
Title Insurance Binder
Written commitment of a title insurance company to insure title to the property under the conditions stated in the binder.
Title Search or Examination
A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal
owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the
record, which would adversely affect the marketability or value of title.
Trustee
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.
Truth-In-Lending Act
Under this act a lender is required to provide you with a disclosure estimating the costs of the loan you have applied for,
including your total finance charge and the Annual Percentage Rate (APR) within three business days of your application for
a loan.
Two-Step Mortgage
With this type of loan homebuyers get a fixed rate loan at a slightly lower interest rate for a fixed period of time
(most often for 5, 7, or 10 years) and then the interest rate is adjusted to fit market conditions at that time. After
that adjustment, the mortgage maintains a fixed rate for the remaining years.
Underwriting
A process of deciding whether to make a loan based on your credit reputation, income, debt, appraised value of the house and
other factors.
VA Loan
A mortgage for veterans and service persons guaranteed by the Department of Veterans Affairs (VA), requiring very low or no
down payments and with generous requirements for qualification.
Wholesale Money
Money borrowed in large amounts from banks and institutions rather than from small investors.
Zoning
A local government authority specifications for the use of property in certain areas.
Zoning Ordinances
The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.
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