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Mortgage Terms Glossary
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A written history of ownership to a specific area of land. An abstract of title covers the period from the original source of title to the present time and summarizes all subsequent documents that have been recorded against that area.
ACH (Automatic Clearing House)
Electronic Drafting system that debits an authorized bank account and electronically transfers funds scheduled for remittance.
Acquisition Costs
Costs of acquiring property other than purchase price, for example, attorney fees, title insurance, lender's fees.
Addendum
An agreement or list that is added to a contract, agreement, or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal.
Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically according to a pre-selected index.
Adjusted Gross Income
A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions and expenses (alimony).
Adjustment Period
The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM).
Agricultural Property
Unimproved property available for farming activities.
Alimony
Periodic payments made under a divorce decree or a written separation agreement toward
the support of a former spouse.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors, and attorneys specializing in real property law. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.
Amortization
Payment of a debt in regular, periodic installments of principal and interest as opposed to interest only payments.
Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.
Annual Percentage Rate (APR)
A yearly percentage rate that expresses the total finance charge on a loan over its entire term, The APR includes the interest rate, fees, points, and mortgage insurance, and is therefore a more complete measure of a loan's cost than the interest rate alone. The loan's interest rate, not its APR, is used to calculate the monthly principal and interest payment.
Applicant
A prospective borrower who has completed an application, an application is series of steps, usually including the completion of documents, a lender requires of those seeking a loan.
Application
A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.
Application Fee
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal and credit report.
Appraisal
A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.
Appraised Value
An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.
Appraiser
A person qualified by education, training and experience to estimate the value of real and personal property.
Appreciation
An increase in the value of property due to either a positive improvement of the area or the elimination of negative factors. Commonly, and incorrectly, used to describe an increase in value through inflation.
As Separate Property
Ownership in real property which is to be specifically excluded from community property.
Assessed Valuation
The value that a taxing authority places on real or personal property for the purpose of taxation.
Assessment
A charge against a property for purpose of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.
Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.
A mortgage that has level monthly payments that will fully amortize it over a stated term, but which provides for a lump-sum payment to be due at the end of an earlier specified term.
Bankruptcy
A proceeding in a federal court in which a debtor, who owes more than his or her assets, can discharge personal liability for his or her debts. This affects the borrower's personal liability for a mortgage debt but not the lien of the mortgage.
Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.
Borrower
A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.
Break-Even Point
The point at which total income is equal to total expenses.
Bridge Financing
A loan spanning the gap between the termination of one loan (generally short-term) and the start of another (generally permanent long-term) loan. Also referred to as gap financing.
Bridge Loan
A form of second deed of trust or mortgage that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
Buydown
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.
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Currency, checks and other negotiable instruments acceptable for direct deposit by a bank.
Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.
Cash Reserve
A requirement by some lenders that buyers have sufficient cash remaining after closing to make the first mortgage payment.
Cash Out Refinancing
When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
Closing
The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.
Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.
Closing Statement
A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.
Collateral
Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.
Collection
The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to bring foreclosure when necessary.
Commitment (Loan)
A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.
Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.
Compensating Factors
Positive characteristics of a borrower's credit, employment or savings history which may be used to offset high debt-to-income ratios in the underwriting process.
Co-mortgager
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA Certificate of Commitment and the mortgage or deed of trust. For full guarantee under the VA's program, the co-mortgagor must be either a spouse or another eligible veteran.
Comparable Properties
Properties used for comparative purposes in the appraisal process that have been recently sold and have characteristics similar to property being appraised, thereby indicating the approximate fair market value of the subject property.
Concession
A discount or other inducement given by a landlord or seller to a prospective tenant or buyer to induce them to sign a lease or purchase property.
Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive.
Contingency
A condition that must be met before a contract is legally binding.
Conventional Mortgage
A mortgage not obtained under a government insured program (such as FHA or VA).
Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative
A building of two or more dwelling units that is owned by a cooperative corporation made up of people in the building. The right to occupy a unit is obtained by buying shares of stock in the corporation and signing an occupancy agreement known as a proprietary lease.
Covenant
A clause in a contract that obligates or restricts the parties and which, if violated, can result in legal action.
Credit Report
A report detailing an individual's credit history.
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An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.
Default
The failure to perform an obligation as agreed in a contract.
Delinquency
A loan payment that is overdue but within the period allowed before actual default is declared,
DeMinimus PUD
A Planned Unit Development (PUD) in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units.
Department of Housing and Urban Development (HUD)
A governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.
Department of Veterans Affairs (VA)
A cabinet-level agency of the federal government. The Servicemen's Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, no down payment financing to eligible veterans by partially guaranteeing the lender against loss upon foreclosure.
Deposit
A sum of money given to bind a sale of real estate. Also known as earnest money.
Depreciation
A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.
Disclosure
Information relevant to specific transactions that is required by law.
Discount Point
A point paid to the lender to permanently buy down or lower an interest rate. It is usually a percentage of the loan amount.
Discounted Loan
When the note rate on a loan is less than the market rate, it is a discounted loan. However, the lender requires additional points to raise the yield on the loan to the market rate.
Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
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A portion of the down payment delivered with a purchase offer by the purchaser of real estate. Delivered to the seller, or an escrow agency, by the purchaser with the purchase offer as evidence of good faith. Also known as a deposit.
Easement
A right of way giving persons other than the property owner access to or over a property.
Effective Interest Rate
The actual rate of return or yield to an investor. The actual rate of interest paid by a borrower.
Encroachment
An improvement that illegally violates another's property or right to use that property.
Encumbrance
Anything that affects or limits the fee simple title to property, such as mortgages, liens, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.
Equity
The ownership interest; i.e, portion of a property's value over and above the liens against it.
Equity Loan
A loan based on the borrower's equity in his or her home.
Escrow
An item of value, money or documents, deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves.
Escrow Account
The segregated trust account in which escrow funds are held.
Escrow Agent
The person or organization having a fiduciary responsibility to both the buyer and seller (or lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also called escrow company or escrow depository.
Escrow Payment
That portion of a mortgagor's monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also called impounds or reserves in some states.
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Fair Credit Reporting Act (FCRA)
This law requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.
Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)
A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal, and interest guaranteed by the federal government through the FHLMC. It also sells Government National Mortgage Association bonds to raise funds to finance the purchase of mortgages. Popularly known as Freddie Mac.
Federal National Mortgage Association - FNMA (FANNIE MAE)
A taxpaying corporation created by Congress to support the secondary mortgage market, It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.
Fee Simple
The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one's heirs.
First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages.
Fixed Interest Rate
An interest rate which does not change during the loan term.
Fixed-rate Mortgage (FRM)
A mortgage in which the interest rate and payments remain the same for the life of the loan.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.
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Factory-built or prefabricated housing, including mobile homes.
Margin
The set percentage the lender adds to the index rate to determine the interest rate of an ARM.
Market Value
The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).
Maturity
The termination or due date, on which final payment on a loan must be paid in full.
Mobile Home
A factory-assembled residence consisting of one or more modules, in which a chassis and wheels are an integral part of the structure, and can be readied for occupancy without removing the chassis and/or wheels.
Modular House
A factory-assembled residence built in units or sections, transported to a permanent site and erected on a foundation. Excludes mobile homes.
Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.
Mortgage
The conveyance of an interest in real property given as security for the payment of a loan.
Mortgage Broker
A company that for a fee matches borrowers with lenders.
Mortgage Commitment
An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term and amount.
Mortgagee
The lender on a mortgage transaction.
Mortgage Insurance
See private mortgage insurance.
Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance -either to the FHA or to a private mortgage insurer.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.
Mortgagor
The borrower in a mortgage transaction who pledges property as security for a debt.
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A loan payment schedule in which the outstanding principal balance goes up, rather than down, because the payments do not cover the full amount of interest due. The unpaid interest is added to the principal.
Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.
Note
A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.
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A claim against property for unpaid taxes.
Tenancy
The use of real estate under any kind of right of title.
Term
The time limit within which a loan must be repaid.
Title
The legal evidence of ownership rights to real property.
Title (Insurance) Company
A company that confirms the legal owner of a property, as well as insures a home owner and lender against a loss that could result from a title dispute.
Title Insurance
An insurance policy that protects a lender and/or homebuyer (only if homebuyer purchases a separate policy, called owner's coverage) against any loss resulting from a title error or dispute.
Title Insurance Policy
A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgagee, or otherwise.
Title Search
An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.
Torrens Certificate
A certificate issued by a public authority called a registrar of titles, establishing title of an indicated owner. Used when title to property is registered under the Torrens system of land registration.
Transfer Tax
State or local tax payable when the title passes from one owner to another.
Trust Deed
The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower's fulfillment of an obligation. A mortgage.
Truth -in -Lending Act
A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms and financial institutions.
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Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given
property for given borrowers.
URLA
A loan origination strategy by which loans are purchased from mortgage brokers, mortgage bankers, or other loan originators (banks, thrifts etc.) The loans may be purchased prior to closing, at closing or after the loans are closed depending on the arrangement between the originator and the wholesale lender, Wholesale origination enables a lender to acquire mortgage servicing rights without incurring the fixed costs associated with a retail origination strategy.
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The lender's percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.
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An option which allows the borrower to opt to pay a slightly higher loan interest rate in lieu of paying the loan origination points generally charged for the particular loan product.
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