Real Estate Glossary
A
| B
| C
| D
| E
| F
| G
| H
| I
| J
| K | L
| M
| N
| O
| P
| Q
| R
| S
| T
| U
| V
| W
| X | Y | Z |
401(k)/403(b):
An employer-sponsored investment plan that allows individuals to set aside
tax-deferred income for retirement or emergency purposes. 401(k) plans are
provided by employers that are private corporations.
403(b)
plans are provided by employers that are not for profit
organizations.
401(k)/403(b)
loan:
Some administrators of 401(k)/403(b) plans allow for loans against the monies
you have accumulated in these plans -- monies must be repaid to avoid serious
penalty charges.
acceleration
clause:
A provision in a mortgage that gives the lender the right to demand payment of
the entire principal balance if a monthly payment is
missed.
acceptance:
An offeree's consent to enter into a contract and be bound by the terms of the
offer.
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 that permits the lender to adjust the mortgage's interest rate
periodically on the basis of changes in a specified index. Interest rates may
move up or down, as market conditions change.
adjusted
basis:
The original cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
adjustment
date:
The date on which the interest rate changes for an adjustable-rate mortgage
(ARM).
adjustment
period:
The period that elapses between the adjustment dates for an adjustable-rate
mortgage (ARM).
administrator:
A person appointed by a probate court to administer the estate of a person who
died intestate.
affordability
analysis:
A detailed analysis of your ability to afford the purchase of a home. An
affordability analysis takes into consideration your income, liabilities and
available funds, along with the type of mortgage you plan to use, the area where
you want to purchase a home and the closing costs that you might expect to
pay.
amenity:
A feature of real property that enhances its attractiveness and increases the
occupant?s or user?s satisfaction although the feature is not essential to the
property?s use. Natural amenities include a pleasant or desirable location near
water, scenic views of the surrounding area, etc. Human-made amenities include
swimming pools, tennis courts, community buildings and other recreational
facilities.
amortization:
The gradual repayment of a mortgage loan by installments.
amortization
schedule:
A timetable for payment of a mortgage loan. An amortization schedule shows the
amount of each payment applied to interest and principal and shows the remaining
balance after each payment is made.
amortization
term:
The amount of time required to amortize the mortgage loan. The amortization term
is expressed as a number of months. For example, for a 30-year fixed-rate
mortgage, the amortization term is 360 months.
amortize:
To repay a mortgage with regular payments that cover both principal and
interest.
annual
mortgagor statement:
A report sent to the mortgagor (the borrower) each year. The report shows how
much was paid in taxes and interest during the year, as well as the remaining
mortgage loan balance at the end of the year.
annual
percentage rate (APR):
The cost of a mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance and loan origination fee (points).
annuity:
An amount paid yearly or at other regular intervals, often on a guaranteed
dollar basis.
application:
A form used to apply for a mortgage loan and to record pertinent information
concerning a prospective mortgagor and the proposed security. Lenders use the
information on the loan application to evaluate whether or not they can give the
loan, and if so, the amount of money they can lend.
appraisal:
A written analysis of the estimated value of a property prepared by a qualified
appraiser. Contrast with home inspection.
appraised
value:
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience and analysis of the property.
appraiser:
A person qualified by education, training and experience to estimate the value
of real property and personal property.
appreciation:
An increase in the value of a property due to changes in market conditions or
other causes. The opposite of depreciation.
assessed
value:
The valuation placed on property by a public tax assessor for purposes of
taxation.
assessment:
The process of placing a value on property for the strict purpose of taxation.
May also refer to a levy against property for a special purpose, such as a sewer
assessment. assessment rolls: The public record of taxable
property.
assessor:
A public official who establishes the value of a property for taxation
purposes.
asset:
Anything of monetary value that is owned by a person. Assets include real
property, personal property and enforceable claims against others (including
bank accounts, stocks, mutual funds and so on).
assignment:
The transfer of a mortgage from one person to another.
assumable
mortgage:
A mortgage that can be taken over ("assumed") by the buyer when a home is
sold.
assumption:
The transfer of the seller?s existing mortgage to the buyer. See assumable
mortgage.
assumption
clause:
A provision in an assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan does not need to be
paid in full by the original borrower upon sale or transfer of the
property.
assumption
fee:
The fee paid to a lender (usually by the purchaser of real property) resulting
from the assumption of an existing mortgage.
attorney-in-fact:
One who holds a power of attorney from another to execute documents on behalf of
the grantor of the power.
balance
sheet:
A financial statement that shows assets, liabilities and net worth as of a
specific date.
balloon
mortgage:
A mortgage that has level monthly payments that will amortize it over a stated
term but that provides for a lump sum payment to be due at the end of an earlier
specified term. The principal and interest on the loan are amortized over a
longer period than the actual term of the mortgage.
balloon
payment:
The final lump sum payment that is made at the maturity date of a balloon
mortgage.
bankrupt:
A person, firm, or corporation that, through a court proceeding, is relieved
from the payment of all debts after the surrender of all assets to a
court-appointed trustee.
bankruptcy:
A proceeding in a federal court in which a debtor who owes more than his or her
assets can relieve the debts by transferring his or her assets to a
trustee.
before-tax
income:
Income before taxes are deducted.
beneficiary:
The person designated to receive the income from a trust, estate or a deed of
trust.
bequeath:
To transfer personal property through a will.
betterment:
An improvement that increases property value as distinguished from repairs or
replacements that simply maintain value.
bill
of sale:
A written document that transfers title to personal
property.
binder:
A preliminary agreement, secured by the payment of an earnest money deposit,
under which a buyer offers to purchase real estate.
biweekly
payment mortgage:
A mortgage that requires payments to reduce the debt every two weeks (instead of
the standard monthly payment schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the monthly payment that would be
required if the loan were a standard 30-year fixed-rate mortgage, and they are
usually drafted from the borrower?s bank account. The result for the borrower is
a substantial savings in interest.
blanket
insurance policy:
A single policy that covers more than one piece of property (or more than one
person).
blanket
mortgage:
The mortgage that is secured by a cooperative project, as opposed to the share
loans on individual units within the project.
bona
fide:
In good faith, without fraud.
bond:
An interest-bearing certificate of debt with a maturity date. An obligation of a
government or business corporation. A real estate bond is a written obligation
usually secured by a mortgage or a deed of trust.
breach:
A violation of any legal obligation.
bridge
loan:
A form of second trust 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. Also known as "swing
loan."
broker:
A person who, for a commission or a fee, brings parties together and assists in
negotiating contracts between them.
budget:
A detailed plan of income and expenses expected over a certain period of time. A
budget can provide guidelines for managing future investments and
expenses.
budget
category:
A category of income or expense data that you can use in a budget. You can also
define your own budget categories and add them to some or all of the budgets you
create. "Rent" is an example of an expense category. "Salary" is a typical
income category.
building
code:
Local regulations that control design, construction and materials used in
construction. Building codes are based on safety and health
standards.
buydown
account:
An account in which funds are held so that they can be applied as part of the
monthly mortgage payment as each payment comes due during the period that an
interest rate buydown plan is in effect.
buydown
mortgage:
A temporary buydown is a mortgage on which an initial lump sum payment is made
by any party to reduce a borrower?s monthly payments during the first few years
of a mortgage. A permanent buydown reduces the interest rate over the entire
life of a mortgage.
call
option:
A provision in the mortgage that gives the mortgagee (the lender) the right to
call the mortgage due and payable at the end of a specified period for whatever
reason.
cap:
A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or mortgage payments may increase or decrease. See lifetime
payment cap, lifetime rate cap, periodic payment cap and periodic rate
cap.
capital:
(1) Money used to create income, either as an investment in a business or an
income property. (2) The money or property comprising the wealth owned or used
by a person or business enterprise. (3) The accumulated wealth of a person or
business. (4) The net worth of a business represented by the amount by which its
assets exceed liabilities.
capital
expenditure:
The cost of an improvement made to extend the useful life of a property or to
add to its value.
capital
improvement:
Any structure or component erected as a permanent improvement to real property
that adds to its value and useful life.
cash-out
refinance:
A refinance transaction in which the amount of money received from the new loan
exceeds the total of the money needed to repay the existing first mortgage,
closing costs, points and the amount required to satisfy any outstanding
subordinate mortgage liens. In other words, a refinance transaction in which the
borrower receives additional cash that can be used for any
purpose.
certificate
of deposit:
A document written by a bank or other financial institution that is evidence of
a deposit, with the issuer's promise to return the deposit plus earnings at a
specified interest rate within a specified time period. See adjustable rate
mortgage (ARM).
certificate
of deposit index:
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weekly average of
secondary market interest rates on six-month negotiable certificates of deposit.
See adjustable-rate mortgage.
Certificate
of Eligibility:
A document issued by the federal government certifying a veteran's eligibility
for a Department of Veterans Affairs (VA) mortgage.
Certificate
of Reasonable Value (CRV):
A document issued by the Department of Veterans Affairs (VA) that establishes
the maximum value and loan amount for a VA mortgage.
certificate
of title:
A statement provided by an abstract company, title company, or attorney stating
that the title to real estate is legally held by the current
owner.
chain
of title:
The history of all of the documents that transfer title to a parcel of real
property, starting with the earliest existing document and ending with the most
recent.
change
frequency:
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
chattel:
Another name for personal property.
clear
title:
A title that is free of liens or legal questions as to ownership of the
property.
closing:
A meeting at which a sale of a property is finalized by the buyer signing the
mortgage documents and paying closing costs. Also called "settlement." At this
meeting, ownership of the property is transferred from the seller to the
buyer.
closing
cost item:
A fee or amount that a home buyer must pay at closing for a single service, tax,
or product. Closing costs are made up of individual closing cost items such as
origination fees and attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
closing
costs:
Expenses (over and above the price of the property) incurred by buyers and
sellers in transferring ownership of a property. Closing costs normally include
an origination fee, an attorney's fee, taxes, an amount placed in escrow and
charges for obtaining title insurance and a survey. Closing costs percentage
will vary according to the area of the country; lenders or REALTORSŪ often
provide estimates of closing costs to prospective
homebuyers.
closing
statement:
See HUD-1 statement.
cloud
on title:
Any conditions revealed by a title search that adversely affect the title to
real estate. Usually clouds on title cannot be removed except by a quitclaim
deed, release, or court action.
coinsurance:
A sharing of insurance risk between the insurer and the insured. Coinsurance
depends on the relationship between the amount of the policy and a specified
percentage of the actual value of the property insured at the time of the
loss.
coinsurance
clause:
A provision in a hazard insurance policy that states the amount of coverage that
must be maintained -- as a percentage of the total value of the property -- for
the insured to collect the full amount of a loss.
collateral:
An asset (such as a car or a home) that guarantees the repayment of a loan. The
borrower risks losing the asset if the loan is not repaid according to the terms
of the loan contract.
collection:
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when
necessary.
co-maker:
A person who signs a promissory note along with the borrower. A co-maker's
signature guarantees that the loan will be repaid, because the borrower and the
co-maker are equally responsible for the repayment. See
endorser.
commission:
The fee charged by a broker or agent for negotiating a real estate or loan
transaction. A commission is generally a percentage of the price of the property
or loan.
commitment
letter:
A formal offer by a lender stating the terms under which it agrees to lend money
to a home buyer. Also known as a "loan commitment."
common
area assessments:
Levies against individual unit owners in a condominium or planned unit
development (PUD) project for additional capital to defray homeowners'
association costs and expenses and to repair, replace, maintain, improve or
operate the common areas of the project.
common
areas:
Those portions of a building, land and amenities owned (or managed) by a planned
unit development (PUD) or condominium project's homeowners' association (or a
cooperative project's cooperative corporation) that are used by all of the unit
owners, who share in the common expenses of their operation and maintenance.
Common areas include swimming pools, tennis courts and other recreational
facilities, as well as common corridors of buildings, parking areas, means of
ingress and egress, etc.
common
law:
An unwritten body of law based on general custom in England and used to an
extent in the United States.
Community
Land Trust Mortgage Option:
An alternative financing option that enables low- and moderate-income home
buyers to purchase housing that has been improved by a nonprofit Community Land
Trust and to lease the land on which the property stands.
community
property:
In some western and southwestern states, a form of ownership under which
property acquired during a marriage is presumed to be owned jointly unless
acquired as separate property of either spouse.
Community
SecondsŪ:
An alternative financing option for low- and moderate-income households under
which an investor purchases a first mortgage that has a subsidized second
mortgage behind it. The second mortgage may be issued by a state, county or
local housing agency, foundation, or nonprofit organization. Payment on the
second mortgage is often deferred and carries a very low interest rate (or no
interest rate at all). Part of the debt may be forgiven incrementally for each
year the buyer remains in the home.
comparables:
An abbreviation for "comparable properties"; used for comparative purposes in
the appraisal process. Comparables are properties like the property under
consideration; they have reasonably the same size, location and amenities and
have recently been sold. Comparables help the appraiser determine the
approximate fair market value of the subject property.
compound
interest:
Interest paid on the original principal balance and on the accrued and unpaid
interest.
condemnation:
The determination that a building is not fit for use or is dangerous and must be
destroyed; the taking of private property for a public purpose through an
exercise of the right of eminent domain.
condominium:
A real estate project in which each unit owner has title to a unit in a
building, an undivided interest in the common areas of the project and sometimes
the exclusive use of certain limited common areas.
condominium
conversion:
Changing the ownership of an existing building (usually a rental project) to the
condominium form of ownership.
condominium
hotel:
A condominium project that has rental or registration desks, short-term
occupancy, food and telephone services and daily cleaning services and that is
operated as a commercial hotel even though the units are individually
owned.
construction
loan:
A short-term, interim loan for financing the cost of construction. The lender
makes payments to the builder at periodic intervals as the work
progresses.
contingency:
A condition that must be met before a contract is legally binding. For example,
home purchasers often include a contingency that specifies that the contract is
not binding until the purchaser obtains a satisfactory home inspection report
from a qualified home inspector.
contract:
An oral or written agreement to do or not to do a certain
thing.
conventional
mortgage:
A mortgage that is not insured or guaranteed by the federal government. Contrast
with government mortgage.
convertibility
clause:
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to
change the ARM to a fixed-rate mortgage at specified timeframes after loan
origination.
convertible
ARM:
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage
under specified conditions.
cooperative
(co-op):
A type of multiple ownership in which the residents of a multiunit housing
complex own shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or
unit.
cooperative
corporation:
A business trust entity that holds title to a cooperative project and grants
occupancy rights to particular apartments or units to shareholders through
proprietary leases or similar arrangements.
cooperative
mortgages:
Mortgages related to a cooperative project. This usually refers to the
multifamily mortgage covering the entire project but occasionally describes the
share loans on the individual units.
cooperative
project:
A residential or mixed-use building wherein a corporation or trust holds title
to the property and sells shares of stock representing the value of a single
apartment unit to individuals who, in turn, receive a proprietary lease as
evidence of title.
corporate
relocation:
Arrangements under which an employer moves an employee to another area as part
of the employer's normal course of business or under which it transfers a
substantial part or all of its operations and employees to another area because
it is relocating its headquarters or expanding its office
capacity.
cost of funds index (COFI):
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of
savings, borrowings and advances of the 11th District members of the Federal
Home Loan Bank of San Francisco. See adjustable-rate mortgage
(ARM).
covenant:
A clause in a mortgage that obligates or restricts the borrower and that, if
violated, can result in foreclosure.
credit:
An agreement in which a borrower receives something of value in exchange for a
promise to repay the lender at a later date.
credit
history:
A record of an individual's open and fully repaid debts. A credit history helps
a lender to determine whether a potential borrower has a history of repaying
debts in a timely manner.
credit
life insurance:
A type of insurance often bought by mortgagors because it will pay off the
mortgage debt if the mortgagor dies while the policy is in
force.
creditor:
A person to whom money is owed.
credit
report:
A report of an individual's credit history prepared by a credit bureau and used
by a lender in determining a loan applicant's
creditworthiness.
credit
reporting agency (or bureau):
An organization that prepares reports that are used by lenders to determine a
potential borrower's credit history. The agency obtains data for these reports
from a credit repository as well as from other sources.
credit
repository:
An organization that gathers, records, updates and stores financial and public
records information about the payment records of individuals who are being
considered for credit.
debt:
An amount owed to another. See installment loan and revolving
liability.
deed:
The legal document conveying title to a property.
deed-in-lieu:
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid
foreclosure. Also called a "voluntary conveyance."
deed
of trust:
The document used in some states instead of a mortgage; title is conveyed to a
trustee.
default:
Failure to make mortgage payments on a timely basis or to comply with other
requirements of a mortgage.
delinquency:
Failure to make mortgage payments when mortgage payments are
due.
deposit:
A sum of money given to bind the sale of real estate, or a sum of money given to
ensure payment or an advance of funds in the processing of a loan. See earnest
money deposit.
depreciation:
A decline in the value of property; the opposite of appreciation.
discount
points:
See point.
dower:
The rights of a widow in the property of her husband at his
death.
down
payment:
The part of the purchase price of a property that the buyer pays in cash and
does not finance with a mortgage.
due-on-sale
provision:
A provision in a mortgage that allows the lender to demand repayment in full if
the borrower sells the property that serves as security for the
mortgage.
due-on-transfer
provision:
This terminology is usually used for second mortgages. See due-on-sale
provision.
earnest
money deposit:
A deposit made by the potential home buyer to show that he or she is serious
about buying the house.
easement:
A right of way giving persons other than the owner access to or over a
property.
effective
age:
An appraiser?s estimate of the physical condition of a building. The actual age
of a building may be shorter or longer than its effective
age.
effective
gross income:
Normal annual income including overtime that is regular or guaranteed. The
income may be from more than one source. Salary is generally the principal
source, but other income may qualify if it is significant and
stable.
eminent
domain:
The right of a government to take private property for public use upon payment
of its fair market value. Eminent domain is the basis for condemnation
proceedings.
employer-assisted
housing:
A special housing initiative that offers several different ways for employers to
work with local lenders to develop plans to assist their employees in purchasing
homes.
encroachment:
An improvement that intrudes illegally on another?s
property.
encumbrance:
Anything that affects or limits the fee simple title to a property, such as
mortgages, leases, easements or restrictions.
endorser:
A person who signs ownership interest over to another party. Contrast with
co-maker.
Equal
Credit Opportunity Act (ECOA):
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:
A homeowner's financial interest in a property. Equity is the difference between
the fair market value of the property and the amount still owed on its
mortgage.
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.
escrow
account:
The account in which a mortgage servicer holds the borrower?s escrow payments
prior to paying property expenses.
escrow
analysis:
The periodic examination of escrow accounts to determine if current monthly
deposits will provide sufficient funds to pay taxes, insurance and other bills
when due.
escrow
collections:
Funds collected by the servicer and set aside in an escrow account to pay the
borrower?s property taxes, mortgage insurance and hazard insurance. escrow
disbursements The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance and other property expenses as they become
due.
escrow
payment:
The portion of a mortgagor?s monthly payment that is held by the servicer to pay
for taxes, hazard insurance, mortgage insurance, lease payments and other items
as they become due. Known as "impounds" or "reserves" in some
states.
estate:
The ownership interest of an individual in real property. The sum total of all
the real property and personal property owned by an individual at time of
death.
eviction:
The lawful expulsion of an occupant from real property.
examination
of title:
The report on the title of a property from the public records or an abstract of
the title.
exclusive
listing:
A written contract that gives a licensed real estate agent the exclusive right
to sell a property for a specified time, but reserving the owner?s right to sell
the property alone without the payment of a commission.
executor:
A person named in a will to administer an estate. The court will appoint an
administrator if no executor is named. "Executrix" is the feminine
form.
Fair
Credit Reporting Act:
A consumer protection law that regulates the disclosure of consumer credit
reports by consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one's credit record.
fair
market value:
The highest price that a buyer, willing but not compelled to buy, would pay and
the lowest a seller, willing but not compelled to sell, would
accept.
Fannie
Mae:
A New York Stock Exchange company and the largest non-bank financial services
company in the world. It operates pursuant to a federal charter and is the
nation's largest source of financing for home mortgages.
Fannie
Mae Properties:
Fannie Mae owns, manages and has available for sale, single-family detached
homes, two- to four-unit properties, condominiums and townhouses in a variety of
neighborhoods. The number, type and sales price may vary substantially. The
homes vary in age and may require repairs. Fannie Mae homes are sold through
local real estate brokers whose contact information is provided in the Fannie
Mae Properties for Sale search results on homepath.com.
Fannie
Mae's Community Home Buyer's Program(SM):
An income-based community lending model, under which mortgage insurers and
Fannie Mae offer flexible underwriting guidelines to increase a low- or
moderate-income family's buying power and to decrease the total amount of cash
needed to purchase a home. Borrowers who participate in this model are required
to attend pre-purchase home-buyer education sessions.
Fannie
97Ū:
A financing option for a fixed-rate mortgage that offers home buyers a 3 percent
down payment loan with a term between 15 and 30 years. The mortgage features a
loan-to-value (LTV) percentage of 97 percent, and is designed to expand
homeownership opportunities for people with modest incomes. Borrowers must take
a pre-purchase home-buyer education session to qualify for a Fannie 97
mortgage.
Federal
Housing Administration (FHA):
An agency of the U.S. Department of Housing and Urban Development (HUD). Its
main activity is the insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and underwriting but does not
lend money or plan or construct housing.
fee
simple:
The greatest possible interest a person can have in real
estate.
fee
simple estate:
An unconditional, unlimited estate of inheritance that represents the greatest
estate and most extensive interest in land that can be enjoyed. It is of
perpetual duration. When the real estate is in a condominium project, the unit
owner is the exclusive owner only of the air space within his or her portion of
the building (the unit) and is an owner in common with respect to the land and
other common portions of the property.
FHA
coinsured mortgage:
A mortgage (under FHA Section 244) for which the Federal Housing Administration
(FHA) and the originating lender share the risk of loss in the event of the
mortgagor's default.
FHA
mortgage:
A mortgage that is insured by the Federal Housing Administration (FHA). Also
known as a government mortgage.
finder's
fee:
A fee or commission paid to a mortgage broker for finding a mortgage loan for a
prospective borrower.
firm
commitment:
A lender?s agreement to make a loan to a specific borrower on a specific
property.
first
mortgage:
A mortgage that is the primary lien against a property.
fixed
installment:
The monthly payment due on a mortgage loan. The fixed installment includes
payment of both principal and interest.
fixed-rate
mortgage (FRM):
A mortgage in which the interest rate does not change during the entire term of
the loan.
fixture:
Personal property that becomes real property when attached in a permanent manner
to real estate.
flood
insurance:
Insurance that compensates for physical property damage resulting from flooding.
It is required for properties located in federally designated flood
areas.
foreclosure:
The legal process by which a borrower in default under a mortgage is deprived of
his or her interest in the mortgaged property. This usually involves a forced
sale of the property at public auction with the proceeds of the sale being
applied to the mortgage debt.
forfeiture:
The loss of money, property, rights or privileges due to a breach of legal
obligation.
fully
amortized ARM:
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to
amortize the remaining balance, at the interest accrual rate, over the
amortization term.
government
mortgage:
A mortgage that is insured by the Federal Housing Administration (FHA) or
guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing
Service (RHS). Contrast with conventional mortage.
Government
National Mortgage Association:
A government-owned corporation within the U.S. Department of Housing and Urban
Development (HUD). Created by Congress on Sept. 1, 1968, GNMA assumed
responsibility for the special assistance loan program formerly administered by
Fannie Mae. Popularly known as Ginnie Mae.
grantee:
The person to whom an interest in real property is
conveyed.
grantor:
The person conveying an interest in real property.
ground
rent:
The amount of money that is paid for the use of land when title to a property is
held as a leasehold estate rather than as a fee simple
estate.
group
home:
A single-family residential structure designed or adapted for occupancy by
unrelated developmentally disabled persons. The structure provides long-term
housing and support services that are residential in
nature.
growing-equity
mortgage (GEM):
A fixed-rate mortgage that provides scheduled payment increases over an
established period of time, with the increased amount of the monthly payment
applied directly toward reducing the remaining balance of the
mortgage.
guarantee
mortgage:
A mortgage that is guaranteed by a third party.
guaranteed
loan:
Also known as a government mortgage.
hazard
insurance:
Insurance coverage that compensates for physical damage to a property from fire,
wind, vandalism, or other hazards.
Home
Equity Conversion Mortgage (HECM):
A special type of mortgage that enables older home owners to convert the equity
they have in their homes into cash, using a variety of payment options to
address their specific financial needs. Unlike traditional home equity loans, a
borrower does not qualify on the basis of income but on the value of his or her
home. In addition, the loan does not have to be repaid until the borrower no
longer occupies the property. Sometimes called a reverse
mortgage.
home
equity line of credit:
A mortgage loan, which is usually in a subordinate position, that allows the
borrower to obtain multiple advances of the loan proceeds at his or her own
discretion, up to an amount that represents a specified percentage of the
borrower's equity in a property.
home
inspection:
A thorough inspection that evaluates the structural and mechanical condition of
a property. A satisfactory home inspection is often included as a contingency by
the purchaser. Contrast with appraisal.
HomeKeeper(SM):
Fannie Mae's adjustable-rate conventional reverse mortgage, which allows older
homeowners to borrow against the value of their homes and receive the proceeds
according to the payment option they select. The amount available is based on
the number of borrowers and their ages and the adjusted property value. Anyone
62 years or older who either owns his or her own home free and clear or has very
low mortgage debt is eligible.
homeowners'
association:
A nonprofit association that manages the common areas of a planned unit
development (PUD) or condominium project. In a condominium project, it has no
ownership interest in the common elements. In a PUD project, it holds title to
the common elements.
homeowner's
insurance:
An insurance policy that combines personal liability insurance and hazard
insurance coverage for a dwelling and its contents.
homeowner's
warranty (HOW):
A type of insurance that covers repairs to specified parts of a house for a
specific period of time. It is provided by the builder or property seller as a
condition of the sale.
HomeStyleŪ
Mortgage Loan:
A mortgage that enables eligible borrowers to obtain financing to remodel,
repair and upgrade their existing homes or homes that they are purchasing. See
also HomeStyle Standard Mortgage, HomeStyle Remodeler, HomeStyle Community
Mortgage and HomeStyle Consumer Energy Loan.
housing
expense ratio:
The percentage of gross monthly income that goes toward paying housing
expenses.
HUD
median income:
Median family income for a particular county or metropolitan statistical area
(MSA), as estimated by the Department of Housing and Urban Development
(HUD).
HUD-1
statement:
A document that provides an itemized listing of the funds that are payable at
closing. Items that appear on the statement include real estate commissions,
loan fees, points and initial escrow amounts. Each item on the statement is
represented by a separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's net proceeds and
the buyer's net payment at closing. The blank form for the statement is
published by the Department of Housing and Urban Development (HUD). The HUD-1
statement is also known as the "closing statement" or "settlement
sheet."
income
property:
Real estate developed or improved to produce income.
index:
A number used to compute the interest rate for an adjustable-rate mortgage
(ARM). The index is generally a published number or percentage, such as the
average interest rate or yield on Treasury bills. A margin is added to the index
to determine the interest rate that will be charged on the ARM. This interest
rate is subject to any caps that are associated with the
mortgage.
in-file
credit report:
An objective account, normally computer-generated, of credit and legal
information obtained from a credit repository.
inflation:
An increase in the amount of money or credit available in relation to the amount
of goods or services available, which causes an increase in the general price
level of goods and services. Over time, inflation reduces the purchasing power
of a dollar, making it worth less.
initial
interest rate:
The original interest rate of the mortgage at the time of closing. This rate
changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate"
or "teaser."
installment:
The regular periodic payment that a borrower agrees to make to a lender.
installment loan Borrowed money that is repaid in equal payments, known as
installments. A furniture loan is often paid for as an installment
loan.
insurable
title:
A property title that a title insurance company agrees to insure against defects
and disputes. <
insurance:
A contract that provides compensation for specific losses in exchange for a
periodic payment. An individual contract is known as an insurance policy, and
the periodic payment is known as an insurance premium.
insurance
binder:
A document that states that insurance is temporarily in effect. Because the
coverage will expire by a specified date, a permanent policy must be obtained
before the expiration date.
insured
mortgage:
A mortgage that is protected by the Federal Housing Administration (FHA) or by
private mortgage insurance (MI). If the borrower defaults on the loan, the
insurer must pay the lender the lesser of the loss incurred or the insured
amount.
interest:
The fee charged for borrowing money.
interest
accrual rate:
The percentage rate at which interest accrues on the mortgage. In most cases, it
is also the rate used to calculate the monthly payments, although it is not used
for an adjustable-rate mortgage (ARM) with payment change
limitations.
interest
rate:
The rate of interest in effect for the monthly payment
due.
interest
rate buydown plan:
An arrangement wherein the property seller (or any other party) deposits money
to an account so that it can be released each month to reduce the mortgagor's
monthly payments during the early years of a mortgage. During the specified
period, the mortgagor's effective interest rate is "bought down" below the
actual interest rate.
interest
rate ceiling:
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note.
interest
rate floor:
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note.
investment
property:
A property that is not occupied by the owner.
IRA
(Individual Retirement Account):
A retirement account that allows individuals to make tax-deferred contributions
to a personal retirement fund. Individuals can place IRA funds in bank accounts
or in other forms of investment such as stocks, bonds or mutual
funds.
joint
tenancy:
A form of co-ownership that gives each tenant equal interest and equal rights in
the property, including the right of survivorship.
judgment:
A decision made by a court of law. In judgments that require the repayment of a
debt, the court may place a lien against the debtor's real property as
collateral for the judgment's creditor.
judgment
lien:
A lien on the property of a debtor resulting from the decree of a
court.
judicial
foreclosure:
A type of foreclosure proceeding used in some states that is handled as a civil
lawsuit and conducted entirely under the auspices of a
court.
jumbo
loan:
A loan that exceeds Fannie Mae?s mortgage amount limits. Also called a
nonconforming loan.
late
charge:
The penalty a borrower must pay when a payment is made a stated number of days
(usually 15) after the due date.
lease:
A written agreement between the property owner and a tenant that stipulates the
conditions under which the tenant may possess the real estate for a specified
period of time and rent.
leasehold
estate:
A way of holding title to a property wherein the mortgagor does not actually own
the property but rather has a recorded long-term lease on
it.
lease-purchase
mortgage loan:
An alternative financing option that allows low- and moderate-income home buyers
to lease a home from a nonprofit organization with an option to buy. Each
month's rent payment consists of principal, interest, taxes and insurance (PITI)
payments on the first mortgage plus an extra amount that is earmarked for
deposit to a savings account in which money for a downpayment will
accumulate.
legal
description:
A property description, recognized by law, that is sufficient to locate and
identify the property without oral testimony.
liabilities:
A person's financial obligations. Liabilities include long-term and short-term
debt, as well as any other amounts that are owed to
others.
liability
insurance:
Insurance coverage that offers protection against claims alleging that a
property owner's negligence or inappropriate action resulted in bodily injury or
property damage to another party.
lien:
A legal claim against a property that must be paid off when the property is
sold.
lifetime
payment cap:
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can
increase or decrease over the life of the mortgage. See
cap.
lifetime
rate cap:
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest
rate can increase or decrease over the life of the loan. See cap, interest rate
ceiling and interest rate floor.
line
of credit:
An agreement by a commercial bank or other financial institution to extend
credit up to a certain amount for a certain time to a specified borrower. See
home equity line of credit.
liquid
asset:
A cash asset or an asset that is easily converted into
cash.
loan:
A sum of borrowed money (principal) that is generally repaid with
interest.
loan
commitment:
See commitment letter.
loan
origination:
The process by which a mortgage lender brings into existence a mortgage secured
by real property.
loan-to-value
(LTV) percentage:
The relationship between the principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property. For example, a $100,000
home with an $80,000 mortgage has a LTV percentage of 80
percent.
lock-in:
A written agreement in which the lender guarantees a specified interest rate if
a mortgage goes to closing within a set period of time. The lock-in also usually
specifies the number of points to be paid at closing.
lock-in
period:
The time period during which the lender has guaranteed an interest rate to a
borrower. See lock-in.
margin:
For an adjustable-rate mortgage (ARM), the amount that is added to the index to
establish the interest rate on each adjustment date, subject to any limitations
on the interest rate change.
master
association:
A homeowners' association in a large condominium or planned unit development
(PUD) project that is made up of representatives from associations covering
specific areas within the project. In effect, it is a "second-level" association
that handles matters affecting the entire development, while the "first-level"
associations handle matters affecting their particular portions of the
project.
maturity:
The date on which the principal balance of a loan, bond or other financial
instrument becomes due and payable.
maximum
financing:
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV)
percentage allowed for a specific product. Thus, maximum financing on a
fixed-rate mortgage would be 90 percent or higher, because 95 percent is the
maximum allowable LTV percentage for that product.
merged
credit report:
A credit report that contains information from three credit repositories. When
the report is created, the information is compared for duplicate entries. Any
duplicates are combined to provide a summary of a your
credit.
modification:
The act of changing any of the terms of the mortgage.
money
market account:
A savings account that provides bank depositors with many of the advantages of a
money market fund. Certain regulatory restrictions apply to the withdrawal of
funds from a money market account.
money
market fund:
A mutual fund that allows individuals to participate in managed investments in
short-term debt securities, such as certificates of deposit and Treasury
bills.
monthly
fixed installment:
That portion of the total monthly payment that is applied toward principal and
interest. When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction.
monthly
payment mortgage:
A mortgage that requires payments to reduce the debt once a
month.
mortgage:
A legal document that pledges a property to the lender as security for payment
of a debt.
mortgage
banker:
A company that originates mortgages exclusively for resale in the secondary
mortgage market.
mortgage
broker:
An individual or company that brings borrowers and lenders together for the
purpose of loan origination. Mortgage brokers typically require a fee or a
commission for their services.
mortgagee:
The lender in a mortgage agreement.
mortgage
insurance:
A contract that insures the lender against loss caused by a mortgagor's default
on a government mortgage or conventional mortgage. Mortgage insurance can be
issued by a private company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of mortgage insurance, the
insurance may cover a percentage of or virtually all of the mortgage loan. See
private mortgage insurance.
mortgage
insurance premium (MIP):
The amount paid by a mortgagor for mortgage insurance, either to a government
agency such as the Federal Housing Administration (FHA) or to a private mortgage
insurance (MI) company.
mortgage
life insurance:
A type of term life insurance often bought by mortgagors. The amount of coverage
decreases as the principal balance declines. In the event that the borrower dies
while the policy is in force, the debt is automatically satisfied by insurance
proceeds.
mortgagor:
The borrower in a mortgage agreement.
multidwelling
units:
Properties that provide separate housing units for more than one family,
although they secure only a single mortgage.
multifamily
mortgage:
A residential mortgage on a dwelling that is designed to house more than four
families, such as a high-rise apartment complex.
multifamily
properties:
Fannie Mae provides financing for multifamily (buildings with five or more
units) rental properties through a nationwide network of mortgage
lenders.
negative
amortization:
A gradual increase in mortgage debt that occurs when the monthly payment is not
large enough to cover the entire principal and interest due. The amount of the
shortfall is added to the remaining balance to create "negative"
amortization.
net
cash flow:
The income that remains for an investment property after the monthly operating
income is reduced by the monthly housing expense, which includes principal,
interest, taxes and insurance (PITI) for the mortgage, homeowners' association
dues, leasehold payments and subordinate financing
payments.
net
worth:
The value of all of a person's assets, including cash, minus all
liabilities.
no
cash-out refinance:
A refinance transaction in which the new mortgage amount is limited to the sum
of the remaining balance of the existing first mortgage, closing costs
(including prepaid items), points, the amount required to satisfy any mortgage
liens that are more than one year old (if the borrower chooses to satisfy them)
and other funds for the borrower's use (as long as the amount does not exceed 1
percent of the principal amount of the new mortgage).
nonliquid
asset:
An asset that cannot easily be converted into cash.
note:
A legal document that obligates a borrower to repay a mortgage loan at a stated
interest rate during a specified period of time.
note
rate:
The interest rate stated on a mortgage note.
notice
of default:
A formal written notice to a borrower that a default has occurred and that legal
action may be taken.
original
principal balance:
The total amount of principal owed on a mortgage before any payments are
made.
origination
fee:
A fee paid to a lender for processing a loan application. The origination fee is
stated in the form of points. One point is 1 percent of the mortgage
amount.
owner
financing:
A property purchase transaction in which the property seller provides all or
part of the financing.
partial
payment:
A payment that is not sufficient to cover the scheduled monthly payment on a
mortgage loan.
payment
change date:
The date when a new monthly payment amount takes effect on an adjustable-rate
mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM).
Generally, the payment change date occurs in the month immediately after the
adjustment date.
periodic
payment cap:
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can
increase or decrease during any one adjustment period.
periodic
rate cap:
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest
rate can increase or decrease during any one adjustment period, regardless of
how high or low the index might be.
personal
property:
Any property that is not real property.
PITI:
See principal, interest, taxes and insurance (PITI) below.
PITI
reserves:
A cash amount that a borrower must have on hand after making a down payment and
paying all closing costs for the purchase of a home. The principal, interest,
taxes and insurance (PITI) reserves must equal the amount that the borrower
would have to pay for PITI for a predefined number of
months.
planned
unit development:
See PUD below.
point:
A one-time charge by the lender for originating a loan. A point is 1 percent of
the amount of the mortgage.
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.
prearranged
refinancing agreement:
A formal or informal arrangement between a lender and a borrower wherein the
lender agrees to offer special terms (such as a reduction in the costs) for a
future refinancing of a mortgage being originated as an inducement for the
borrower to enter into the original mortgage transaction.
preforeclosure
sale:
A procedure in which the investor allows a mortgagor to avoid foreclosure by
selling the property for less than the amount that is owed to the
investor.
prepayment:
Any amount paid to reduce the principal balance of a loan before the due date.
Payment in full on a mortgage that may result from a sale of the property, the
owner's decision to pay off the loan in full, or a foreclosure. In each case,
prepayment means payment occurs before the loan has been fully
amortized.
prepayment
penalty:
A fee that may be charged to a borrower who pays off a loan before it is
due.
pre-qualification:
The process of determining how much money a prospective home buyer will be
eligible to borrow before he or she applies for a loan.
prime
rate:
The interest rate that banks charge to their preferred customers. Changes in the
prime rate influence changes in other rates, including mortgage interest
rates.
principal:
The amount borrowed or remaining unpaid. The part of the monthly payment that
reduces the remaining balance of a mortgage.
More
principal balance:
The outstanding balance of principal on a mortgage. The principal balance does
not include interest or any other charges. See remaining
balance.
principal,
interest, taxes and insurance (PITI):
The four components of a monthly mortgage payment. Principal refers to the part
of the monthly payment that reduces the remaining balance of the mortgage.
Interest is the fee charged for borrowing money. Taxes and insurance refer to
the amounts that are paid into an escrow account each month for property taxes
and mortgage and hazard insurance.
private
mortgage insurance (MI):
Mortgage insurance that is provided by a private mortgage insurance company to
protect lenders against loss if a borrower defaults. Most lenders generally
require MI for a loan with a loan-to-value (LTV) percentage in excess of 80
percent.
promissory
note:
A written promise to repay a specified amount over a specified period of
time.
public
auction:
A meeting in an announced public location to sell property to repay a mortgage
that is in default.
PUD
(Planned Unit Development):
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.
purchase
and sale agreement:
A written contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold.
purchase
money transaction:
The acquisition of property through the payment of money or its
equivalent.
qualifying
ratios:
Calculations that are used in determining whether a borrower can qualify for a
mortgage. They consist of two separate calculations: a housing expense as a
percent of income ratio and total debt obligations as a percent of income
ratio.
quitclaim
deed:
A deed that transfers without warranty whatever interest or title a grantor may
have at the time the conveyance is made.
radon:
A radioactive gas found in some homes that in sufficient concentrations can
cause health problems.
rate-improvement
mortgage:
A fixed-rate mortgage that includes a provision that gives the borrower a
one-time option to reduce the interest rate (without refinancing) during the
early years of the mortgage term.
rate
lock:
A commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a specified period of time. See
lock-in.
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 borrowers advance notice
of closing costs.
real
property:
Land and appurtenances, including anything of a permanent nature such as
structures, trees, minerals and the interest, benefits and inherent rights
thereof.
REALTORŪ:
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
REALTORSŪ.
recission:
The cancellation or annulment of a transaction or contract by the operation of a
law or by mutual consent. Borrowers usually have the option to cancel a
refinance transaction within three business days after it has
closed.
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."
recording:
The noting in the registrar?s office of the details of a properly executed legal
document, such as a deed, a mortgage note, a satisfaction of mortgage or an
extension of mortgage, thereby making it a part of the public
record.
refinance
transaction:
The process of paying off one loan with the proceeds from a new loan using the
same property as security.
rehabilitation
mortgage:
A mortgage created to cover the costs of repairing, improving and sometimes
acquiring an existing property.
remaining
balance:
The amount of principal that has not yet been repaid. See principal
balance.
remaining
term:
The original amortization term minus the number of payments that have been
applied.
rent
loss insurance:
Insurance that protects a landlord against loss of rent or rental value due to
fire or other casualty that renders the leased premises unavailable for use and
as a result of which the tenant is excused from paying
rent.
rent
with option to buy:
See lease-purchase mortgage loan.
repayment
plan:
An arrangement made to repay delinquent installments or advances. Lenders'
formal repayment plans are called "relief provisions."
replacement
reserve fund:
A fund set aside for replacement of common property in a condominium, PUD, or
cooperative project -- particularly that which has a short life expectancy, such
as carpeting, furniture, etc.
revolving
liability:
A credit arrangement, such as a credit card, that allows a customer to borrow
against a preapproved line of credit when purchasing goods and services. The
borrower is billed for the amount that is actually borrowed plus any interest
due.
right
of first refusal:
A provision in an agreement that requires the owner of a property to give
another party the first opportunity to purchase or lease the property before he
or she offers it for sale or lease to others.
right
of ingress or egress:
The right to enter or leave designated premises.
right
of survivorship:
In joint tenancy, the right of survivors to acquire the interest of a deceased
joint tenant.
Rural
Housing Service (RHS):
An agency within the Department of Agriculture, which operates principally under
the Consolidated Farm and Rural Development Act of 1921 and Title V of the
Housing Act of 1949. This agency provides financing to farmers and other
qualified borrowers buying property in rural areas who are unable to obtain
loans elsewhere. Funds are borrowed from the U.S.
Treasury.
sale-leaseback:
A technique in which a seller deeds property to a buyer for a consideration, and
the buyer simultaneously leases the property back to the
seller.
second
mortgage:
A mortgage that has a lien position subordinate to the first
mortgage.
secondary
mortgage market:
The buying and selling of existing mortgages.
secured
loan:
A loan that is backed by collateral.
security:
The property that will be pledged as collateral for a
loan.
seller
take-back:
An agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage. See owner
financing.
servicer:
An organization that collects principal and interest payments from borrowers and
manages borrowers? escrow accounts. The servicer often services mortgages that
have been purchased by an investor in the secondary mortgage
market.
servicing:
The collection of mortgage payments from borrowers and related responsibilities
of a loan servicer.
settlement:
See closing.
settlement
sheet:
See HUD-1 statement.
single-family
properties:
One- to four-unit properties including detached homes, townhomes, condominiums
and cooperatives.
special
deposit account:
An account that is established for rehabilitation mortgages to hold the funds
needed for the rehabilitation work so they can be disbursed from time to time as
particular portions of the work are completed.
standard
payment calculation:
The method used to determine the monthly payment required to repay the remaining
balance of a mortgage in substantially equal installments over the remaining
term of the mortgage at the current interest rate.
step-rate
mortgage:
A mortgage that allows for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting in increased payments as well.
At the end of the specified period, the rate and payments will remain constant
for the remainder of the loan.
subdivision:
A housing development that is created by dividing a tract of land into
individual lots for sale or lease.
subordinate
financing:
Any mortgage or other lien that has a priority that is lower than that of the
first mortgage.
subsidized
second mortgage:
An alternative financing option known as the Community SecondsŪ mortgage for
low- and moderate-income households. An investor purchases a first mortgage that
has a subsidized second mortgage behind it. The second mortgage may be issued by
a state, county, or local housing agency, foundation, or nonprofit corporation.
Payment on the second mortgage is often deferred and carries a very low interest
rate (or no interest rate). Part of the debt may be forgiven incrementally for
each year the buyer remains in the home.
survey:
A drawing or map showing the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachments and other
physical features.
sweat
equity:
Contribution to the construction or rehabilitation of a property in the form of
labor or services rather than cash.
tenancy
by the entirety:
A type of joint tenancy of property that provides right of survivorship and is
available only to a husband and wife. Contrast with tenancy in
common.
tenancy
in common:
A type of joint tenancy in a property without right of survivorship. Contrast
with tenancy by the entirety and with joint tenancy.
tenant-stockholder:
The obligee for a cooperative share loan, who is both a stockholder in a
cooperative corporation and a tenant of the unit under a proprietary lease or
occupancy agreement.
third-party
origination:
A rocess by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund or package the mortgages it plans to
deliver to the secondary mortgage market. See mortgage
broker.
title:
A legal document evidencing a person's right to or ownership of a
property.
title
company:
A company that specializes in examining and insuring titles to real
estate.
title
insurance:
Insurance that protects the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a
property.
title
search:
A check of the title records to ensure that the seller is the legal owner of the
property and that there are no liens or other claims
outstanding.
total
expense ratio:
Total obligations as a percentage of gross monthly income. The total expense
ratio includes monthly housing expenses plus other monthly
debts.
trade
equity:
Equity that results from a property purchaser giving his or her existing
property (or an asset other than real estate) as trade as all or part of the
down payment for the property that is being purchased.
transfer
of ownership:
Any means by which the ownership of a property changes hands. Lenders consider
all of the following situations to be a transfer of ownership: the purchase of a
property "subject to" the mortgage, the assumption of the mortgage debt by the
property purchaser and any exchange of possession of the property under a land
sales contract or any other land trust device. In cases in which an inter vivos
revocable trust is the borrower, lenders also consider any transfer of a
beneficial interest in the trust to be a transfer of
ownership.
transfer
tax:
State or local tax payable when title passes from one owner to
another.
Treasury
index:
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It is based on the results of auctions
that the U.S. Treasury holds for its Treasury bills and securities or is derived
from the U.S. Treasury's daily yield curve, which is based on the closing market
bid yields on actively traded Treasury securities in the over-the-counter
market. See adjustable-rate mortgage (ARM).
Truth-in-Lending:
A federal law that requires lenders to fully disclose, in writing, the terms and
conditions of a mortgage, including the annual percentage rate (APR) and other
charges.
two-step
mortgage:
An adjustable-rate mortgage (ARM) that has one interest rate for the first five
or seven years of its mortgage term and a different interest rate for the
remainder of the amortization term.
two-
to four-family property:
A property that consists of a structure that provides living space (dwelling
units) for two to four families, although ownership of the structure is
evidenced by a single deed.
trustee:
A fiduciary who holds or controls property for the benefit of
another.
underwriting:
The process of evaluating a loan application to determine the risk involved for
the lender. Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
unsecured
loan:
A loan that is not backed by collateral.
VA
mortgage:
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also
known as a government mortgage.
vested:
Having the right to use a portion of a fund such as an individual retirement
fund. For example, individuals who are 100 percent vested can withdraw all of
the funds that are set aside for them in a retirement fund. However, taxes may
be due on any funds that are actually withdrawn.
Department
of Veterans Affairs (VA):
An agency of the federal government that guarantees residential mortgages made
to eligible veterans of the military services. The guarantee protects the lender
against loss and thus encourages lenders to make mortgages to
veterans.
what-if
analysis:
An affordability analysis that is based on a what-if scenario. A what-if
analysis is useful if you do not have complete data or if you want to explore
the effect of various changes to your income, liabilities, or available funds or
to the qualifying ratios or down payment expenses that are used in the
analysis.
what-if
scenario:
A change in the amounts that is used as the basis of an affordability analysis.
A what-if scenario can include changes to monthly income, debts, or down payment
funds or to the qualifying ratios or down payment expenses that are used in the
analysis. You can use a what-if scenario to explore different ways to improve
your ability to afford a house.
wraparound
mortgage:
A mortgage that includes the remaining balance on an existing first mortgage
plus an additional amount requested by the mortgagor. Full payments on both
mortgages are made to the wraparound mortgagee, who then forwards the payments
on the first mortgage to the first mortgagee.
This glossary is a courtesy of Realtor.org and Fannie Mae.