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
its interest rate periodically on the basis
of changes in a specified index.
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 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.
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.
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. See mortgage broker.
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 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, 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.
certificate of deposit index
An index that is used to determine interest
rate changes for certain ARM plans. It represents
the weekly average of secondary market interest
rates on six-month negotiable certificates
of deposit. See adjustable-rate mortgage
(ARM).
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."
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 realtors® 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 Home Improvement Mortgage
Loan®
An alternative financing option that allows
low- and moderate-income home buyers to
obtain 95 percent financing for the purchase
and improvement of a home in need of modest
repairs. The repair work can account for
as much as 30 percent of the appraised value.
Community Land Trust Mortgage Loan
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 Seconds®
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.
consumer 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.
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. See merged credit report.
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 Fannie Mae 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
Fannie Mae is 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. Over the past 30 years,
Fannie Mae has provided nearly $2.5 trillion
of mortgage financing for over 30 million
families.
Fannie Mae's Community Home Buyer's
ProgramSM
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 97®
A financing option for a fixed-rate mortgage
that offers home buyers a 3 percent down
payment loan with either a 25- or 30-year
term. 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 mrotgage
debt.
forfeiture
The loss of money, property, rights, or
privileges due to a breach of legal obligation.
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.
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 mortgage.
Government National Mortgage Association
A government-owned corporation within the
U.S. Department of Housing and Urban Development
(HUD). Created by Congress on September
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.
HomeKeeperSM
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.
HomeStyle® 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. The financing
takes the form of a conventional second
mortgage or a Federal Housing Administration
(FHA) Section 203(k) first mortgage.
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 legislated
mortgage amount limits. Also called a nonconforming
loan.
No Glossary Terms
starting with K
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.
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 (MI).
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.
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 ta
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.
See cap.
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. See cap.
personal property
Any property that is not real property.
PITI
See principal, interest, taxes, a
