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Abstract (Of Title)
A
summation of the public records relating to the ownership
to a particular parcel of land. Any title inconsistencies
must be cleared before a buyer can purchase a home with a
clear, marketable, and insurable title.
Acceleration
Clause
Allows
the lender to expedite the rate at which your loan comes due
or demand immediate payment of the entire balance of the loan
in the event you default.
Adjustable
Rate Mortgage (ARM)
A
mortgage in which the interest rate is adjusted periodically
based on an index. Also known as a variable rate mortgage.
Adjustment
Interval
On
an adjustable rate mortgage, this is the time between changes
in the interest rate and/or monthly payment.
Agreement
of Sale
Known
by various names - contract of sale, purchase agreement, or
sales agreement - depending upon your location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees
to buy, under specific written terms and executed by both
parties.
Amortization
Loan
payment calculated to pay off the debt at the end of a fixed
period, including interest on the outstanding balance.
Annual
Percentage Rate (APR)
The
cost of credit expressed as a yearly rate. The percentage
results from an equation factoring in the total amount financed,
the finance charges, and the term of the loan. Will typically
differ from the interest rate.
Appraisal
Written
analysis of the value of a property prepared by a professional
appraiser.
Appraisal
Fee
The
amount charged for estimating the value of a property.
Asset
Property
that one owns, net of any liens against, is a liquid asset
and is used to repay debt, such as bank accounts, stocks,
mutual funds and bonds or an automobile.
Assumption
The
agreement between buyer, seller, and mortgagee where the buyer
takes over the payments on an existing mortgage from the seller.
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Balloon
(Payment) Mortgage
Usually
a short-term fixed-rate loan involving smaller payments for
a period of time and one large payment for the remaining balance
at a specific time.
Binder
or "Offer to Purchase"
A
preliminary agreement, secured by the payment of Earnest Money,
between a buyer and seller as an offer to purchase real estate.
Broker
A
person who, for a fee or commission, assists in arranging,
funding or negotiating contracts for a client. A mortgage
broker does not loan money but arranges financing.
Business
Days
Any
day in which a business is open to the public for business
activities.
Buydown
A
fee to subsidize the mortgage by reducing the interest rate
or payment during the first few years of the loan. While the
payments are initially low, they will increase upon expiration
of the subsidy.
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Caps
(Interest)
A
limit to the amount an interest rate may change on an adjustable
rate mortgage, either per adjustment or over the life of the
loan.
Caps
(Payment)
A
limit to the amount the monthly payments on an adjustable
rate mortgage may increase.
Certificate
of Title
A
statement provided by an Abstract Company, Title Company or
Attorney stating that the title to real estate is held legally
by the current owner.
Closing
The
concluding meeting between the buyer, seller and lender where
the property and funds legally change hands. Also called settlement.
Closing
Costs
Expenses
incurred by buyers and sellers when transferring ownership
of a property. The closing costs usually are about 2 percent
to 6 percent of the mortgage amount.
Closing
Day
The
day on which the formalities of a real estate sale are finalized.
The buyer executes the mortgage, and closing costs are paid.
The final closing merely reiterates the original agreement
reached in the agreement of sale.
Cloud
(On Title)
An
outstanding claim which adversely affects the ability to transfer
title to property free and clear of any questions about prior
ownership..
Collateral
An
asset that is used to secure a loan. Generally, this asset
will be seized and liquidated if a loan goes into default.
Commission
Money
paid to a real estate agent or broker by the seller as compensation
for locating a buyer and helping negotiate a sale.
Commitment
A
written agreement between a lender and a borrower to loan
money at a future date subject to the stated conditions.
Condemnation
A
determination by a governmental agency that a particular building
is unsafe or unfit for habitability.
Condominium
Individual
ownership (title) of a unit and an individual interest in
the common areas and facilities which serve the project.
Construction
Loan
A
short term interim loan for financing the cost of construction.
The lender makes payments to the builder as the work progresses.
Contractor
A
person who contracts to construct buildings. Generally, there
are contractors for each phase of construction: heating, electrical,
plumbing, air conditioning, road building and others.
Conventional
Loan
A
mortgage not insured or guaranteed by the federal government.
Cooperative
Housing
An
apartment building or a group of dwellings owned by a corporation,
the stockholders of which are the residents of the dwellings.
It is operated for their benefit by their elected board of
directors. In a cooperative, the corporation or association
owns title to the real estate. A resident purchases stock
in the corporation that entitles him to occupy a unit in the
building or property owned by the cooperative. While the resident
does not own his unit, he has an absolute right to occupy
his unit for as long as he owns the stock.
Cosigner
Another
person who signs your loan and assumes equal responsibility
for its repayment.
Credit
Bureau
An
agency that keeps consumers' credit records in its database.
Credit
History
The
record of how you've borrowed and repaid debts.
Credit
Ratio
The
ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by
his or her income.
Credit-related Insurance
Health,
life, or accident insurance designed to pay the outstanding
balance of debt in the event of a catastrophe.
Credit
Scoring System
A
statistical system used to profile individuals pursuant to
various characteristics relevant to creditworthiness.
Creditor
A
person or business to whom money is owed.
Creditworthiness
Ability
and willingness to repay debts.
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Deed
A
formal written instrument which serves as proof that title
to real property is vested in an individual, group or entity.
Deed
of Trust
In
some states, this document is used in lieu of a mortgage to
secure the payment of a note.
Default
Failure
to repay a loan or otherwise meet the terms of your credit
agreement.
Delinquency
Failure
to make required payments on time, which can lead to default
or foreclosure.
Department
of Veterans Affairs (VA)
An
independent agency of the federal government that guarantees
long-term, low- or no-down payment mortgages to eligible veterans.
Depreciation
Decline
in value of a house due to wear and tear, negative changes
in the neighborhood, or any other reason.
Disclosures
Data
that must be given to consumers about their financial dealings.
Discount
Points
Prepaid
interest charged at closing by the lender. Each point is equal
to 1 percent of the loan amount (e.g. two points on a $100,000
mortgage would cost $2,000).
Documentary
Stamps
A
state tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another.
Down
Payment
Money
paid to make up the difference between the purchase price
and mortgage amount.
Due-On-Sale
Clause
A
provision in a mortgage or deed of trust that allows the lender
to demand immediate payment of the remaining balance if the
mortgage or holder sells the home.
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Earnest
Money
Money
given by a buyer to a seller as part of the purchase price
to bind a transaction.
Easement
Rights
A
right-of-way granted to a person or company granting access
for a specific reason to or over the owner's land.
Elderly
Applicant
As
defined in the Equal Credit Opportunity Act, a person 62 or
older.
Encroachment
An
improvement that intrudes on another's property.
Encumbrance
A
legal right or interest in land that affects a good or clear
title, and diminishes the land's value.
Equal
Credit Opportunity Act (ECOA)
A
federal law requiring lenders and other creditors to make
credit equally available without discrimination based on race,
color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.
Equity
The
difference between the fair market value and current indebtedness
Equity
Line of Credit
A
form of open-end credit in which the home serves as collateral
and against which the creditor may draw funds in the future.
Escrow
Refers
to a neutral third party that follows the instructions of
both the buyer and seller to handle all the paperwork of settlement
or "closing." Escrow may also refer to an account held by
the lender into which the homebuyer pays money for tax or
insurance payments.
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Federal
National Mortgage Association
A
tax-paying corporation created by Congress that purchases
and sells conventional residential mortgages as well as those
insured by FHA or guaranteed by VA. This institution, which
provides funds for one in seven mortgages, makes mortgage
money more available and affordable.
The Department
of Rural Economic and Community Development, formerly the
Farmers Home Administration (FMHA)
Provides
financing to farmers and other qualified borrowers.
Federal
Home Loan Mortgage Corporation (FHLMC)
Also
called Freddie Mac, is a quasi-governmental agency
that purchases conventional mortgages from insured depository
institutions and HUD-approved mortgage bankers.
Federal
Housing Administration (FHA)
A
division of the Department of Housing and Urban Development.
Its main activity is to insure residential mortgage loans
made by private lenders.
FHA Loan
A
loan insured by the Federal Housing Administration.
FHA Mortgage
Insurance
Protects
the lender against loss in the event of consumer default.
Finance
Charge
The
total dollar amount that credit will cost the borrower.
Fixed-Rate
Mortgage
A
mortgage on which the interest rate is set (fixed) for the
term of the loan.
Foreclosure
A
legal process by which a property securing a mortgage is seized
by the lender after a borrower defaults.
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General Warranty Deed
A
deed which conveys both the grantor's interests in and title
to the property to the grantee, but also warrants that if
the title is defective or has a "cloud" on it (such as mortgage
claims, tax liens, title claims, judgments, or mechanic's
liens against it) the grantee may hold the grantor liable.
Ginnie
Mae
See
Government National Mortgage Association.
Government
National Mortgage Association (GNMA)
Also
known as Ginnie Mae, provides sources of funds for
residential mortgages insured or guaranteed by FHA or VA.
Grantee
The
party to the transaction who is the buyer or recipient.
Grantor
The
party to the transaction who is the seller or giver.
Gross
Monthly Income
The
total amount the borrower earns per month.
Guarantee
A
promise by one party to pay a debt or perform an obligation
contracted by another if the original party fails to pay or
perform according to a binding contract.
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Hazard
Insurance (Homeowners Insurance)
It
insures against loss from catastrophic events. As each policy
is different, it is important to review which events are involved.
Housing
Expenses-to-Income Ratio
The
ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by their income.
HUD
U.S.
Department of Housing and Urban Development.
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Impound
That
portion of a borrower's monthly payment that is held by the
lender to pay taxes, hazard insurance, mortgage insurance,
and other items as they become due.
Index
A
published interest rate which is used to adjust the interest
rate for an ARM.
Interest
The
fee charged for borrowing money.
Investor
Source
of money for a lender.
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Joint
Account
A
credit account held by two or more people so that both can
use the account and all assume legal responsibility to repay.
Jumbo
Loan
A
loan that is larger than the limits set by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Since jumbo loans cannot be funded by these two agencies,
they usually carry a higher interest rate.
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Late
Payment
A
payment made later than agreed upon in a credit contract and
on which additional charges may be imposed. (A/K/A Late Fees)
Lessee
A
person who executes a lease to get temporary use of property.
Lessor
An
entity that provides temporary use of property typically in
return for periodic payment.
Liability
on an Account
Legal
responsibility to repay debt.
Lien
A
legal claim upon a piece of property that must be satisfied
in order to transfer title.
Loan-To-Value
Ratio
The
relationship between the mortgage amount and the sale price
or appraised value of a property, expressed as a percentage.
Lock
Term
A
lender's guarantee of an interest rate for a set period of
time.
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Margin
The
amount added to the index on an adjustable rate mortgage to
establish the adjusted interest rate.
Market
Value
The
highest price that a willing buyer would pay and the lowest
price a willing seller would accept for a property.
Marketable
Title
A
title that is free and clear of liens, clouds, or other title
defects.
Mortgage
A
lien or claim against real property given by the buyer to
the lender as security for money borrowed.
Mortgage
Commitment
A
written notice from the bank or other lending institution
stating it will advance mortgage funds in a specified amount,
under specific terms, which will enable a buyer to purchase
a house.
Mortgage
Insurance
A
contract that insures the lender against loss caused by a
mortgagor's default.
Mortgage
Insurance Premium
The
payment made by a borrower to HUD to help defray the cost
of the FHA mortgage insurance program.
Mortgage
Note
A
legal document that obligates a borrower to repay a loan.
Mortgage
(open-ended)
A
mortgage with a provision that allows borrowing additional
money in the future without refinancing the loan or paying
additional financing charges.
Mortgagee
The lender. (Granter of Credit)
Mortgagor
The
borrower or homeowner. (Receiver of Credit)
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Negative
Amortization
Occurs
when your monthly payments are not large enough to pay all
the interest due on the loan. This unpaid interest is added
to the unpaid balance of the loan.
Net Effective
Income
The
borrower's gross income less federal income tax.
Non-Assumption Clause
A
statement in a mortgage contract forbidding the assumption
of the mortgage without the prior approval of the lender.
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Open-End
Credit
A
line of credit that may be used continuously, includes credit
cards, overdraft credit accounts, and home equity lines.
Open-end
Lease
A
lease that may involve a balloon payment based on the value
of the property when it is surrendered.
Origination
Fee
A
fee charged by a lender for processing a loan application.
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PITI
Principal,
interest, taxes, and insurance. Also known as monthly housing
expense.
Plat
A
map or chart of a lot, subdivision or community drafted by
a surveyor showing boundary lines, buildings, improvements
on the land, and easements.
Points
Prepaid
interest charged at closing by the lender. Each point is equal
to 1 percent of the loan amount (e.g. two points on a $100,000
mortgage would cost $2,000).
Power
of Attorney
A
legal document authorizing another person to act on ones behalf.
Prepaids
Expenses
necessary to create an escrow account or to adjust the seller's
existing
escrow account. Includes taxes, hazard insurance, private
mortgage insurance and special assessments, as applicable.
Prepayment
A
privilege in a mortgage allowing the borrower to make payments
in advance of their actual due date.
Prepayment
Penalty
Money
charged for an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily imposed) in
36 states and the District of Columbia.
Principal
The
amount of debt, not counting interest, left on a loan.
Private
Mortgage Insurance (PMI)
Protects
lenders against loss if a borrower defaults. Most lenders
generally require mortgage insurance with less than a 20%
down payment.
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Quitclaim
Deed
A
deed that transfers whatever interest the maker of the deed
has in the particular parcel of land. A quitclaim deed is
often given to clear the title when the grantor's interest
in a property is uncertain. Such a deed makes no warranties
as to the title, but simply transfers to the buyer whatever
interest the grantor has.
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Real
Estate Broker
A
licensed person who negotiates and transacts the sale of real
estate on behalf of the property owner.
Real
Estate Settlement Procedures Act (RESPA)
A
federal law that governs certain aspects of a real estate
transaction.
Realtor
A
real estate broker or an associate holding active membership
in a local real estate board affiliated with the National
Association of Realtors.
Recording
Fees
Fee
paid to the recorder of deeds to record the title transfer,
the mortgage and its assignment to a third party, if appropriate.
Refinancing
The
process of the same mortgagor paying off one loan with the
proceeds from another mortgage, in some cases taking cash
out.
Rescission
With
respect to mortgage refinancing, a law giving the homeowner
three business days to cancel a contract in some cases once
it is signed if the transaction uses equity in the home as
security.
Restrictive
Covenants
Restrictions
limiting the use of real property.
Reverse
Annuity Mortgage (RAM)
A
form of mortgage in which the lender makes periodic payments
to the borrower using the borrower's equity in the home as
security.
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Security
Property
pledged to the creditor in the event of a default on a loan.
Security
Interest
The
creditor's right to seize property or a portion of property
offered as security.
Servicing
All
the steps and operations lenders perform to maintain a loan
in good standing, such as collection of payments, payment
of taxes, insurance, property inspections and the like.
Settlement
The
concluding meeting between the buyer, seller and lender where
the property and funds legally change hands. Also called closing.
Settlement
Costs
Expenses
incurred by buyers and sellers when transferring ownership
of a property. The closing costs usually are about 2 percent
to 6 percent of the mortgage amount. Also called closing costs.
Special
Assessments
A
special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers,
streetlights, etc.
Special
Lien
A
lien that binds a specified piece of property, unlike a general
lien, which is levied against all of one's assets.
Special
Warranty Deed
A
deed in which the grantor conveys title to the grantee and
agrees to protect the grantee against title defects or claims
asserted by the grantor and those persons whose right to assert
a claim against the title arose during the period the grantor
held title to the property.
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.
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Tax
As
applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the municipality.
Term
The
period of time between the date the loan obligation is incurred
and the date the entire balance of the loan is due in full.
Title
A
document that gives proof of an individual's ownership of
property.
Title
Insurance
A
policy which insures a mortgagor or homebuyer against errors
in the title search.
Title
Search
An
examination of municipal records to determine the legal ownership
of property, as is performed by a title company.
Trustee
A
party who is given legal responsibility to hold property in
the best interest of or "for the benefit of" another.
Truth-in-Lending
A
federal law requiring disclosure of the Annual Percentage
Rate to homebuyers shortly after they apply for a loan.
Two-Step
Mortgage
A
mortgage program in which the borrower receives a below-market
interest rate for a specified number of years (most often
seven or 10 years), and then receives a new interest rate
adjusted (within certain limits) to market conditions at that
time. The lender sometimes has the option to call the loan,
due within 30 days notice at the end of seven or 10 years.
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Underwriting
The
decision whether to make a loan to a potential homebuyer based
on risk factors such as credit, employment, assets, and collateral,
the matching of this risk to an appropriate rate, term or
loan amount.
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VA Loan
A
low-or no-down payment loan guaranteed by the Department of
Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
VA Mortgage
Funding Fee
A
premium of up to 2 percent (depending on the size of the down
payment) paid pursuant to a VA-backed loan.
Variable
Rate Mortgage (VRM)
See
Adjustable Rate Mortgage.
Verification
of Deposit (VOD)
A
document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
Verification
of Employment
A
document signed by the borrower's employer verifying his/her
position, salary and other data.
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Zoning
Ordinances
The
acts of an authorized local government establishing building
codes and setting forth regulations for property land usage.
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