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Mortgage Terminology
It helps to know some of the more common mortgage terms. Have a quick look.
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Glossary of Mortgage Terms
A
Abstract of Title
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration
This is an expression that is usually used when a person chooses to pay a mortgage on a weekly or a bi-weekly basis although it can apply to any repayment program. All mortgages are drawn with a requirement that you make payments monthly, however, the bank will usually agree to administer one half of the required monthly payment each bi-weekly period, you are paying the equivalent to one extra monthly payment per year and therefore paying off your mortgage more quickly. If you chose to pay weekly and pay one quarter of a monthly payment each weekly period you get the same benefit. Be sure to arrange that your mortgage payment dates match your pay days!
Acceleration Clause
Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Acceptance
The act of accepting an offer to enter into a contract. Acceptance is binding and legal when both parties agree to the initial terms or after both parties have accepted all counter offers.
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
An interest rate that is adjusted periodically on the basis of changes in a specified index.
Adjustable-Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages)
Adjusted basis
The original cost of a property plus the cost of any improvements less depreciation.
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).
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.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).
All Inclusive Trust Deed (AITD)
Also known as a Wraparound Mortgage. A junior lien on a property which encompasses the senior financing. Enables the borrower to increase the amount of borrowing without paying off the original loan or paying the higher interest rates associated with other types of secondary financing. The borrower makes one payment (usually to the seller) from which the senior financing is paid with the balance going toward the holder of the Note. May be advantageous to the seller in that he can experience an additional return on money (the senior financing) which he never loaned.
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 period of time it takes to pay off your mortgage in full. A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal. Fully amortized loans are paid in full at the end of the loan term. Amortization terms range from 10 to 40 years.
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 (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)
A measure of the cost of credit, expressed as a yearly rate. It includes interest and points as well as other charges. It provides consumers with a good basis for comparing the cost of any loan, including a proposed mortgage loan.
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 process which determines the market value of property. This will be performed by a professional appraiser who will prepare a comprehensive report complete with photographs of the home.
Appraisal Value
An expert judgment or estimate of the quality or value of real estate as of a given date. The appraised value relies upon one or more of three different types of valuation approaches depending upon the property type and current or anticipated usage. The Market Approach, Cost Approach or Income Approach.
Appraiser
An individual who is qualified to estimate the value of real 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 value 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 (tax) against property for a special purpose, such as a sewer assessment.
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
When a mortgage is assumable, a buyer may take over the responsibilities and benefits of the sellers' existing mortgage. This may be advantageous to a buyer if the interest rate on the mortgage is below the current market rates. Before assuming a mortgage, approval must be obtained from the lender.
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.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In a full assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. (Not to be confused with a subject-to purchase.)
Attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.
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B
Balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date. This is generally needed to underwrite people who are self-employed.
Balloon mortgage
A mortgage that has level monthly payments of principal and interest that do not fully amortize the loan. The balance is due in a lump sum payment at a specified date, usually at the end of the term.
Balloon Note
A Promissory Note which requires only partial or no amortization (principal reduction). Balloon Notes result in an eventual Balloon Payment. A Balloon Note may be coupled with an Extendible Rider which allows for the extension of the loan term as long as certain conditions are met. (Such as on 5/25 and 7/23 loans.)
Balloon Payment
Amount of loan principal remaining unamortized and outstanding at the end of the mortgage term.
Bankrupt
A person, firm, or corporation ("debtor") that, through a court proceeding, is relieved from the payment of some or all debts, usually after the surrender of all assets to a court-appointed trustee or the reorganization of the debtor's assets and liabilities. Usually, at least two years must elapse from the discharge of the bankruptcy before lenders will consider making a loan to someone who had declared bankruptcy.
Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can receive debt relief by transferring his or her assets to a trustee or agreeing to reorganization of assets and liabilities. Usually, at least two years must elapse from the discharge of the bankruptcy before lenders will consider making a loan to someone who had declared bankruptcy.
Basis
Basis is used to compute the amount of any taxable gain or loss when selling a property. It includes the orginal cost of the property plus closing costs, selling costs and the cost of any improvements made.
Beneficiary
(see Deed of Trust)
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
A Mortgage lien secured by two or more property parcels.
Blended Payment
A mortgage payment that includes both interest and principal repayment. The amount of interest taken from each payment reduces while the amount applied to principal reduction increases over time, but the payment remains constant.
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.
Boot
Cash or other non-real-estate assets exchanged for real property.
Breach
A violation of any legal obligation.
Break-even Cash Ratio
Equalization of the ratio of operating expense plus debt service to gross income (1:1.) Interpreted as the occupancy level that must be achieved to break even.
Bridge loan
A loan which provides funds for a homebuyer to make a downpayment and pay closing costs on a new home before the present home is sold. Also known as "gap financing."
Broker
(see Real Estate 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 and State Laws that set minimum construction standards.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Buydown
With a buydown, the seller or borrower pays an amount to the lender so that the lender can offer a lower rate and lower payments, during the earlier portion of the loan term. If the seller pays, he may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages; fixed rate, interim fixed and adjustables.
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.
buyer's attorney's fees
Fees paid by a homebuyer for legal services and/or advice in conjunction with purchasing real estate.
Buyer's attorney's fees
Fees paid by a homebuyer for legal services and/or advice in conjunction with purchasing real estate.
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C
Call option
A provision in the mortgage that gives the lender the right to call the mortgage due and payable in full at the end of a specified period.
Cap
A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning, so they may cause negative amortization.
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 Gains Tax
Tax paid on the gain realized upon the sale of an asset.
Capital Improvement
A permanent improvement to real property that increases its value and useful life.
Capitalization
Process of estimating value by discounting stabilized net operating income by an appropriate rate.
Cash Reserves
See reserves.
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 (CD)
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 Occupancy
Official document issued by a local government body stating that a structure meets local zoning and building codes and is ready for use.
Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
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).
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Closed Mortgage
A mortgage may be an open or closed mortgage. An open mortgage usually charges a higher interest rate but may be paid off at any time without penalty while a closed mortgage may not be paid off during the term without penalty. Be careful as some mortgages may not be paid off even with a penalty before the maturity date. See also Prepayment Penalty and Maturity Date.
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 Agent
The party who conducts the closing meeting. This role may be filled by an attorney, title company, or real estate agents depending on the state where the property is located.
Closing Costs
The expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at or before the closing day. Non-Recurring Closing Costs are items such as appraisal, credit report, processing fees, origination fees, transfer taxes, points, etc., which are paid on a one-time basis. Recurring Closing Costs (also known as pre-paids) include such items as property taxes, hazard insurance and may include pre-paid interest or Private Mortgage Insurance premiums. Total costs and the method by which they are split between the buyer and seller depend upon local custom, jurisdiction and agreements stipulated in the purchase contract.
Closing Day
The day on which the formalities of a real estate sale are concluded and at which time title passes from seller to buyer. The final closing merely confirms the original agreement reached in the agreement of sale.
Closing Statement
See HUD-1 statement.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability of title.
Co-Borrower
A person who signs a promissory note along with the borrower. Contrast with endorser. See also non-occupant co-borrower.
Collateral
Assets that are pledged to secure the discharge of an obligation.
Commission
Money paid to a real estate agent or broker by the seller (or infrequently the buyer) as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price -- Commonly, 3 to 6 percent on houses, 10 percent on land and mobile homes. The commission rate is negotiable.
Commitment Letter
Written notification from the lender to the borrower that approves the mortgage request and which should include the amount of the mortgage, interest rate, payment and all terms and conditions.
Comparable Properties
(see Direct Sales Comparison)
Completion Date
The date on which your purchase will complete and money will change hands between you and the sellers.
Condemnation
The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
Conditional Offer
An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.
Condominium
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.
Contract of Purchase or Contract of Sale
(see Agreement of Sale)
Contractor
In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes.
Conversion Clause
A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. The conversion feature may be available at extra cost.
Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
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D
Debt Capital
Borrowed Funds
Debt Service
Mortgage Payment
Debt Service Coverage
Amount of money left over after other expenses such as taxes, insurance, maintenance and utilities, including an assumption of a reasonable vacancy factor, which can be utilized to service mortgage debt. Lenders usually require that the resulting earnings be a certain percentage above the proposed mortgage payments. (Applicable to Apartments and Commercial Properties.)
Deed
A formal written instrument by which title to real property is transferred from one owner to another. The deed must contain an accurate description of the property being conveyed, be signed and witnessed according to the laws of the State where the property is located, and be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.)
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower (or trustor), the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. (California is a Trust Deed State)
Default
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.
Depreciation
Decline in value of a property due to wear and tear, adverse changes in the neighborhood, or any other reason.
Direct Sales Comparison
Property value estimation using the sales prices of similar properties (comparables) and making value adjustments according to such things as square footage, room count, lot size, condition and amenities in order to obtain a realistic fair market value of the property being appraised.
Discount Points
Charges made by a lender to adjust the effective interest rate (yield) on loans. One point is equal to 1% of the loan amount. On a $100,000 loans, one point would be equal to $1,000. In practice, on most 30 year fixed rate loans, the payment of an additional discount point can lower the actual note rate by approximately 1/4%.
Down Payment
The difference between the sales price and actual mortgage amount which the buyer must put down in cash or cash equivalents.
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E
Earnest Money (Good Faith Deposit)
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money may be forfeited or lost unless the offer to purchase expressly provides that it is refundable. Most purchase contracts require that certain contingencies (such as the availability of financing and acceptance of property condition) be removed prior to the deposit being forfeited
Easement Rights
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.
Economic Life
Length of time that improvements (buildings) will produce a competitive return or will be properly habitable. Land usually has an infinite economic life.
Eminent Domain
Right of a government agency to take private property for a public purpose. Fair compensation must be paid to the owner whose property is taken.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
Equity
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting borrowed funds and other liens from the property's fair market value. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.
Escrow, Escrow2
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. - - In Real Estate sales transactions, the escrow agent is delivered the Deed by the seller and the down payment funds and access to mortgage funds by the buyer. Release to the opposite parties by the escrow agent is dependent upon performance of certain conditions, usually that the title to the property is made clear to the buyer. -
Escrow2- In mortgage transactions, an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for such items as mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments. (Also called impound accounts)
Estopped Certificate
Document in which the borrower verifies the remaining balance and interest rate of a loan.
Exchange
When ownership of like-kind properties are transferred between two or more owners; can result in postponement of part or all of the tax for one or more of the parties to the exchange.
Exclusive Listing
Agreement between the seller of property and a Real Estate broker in which the seller agrees to pay a commission to the broker if the seller’s property is sold by anyone other than the seller.
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F
Feasibility Analysis
Study of the cash flow, profitability potential and overall desirability of a project.
Fee Simple Absolute
Entire bundle of rights to use and control real property.
FHA (Federal Housing Administration)
A division of the U.S. Department of Housing and Urban Development that insures mortgage loans.
FHLMC (Federal Home Loan Mortgage Corporation)
Referred to as “Freddie Mac” and supervised by the Federal Home Loan Bank Board. FHLMC creates a secondary market for conventional mortgage loans.
Fire Insurance
Before a mortgage can fund and close, the purchaser must have arranged fire insurance also know as hazard insurance. A certificate or binder from the insurance company is required at closing. (also see Hazard Insurance)
Firm Offer
An offer to buy the property as outlined in the offer to purchase with no conditions attached.
Fixed-Rate Mortgage
A mortgage for which the rate of interest is fixed for a specific period of time (the term).
FNMA (Federal National Mortgage Association)
Referred to “Fannie Mae”, FNMA is a privately owned, government sponsored agency that buys and sells FHA-insured, VA-guaranteed and conventional mortgage loans.
Foreclosure
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession.
FSBO, For Sale By Owner - pronounced
This type of sale involves no assistance by any real estate agent, realtor etc.; the owner of the property takes it upon himself to market the property and to find an interested and qualified buyer.
Functional Obsolescence
Decline in value of property caused by changes in technology or by defects in design, layout, or size of building; loss of a building’s ability to perform its function.
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G
General Partnership
Form of co-ownership wherein all partners have a voice in the management of a business and unlimited liability for its debts.
General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Good Faith Deposit
(See Earnest Money)
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
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H
Hazard Insurance
Protects against damages caused to property by fire, windstorms, and other common hazards.
Holdback
An amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.
Home Equity
The difference between the price for which a home could be sold (market value) and the total debts registered against it.
Homestead
Primary residence as declared by the head of a household and filed with the county clerk in order to exempt the homestead from claims of creditors.
HUD
U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.
HVAC
Heating, Ventilation, and Air Conditioning.
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I
Impound Account
(see Escrow)
Index
The index is the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down. Common indexes currently used in include Treasury Securities (especially one-year T-Bills), Cost of Funds indexes of member saving & loans and banks (such as the 11th District Cost Of Funds Index), LIBOR (London Interbank Offered rate), Prime Rate and Certificates of Deposit.
Inspection
The examination of the house by a building inspector selected by the purchaser.
Interest
A charge paid for borrowing money. The interest rate is the actual percentage of that charge.
Interest Adjustment Date
The date that the lender will start collecting interest. Your regular payments will commence one payment period after this date. For example, if you have chosen to make bi-weekly payments, your first payment will come due two weeks after the Interest Adjustment Date. When you sign your mortgage papers the bank will collect from you an "Interest Adjustment" which is a calculation of interest from the Completion Date to the Adjustment Date.
Interim Financing
Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.
Intestate
Without a last will and testament.
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J
Joint Tenancy
Form of taking title to a property in which two or more owners hold equal shares, acquire the shares concurrently, and have equal rights of possession. The rights of one owner passes to the other owner(s) upon the one’s death. (Right of Survivorship)
Junior Mortgage
Any mortgage on a property that is subordinate to a senior mortgage in priority.
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K
No Items
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L
Land Contract
(also known as Land Sales Contract or Installment Sales Contract): Method of conveying title to a real property in which title does pass to the buyer until the contract for Deed is fulfilled. The contract for deed usually requires that the purchase price is paid in installments. (Cal-Vet loans are the most common occurrence of this in California)
Lien
A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also special lien.)
Loan to Value Ratio
The amount of the mortgage expressed as a percentage of the value of the home. For example, if you wish to borrow $190,000 on a home you are buying for $200,000, the Loan to Value Ratio is 95%.
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M
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value
Price that a property should bring in a competitive market when there is sufficient marketing time, no coercion, typical financing availability, arms-length negotiation and knowledgeable buyers and sellers.
Marketable Title
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.
Maturity Date
The last day of the term of your mortgage agreement. On the Maturity Date the mortgage must be paid in full, renewed with the same lender or transferred to a new lender.
Mechanic's Lien
Right to have a property sold by those who perform labor or services or furnished material for the improvement of the subject property.
Mortgage
A mortgage is actually a document which is registered in Land Titles Office and provides evidence that you have given your home as collateral to a lender to secure a loan. In practice, the loan itself is usually referred to as a mortgage.
Mortgage Commitment
A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
Mortgage Insurance Premium
(see Private Mortgage Insurance)
Mortgage Life Insurance
A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
Mortgage Note
(also none as Promissory Note or Note): A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
Mortgage Term
The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 40 years.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
Multiple Listing
Sharing of property sales listings by a number of real estate brokers with an agreement as to how the costs and commissions are to be split.
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N
Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
Net Worth
The difference between what you own (assets) and what you owe (liabilities) is called your net worth.
Non-Recurring Closing Costs
(see Closing Costs)
Note
(see Mortgage Note)
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O
Open-end Mortgage
A mortgage that provides for the borrowing of additional funds.
Option
A Contract given by the owner of a property to another person, giving the latter a right to buy or lease the property at a certain price within a specified period of time.
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P
P.I.T.I.
Principal, interest, taxes and insurance. Together, these make up the qualifying housing payment on a mortgage. This does not necessarily mean you must pay that amount when making your mortgage payment. If you elect to pay taxes and insurance on your own and not include in your mortgage payment, your LTV or loan to value must be lower than 90.00% in most cases. Other than the loan to value restriction, one may choose either form of payment 1)With Impounds 2)Without Impounds -SEE ESCROW2
Planned Unit Development (PUD)
A Land Development project involving a mixture of land uses and densities not available for separately zoned units. Similar to condominiums, it is viewed as an integrated whole. Unlike condominiums, however, the individual unit owners do own a portion of the land under and around their individual unit.
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
Points
(see Discount Points)
Prepayment
Payment of a mortgage loan, or part of it, before the due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. . The practice of charging money for an early payoff of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans.
Prepayment Option
The ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.
Prepayment Penalty
Unless it is open, the mortgage may not be paid off before the Maturity Date without paying a Prepayment Penalty. Be very careful when negotiating a mortgage as some mortgages cannot be paid off at all before the Maturity Date. See also Closed Mortgages and Maturity Date.
Principal
The amount of money actually borrowed. In finance, the basic element of the loan as distinguished from interest and possible mortgage insurance premiums. In other words, principal is the amount upon which interest is paid. - - In brokerage, the person giving authority to an agent to act on his behalf.
Private Mortgage Insurance (PMI)
Insurance that protects a lender from loss caused by the default of the borrower. Usually covers only a portion of the loan amount. Loans above 80% LTV require PMI. (Unless subordinate financing is used or lender paid PMI is used)
Promissory Note
(see Mortgage Note)
Proration
Allocation of costs and income between the buyer and seller of real estate at the time of the transaction closing, based upon the time of ownership of each.
Purchase Agreement
(see Agreement of Sale)
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Q
Quitclaim Deed
A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (see Deed.)
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R
Real Estate
Land including the buildings or other improvements upon the land. Also includes the airspace above the parcel and the contents below the surface.
Real Estate Broker
A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.
Real Estate Investment Trust (REIT)
Passive investment vehicle whose distributions are taxed only to the investors who receive them.
Recording
Filing a document with the appropriate public official in order to provide constructive notice.
Recurring Closing Costs
(see Closing Costs)
Refinance
The process of the same mortgagor paying off one loan with the proceeds from another loan.
Renewal
At the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. Otherwise, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating.
Reverse Annuity Mortgage
Loan to a homeowner which is paid as an annuity with interest increasing on the accumulated balance. The loan is paid back in full upon the sale or refinancing of the property.
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S
Sales Agreement
(see Agreement of Sale)
Sales Comparison Approach
(see Direct Comparison Approach)
Secondary Financing
(see Junior Mortgages)
Section 8 Program
Program of rent supplements developed by HUD and allocated to local governments.
Security
In the case of mortgages, real estate offered as collateral for the loan.
Setback
(see Building Line or Setback)
Site
Parcel of land developed to the point that it is ready for construction of a building or other improvements.
Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.
Subdividing
Separation of a parcel of land into smaller parcels.
Subject-To Purchase
When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Survey
A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.
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T
Tax
An enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.
Tax Credit
Allowable reduction in the amount of income tax owed.
Tax Deferred Exchange
Trade of like-kind property that does not trigger recognition of taxable gain at the time of the exchange.
Term
The length of time that the lender guarantees the interest rate. At the end of the term, the mortgage comes up for re-negotiation. See also Maturity Date.
Title
As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive convenants filed in the record, which would adversely affect the marketability or value of title.
Transfer Tax
Tax levied on deeds, usually based upon the purchase price and payable upon recordation of the deed.
Trust Deed
(see Deed of Trust)
Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. (see Deed of Trust.)
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U
Usury Laws
State laws limiting the maximum interest rate which can be charged on loans.
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V
VA (Veterans Administration) Loans
Loans guaranteed by the Veterans Administration.
Valuable Consideration
Consideration in the form of money, promises, or property.
Variable Rate Mortgage (VRM)
(see Adjustable Rate Mortgages)
Variance
In zoning, a permitted deviation for a particular property from the zoning category for that property.
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W
Will
Document executed during a person’s lifetime that conveys the person’s property at death.
Wraparound Mortgage
(see All Inclusive Trust Deed)
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X
No Items
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Y
Yield
Relationship between income or cash received from an investment and the value of the capital invested.
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Z
Zoning Ordinances
The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.
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