A Terms
Accelerated Depreciation:
A bookkeeping method that depreciates property faster in the early years of ownership.
Acceleration Clause:
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Acceptance:
The seller's written approval of a buyer's offer.
Acre:
A measurement of land equal to 43,500 square feet.
Add-On Interest:
The interest a borrower pays on the principal for the length of the loan.
Adjustable-Rate Mortgage (ARM):
A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
Adjustment Date:
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period:
The time between interest rate adjustments on an adjustable-rate mortgage.
Agency:
The relationship that exists between sellers and buyers and their agents formed as a result of a written contract.
Agreement Of Sale:
The document initiated by a buyer for the seller to approve outlining the details of price and terms of the transaction.
American Society Of Home Inspectors (ASHI):
Professional association of independent home inspectors whose members.
Americans With Disabilities Act:
A law that outlaws discrimination against a person with a disability in housing, public accommodations, employment, government services, transportation, and telecommunications.
Amortization:
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
Amortization Schedule:
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
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.
Annual Percentage Rate (APR):
This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.
Annuity:
A payment of a fixed amount to an investor at regularly established intervals.
Application:
The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.
Appraisal:
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised Value:
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
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.
ASHI (American Society Of Home Inspectors)
Association of independent home inspectors.
Asking Price
The price the seller is asking for a property.
Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.
Assessment
The placing of a value on property for the purpose of taxation.
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 assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
Assumption
The transfer of the seller’s existing mortgage to the buyer.
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.
B Terms
Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Loan
A loan, in which monthly installments are not enough to repay the full amount of the loan by the end of the loan term, therefore a final lump sum payment is made at the end of the loan to cover the remaining principal amount. Balloon payment:
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
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Basis Point
A basis point is one one-hundredth of one percentage point. A loan of 6.75 percent versus a loan of 6.82 percent has a difference of 7 basis points.
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.
Bill Of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
Biweekly Mortgage
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
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
A legal term used to describe actions or persons that are honest and in good faith.
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.
Bond Market
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
Boundary
The dividing line between two adjacent properties.
Breach
A violation of any legal obligation.
Bridge Loan
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker
Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Buydown
Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
Buyers Agent
Represents the buyer in a property purchase, as either a single agent or as an exclusive buyer's broker.
Bylaws
Rules and regulations established by a homeowners association or corporation to govern activities.
C Terms
California Real Estate Inspection Association (CREIA)
Trade organization of home inspectors whose members must meet the group's education and performance requirements.
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.
Cancellation Clause
Conditions under which either party may terminate an agreement.
Cap
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Capitalization
A formula used by investors to determine the value of a property based on the income derived from the property.
Cash Flow
Remaining cash from rental property gross income after deducting operating expenses and loan payments.
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 time deposit held in a bank which pays a certain amount of interest to the depositor. (top)
Certificate Of Deposit Index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit. (top)
Certificate Of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.(top)
Certificate Of Occupancy
A document stating that a property is suitable for habitation and has met all building codes.
Certificate Of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Certificate Of Sale
Entitles the property buyer to receive a property deed after court confirmation of the purchase of the property. The document is issued by a judicial sale.
Chain Of Title
An analysis of the transfers of title to a piece of property over the years.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Classified Property Tax
A tax rate that varies depending on the use of the property.
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Closing
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing Costs
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
Closing Statement
Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.
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 deed, release, or court action.
Co-Borrower
IAn additional individual who is both obligated on the loan and is on title to the property.
Collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
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.
Combination Loan
With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans–known as 80/10/10 loans or 80/20’s.
Combined Loan-To-Value (CLTV)
The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property’s appraised value.
Commercial Property
An area zoned for business.
Commission
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
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.”
Commitment
Commitment by a lender to fund a loan with specific terms for a specified period.
Common Area Assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas. (top)
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 some states.
Common-Area Assessments
Fees paid to maintain, operate, improve or, maintain common areas by condominium owners.
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 Property
A classification of property specific to certain states. Relates to property accumulated by a husband and wife.
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 principal balance of a loan and on the accrued and unpaid interest of the loan.
Condominium
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
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. These are often found in resort areas like Hawaii.
Conforming Loan
The current conforming loan limit is $300,700 and below. Conforming loan limits change annually.
Conservator
A court-appointed guardian.
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.
Contiguous Lots
Properties that are adjoined.
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.
Contract To Purchase
This is also known as an agreement of sale. Details the purchase price and conditions of the transaction by the buyer and is accepted by the seller.
Conventional Loan
A long-term loan made by a lender for the purchase of a home.
Conventional Mortgage
Refers to home loans other than government loans (VA and FHA).
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.
Conveyance Tax
A tax imposed on the transfer of property.
Conveyance
The transfer of title of property.
Cooperating Broker
A real estate broker who finds a buyer for property that was listed by another broker.
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.
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)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
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 Rating
The credit worthiness of an individual based upon past credit history and financial status.
Credit Report
Details of an individual’s credit history, employment and residence history. Used by lenders to determine the credit worthiness of an individual.
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.
Credit
The loan of money by a lender to buyer for a commitment to repay the loan in a certain period of time.
Creditor
An institution or individual to whom a debt is owed.
D Terms
Days On The Market
The time period from when a property is listed for sale and then sold or taken off the market.
Debt
An amount owed by one person to another.
Deed
The legal document conveying title to a property.
Deed Of Trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
Deed
The legal document transferring ownership of a piece of property.
Deed-In-Lieu
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Default
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Delinquent Mortgage
A mortgage where the borrower is delinquent on its payments.
Deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
Depreciation
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
Disclosure
Disclosure statement to a potential buyer listing information relevant to a piece of property.
Discount Points
In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
Discount Points
Fees paid by the borrower to the lender to get a lower interest rate. One point is equal to one percent of the loan.
Distressed Property
Property that is in poor physical or financial condition.
Domicile
An individual's primary or permanent home.
Down Payment
The difference between the purchase price of a piece of property and the amount to be financed by the lender.
Dual Agency
When the real estate agent or broker represents both the buyer and seller in a transaction.
Due-On-Sale Clause
Requirement that the outstanding loan amount on a piece of property must be paid when the property is sold.
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.
E Terms
Earnest Money
Money provided by the buyer with an offer to purchase a piece of property. Also known a deposit.
Easement
A right given to a third party allowing the use of a portion of a property for specific purposes.
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.
Encroachment
Structures that extend into the property of another owner.
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 and other liens.
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
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.
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 Closing
Escrow closes when all conditions of a real estate transaction are fulfilled and title to the property is transferred to the buyer.
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.
Escrow
A process where documents and money for a real estate transaction are held by a third party to ensure that all conditions of the sale are met.
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.
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.
F Terms
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 (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Fannie Mae’s Community Home Buyer’s Program
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.
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 Loans
Mortgages insured by the Federal Housing Administration. FHA provides for low rate mortgages to buyer who can make a down payment as small as 3 percent. FHA also operates loan plans for investors and buyers or rural property.
FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
Financed Closing Costs
Closing costs that you wish to avoid paying out of pocket can be financed by adding them to the loan amount.
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 Adjustment
When you can expect the first rate adjustment in your ARM loan.
First Mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
Fixed Installment
The monthly payment on a home loan.
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.
Flat Fee
A set fee charged by a broker instead of a commission percent.
Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
For Sale By Owner (FSBO)
The seller acts as his own sales agent and handles the sales process directly with the buyer or buyer's agent.
Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Fully Amortized ARM (Adjustable-Rate Mortgage)
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.
G Terms
Good Faith Estimate
An estimate from a lender to a borrower that shows the cost to the borrower including loan processing fees and inspection fees.
Government Loan (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). Mortgages that are not government loans are classified as conventional loans.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
Graduated-Payment Mortgage (GPM)
A mortgage that requires a borrower to make larger monthly payments over the term of the loan.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property
Gross Income
The total income for a household before taxes or expenses are deducted.
Guarantee Mortgage
A loan guaranteed by a third party.
H Terms
Hazard Insurance
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
High Density
The concentration of housing units in a specific area on a specific property.
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. 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.
Home Equity Line Of Credit
a credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.
Home Equity Loan
a loan secured by a second deed of trust on a house, typically used as a home improvement loan.
Home Inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Home Price
The sale price agreed upon by the buyer and seller.
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
A type of insurance often purchased by home buyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
Housing Discrimination
An illegal practice of denying the rights to buy or rent a home to and individual or group based on race, color, religion, national origin, sex, disability or family status.
Housing Ratio
The ratio of the monthly housing payment in total (PITI – Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.
HUD
The U.S. Department of Housing and Urban Development.
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 Settlement Statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”
I Terms
Impound Account
An impound account is an account established by the lender to pay a borrower’s tax and insurance costs. The borrower’s monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender’s investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges.
Impounds
A portion of the monthly loan fee that is set aside in an account and used to pay for insurance, property taxes and private mortgage insurance.
Income Property
Property used to generate income and is also occupied by the owner.
Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
Initial Rate Cap
Some adjustable-rate loans put a specific limit on the maximum amount the interest rate may increase after the initial interest of the loan has expired.
Inspection Fee
A fee paid to determine the current physical condition of a home.
Inspection Report
An examination of a home covering the exterior, foundation, plumbing, framing, electrical, heating and air conditioning, fireplace, bathroom, roofing kitchen and interior.
Interest Accrual Rate
Rate at which interest accrues on a mortgage.
Interest Paid Over The Life Of The Loan
The total amount of interest paid to the lender for the use of the money during the loan period.
Interest Rate
The interest rate expressed as percentage that is charged for a loan.
Interest
The fee borrowers pay to obtain a loan.
Interest-Only Loan
The monthly payments only pay for the interest that accrues each month on the loan, therefore the outstanding loan balance does not decline.
Investment Property
Real estate property that is used to generate income.
J Terms
Joint Tenancy
A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
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.
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. Other states use non-judicial foreclosure.
Jumbo Loan
A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Jumbo Mortgage
The current loan limit for a conforming loan is $300,700. Loan amounts of $300,701 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.
L Terms
Late Charge
The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.
Late Payment
A payment received by a lender after the due date has passed.
Lease
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Lease Option
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
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.
Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Lender
A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
Letter Of Intent
Buyer's statement that he intends to purchase a piece of property for a specified amount on a certain date.
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. It is usually part of a homeowner's insurance policy.
LIBOR
LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.
Lien
A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
Life Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate can increase or decrease over the life of the mortgage.
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.
Liquid Asset
A cash asset or an asset that is easily converted into cash.
Listing Agent
A broker or sales agent who contracts with a seller to handle the sale and marketing of piece of property.
Listing
A piece of property placed on the market by a listing agent.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan Application Fee
A fee charged by lenders to borrowers for making a loan application.
Loan Application
The beginning step in submitting an application for a home loan. Requires the borrowers to itemize their financial information.
Loan Officer
Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
Loan Officer
A representative of a lender who is empowered to act on behalf of the lender.
Loan Origination
How a lender refers to the process of obtaining new loans.
Loan Origination Points
Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.
Loan Processing Fee
A fee charged by some lenders for the gathering of information necessary to enable the lender to process the loan.
Loan Servicing
After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
Loan To Value Ratio (LTV)
The unpaid principal balance of the mortgage on a property divided by the property’s appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Loan-To-Value (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
Loan-To-Value Ratio
The ratio of the total loan amount to the value of the property. For lending purposes, the value is the purchase price or the appraised valve, whichever is lower.
Lock Period
The amount of time that a lender will guarantee a loan’s interest rate. Once you’ve locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.
Ed Constable works hard to provide the best experience he can for buyers and sellers, simply because his goal is to be reliable, persistent, and passionate in all areas of life.