Mortgage Glossary
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A B C D E F
G H I J K L
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.
Master association
A homeowners' association in a large condominium or planned unit development
(PUD) project that is made up of representatives from associations covering
specific areas within the project. In effect, it is a "second-level" association
that handles matters affecting the entire development, while the "first-level" associations
handle matters affecting their particular portions of the project.
Maturity
The date on which the principal balance of a loan, bond, or other financial
instrument becomes due and payable.
Merged credit report
A credit report that contains information from three credit repositories.
When the report is created, the information is compared for duplicate entries.
Any duplicates are combined to provide a summary of a your credit.
Modification
Margin
(Also called "Spread"). The amount the lender adds to the index
to determine the Fully Indexed Accrual Rate.
Money market account
A savings account that provides bank depositors with many of the advantages
of a money market fund. Certain regulatory restrictions apply to the withdrawal
of funds from a money market account.
Money market fund
A mutual fund that allows individuals to participate in managed investments
in short-term debt securities, such as certificates of deposit and Treasury
bills.
Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on a
monthly basis. Used with gross income to determine affordability.
Monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.
Mortgage
A legal document that pledges a property to the lender as security for a
payment of a debt.
Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary
market.
Mortgage Broker
A company that for a fee matches borrowers with lenders.
Mortgagee
The lender in a mortgage agreement.
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
The payment made by a borrower to the lender for transmittal to HUD to help
defray the cost of the FHA mortgage insurance program and to provide a reserve
fund to protect lenders against loss in insured mortgage transactions. In
FHA insured mortgages this represents an annual rate of one-half of one percent
paid by the mortgagor on a monthly basis.
Mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage
decreases as the principal balance declines. In the event that the borrower
dies while the policy is in force, the debt is automatically satisfied by
insurance proceeds.
Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage,
serves as proof of 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.
Mortgagor
The borrower in a mortgage agreement.
Multidwelling units
Properties that provide separate housing units for more than one family,
although they secure only a single mortgage.
Multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than
four families, such as a high-rise apartment complex.
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Negative Amortization
(Also called "Deferred Interest"). A gradual increase in mortgage
debt that occurs when the monthly payment is not large enough to cover the
entire principal and interest due. The amount of the shortfall is added to
the remaining balance to create "negative" amortization
Net cash flow
The income that remains for an investment property after the monthly operating
income is reduced by the monthly housing expense, which includes principal,
interest, taxes, and insurance (PITI) for the mortgage, homeowners' association
dues, leasehold payments, and subordinate financing payments.
Net Effective Income
Gross income less federal income tax.
Net Worth
The value of all assets, including cash, less total liabilities.
No cash-out refinance
A refinance transaction in which the new mortgage amount is limited to the
sum of the remaining balance of the existing first mortgage, closing costs
(including prepaid items), points, the amount required to satisfy any mortgage
liens that are more than one year old (if the borrower chooses to satisfy
them), and other funds for the borrower's use (as long as the amount does
not exceed 1 percent of the principal amount of the new mortgage).
Non-liquid asset
An asset that cannot easily be converted into cash.
Note
A legal document that obligates a borrower to repay a mortgage loan at a
stated interest rate during a specified period of time.
Note rate
The interest rate stated on a mortgage note.
Notice of Default
A formal written notice to a borrower that a default has occurred and that
legal action may be taken.
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Original principal balance
The total amount of principal owed on a mortgage before any payments are
made.
Origination Fee
A fee paid to a lender for processing a loan Application.
OTC
(The Office of Thrift Supervision). Charters federal thrifts, serves as the
primary federal examiner and regulator of federal and state-chartered savings
associations, and administers laws governing savings and loan holding companies.
Owner financing
A property purchase transaction in which the property seller provides all
or part of the financing.
Owner Occupied
"Owner Occupied" means the property is the owner's primary residence.
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Payment Adjustment Period
The length of time (typically a year) between changes to the AML borrower's
P&I payment.
Payment Buy down
Payment buy downs occur when a third party, typically a builder, pays part
of the initial P&I payments for a year or two, so that the borrower has
smaller payments and can qualify for the loan.
Payment Cap
A limit on the amount the payment can be changed at the end of each Payment
Adjustment Period.
Payment Discount
In a payment discount, the lender reduces the first year's interest rate
to make the mortgagor more attractive to borrowers.
Periodic payment cap
A limit on the amount that payments can increase or decrease during any one-adjustment
period.
Periodic rate cap
A limit on the amount that the interest rate can increase or decrease during
any one adjustment period, regardless of how high or low the index might be.
Personal property
Any property that is not real property.
PITI
Principal, Interest, Taxes and Insurance are components of a mortgage payment.
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
A one-time charge by the lender to increase the yield of the loan; a point
is 1 percent of the amount of the mortgage.
Power of attorney
A legal document that authorizes another person to act on one's behalf. A
power of attorney can grant complete authority or can be limited to certain
acts and/or certain periods of time.
Prepayment
Payment of mortgage loan, or part of it, before due date.
Pre-qualification
The process of determining how much money a prospective homebuyer will be
eligible to borrow before application.
Prime rate
The interest rates that banks charge to their preferred customers.
Principal
The amount borrowed or remaining unpaid, also, that part of the monthly payment
that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance
Insurance provided by nongovernmental insurers that protect lenders against
loss if a borrower defaults.
Promissory note
A written promise to repay a specified amount over a specified period of
time.
Public auction
A meeting in an announced public location to sell property to repay a mortgage
that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and
maintained by a homeowners' association for the benefit and use of the individual
PUD unit owners.
Purchase Agreement
See Agreement of Sale.
Purchase money transaction
The acquisition of property through the payment of money or its equivalent.
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Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.
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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Radon
A radioactive gas found in some homes that in sufficient concentrations could
cause health problems.
Rate Caps
(Also called "Interest Rate Caps"). A limit on the amount of which
the interest rate charged to the borrower can be changed.
Rate lock
A commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a specified period of time.
Real Estate Broker
A middleman 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 Owned
(REO). A term frequently used by lending institution as applied to ownership
of real property acquired for investment or as a result of foreclosure.
RESPA
(Real Estate Settlement Procedures Act). A Federal law that requires lenders
to provide home mortgage borrowers with information about known or estimated
settlement costs.
Real property
Land and appurtenances, including anything of a permanent nature such as
structures, trees, minerals, and the interest, benefits, and inherent rights
thereof.
REALTOR
A real estate broker or an associate who holds active membership in a local
real estate board that is affiliated with the National Association of Realtors.
Recission
The cancellation or annulment of a transaction or contract by the operation
of a law or by mutual consent.
Recorder
The public official who keeps records of transactions that affects real property
in the area.
Recording
The noting in the registrar's office of the details of a properly executed
legal document, such as a deed, a mortgage note, a satisfaction of mortgage,
or an extension of mortgage, thereby making it a part of the public record.
Refinancing
The process of the same mortgagor paying off one loan with the proceeds from
another loan.
Rehabilitation mortgage
A mortgage created to cover the costs of repairing, improving, and sometimes
acquiring an existing property.
Remaining balance
The amount of principal that has not yet been repaid.
Remaining term
The original amortization term minus the number of payments that have been
applied.
Repayment plan
An arrangement made to repay delinquent installments or advances. Lenders'
formal repayment plans are called "relief provisions."
Replacement reserve fund
A fund set aside for replacement of common property in a condominium, PUD,
or cooperative project -- particularly that which has a short life expectancy,
such as carpeting, furniture, etc.
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 or minority groups
from owning or occupying homes in a given area. (This latter discriminatory
covenant is unconstitutional and has been declared unenforceable by the U.S.
Supreme Court.)
Revolving liability
A credit arrangement, such as a credit card, that allows a customer to borrow
against a pre-approved line of credit when purchasing goods and services.
The borrower is billed for the amount that is actually borrowed plus any interest
due.
Right of first refusal
A provision in an agreement that requires the owner of a property to give
another party the first opportunity to purchase or lease the property before
he or she offers it for sale or lease to others.
Right of ingress or egress
The right to enter or leave designated premises.
Right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased
joint tenant.
RTC
(Resolution Trust Corporation). Formed to resolve thrift failures over the
next three years and dispose of their assets and liabilities.
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Sales Agreement
See Agreement of sale.
Second Mortgage
A mortgage that has rights that are subordinate to the rights of the first
mortgage holders.
Secondary Mortgage Market
The buying and selling of existing mortgages.
Seller-Provided Funds
(Also called "Seller Contributions"). Seller-provided funds include
all transaction cost paid by the seller except the real estate agent's (or
brokers) fee.
Servicer
The party who has entered into an agreement with the insured to service a
loan.
Settlement Costs
See Closing Costs.
Single Premium
A premium, which provides coverage for more than a year. empty)
Special Assessments
A special tax imposed on property, individual lots or all property in the
immediate area, for road construction, sidewalks, sewers, streetlights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien, which
is levied against all 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.
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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Tax
As applied to real estate, 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 Lien
A claim against real estate for the amount of its unpaid taxes.
Teaser Rate
Similar to a Payment Discount, but implies either an unusually large initial
rate discount or an attempt by the lender to lure an otherwise unqualified
borrower into the mortgage.
Tenancy by the entirety
A type of joint tenancy of property that provides right of survivorship and
is available only to a husband and wife. Contrast with tenancy in common.
Tenancy in common
A type of joint tenancy in a property without right of survivorship. Contrast
with tenancy by the entirety and with joint tenancy.
Tenant-stockholder
The obligee for a cooperative share loan, who is both a stockholder in a
cooperative corporation and a tenant of the unit under a proprietary lease
or occupancy agreement.
Third-party origination
A process by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the mortgages it plans
to deliver to the secondary mortgage market.
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 Company
A company that specializes in examining and insuring titles to 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
covenants filed in the record, which would adversely affect the marketability
or value of title.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known
as Back-End Ratio.
Total expense ratio
Total obligations as a percentage of gross monthly income. The total expense
ratio includes monthly housing expenses plus other monthly debts.
Trade equity
Equity that results from a property purchaser giving his or her existing
property (or an asset other than real estate) as trade as all or part of the
down payment for the property that is being purchased.
Transfer of ownership
Any means by which the ownership of a property changes hands. Lenders consider
all of the following situations to be a transfer of ownership: the purchase
of a property "subject to" the mortgage, the assumption of the mortgage
debt by the property purchaser, and any exchange of possession of the property
under a land sales contract or any other land trust device. In cases in which
an inter vivos revocable trust is the borrower, lenders also consider any
transfer of a beneficial interest in the trust to be a transfer of ownership.
Transfer tax
State or local tax payable when title passes from one owner to another.
Treasury index
An index that is used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans.
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.
Truth-In-Lending
(TIL). A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the APR and other charges.
Two- to four-family property
A property that consists of a structure that provides living space (dwelling
units) for two to four families, although ownership of the structure is evidenced
by a single deed.
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Underwriting
The process of evaluating a loan application to determine the risk involved
for the lender. Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
Unsecured-loan
A loan that is not backed by collateral.
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Government Loans FHA / VA
Government loans are loans that are guaranteed or purchased by government
organizations. Two of the most popular Government Loans are the Federal Housing
Administration (FHA) and the Department of Veterans Affairs (VA).
Vested
Having the right to use a portion of a fund such as an individual retirement
fund.
Department of Veterans Affairs (VA)
An agency of the federal government that guarantees residential mortgages
made to eligible veterans of the military services. The guarantee protects
the lender against loss and thus encourages lenders to make mortgages to veterans.
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Wraparound mortgage
A mortgage that includes the remaining balance on an existing first mortgage
plus an additional amount requested by the mortgagor. Full payments on both
mortgages are made to the wraparound mortgagee, who then forwards the payments
on the first mortgage to the first mortgagee.
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Zoning Ordinances
The acts of an authorized local government establishing building codes, and
setting forth
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