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Glossary of Terms
GLOSSARY OF REAL ESTATE AND MORTGAGE TERMS
An offeree’s consent to enter into a contract and be bound by the terms of the offer.
Additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
Adjustable Rate Mortgage
A mortgage in which the interest rate is adjusted periodically according to the movement in a pre-selected index.
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
A person appointed by a probate court to administer the estate of a person who died intestate.
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.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount: includes the base interest rate, primary mortgage insurance, and loan origination fee (points).
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.
The fee charged by the lender to the borrower for applying for a loan.
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.
An increase in the value of a house due to changes in market conditions or other causes.
The valuation placed upon property by a public tax assessor for purposes of taxation.
The transfer of a mortgage from one person to another.
These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. 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. An “Assumption of Mortgage” is often confused with “purchasing subject to a mortgage.” 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.
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
Blanket insurance policy
A single policy that covers more than one piece of property (or more than one person).
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.
A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health 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.
Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.
A provision of an ARM limiting how much the interest rate or mortgage payments may increase.
A loan transaction in which the borrower receives funds at the time of closing.
The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called “settlement.”
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.
A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.
Common area assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
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.
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
A abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities, which serve the multi-unit project.
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
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.
A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
A condition that must be met before a contract is legally binding.
An oral or written agreement to do or not to do a certain thing.
Any mortgage that is not insured or guaranteed by the federal government.
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.
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.
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
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.
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
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, 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. A few States have begun in recent years to treat the deed of trust like a mortgage.
Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.
A loan in which a payment is overdue but not yet in default.
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
A decline in the value of property; the opposite of “appreciation.”
The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage
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 will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.
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.
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 incomeNormal 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.
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.
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.
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 covenants. 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.
The difference between the market value of a property and the homeowner’s outstanding mortgage balance.
A loan based on the borrower’s equity in his or her home. Prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses. Escrow analysis. The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
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.
(Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).
The greatest possible interest a person can have in real estate.
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).
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.
The mortgage that has first claim in the event of default.
(FRM) A mortgage in which the interest rate does not change during the entire term of the loan.
The loss of money, property, rights, or privileges due to a breach of legal obligation.
The process by which a mortgage property may be sold when a mortgage is in default.
Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in connection with a loan closing.
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.
An insurance policy that combines liability coverage and hazard insurance.
A type of insurance that covers repairs to specified parts of a house for a specific period of time.
(Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.
(Also called “Rate Index”). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates.
An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount
The fee charged for borrowing money.
Interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
The percentage of an amount of money, which is paid for its use for a specified time.
Interest Rate Cap
A provision of an ARM limiting how much interest rates may increase per adjustment period.
A property that is not occupied by the owner.
IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo, or non-conforming, is a term used to describe a loan that does not conform to Fannie Mae or Freddie Mac guidelines. The typical Jumbo loan exceeds the maximum loan amounts described above.
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.
An institution that makes loans to borrowers on real estate.
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
A legal claim against a property that must be paid when the property is sold.
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.
A sum of borrowed money (principal) that is generally repaid with interest.
(LTV). The loan-to-value ratio (LTV) is the original loan amount divided by the lower of the sales price or the appraised value.
The period, expressed in days, during which a lender will guarantee a 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.
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.
A legal document that pledges a property to the lender as security for a payment of a debt.
The lender in a mortgage agreement.
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.
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.
The borrower in a mortgage agreement.
(Also called “Deferred Interest”). If the payments are too small to cover the interest due on a loan, the remaining interest owed is added to the outstanding loan balance, causing 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.
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).
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
A fee paid to a lender for processing a loan Application.
A property purchase transaction in which the property seller provides all or part of the financing.
“Owner Occupied” means the property is the owner’s primary residence.
Payment Adjustment Period
The length of time (typically a year) between changes to the AML borrower’s P&I payment.
A limit on the amount the payment can be changed at the end of each Payment Adjustment Period.
In a payment discount, the lender reduces the first year’s interest rate to make the mortgagor more attractive to borrowers.
Any property that is not real property.
Principal, Interest, Taxes and Insurance are components of a mortgage payment.
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
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.
The process of determining how much money a prospective homebuyer will be eligible to borrow before application.
The interest rates that banks charge to their preferred customers.
The amount borrowed or remaining unpaid, also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
A written promise to repay a specified amount over a specified period of time.
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.)
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.
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
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.
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent.
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.
The process of the same mortgagor paying off one loan with the proceeds from another loan.
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.
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.
(Also called “Seller Contributions”). Seller-provided funds include all transaction cost paid by the seller except the real estate agent’s (or brokers) fee.
The party who has entered into an agreement with the insured to service a loan.
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.
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.
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.
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.
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.
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.
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.
(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.
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.
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).
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.
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.