GLOSSARY
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Agreement of
Sale
Contract signed by buyer and seller stating the terms and
conditions under which a property will be sold.
Amortization
Repayment of a debt with periodic payments of both principal
and interest calculated to payoff the loan at the end of
a fixed period of time.
Amortization Schedule
A timetable for payment of a mortgage
showing the amount of each payment applied to interest and
principal and the remaining balance.
APR
APR is an acronym for Annual Percentage
Rate. It is the actual interest rate, taking into account
points and other finance charges, for the projected life
of a mortgage.
Appreciation
Increase in value or worth of property
Appraisal
An appraisal is required on transactions
simply because it defines the value of a particular piece
of property. In addition, market conditions can change quite
frequently so a lender will require an appraisal to determine
the value of your property as it stands today before issuing
the financing.
Assignment
Transfer of a contract from one party
to another
Balloon
mortgage
A mortgage with a final lump sum
payment that is greater than preceding payments and that
pays the loan in full.
Bankruptcy
A legal proceeding in a federal court to relieve certain
debts of a person or a business that is unable to pay its
debts. Chapter 7 bankruptcy gets
rid of all debts. Chapter 13 allows a borrower with and
income to pay bills off over a set period of time.
Binder
Preliminary agreement of sale, usually accompanied by earnest money
Cap
Limit by which an adjustable mortgage rate might be increased at any one
time
Certificate
of occupancy (CO)
Document issued by local government agency stating that the property meets
standards for occupancy
Commitment
letter
Written promise to grant a mortgage loan
Conforming
loan
A conventional
loan that conforms to Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)
guidelines.
Contingency
A condition which must be satisfied before a contract is
legally binding.
Conventional
loan
A loan that is not insured, guaranteed or funded by the Veterans Administration
(VA), the Federal Housing Administration (FHA), or the Rural
Economic Community Development (RECD) (formally Farmers
Home Administration). Loans guaranteed by the agencies listed
above are referred to as "government loans."
Credit Report
A report detailing the credit history of an individual.
Credit Score
A statistical model used in assessing an individual's creditworthiness
information such as your current history, type of credit
you use and late payments.
Debt-to-income ration
A comparison of gross income to housing and non-housing expenses.
Deed
The document that transfers ownership of a property. Legal document conveying title to a property. The deed contains
a description of the property, and is signed, witnessed
and delivered to the buyer at closing.
Default
Failure to meet legal obligations in a contract, including
failure to make payments on a loan.
Delinquency
Failure to make payments as agreed in the loan agreement.
The payment is overdue but default has not yet been declared.
Discount point
Calculated
to be equivalent to 1% of the total loan amount and are
used to reduce the interest rate on a loan
Earnest money
Money put
down by a potential buyer to show that he/she is serious
about purchasing the home, it becomes part of the down payment
if the offer is accepted, is returned if the offer is rejected.
Equity
The difference between the current market value of a property
and the total debt obligations against the property
Escrow
Funds given
to a third party to be held pending some occurrence, includes
earnest money, funds collected by a lender for payment of
taxes and insurance, funds withheld at closing to insure
uncompleted repairs or in some states the entire process
of closing
Fair market value
The most
likely price a given property will bring if widely exposed
on themarket, assuming fully informed buyer and seller
Fannie Mae
A common nickname for the Federal National Mortgage Association.
Federal Home Loan Mortgage
Corporation -
(FHLMC, or Freddie Mac)
A Quasi government agency that buys conventional loans that
are underwritten to its specific guidelines. These guidelines
are an industry standard for residential conventional lending.
Fee Simple
Absolute ownership of real property giving the right to
dispose or pass on the property.
FICO
The most common credit-scoring model
used by lenders, it is also known as a Fair, Isaac score.
FHA
Federal
Housing Administration which insures mortgages to protect
the lending institution in case of default. This program
advances homeownership opportunities for buyers.
Fiduciary
A person
in a position of trust or responsibility with specific duties
to act in the best interest of the client
Foreclosure
Legal procedure
for enforcing payment of a debt by seizing and selling the
mortgaged property
Flood insurance
Insurance
that protects homeowners against losses from a flood, if
a home is located in a flood zone the lender requires flood
insurance
Fixed rate mortgage
the principle and interest payment never change during the
life of the loan.
Good faith
estimate
An estimate of all closing costs
including pre-paids, escrow items and lender charges.
Gross Monthly Income
Total Monthly income before taxes or expenses are deducted.
Homeowners/Hazard
Insurance
Protects the insured against loss due to fire or other natural
disaster in exchange for a premium paid to the insurer.
Home inspection
An examination of the structure and
mechanical systems to determine if the home is safe. Also
lets the homeowner aware of any repairs that need to be
made to the property.
HUD1 Statement
Also referred to as the settlement
statement, itemizes all closingcosts and given to the borrower
at or before the closing
Index
A measurement used by lenders to
determine changes to the interest rate charged on an adjustable
rate mortgage
Inflation
The number of dollars in circulation
exceeds the amount of goods and services available for purchase;
inflation results in a decrease in the dollars value
Interest
A fee charged for the use of money
Interest rate
The amount of interest charged on
a monthly loan payment; expressed as a percentage
Jumbo
loan (also referred to as a nonconforming loan)
A conventional loan that is larger
than the limits set by the Federal National Mortgage Association
(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)
guidelines (currently a loan over $333,700).
Lien
A legal claim against property that
must be satisfied when the property is sold
Lis pendens
Notice that litigagtion
is pending on property
LTV (Loan-to-value)
This ratio is the relationship, expressed
as a percentage between the amount of a proposed loan and
a property’s appraised value or sales price, whichever
is lower. For example, a $75,000 loan on a property appraised
at $100,000 is a 75% LTV.
Margin
An amount added to an index to determine
the interest rate on an adjustable rate mortgage
Mortgage
A lien or claim on the property that
secures the promise to repay a loan
Mortgagee
The lender
Mortgagor
The borrower
Mortgage
Note
Legal document obligating a borrower to repay a loan at
a stated interest rate during a specified period of time.
The agreement is secured by a mortgage or deed of trust
or other security instrument.
Per
Diem Interest
Interest calculated per day
PITI
Abbreviation for principal, interest, taxes and insurance
Prepayment
penalty
Charge levied by the lender for paying
off a mortgage before its maturity date
Prequalification
Tentative establishment of a borrower’s
qualification for a mortgage loan amount of a specific range,
based on the borrower’s assets, debts, and income.
Prepaid Interest
Interest that is paid in advance of when it is due. Typically
charged to a borrower at closing to cover interest on the
loan between the closing date and the first payment date.
Principal
The amount borrowed from a lender,
the outstanding balance of the mortgage.
Private mortgage
insurancen(PMI)
This insurance protects lenders against loss due to foreclosure
or loan default. Mortgage insurance is required on conventional
loans with less than a 20 percent down payment or equity
at closing of less than 80% loan-to-value.
Power of attorney
A document in which the signer authorizes someone to conduct
business in his or her name -- signing title documents and
checks, for example.
Quickclaim
deed
Deed that completely transfers whatever
ownership the grantor may havew had, but makes no claim
of ownership in the first place
Recording Fee
Money paid to an agent for entering the sale of a property
into the public records.
RESPA
Real Estate Settlement Procedures
Act, a law protecting consumers from abuses during the residential
purchase transaction and loan process by requiring lenders
to disclose all settlement costs, practices and relationships.
Seller Contributions
Payment by the seller or any other interested party of some
or all of the purchaser's closing costs.
Settlement
Another name for closing
Subordinate
To place in a rank of lesser importance
or to make one claim secondary to another.
Survey
The description of land prepared by a licensed surveyor.
Title
Rights of ownership, control and
possession of property
Title insurance
Policy protecting the insured against
loss or damage due to defects in title
Title Search
Check of the public records, usually
in a local courthouse, to make sure that no adverse claims
affect the value of the title
Transfer Tax
State of local tax paid when title passes from one owner
to another.
VA
Department of Veterans Affairs which
guarantees loans made to veterans
Variable rate mortgage
the interest rate can change periodically. The changes
in the interest rate are tied into the market rates that
exist at the time the rate is subject to change. They usually
offer lower interest rates than fixed rate mortgages, but
can adjust upward if interest rates go up. There is a predefined
cap which defines how high the interest rate can adjust.
Verification of Employment (VOE)
Document signed by the borrower's employer verifying the
borrower's position and salary
