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Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed or the property is transferred.
Adjustable-Rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period
The period that elapses between the interest rate change dates for an adjustable-rate mortgage (ARM).
Amortization
The gradual repayment of a mortgage loan by installments.
Amortization Schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.
Amortization Term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.
Annual Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).
Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with "Home Inspection."
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
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."
Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.
Assessment
The process of placing a value on a property for the strict purpose of taxation. May also refer to a levy against a property for a special purpose, such as a sewer assessment.
Assessment Rolls
The public record of taxable property.
Assessor
A public official who establishes the value of a property for taxation purposes. |
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Balloon Mortgage
A mortgage in which the borrower's monthly payments are amortized over a longer term than the actual term of the loan. As a result, the borrower must pay off the outstanding balance with a lump sum payment or refinance the loan at the end of the mortgage term.
Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
Bill of Sale
A written document that transfers title to personal property.
Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
Bridge Loan
A short-term loan collateralized by the borrower's present home (which is usually for sale) that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan." |
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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.
Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
See also "Lifetime Payment Cap", "Lifetime Rate Cap", "Periodic Payment Cap", and "Periodic Rate Cap."
Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.
Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
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 Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.
Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Closing
A meeting at which the sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."
Closing Agent
As a potential home buyer, you will need a closing (or "settlement") agent to coordinate the various closing activities. These can include but are not limited to preparing and recording the closing documents and disbursing funds.
The types of services provided by a closing agent depend on the person you hire, but typically the closing is conducted by title companies, escrow companies or attorneys. Southeast Title & Trust, is your first and last stop when searching for a Closing Agent.
Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product.
Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey.
Closing Date
The date on which a loan transaction is completed. Often a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.
Closing Statement
See "HUD-1 Settlement Statement"
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 a quitclaim deed, release, or court action.
Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
See also "Loan Committment"
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.
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.
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 original principal balance and on the accrued and unpaid interest.
Condemnation
The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.
Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Construction Contract
The terms and conditions of any major renovation job as stated in a formal, legally binding contract between you and your contractor. The lender you choose will likely want to review this contract before you sign it.
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.
Contingencies for Repairs
A contingency in a purchase offer that the offer is dependent on the proper functioning of electrical, heating, cooling, plumbing, and mechanical systems. You may also state that your purchase is contingent upon the satisfactory completion of a professional home inspection, which will check these systems and other elements more completely.
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.
Contingency for Clear Title
A contingency in a purchase contract that the purchase is subject to your receiving clear title to the property. This process includes a title search and title insurance.
Contingency for Financing
A contingency in a purchase contract specifies that if you do not get the mortgage financing you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit. Generally, the seller includes a clause in the contract that states you must make a "good-faith effort" to get the mortgage. This is the seller's way to ensure that you explore all options to get a mortgage loan.
Contingency for Personal Property
A contingency in the purchase contract specifies what appliances, fixtures, and other personal property must remain in the home.
Contingency Reserve
An amount of funds held in a reserve account to cover the cost of any unforeseen repairs or deficiencies are found during renovation. Most mortgages for purchase-renovation require an additional 10 percent of the total cost of the project to be put aside into a reserve account.
Contract
An oral or written agreement to do or not to do a certain thing.
Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with "Government Mortgage."
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.
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.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit Report
A report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Credit Reporting Agency
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.
The three main credit reporting agencies are Equifax, Experian, and Trans Union. You can order a copy of your credit report (a nominal fee may apply) via telephone at:
 Equifax: (800) 685-1111
Trans Union: (800) 916-8800
Experian: (800) 682-7654
Credit Score
A numerical value that ranks a borrower's credit risk at a given point in
time. Your credit score is based on all the information in your credit
report. This information is converted into a number -- a credit score --
that the lender uses to determine whether you are likely to repay your loan
in a timely manner. Your credit score is just one of several factors that
will be used to evaluate your mortgage loan application. |
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Deed
The legal document that transfers the ownership of real property from one party to another.
Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage
Delinquency
Failure to make mortgage payments when mortgage payments are due.
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.
Deposit
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.
See also Earnest Money Deposit
Depreciation
A decline in the value of property. The opposite of "Appreciation."
Detached Single-Family Home
The most traditional type of single-family home. It stands separate from any other housing structure and serves as a place of residence for the occupants.
Discount Point
A fee paid by the borrower at closing to reduce the interest rate on a mortgage. A point equals 1 percent of the loan amount.
Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. Sources for down payments may come from buyers' savings accounts, checking accounts, stocks and bonds, life insurance policies, and gifts.
Due-on-sale Clause
A provision in a mortgage that allows the lender to demand full payment of the outstanding mortgage loan balance if the borrower sells the property securing mortgage. |
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Earnest Money Deposit
A "good-faith" deposit submitted with a purchase offer to show that the potential home buyer is serious about buying the house.
Easement
A right of way giving persons other than the owner access to or over a property.
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
An improvement that intrudes illegally on another's property
Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
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.
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
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses. A borrower typically provides funds that will pay taxes, mortgage insurance, lease payments, hazard insurance premiums, and other payments when they are due.
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. |
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Good Faith Estimate
The good-faith estimate is a report from your lender that outlines the costs you will incur to get your mortgage. It is based on the lender's typical loan origination costs for the area where your home is located. The estimate usually changes between application and closing, so you'll want to review your settlement form before the closing meeting.
The settlement form will list the actual amount of money you'll need to bring to closing. You'll need to pay your closing costs in the form of a certified or cashier's check because personal checks usually are not accepted.
Government 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). Contrast with conventional mortage.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property. |
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Hazard Insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.
Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.
The home inspection reviews the structural and mechanical condition of the property. This is not an evaluation of the market value of the home or a determination of whether the home complies with applicable building and safety codes. The inspection does not include a recommendation on whether you should or should not buy the house.
The inspector bases the findings on observable structural elements of the home. Potential home buyers are urged to be present during the inspection -- this will allow you to ask questions and be in a better position to learn more about any problems that arise
.You should expect to see an evaluation of:
roof and siding,
windows and doors,
foundation,
insulation,
ventilation,
heating and cooling systems,
plumbing and electrical systems,
walls, floors, and ceilings,
and any common areas if you are purchasing a condominium or cooperative.
You should view the home inspection report as a way to identify problems before you buy the home, to help negotiate adjustments in the purchase price if problems exist, and to help get the buyer to make any needed improvements before you buy the home.
Lastly -- and for some buyers most importantly -- the home inspection report is a way to make you feel confident that the home you are buying includes systems that are in good working condition.
Homeowner's Insurance
Homeowner's insurance -- also called "hazard insurance" -- should be equal to at least the replacement cost of the property you want to purchase. Replacement cost coverage ensures that your home will be fully rebuilt in case of a total loss.
Most home buyers purchase a homeowner's insurance policy that includes personal liability insurance in case someone is injured on their property; personal property coverage for loss and damage to personal property due to theft or other events; and dwelling coverage to protect the house against fire, theft, weather damage, and other hazards.
If the home you want to buy is located near water, you may be able to get flood insurance as part of your homeowner's protection. In fact, it may be required in some areas, so check with your real estate professional or an approved lender for further information.
Seek out and compare rates from several insurance companies before making your final decision.
Lenders often want the first year's premium to be paid at or before closing. Your lender may add the insurance cost to your monthly mortgage payments and keep this portion of your payments in an escrow account. The lender then pays your insurance bill out of escrow when it receives premium notices from your insurance company.
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.
HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."
The HUD-1 Settlement Statement itemizes the amounts to be paid by the buyer and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD).
Items on the statement include:
real estate commissions,
loan fees,
points, and
escrow amounts.
The form is filled out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance.
The HUD-1 Settlement Statement is also known as the "closing statement" or "settlement sheet." |
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Income Property
Real estate developed or improved to produce income.
Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.
Initial Interest Rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."
Interest
The fee charged for borrowing money.
Simply put, this is the fee that is charged for borrowing money from lenders.
The interest rate is the rate of interest that is in effect when the monthly payment is due. An interest rate ceiling -- for an adjustable-rate mortgage (ARM) -- is the maximum interest rate, as specified in the mortgage note; the interest rate floor is the minimum interest rate, as specified in the mortgage note.
Interest Rate Buydown Plan
An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Investment Property
A property that is not occupied by the owner. |
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Joint Tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.
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.
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
Jumbo Loan
A loan that exceeds mortgage amount limits. Also called a nonconforming loan. |
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Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
Lease-purchase Option
Sellers may use the lease-purchase option to rent to a consumer, or "leaseholder." The leaseholder has the option to buy the home after a designated period of time (usually three or five years). Part of each rent payment is put aside toward savings for the purpose of accumulating the down payment and closing costs.
Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
LIBOR-based ARMs
The London Interbank Offered Rate (LIBOR) is based on the interest rate that major international banks are willing to lend and borrow funds for a specified period of time in the London interbank market. The LIBOR is similar to the prime-lending rate posted by major U.S. banks.
You can select an adjustable rate mortgage (ARM) that adjusts to the LIBOR at specified periods, usually every six months. This type of ARM typically has a per-adjustment period cap of 1 percent and is offered with either a 5 percent or a 6 percent lifetime rate cap.
Lien
A legal claim against a property that must be paid off when the property is sold.
Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan Commitment
The commitment letter states the dollar amount of the loan being offered, the number of years you have to repay the loan, the loan origination fee, the points, the annual percentage rate, and the monthly charges.
The letter also states the time you have to accept the loan offer and to close the loan. Make sure you understand all aspects of the commitment letter because by signing it, you indicate your acceptance of its terms and conditions.
Loan Origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.
Loan Origination Fee
The loan origination fee covers the administrative costs of processing the loan. It is often expressed in points. One point is 1 percent of the mortgage amount.
For example, a $100,000 mortgage with a loan origination fee of 1 point would mean you pay $1,000.
Loan-To-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.
Lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Lock-in Period
The time period during which the lender has guaranteed an interest rate to a borrower. |
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Negative Amortization
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 Worth
The value of all of a person's assets, including cash, minus all 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).
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
One way to think of the mortgage note is that it is a legal "IOU." Often called the promissory note, it represents your promise to pay the lender according to the agreed upon terms of the loan, including when and where to send your payment.
The note lists any penalties that will be assessed if you don't make your monthly mortgage payments. It also warns you that the lender can "call" the loan -- demand repayment of the entire loan before the end of the term -- if you violate the terms of your mortgage.
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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Offer
When you make an offer on a house, it means you are making a formal bid to buy a home. You can work with your real estate sales professional to put together a written bid that abides by the laws in your state. Your offer should include such aspects as the address of the home, the sales price, the type of mortgage financing you will use to purchase the home, any personal property that might be included as part of the sale, and a target date for closing and occupancy. An earnest money deposit typically accompanies the offer. Your real estate sales professional can provide guidance on other elements of the offer.
Once you have made an offer, the seller has the opportunity to accept, decline, or make a counter-offer. If your offer is accepted, you have a ratified sales contract. This contract is the starting point for working with an approved lender to get the mortgage that's right for you.
Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
The loan origination fee covers the administrative costs of processing the loan. It is often expressed in points. One point is 1 percent of the mortgage amount. For example, a $100,000 mortgage with a loan origination fee of 1 point would mean you pay $1,000.
Other Contingencies
A contingency in a contract states that if a certain requirement is not met, the deal can be canceled. Some of the most common contingencies related to home purchases include:
Professional home inspection: This states that your sales contract is contingent on a satisfactory report by a professional home inspector. You have the right not to proceed with the purchase of the home, or to re-negotiate the terms of purchase, if any major problems are uncovered.
Termite inspection: This states that the property is free of both visible termite infestation and termite damage.
Asbestos: You may choose to hire a qualified professional to inspect the home, take samples for asbestos, and offer solutions to correct any problems.
Formaldehyde: This colorless, gas chemical was used in foam insulation for homes until the early 1980s and is emitted by some construction materials. It is suspected of causing cancer, and it can also irritate the throat, nose, and eyes. A qualified inspector can let you know if the gas is present in the home you wish to purchase.
Radon: Most home buyers require that the house be tested for radon, a naturally occurring, odorless gas that can cause health problems.
Hazardous waste sites: The Environmental Protection Agency has identified contaminated hazardous waste sites across the country. You can contact your EPA regional office for more information.
Lead-based paint: You should also have the house inspected for lead-based paint, which can lead to very serious health problems. If the house was built before 1950, you can be fairly certain lead-based paint was used. For houses built between 1950 and 1978, there is also a chance lead-based paint was used. Lead disclosure regulations can vary from state to state. Health officials in the state where the home you want to buy is located may be able to provide further guidance.
The seller or real estate professional must give you a pamphlet that explains lead hazards and tell you about any lead-based paint of which the seller is aware before a sales contract on a home built before 1978 can be finalized. The seller must also allow 10 days during which you can hire a professional to conduct an inspection for lead-based paint hazards.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing. |
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Partial Payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Periodic Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
For an adjustable-rate mortgage (ARM), 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.
PITI
Principle, interests, taxes and insurance (PITI) are the four components of a monthly mortgage payment.
The four components of a monthly mortgage payment.
Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.
Interest is the fee charged for borrowing money.
Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and hazard insurance.
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.
Point
A one-time charge by the lender for originating a 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.
Pre-Approval
When you work with your lender to get pre-approved, you are getting an indication of how much money you will be eligible to borrow when you apply for a mortgage. This process occurs before you complete an application for a loan.
Pre-approval includes a screening of a borrower's credit history, and all information you give to your lender will be verified when you apply for your mortgage.
Pre-Qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
Preforeclosure Sale
A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.
Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
If you pay off your mortgage before it is due, you may be charged a fee -- this is referred to as a prepayment penalty.
Any amount that is paid to reduce the principal balance of a loan before the due date -- such as the sale of the property, the owner's decision to pay the loan in full, the owner's decision to pay additional money every month to lower the principle or interest -- is considered prepayment.
You may want to consider discussing the specifics of this fee as you negotiate the terms of your loan with your lender.
Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
One of the terms you're likely to hear when you talk about a mortgage with your lender is principal. The principal is the amount originally borrowed or the amount that remains to be paid once you have started making payments. It is also the part of the monthly mortgage payment that reduces the remaining balance of a mortgage.
The principal balance is the outstanding amount of principal on a mortgage; it does not include interest or any other charges.
Principal Balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.
Private Mortgage Insurance (PMI)
Also known as Mortgage Insurance, PMI is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Purchase and Sale Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
The Purchase and Sale Agreement is a written contract that is signed by the buyer and seller. It states the terms and conditions under which a property will be sold.
It includes:
description of property,
price offered,
down payment,
earnest money deposit,
financing,
personal items to be included,
closing date,
occupancy date,
length of time the offer is valid,
special contingencies, and
inspection. |
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Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made. |
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Rate Caps
Lenders offer caps with their adjustable rate mortgages (ARMs) so you can have more control over your monthly mortgage payment. Usually, there are two types of rate caps: A per-adjustment cap, which specifies the most your interest rate can rise from one adjustment period to the next,
and a lifetime adjustment cap, which specifies how much your interest rate can rise over the life of your loan.
Ask your lender about both caps when evaluating any ARM product.
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 Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing 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. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.
Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk.
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.
Refinance Transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.
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. |
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Sale-Leaseback
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market
The buying and selling of existing mortgages.
Secured Loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a loan.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Settlement
The final step before you get the keys to your home is a formal meeting called the closing. It is at this meeting in which ownership of the home is transferred from the seller to the buyer.
Also called a settlement in some parts of the country, the meeting is typically attended by the buyer(s), the seller(s), their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you.
Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country.
Subordinate Financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Your lender may require you to have a survey of the property performed. This process confirms that the property's boundaries are correctly described in the purchase and sale agreement.
Also called a plot plan, the survey may show a neighbor's fence is located on the seller's property or more serious violations may be discovered. These violations must be addressed before the lender will proceed.
The buyer usually pays to have the survey done, but some cost savings may be found by requesting an "update" from the company that previously surveyed the property. |
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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 tenacy.
Termite Inspection
Homes in many parts of the country must be inspected for termites before they can be sold. You should receive a certificate from a termite inspection firm stating that the property is free of both visible termite infestation and termite damage.
The cost of the termite inspection is usually paid by the seller, and the seller's real estate sales professional orders the inspection. You need to make sure that the original certificate is delivered to your lender at least three days before closing.
This allows the lender to review the certificate and address any potential problems.
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
A legal document evidencing a person's right to or ownership of a property.
Title Search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
In order to make sure the borrower will receive clear title to the property, lenders require a title search. It attempts to uncover any "encumbrances" on the title and makes sure the seller is the actual owner of the property.
Encumbrances include any liens -- legal claims against a property filed by creditors as a means to collect unpaid bills. Liens can also be filed by the Internal Revenue Service for nonpayment of taxes. Any such claims must be paid by the seller -- this often occurs either before or at the closing.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
Your lender will require that you buy title insurance to ensure that you are receiving a "marketable title." There are two types of title insurance policies: Lender's policy: This protects the lender should a flaw in the title
be detected after the property has been purchased.
Owner's policy: This protects you should a flaw in the title be
detected after the property has been purchased.
Total Expense Ratio
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
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.
Treasury Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Trustee
A fiduciary who holds or controls property for the benefit of another.
Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Your lender should provide you with the Truth-in-Lending (TIL) Statement within three business days of your loan application. This document outlines the costs of your loan, and it is given to you so you can compare the costs with those of other lenders. Among the costs listed:
The annual percentage rate (APR), which is the cost of your mortgage compiled as a yearly rate. It may be higher than the interest rate stated in your mortgage because it includes points and other costs of credit.
The finance charge.
The amount financed.
The payment amount.
The total payments required.
The lender is required to give you the final version of your TIL Statement at or prior to the closing meeting because it is possible that the APR calculated at your loan application will change at closing. |
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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.
U.S. Department of Veterans Affairs (VA)
The Veterans Administration is a federal government agency authorized to guarantee loans made to eligible veterans under certain conditions. To obtain more information, you can contact the U.S. Department of Veterans Affairs.
The VA guarantee allows qualified veterans to buy a house costing up to $203,000 with no down payment. Moreover, the qualification guidelines for VA loans are more flexible than those for either the Federal Housing Administration (FHA) or conventional loans.
If you are a qualified veteran, this can be an attractive mortgage program. To determine whether you are eligible, check with your nearest VA regional office.
VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
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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