Mortgages
Mortgages

Mortgage Terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

ABSTRACT

The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property.

ACCELERATION

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower).

ACCELERATION CLAUSE

A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as the sale of the property, or a delinquency in the repayment of the note.

ACKNOWLEDGEMENT

As a verb, the confirmation by a party executing a legal document that this is his signature and voluntary act. This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

ADJUSTMENT INTERVAL

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

AGENCY

A relationship in which the agent is given the authority to act on behalf of another person (Principal).

AGENT

One who legally represents another, called a principal, from whom authority has been derived.

AGREEMENT

A change to the correct or alteration to the original document/agreement without changing its principal essence.

AMORTIZATION

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

AMORTIZED LOAN

A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

AMOUNT FINANCED

The amount applied for less the prepaid finance charges. Prepaid finance charges can be found on the Good Faith Settlement Statement (HUD1 or HUD1A). For example, if the borrower's Note is for $100,000 and the prepaid finance charge total is $5,000, the Amount Financed would be $95,000. The Amount Finance is the amount on which the Annual Percentage Rate (APR) is calculated.

ANNUAL PERCENTAGE RATE (A.P.R.)

This is not the Note rate for which the borrower applied. It is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs, such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

APPRAISAL

An estimate of the value of property, made by a qualified professional called an appraiser. Most states require licenses. Various lenders have their own lists of approved appraisers.

ASSESSED VALUE

The determination, for tax purposes, of how much a home and the property it occupies is worth.

ASSESSMENT

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

ASSOCIATE BROKER

A person who has qualified as a real estate broker but works for a particular broker licensed in the state.

B

BALLOON (PAYMENT) MORTGAGE

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

BALLOON PAYMENT

The unpaid principal amount of a mortgage or other long-term loan due on a specified date in the future. Usually the amount that must be paid in a lump sum at the end of the term.

BASIS POINT

One one-hundredth of one percent. Used to describe the amount of change in yield in many debt instruments, including mortgages.

BENEFICIARY

A person named to receive a benefit from a TRUST. A contingent beneficiary has conditions attached to his rights, for example usually someone else must die first.

BID

An offer.

BI-WEEKLY MORTGAGE

A mortgage with payments due every two weeks totaling 26 payments a year.

BLANKET MORTGAGE

A mortgage covering at least two pieces of real estate as security for the same mortgage. This sort of loan is more common for commercial property or special case loans.

BORROWER (MORTGAGOR)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

BROKER

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

BUY-DOWN

When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. These are sometimes used to qualify borrowers for a loan amount that they would not otherwise qualify for but will be able to pay in subsequent years as their income increases.

C

CASHFLOW

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

CERTIFICATE OF ELIGIBILITY

The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)

CERTIFICATE OF OCCUPANCY

A certificate issued by a local governmental body stating that the building is in a condition to be occupied.

CERTIFICATE OF SATISFACTION

A document signed by the note holder and recorded in the land records evidencing release of a deed of trust, mortgage or other lien on the property.

CERTIFICATE OF TITLE

A written opinion by an attorney setting forth the status of title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent.

CERTIFICATE OF VETERAN STATUS

The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).

CERTIFIED MORTGAGE BANKER (CMB)

A professional designation of the mortgage banking industry.

CLEAR TITLE

Title not encumbered or burdened with defects.

CLOSING

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

CLOSING COSTS

The fees and charges a buyer and seller must pay at the time of closing on a home sale. These can include, among other things, broker commissions, lender discount points, insurance premiums, and attorney's fees.

COLLATERAL

Property pledged to secure a loan.

COMMITMENT

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

CONSERVATOR

Also called a Committee or Guardian, a person designated by the Court to protect and preserve the property of someone who is not able to manage their own affairs. Examples include the mentally incompetent, minors and incarcerated persons.

CONSTRUCTION LOAN

A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses. These are generally done by lenders with offices local to the site of the construction. This enables the lender or their agent to monitor the progress of the construction.

CONTRACT

A legally enforceable agreement between two parties.

CONTRACT FOR DEED

Also known as a Land Contract or Land Installment Contract. A method of financing where title remains in the Seller's name until the Buyer has paid the full purchase price.

CONTRACT SALE OR DEED

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

CONVENTIONAL LOAN

A mortgage not insured by FHA or guaranteed by the VA.

CONVERTIBLE MORTGAGE

An adjustable rate mortgage where the mortgagor can convert the mortgage to a fixed rate mortgage during a predetermined time period.

COVENANT

A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.

COVENANTS, CONDITIONS, AND RESTRICTIONS.

The basic rules establishing the rights and obligations of owners of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

CREDIT REPORT

A report documenting the credit history and current status of a borrower's credit standing.

D

DEBT COVERAGE RATIO

The ration of effective annual net income to annual debt service.

DEBT SERVICE

A borrower's periodic payment comprising repayment of principal plus payment of interest on the unpaid balance.

DEBT-TO-INCOME RATIO

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

DEED

The written document conveying real property. The Deed must be executed (signed), ACKNOWLEDGED, and DELIVERED to the Grantee. Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.

DEED OF TRUST

A type of security instrument conveying title in trust to a third party covering a particular piece of property. It is used to secure the payment of a note. Compare, MORTGAGE. In some states, this document is used in place of a mortgage to secure the payment of a note.

DEFAULT

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

DEFERRED INTEREST

When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

DELINQUENCY

Failure to make payments on time. This can lead to foreclosure.

DELIVERY

The final, unconditional and absolute transfer of a DEED to the Grantee so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.

DEPARTMENT OF VETERANS AFFAIRS (VA)

An independent agency of the federal government that guarantees long-term, low-or no-down payment mortgages to eligible veterans.

DEPOSIT

A sum of money given to bind a sale of real estate, or a sum of money given to assure payment, or an advance of funds in the processing of a loan.

DISCOUNT

In loan origination, a discount refers to an amount withheld from loan proceeds by a lender. In a secondary marketing sale, a discount is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate of the amount of the discount depends on money market conditions, the credit of the borrower, and the rate or terms of the note.

DISCOUNT POINT

The amount of money you can choose to pay when you first get a loan to reduce its overall interest rate. Discount points are usually a small fraction of the total amount of your loan i.e., 1, 2, or 3% and can lower the interest rate for the entire life of the loan, or just part of it.

DOWN PAYMENT

Money paid to make up the difference between the purchase price and the mortgage amount.

DUE ON SALE CLAUSE

A clause in the MORTGAGE that makes the loan non-assumable by providing the noteholder may call the loan immediately due and payable upon a sale or conveyance of an interest in the property. The FNMA/FHLMC form provides that a lease of more than three years or a lease with an option to buy also triggers this provision.

E

EARNEST MONEY

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. A good faith deposit.

ECOA

Equal Credit Opportunity Act. ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt from public assistance programs.

ENDORSEMENT

A writing on a negotiable instrument by which title to a property mentioned therein is assigned and transferred. A notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In FHA loans, a notation placed on the note by the FHA indicating that the loan is insured under the National Housing Act.

ENTITLEMENT

The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

EQUAL CREDIT OPPORTUNITY ACT (ECOA)

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

EQUITY

The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property. When you first buy a home, your ownership equals your down payment; your mortgage lender owns the rest. To figure out your equity, subtract the amount you owe on your loan from your home's current market value.

ESCROW

A bank account where you deposit money that will be used to pay charges that come with your purchase of a house. An escrow account is sort of a neutral area between you and your mortgage lender that stores money you've deposited until you need it to pay for certain aspects of your loan, like closing costs, taxes or insurance fees.

ESCROW ACCOUNT

The segregated trust account in which escrow funds are held.

ESCROW AGENT

The person or organization having a fiduciary responsibility to both the buyer and seller (Or lender or borrower) to see that the terms of the purchase/sale (or loan) are carried out.

ESCROW PAYMENT

The portion of a mortgagor's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known is impounds or reserves in some states.

EXECUTED SALES CONTRACT

A contract where all the terms have been successfully completed by the buyer and the seller.

EXECUTOR

A person named in a will to carry out its terms and administer the estate.


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F

FACE VALUE

Par value; the principal or nominal value of a bond, note, mortgage, etc. The amount of principal the issuer contracts to pay.

FAIR MARKET VALUE

A term that refers how much a home or property is worth, given the current conditions of the local real estate market. The fair market value of a home is usually used in conjunction with the amount of tax its owner must be charged.

FARMERS HOME ADMINISTRATION (FMHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

FDIC

Federal Deposit Insurance Corporation. Originally established by the Banking At of 1933 to insure the deposits of all banks entitled to federal deposit insurance.

FEDERAL HOME LOAN BANK BOARD (FHLBB)

The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) ALSO CALLED FREDDIE MAC

Is a quasi-governmental agency that specializes in purchasing mortgage loans, primarily from saving and loan associations. Freddie Mac is run by the United States government, with assistance from private sector professionals.

FEDERAL HOUSING ADMINISTRATION (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) ALSO KNOW AS FANNIE MAE

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA to add cash to the mortgage market. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA LOAN

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA MORTGAGE INSURANCE

Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

FIDUCIARY

One who acts in a capacity of trust and confidence for another.

FIDUCIARY RELATIONSHIP

A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient; etc.

FINANCE CHARGE

The amount of interest, prepaid finance charge, and certain insurance premiums (if any) which the borrower will be expected to pay over the life of the loan.

FINANCING STATEMENT

Lenders record financing statements to evidence personal property, such as a new furnace, siding or windows, is subject to a lien.

FIRM COMMITMENT

A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.

FIRST MORTGAGE

A real estate loan that creates a primary lien against real property.

FIXED RATE MORTGAGE

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

FLOATING RATE OF INTEREST

An interest rate that instead of being a fixed percent is stated as an amount above or below another rate, usually the prime rate, so that as the prime rate moves up and down the interest rate moves with it.

FLOOD INSURANCE

An insurance policy that covers damage your home may receive due to flooding. If the home you're buying is in an area prone to flooding, then you may be required by your home loan provider to get flood insurance. To establish whether or not your home is in such an area, a land survey must be done at the expense of the person selling the home at least fifteen days before the date you close on the home purchase.

FNMA

The Federal National Mortgage Association is a secondary mortgage institution, which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as Fannie Mae.

FORBEARANCE

Formal or informal agreement the mortgagee will forebear (withhold) legal action permitting the mortgagor an extended period of time to catch up on delinquent payments.

FORECLOSURE

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property. Under a DEED OF TRUST, foreclosure is by public auction after appropriate advertisement. A MORTGAGE may require the lender to obtain Court approval prior to sale.

FULL DISCLOSURE

A legal requirement that says a person selling a home must inform a potential buyer of everything they know about the home's physical and economic condition.

G

GIFT LETTER

A form stating that a relative is giving you money to help you buy a home, and that they will not ask you to it pay back. The letter also provides proof, by referring to bank statements and other records, that the relative does, in fact, have enough money to cover the amount of the gift, and that the money has been transferred to your possession.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

On September 1, 1968, Congress enacted legislation to partition FNMA into two continuing corporation entities. GNMA has assumed responsibility for the special assistance loan programs. Also, GNMA administers the mortgage-backed securities programs that channel new sources of funds into residential financing through the sale of privately issued securities carrying the GNMAS guaranty.

GRANTEE

The person receiving an interest in property.

GRANTOR

The person granting, selling or giving up an interest in property.

GROSS INCOME

Income before expenses.

GROSS MARGIN

With regard to an adjustable rate mortgage, an amount expressed as percentage points, stated in the note which is added to the current index value on the rate adjustment date to establish a new note rate.

GUARANTY

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

GUARDIAN

One appointed by the Court to administer the affairs of a minor. A guardian is appointed to protect one's interest in a particular legal action.

H

HAZARD INSURANCE

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

HOME EQUITY LOAN

A loan that lets you borrow back money against the difference of what you own on your current home loan and the home's estimated sales price. People generally use home equity loans to get cash for large expenses like education, home improvement, or health care.

HOUSING EXPENSES-TO-INCOME RATIO

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

HOUSING RATIO

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.


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I

INCOME APPROACH

A method used by an appraiser to estimate the value of a property by calculating it's generated income.

INDEMNITY

A protection against actual loss or damage as a result of the matter mentioned. An indemnity is not an absolute guarantee that something won't happen, it states the terms under which an actual loss will be compensated.

INDEX

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

INSTITUTIONAL LENDER

A financial institution that invests its own funds or funds it is managing in real estate. Mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations are examples.

INSURED MORTGAGE

A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

INTEREST

The amount of money a lender charges you to borrow money to buy a home. The interest you pay is a percentage of your total loan, and is paid over time.

INTEREST RATE

The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.

INTERIM FINANCING

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

INTERNAL RATE OF RETURN

A method of determining investment yield over time assuming a set of income, expense, and property value conditions. It combines the present worth of the right to receive future income streams with the present worth of the right to receive a particular profit when the property is sole.

J

JUDGMENT LIEN

A judgment is a lien against all real property owned by the judgment debtor in the county where the judgment is docketed (recorded).

JUMBO LOAN

A loan which is larger (more than $214,600 as of 1/1/97) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

K

KICKER

A term describing any benefit to a lender above ordinary fixed interest payments. It may be an equity position in a property or a percentage participation in the income stream.

L

LATE CHARGE

An additional charge a borrower is required to pay as penalty for failure to pay a regular installment when due.

LENDER

A financial institution, like a bank, that loans you money to buy a home, and expects you to pay the money back to them in a stated period of time, usually with interest.

LETTER OF CREDIT

A letter authorizing a person or company to draw on a bank or stating that the bank will honor their credit up to the stated amount.

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.

LIQUIDITY

Cash position based upon assets that can readily be converted to cash.

LOAN APPLICATION

The loan application is the source of information on which the lender bases a decision to make the loan; defines the term of the loan, gives the name(s) of the borrower(s) , place of employment, salary, bank accounts and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of the loan being applied for and the repayment terms.

LOAN FEE

The charge made for negotiating a loan, in addition to interest; sometimes used in reference to an additional fee paid directly to a lender either for a commitment or at the time advances are made.

LOAN GUARANTY CERTIFICATE

VA document stating that portion of a loan that is guaranteed.

LOAN TERM

The total amount of time you are given by a lender to pay off your home loan. Loan terms vary, but are generally set at 15 or 30 years.

LOAN-TO-VALUE RATIO (LTV)

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

LOCK-IN PERIOD

That portion of the term of a mortgage loan during which the loan cannot be prepaid.

M

MARGIN

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

MARGIN CALL

A call for the deposit of additional funds or collateral to offset trading losses on an outstanding position that is subject to margin.

MARKET APPROACH TO VALUE

In appraising, the market value estimate is predicated upon actual prices paid in market transactions. It is a process of correlation and analysis of similar recently sold properties.

MARKET VALUE

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MATURITY DATE

The scheduled date for your final payment on a loan. After making the payment on a loan's maturity date, you assume complete ownership of your home from the lender.

MONTHLY HOUSING ALLOWANCE

The percentage of a person's income they can comfortably use each month to pay for where they live with enough left over to spend on food, clothing, and other luxuries. As the result of a series of mind-numbing calculations, mortgage experts have determined that most folks can spend approximately 28% of their total income on housing.

MORTGAGE BANKER

A firm or individual who originates loans for sale to other investors. The mortgage banker generally continues to service the loans.

MORTGAGE BROKER

A firm or individual who brings the borrower and lender together, receiving a commission if a sale results. A mortgage broker does not retain servicing.

MORTGAGE INSURANCE

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

MORTGAGEE

The lender

MORTGAGOR

The borrower or homeowner

N

NEGATIVE AMORTIZATION

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

NEGOTIABLE INSTRUMENT

Under the Uniform Commercial Code, an instrument that meets certain legal requirements and can be transferred by endorsement or delivery.

NET EFFECTIVE INCOME

The borrower's gross income minus federal income tax.

NET WORTH

The difference between total assets and total liabilities.

NOTARY PUBLIC

One authorized by law to acknowledge and certify documents and signatures.

NOTE

A written promise to pay a certain sum of money at a certain time. A negotiable note starts Pay to the order of and is transferable by endorsement similar to a check.


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O

OBLIGATIONS

The things you have to pay for consistently each month, excluding housing costs. Obligations include things like car loans, credit card bills, student loans, and alimony or child support.

OFFER

A proposal; after acceptance it becomes a contract.

OFFICE OF THRIFT SUPERVISION (OTS)

The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.

OPEN-END MORTGAGE

A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.

OPTION

A right given for a consideration to keep an offer to purchase or lease open for specific time.

ORIGINATION FEE

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

ORIGINATOR

A person who solicits builders, brokers, and others to obtain applications for mortgage loans. Origination is the process by which a mortgage banker or direct lender brings into being a mortgage secured by real property.

OWNER OF RECORD

The actual owner of a property, according to public records.

P

PARCEL

A piece of land or property under one ownership. Parcels are created when a single large property is sub-divided into many smaller pieces of property.

PAY-OFF AMOUNT

A total balance, mount of a full payment on existing loan or lien.

PAYOFF SCHEDULE

The dollar figure in the Payment Schedule represent the principal, interest, plus Private Mortgage Insurance (if applicable) over the life of the loan. These figures will not reflect taxes and insurance escrows or any temporary buydown payments contributed by the seller.

PER-DIEM INTEREST

Interest charges that cover the period of time usually a matter of days, or a few weeks between when you close on your home, and the first day of the first month of your regular loan payments.

PERMANENT LOAN

A long term mortgage, usually ten years or more.

PIPELINE

Term used to express loan applications in process up until closing or until the mortgage is sold; used when analyzing mortgage loan inventory or commitment coverage.

PITI

Principal, Interest, Taxes and Insurance.

POINTS (LOAN DISCOUNT POINTS)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

POWER OF ATTORNEY

A written document authorizing another to act on his behalf. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law.

PRE-APPROVAL

A way you can establish your ability to get a home loan worth a certain amount of money, even before you've found the home you want to buy. The pre-approval process is done in conjunction with a specific lender; the results are based on the total income of your household, the amount of your monthly debt, as well as other factors depending on your situation as a home buyer.

PRE-FORECLOSURE SHORT SALE

Mortgagor may sell the secured property for an amount that will produce insufficient proceeds to pay the mortgagee in full. The Mortgagee agrees to accept a payoff which is short of the full amount in lieu of incurring the expense and time of foreclosing. Pre-foreclosure Short Sales are usually the product of a reduced market value.

PREPAID EXPENSES

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

PREPAID FINANCE CHARGE

Certain charges made in connection with the loan and which must be paid upon closing. The charges are defined by the Federal Reserve Board in Regulation Z and the charges must be paid by the borrower. Examples include, loan origination fees, points, PMI, and tax service fees. Prepaid finance charges are totaled and then subtracted from the Loan Amount. The net figure is the amount financed.

PREPAYMENT

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PREPAYMENT CLAUSE

A condition written into a mortgage that gives a borrower the privilege of paying off a loan in full before the final scheduled payment date. The borrower usually must agree to pay a pre-determined fee to do so.

PREPAYMENT PENALTY

An additional charge imposed by the lender for paying off a loan before the due date. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

PRIME RATE

The most favorable interest rate charged by lenders on a short term loans to qualified customers.

PRINCIPAL

The amount of debt, not counting interest, left on a loan.

PRIVATE MORTGAGE INSURANCE (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.

PRO FORMA STATEMENT

Latin word meaning according to form; a projection of anticipated income, expenses, and cash flow from an investment enterprise.

PROMISSORY NOTE

A written unsecured note promising to pay a specified amount of money on demand, transferable to a third party.

PROPERTY PRESERVATION

Taking adequate steps to preserve a vacated property from casual entry and inclement weather such as changing locks, repairing/replacing/boarding windows or doors, fixing leaking roofs and general maintenance and upkeep.

PRORATE

To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.

PROSPECTUS

A proposal or offering in conjunction with the sale of improved or unimproved property that outlines all aspects of the offer. Regulations of the Securities and Exchange Commission require many real estate offerings to be described by a detailed prospectus.

PUBLIC RECORDS

The documents that are evidence of real estate transactions, which are usually stored at the county courthouse and are accessible, by law, to the general public.

PUBLIC SALE

Sale, auction open to the public.

PURCHASE AGREEMENT

An unconditional sales contract that defines the terms and conditions under which real property is conveyed.

PURCHASE MONEY MORTGAGE (PMM)

Seller financing as a part of the purchase price.


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Q


R

RATE LOCK

A way you can establish that the interest rate on your loan remains the same between the time of your application, and when you qualify for the loan. When applying for a loan, you can lock the interest rate for a specific amount of time; depending on the length of the lock, this feature may cost as much as 1% of the total value of the loan, although often it is offered free of charge by the lender.

REAL ESTATE

Land and anything permanently affixed to the land, and those things attached to the building.

REALTOR

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

REASSESSMENT

The process of updating the understood value of a property for tax purposes.

RECORDING

The noting in the registrar's office of the details of a property executed legal document, such as a deed, mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

RECORDING FEES

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFINANCE

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

REINSTATEMENT

The curing of all defaults by a borrower; the restoration of a loan to current status through payment of arrearages.

REISSUE RATE

A discounted rate for title insurance when the title was previously insured with an owner's title insurance policy issued within the last ten years.

REPURCHASE AGREEMENT

An agreement to sell mortgage-backed securities to a party with a simultaneous agreement by the purchaser to resell them to the original party at a specified future date and price.

REVERSE ANNUITY MORTGAGE (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loam is paid in full. Also called a release of mortgage.

REVERSE REPURCHASE AGREEMENT

An agreement to purchase mortgage-backed securities from a party with a simultaneous agreement to resell them at a specified future date and price.

ROLLOVER

Renewal of a loan at the time of maturity; Reinvestment of the proceeds of the sale of a housing unit into another, which defers payment of the tax on the gain from the sale.

ROLLOVER MORTGAGE

A mortgage that provides for renegotiation of the interest rate and payment terms, typically at each five-year period of its term.

S

SBA

Small Business Administration.

SECURED PARTY

The party holding a security interest or lien; may be referred to as a mortgagee, the conditional seller, or the pledge.

SECURITIES AND EXCHANGE COMMISSION (SEC)

The federal agency which regulates securities and the securities business. It is involved in real estate and mortgage lending when MBS are issued.

SECURITY

Real or personal property pledged by a borrower, as additional protection for the lender's interest.

SECURITY INSTRUMENT

The mortgage or trust deed evidencing the pledge of real estate security as distinguished from the note or other credit instrument.

SELF-AMORTIZING LOAN

A loan that gets paid back through regular monthly installments, each of which is a combination of a pay-backs to the principal of the loan, and its interest charges.

SERVICING

All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

SERVICING AGREEMENT

A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party.

SETTLEMENT STATEMENT

A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

SIMPLE INTEREST

Interest which is computed only on the principle balance.

SITE ASSESSMENT

A mandatory environmental inspection that checks for the existence of hazardous waste on the premises of a home that's being sold.

SPECIAL ASSESSMENT

Additional tax imposed by the local government for public improvements such as new streets, etc.

STANDBY COMMITMENT

A commitment to purchase a loan or loans with specified terms, both parties understanding that delivery is not likely unless circumstances warrant. The commitment is issued for a fee with willingness to fund in the event that a permanent loan is not obtained. Such commitments are typically used to enable the borrower to obtain construction financing at a lower cost on the assumption that permanent financing of the project will be available on more favorable terms when the improvements are completed and the project is generating income.

STATUTE OF LIMITATIONS

The time period to file a law suit to enforce a claim or it is barred by law.

SURVEY

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

T

TAX LIEN

A claim against property for the amount of its due and unpaid taxes.

TERM

The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

TITLE

The legal, written evidence that identifies the owner of a home or piece of property, and outlines that person's rights as owner. At the time of a home sale, the title passes from the seller to the buyer and the lender who is providing the buyer's home loan. The buyer gets the title when their home loan is paid back in full.

TITLE INSURANCE

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests. Title insurance covers mistakes made during a TITLE SEARCH as well as matters which could not be found or discovered in the public records such as missing heirs, mistakes, fraud and forgery.

TITLE SEARCH

An examination of the public records, including court decisions, to disclose facts concerning the ownership of real estate. The title examiner prepares an ABSTRACT and the title agent prepares a binder, but decisions regarding the legal sufficiency of title or questions requiring legal interpretation must be resolved by a licensed attorney at law.

TOTAL OF PAYMENTS

The total of all payments made toward principal, interest, and mortgage insurance (if applicable) over the life of the loan.

TRUST

A right to or in property held for the benefit of another. A trust may be written or implied. An implied trust is called a Constructive Trust.

TRUST DEED

The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee as security for the borrower's fulfillment of an obligation.

TRUSTEE

One who holds property in Trust for another. Appointee of the Bankruptcy Court to act as a court officer in charge of a debtor's assets until such time as the court determines how those assets will be liquidated.

TRUTH-IN-LENDING

A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

TWO-STEP MORTGAGE

A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often five or 7), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of five or 7 years.

U

UNDERWRITING

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

UP-FRONT COSTS

The total amount of cash you need to pay when you buy a home, minus the amount of your loan. Up front costs include your down payment, any closing fees you must pay like broker's commissions or insurance charges and the discount points you can use to lower your overall interest rate.

USURY

Charging more than the maximum legally permitted rate of interest.

V

VA LOAN

A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA MORTGAGE FUNDING FEE

A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

VALUATION

Estimation of value or price through appraisal.

VARIABLE RATE MORTGAGE (VRM)

See Adjustable Rate Mortgage

VERIFICATION OF DEPOSIT (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT (VOE)

A document signed by the borrower's employer verifying his/her position and salary.

VESTED INTEREST

A fixed right to the enjoyment of real estate by a specified person, subject to termination of a previous estate.

W

WAIVER

Relinquishment of a right.

WAREHOUSE FEE

Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

WAREHOUSING

The borrowing of funds by a mortgage banker on a short-term basis using permanent mortgage loans as collateral. This form of interim financing is used until the mortgages are sold to a permanent investor.

WARRANTY DEED

A deed conveying the title to a property with a warranty of clean, clear marketable title


X


Y

YIELD

The ratio of investment income to the total investment amount over a given period of time.

Z

ZONING

Regulation of private land use and development by local government


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Union Mortgage Group
4355 Innslake Drive, Suite 350
Glen Allen, VA 23060

NMLS #: 173406 Equal Housing Lender