RE/MAX Ability Plus
200 Medical Dr., Suite A
Carmel, IN 46032
(317) 574-6647
Broad Ripple
711 E 65th Street
Indianapolis, IN 46220
(317) 251-0100
Licensed in the
State of Indiana
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BUYING TIPS
& TOOLS : REAL ESTATE GLOSSARY |
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To get common sense definitions to mortgage and real estate terminology, click
on the first letter of the word you wish to find.
[ 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 ]
(3/2) Options
An alternative financing plan that enables
households whose earnings are no more than
115 percent of the medium income in their
regional area to make a 3 percent down payment
with their own funds, coupled with a 2 percent
gift from a relative or a 2 percent grant
or unsecured loan from a nonprofit or state
or local government program.
Abstract (of Title)
A historical summary of all the recorded
transactions that affect the title to the
property. An attorney or a title company
will review an abstract of title to determine
if there are any problems affecting the title
to the property. All such problems must be
cleared before the buyer can be issued a
clear and insurable title.
Acceleration Clause
A loan provision giving the lender the
power to declare all sums owing lender immediately
due and payable upon the violation of a specific
loan provision, such as the sale of the property,
or the failure to make loan payments on time.
Example : John sells his property to Mary
who takes over John's mortgage payments.
They do not notify the lender of this transaction.
The lender finds out that the title to the
property has transferred and calls the loan,
since the loan documents state that the loan
is due on the sale of the property. John
is now liable to pay his lender in full.
Acknowledgment
Formal declaration before a public official
(typically a Notary Public) that one has
signed a document. Required before recording
real estate legal documents, such as a deeds
of trust.
Acre
A measure of land equal to 43,560 square
feet.
Adjustable Rate
Mortgage (ARM)
Also known as a variable rate mortgage.
The interest rate on these mortgages changes
periodically.
Adjustment Period
This is the length of time for which the
interest rate is fixed on an adjustable.
Therefore if the adjustment period is six
months, then the interest rate will remain
fixed for six months, after which time it
will adjust.
Agreement
of Sale
A written signed agreement between the
seller and the purchaser in which the purchaser
agrees to buy certain real estate and the
seller agrees to sell upon terms of the agreement.
Also known as contract of purchase, purchase
agreement, offer and acceptance, earnest
money contract or sales agreement.
Amortization
A gradual paying off of a debt by periodic
installments which pay principal and interest.
Amortization
Schedule
A timetable for payment of a mortgage showing
the amount of each payment applied to interest
and principal and the remaining balance on
the loan.
Annual Percentage Rate (APR)
The effective rate of interest for a loan
per year. This rate is typically higher than
the note rate because it takes into account
closing costs. This is one way to compare
loan programs offered by different lenders.
Caution : the APR is sometimes computed differently
by different lenders and can be misleading.
Application
An initial statement of personal and financial
information which is required to approve
your loan.
Application Fee
Fees that are paid upon application. An
application fee may frequently include charges
for property appraisal ($200-$400) and a
credit report ($30-50).
Appraisal
An opinion or estimate of the value of
a property at a given date.
Appraised Value
An opinion of the value of a property at
a given time, based on facts regarding the
location, improvements, etc., to the property
and surroundings.
Appreciation
An increase
in the value of a house due to changes
in market conditions or other
causes.
Arm's Length Transaction
A transaction among parties each of who
acts in his or her own best interest.
Example : A transaction between a father
and his son would NOT be an Arm's
length transaction
Assessed Value
The valuation placed upon a property by
a public tax assessor for purposes of taxation.
Assessment
A local tax levied against a property for
a specific purpose such as street lights.
Assumable
Mortgage
A mortgage loan which allows a new home
buyer to take over the obligation of making
loan payments with no change in the terms
of the loan. Assumable loans do not have
a due-on-sale clause. The lender has to be
notified and agree to the assumption. The
lender may require the buyer to qualify for
the loan and may charge an assumption fee.
The seller should obtain a written release
from the lender stating clearly that he/she
is no longer liable to make mortgage payments.
See also Subject To.
Assumption (of Mortgage)
The transfer of the seller's existing mortgage
to the buyer.
Attorney In Fact
One who is authorized to act for another
under a power of attorney which may be general
or limited in scope.
Example : John wants to sell his house
but has to be out of the country for 4 months.
John gives authorization to Mary to sign
the grant deed to sell the property to a
buyer. Mary becomes John's Attorney In Fact.
Balloon 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.
Example : A balloon mortgage for $25,000
has interest only payments for 5 years at
12% ($250 per month), with the full principal
of $25,000 due and payable after 5 years.
Balloon Payment
A lump sum payment of the unpaid balance
of the loan
Bankruptcy
The financial inability to pay one's debts
when due. The debtor surrenders his assets
to the bankruptcy court. An individual typically
files for Chapter 7 (all debts wiped out)
or Chapter 13 (establishes a payment plan
to pay off debts). A bankruptcy stays on
an individual's credit report for 7 years.
Beneficiary
The person who receives or is to receive
the benefits resulting from certain acts.
Example : The lender is named as the beneficiary
on a mortgage loan.
Example : John has a life insurance policy
for $100,000 with Jane as his beneficiary.
Should John die - Jane will receive the benefits
i.e. $100,000.
Bi-weekly Mortgage
A mortgage which requires 1/2 the normal
monthly payment every two weeks. Over the
course of the year, 26 half payments are
made which is equivalent to 13 full mortgage
payments. As a result of this extra payment
the loan amortizes much faster than a loan
with normal monthly payments.
Blanket Mortgage
A mortgage covering more than one piece
of property.
Example : A developer subdivides a tract
of land into lots and obtains a blanket mortgage
on the whole tract.
Bond
1. A debt instrument in the capital markets.
The U.S. government, corporations and municipalities
use bonds to raise money. Bonds can also
be backed by mortgages. The best known bond
is the 30 yr. treasury bond issued by the
U.S. government.
2. A sum of money given to a court to guarantee
against a loss. For example if there is a
lien on a property, the owner may remove
the lien by posting a bond.
Borrower (Mortgagor)
One who applies for a loan secured by real
estate and is responsible for repaying the
loan (mortgage).
Bridge Loan
An interim loan typically used when the
buyer is unable to sell his/her house but
needs money to close the transaction on the
house he/she is buying. The bridge loan is
made on the buyers current residence to finance
the buyers new residence. The loan is paid
off when the buyers current residence is
sold.
Broker
See Real Estate Broker or Mortgage Broker.
Buydown
Obtaining a lower interest rate (buying
down the rate) by paying additional points
to the lender. The lower rate may apply for
the full duration of the loan or for just
the first few years. A buydown may be used
to qualify a borrower who would otherwise
not qualify . This is because a buydown results
in lower payments which are easier to qualify
for.
Example : A very popular buydown is the
2-1 buydown. If the interest rate on the
note is 9%, the buydown results in the rate
being 7% (9%-2%) for the first year, 8% (9%-1%)
for the second year, and 9% thereafter.
Buyer's Broker
An agent hired by a buyer to locate a property
for purchase. The broker represents the buyer
and negotiates with the seller's broker for
the best possible deal for the buyer.
Buyer's Market
Market conditions that favor buyers i.e.
there are more sellers than buyers in the
market. As a result buyers have ample choice
of properties and may negotiate lower prices.
Buyer's markets may be caused by an economic
slump or overbuilding.
Bylaws
A set of regulations by which an organization
conducts its business.
Example : A condominium association prepares
bylaws that state the minimum number of owners
to conduct a meeting to decide policies.
Capital Gains
Profit earned from the sale of real estate.
A seller may defer taxes on the capital gain
of his/her primary residence by buying a
higher priced residence within 2 years.
Cap
(on Interest)
Consumer safeguard
which limits the amount the interest rate
on an adjustable rate mortgage
may change per year and/or the life of the
loan.
Cap (on Payment)
Consumer safeguard
which limits the amount monthly payments
on an adjustable rate mortgage
may change.
Cash Flow
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.).
Cash Out
Receiving money back when refinancing your
present mortgage.
Cash Reserve
A requirement of some lenders that buyers
have sufficient cash remaining after closing
to make the first two mortgage payments.
Caveat Emptor
A legal term
meaning "let buyer beware".
The buyer must examine the property and buy
at his/her own risk.
Example : A
property may be offered in an "as is" condition
with no expressed or implied guarantee
of quality or condition.
CC&R's
- Covenants, conditions, and restrictions.
The basic rules establishing the rights
and obligations of owners of real property
within a condominium, townhouse, PUD, subdivision
or other tract of land. An association is
organized for the purpose of operating and
maintaining property commonly owned by the
individual owners. The association is normally
made up of property owners.
Ceiling
The maximum allowable interest rate over
the life of the loan of an adjustable rate
mortgage.
Certificate of Eligibility
The document issued by the Veterans Administration
to those that qualify for a VA loan which
may be used to buy a house with 0 down. Certificates
of eligibility may be obtained by sending
the form DD-214 to the local VA office along
with VA form 1880.
Certificate of Occupancy
Document issued by a local governmental
agency that states a property meets the local
building standards for occupancy and is in
compliance with public health and building
codes. This document is normally required
by a lender prior to closing the loan.
Certificate of Title
An opinion rendered by an attorney as to
the status of title to a property, according
to the public records. This certificate does
not the same level of protection as title insurance.
Certified Mortgage Banker (CMB)
A professional designation in the mortgage
banking industry.
Chain of Title
The chronological order of conveyance of
a parcel of land from the original owner
to the present owner.
Example : An abstractor can research title
to property going back to the date that the
property was granted to the United States.
Clear Title
A marketable title, free of "clouds" and
disputed interests. Most lenders require
a clear title prior to closing.
Closed-end Loan
A closed-end loan is an agreement in which the borrower agrees to pay a specific loan amount plus finance charges over a definite period of time. It may have either a fixed or adjustable interest rate. The borrower can not receive additional loan advances in this type of agreement.
Closing
1. The act of transferring ownership of
a property from seller to buyer in accordance
with a sales contract.
2. The time when a closing takes place.
Closing Costs
Expenses incurred by the buyer and seller
in a real estate or mortgage transaction.
There are two types of costs : recurring
and non recurring.
Non-recurring costs are one time transactional
costs which include:
- Discount and origination points
- Lender fees - underwriting, processing,
document preparations, flood certificate,
tax service, wire transfer, courier,
etc
- Title insurance fees
- Escrow, attorney or closing agent
fees
- Recording fees
- Inspection and appraisal fees
- Real estate brokerage commissions
Recurring fees are costs associated with
owning the property and they recur month
after month. These costs may include hazard
insurance, interest, property taxes, mortgage
insurance (PMI), and association fees.
A pro-rated amount of these fees may have
to be paid at closing including
- Pre-paid interest - interest charges
from the date of closing to the end
of the month
- Property taxes if due
- Hazard insurance, fire insurance
or homeowners insurance has to be paid
for one year
- Mortgage insurance (PMI) - may be
required if the loan amount is more
than 80% of the value of the property.
In the past a whole year of PMI had
to be paid up front, however in recent
years many PMI companies only require
1-2 months up front. Mortgage insurance
premiums are normally paid every month
with the loan payment
- Impound account may need money to
be set up for future payments
Cloud on Title
An outstanding claim or encumbrance that,
if valid, would affect or impair the owner's
title. Compare with clear title.
Collateral
Property pledged to secure a loan.
Commission
Money
paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale.
Usually it is a percentage of the sale price ranging from 5 to 10 percent.
Commitment
(Letter)
A written document provided by a lender
to agreeing to make a loan on specific terms
to a borrower or builder.
Community Home Buyer's Program
An alternative financing option that allows
households of modest means to qualify for
mortgages using nontraditional credit histories,
33 percent housing-to-income and 38 percent
debt-to-income ratios, and the waiver of
the usual two payments cash reserves at closing.
Community Home Improvement Mortgage
Loan
An alternative financing option that allows
low- and moderate-income home buyers to obtain
95 percent financing for the purchase and
improvement of a home in need of modest repairs.
Community Land Trust Mortgage Loan
An alternative financing option that enables
low- and moderate-income home buyers to purchase
housing that has been improved by a non-profit
Community Land Trust, and to lease the land
on which the property stands.
Condemnation
1. Taking private property for a public
use with compensation to the owner under
eminent domain. Used by governments to acquire
land for streets, schools, freeways, etc
and by utilities to acquire necessary property.
2.
Declaring a structure unfit for use because
of violations in housing codes or other reasons.
Conditional Commitment
A written document provided by a lender
agreeing to make a loan provided certain
conditions are met prior to closing.
Condominium
Individual ownership of a dwelling unit
and an individual interest in the common
areas and facilities which serve the multi-unit
project.
Conforming Loan
A conventional mortgage under $203,150 that conforms to the loan amounts and mortgage guidelines used by Fannie Mae (FNMA) and/or Freddie Mac (FHLMC).
Construction
Loan
A short term loan to pay for the construction
of buildings or homes. These loans typically
provide periodic disbursements to the builder
as each stage of the building is completed.
When construction is completed, a take-out or permanent loan is used to pay off the
construction loan.
Consideration
Anything of value given to induce another
to enter into a contract. Earnest money deposit
on a sales contract is consideration.
Contingency
Conditions which must be satisfied before
the buyer can close the purchase of a property.
Contingencies are generally outlined in the
purchase contract between the buyer and seller.
Example : The buyer has 14 days to remove
the property contingency under the sales
contract. In this case the buyer has 14 days
to inspect the property and request the seller
to perform repairs. If the buyer is not satisfied
with the condition of the property or if
the buyer and the seller cannot agree on
repairs, the buyer may back out of the contract
with no penalty. After 14 days, the buyer
no longer has the right to back out with
no penalty as a result of a problem with
the condition of the property.
Contract
An agreement between competent parties
to do or not do certain things for consideration.
Example : To have a valid contract for
the sale of real estate there must be :
- an offer
- an acceptance
- competent parties
- consideration
- legal purpose
- written documentation
- description of the property
- signatures by principals or their attorney-in-fact
Contract Sale or Deed
A real estate installment selling arrangement
where the buyer may occupy the property but
the seller retains the title until the agreed
upon sales price has been paid. Also known
as an installment land contract.
Example : John sells Mary a house. Mary
has to put $10,000 and pay $1,000 per month
for 24 months, after which time she will
receive title to the property.
Same as the Agreement of Sale.
Conventional Loan
Any mortgage loan other than a VA or an
FHA loan. A convention loan may be conforming
or non-conforming.
Conventional Mortgage
Any mortgage that is not insured or guaranteed
by the federal government.
Conversion Clause
A provision in some Adjustable Rate Mortgages
that permit converting the ARM to a fixed
rate loan under specified conditions at a
predetermined time. Sometimes available for
an additional cost.
Convertible ARMs
Some variable loans come with options to
convert them to a fixed loan based on a pre-determined
formula, during a given time period. For
example the 1 yr T bill adjustable may be
converted to a fixed during the first five
years on the adjustment date. The means that
you could convert during the 13th, 25th,
37th, 49th and 61st months of the loan.
Conveyance
The transfer of title of real from one
party to another.
Co-op; Cooperative
An apartment building or a group of dwellings
owned by a corporation, the stockholders
of which are the residents of the dwellings.
It is operated for their benefit by their
elected board of directors. In a cooperative,
the corporation or association owns title
to the real estate. A resident purchases
stock in the corporation which entitles him
to occupy a unit in the building or property
owned by the cooperative. While the resident
does not own his unit, he has an absolute
right to occupy his unit for as long as he
owns the stock.
Covenant
A clause in a mortgage that obligates or
restricts the borrower and which, if violated,
can result in foreclosure.
Credit Limit
The maximum amount you can borrow
under a home equity plan.
Credit Report
A report detailing a borrowers credit history
including payment history on revolving accounts
(e.g. credit cards) and installment accounts
(e.g. car loan). A credit report also includes
information found from public records including
tax liens and judgments
Debt Consolidation
Combining all your
debt payments into one payment through
a loan.
Debt Service
The total amount of credit card, auto,
mortgage or other debt upon which you must
pay.
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 net effective income (FHA/VA
loans) or gross monthly income (conventional
loans).
Deed
A written document by which title to real
property is transferred from one owner to
another. The deed should contain an accurate
description of the property being conveyed,
should be signed and witnessed according
to the laws of the State where the property
is located, and should be delivered to the
buyer at closing.
Deed in Lieu
A deed given by a mortgagor to a mortgagee
to satisfy a debt and avoid foreclosure.
Deed of
Trust
Used in many states in lieu of a mortgage
to secure the payment of a note. In a deed
of trust there are three parties: the borrower,
the trustee, and the lender, (or beneficiary).
In such a transaction, the borrower transfers
the legal title for the property to the trustee
who holds the property in trust as security
for the payment of the debt to the lender
or beneficiary. If the borrower pays the
debt as agreed, the deed of trust becomes
void. If, however, he/she defaults in the
payment of the debt, the trustee may sell
the property without a court proceeding.
Deed Restriction
A clause in a deed that limits the use
of land.
Example : A deed might require that a road
cannot be built on the land.
Default
Failure to meet legal obligations in a
contract - such as the failure to make the
monthly mortgage payment.
Defective Title
Any recorded instrument that would prevent
a grantor/seller from giving a clear title.
Example : The seller has a contractor lien
on the property that was filed when he/she
failed to pay the contractor for the kitchen
remodel. The seller may obtain clear title
by paying the contractor and removing the
lien.
Deficiency Judgment
Personal claim against the debtor when
the sale of foreclosed property does not
yield sufficient proceeds to pay off the
mortgages, accrued interest, legal fees,
etc.
Delinquency
Failure to make payments on time. 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
An independent
agency of the federal government which
guarantees long-term, low-or no-down
payment mortgages to eligible veterans.
Deposit
Cash paid to the seller when a formal sales
contract is signed.
Depreciation
Decline in the value of a house due to
wear and tear, obsolescence, adverse changes
in the neighborhood, or any other reason.
Discount
The difference between face value of an
installment note and mortgage or deed of
trust, and the present cash value.
Discount
Points
Fees paid to a lender to reduce the interest
rate.
Documentary Tax Stamps
Stamps affixed to a deed showing the amount
of transfer tax.
Dower
The rights of a widow or child to part
of a deceased husband's or fathers property.
Down Payment
The amount paid for the purchase of a property
in addition to the mortgage, but not including
any closing costs.
Example : John buys a house for $100,000
and obtains a loan for $80,000. His down
payment is $20,000.
Dragnet Clause
A provision in a mortgage that pledges
several properties as collateral. A default
in the mortgage could lead to foreclosure
proceedings on any of the properties in the
dragnet.
Due on Interest
A clause inserted
in a mortgage that allows the lender to
call the loan due and payable
at its option upon the transfer of the property
also known as paragraph "17" in FNMA/ FHLMC
Mortgage
Due on Sale Clause
A clause in the Deed of Trust or Mortgage
that states that the entire loan is due upon
the sale of the property.
Earnest Money
A deposit made by a buyer of real estate
towards the down payment to evidence good
faith. This money is typically held by the
real estate brokers or the escrow company.
Easement
The right to use the land of another for
a specific purpose. Easements may be temporary
or permanent.
Example : The utility company may need
an easement to run electric lines.
Effective Interest Rate
The cost of credit on a yearly basis expressed
as a percentage. Includes up-front costs
paid to obtain the loan, and is, therefore,
usually a higher amount than the interest
rate stipulated in the mortgage note. Useful
in comparing loan programs with different
rates and points.
Eminent Domain
The right of the government or a public
utility to acquire property for necessary
public use by condemnation, with proper compensation
to the owner.
Encroachment
A building, a part of a building, or an
obstruction (e.g.. a fence or a wall) that
physically intrudes upon or overlaps into
the property of another.
Encumbrance
A legal right or interest in land that
affects a good or clear title, and diminishes
the land's value. It can take numerous forms,
such as zoning ordinances, easement rights,
claims, mortgages, liens, charges, a pending
legal action, unpaid taxes, or restrictive
convenants. An encumbrance does not legally
prevent transfer of the property to another.
A title search is all that is usually done
to reveal the existence of such encumbrances,
and it is up to the buyer to determine whether
he wants to purchase with the encumbrance,
or what can be done to remove it.
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)
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 of income
from public assistance programs
Equity
Equity = Property Value - Loans/Liens Against
the property.
Equity is typically expressed as a percentage of the property
value.
Equity Loan
A loan based on the borrower's equity in
his or her home.
Equity Sharing
Joint ownership of a property between the
owner/occupant and the owner/investor, that
results in tax advantages for both parties.
Upon sale of the property the joint owners
split profits based on the percentage they
own.
Escheat
The reversion of property to the state
in the event that the owner dies without
leaving a will and has no legal heirs.
Escrow
1. Neutral third party that handles all
funds in a real estate transaction. The buyer
puts his deposit into escrow, the lender
funds the loan into escrow. Escrow pays the
real estate brokers commission, pays off
any loans/liens against the property, pays
real estate taxes and any other fees associated
with the transaction and sends the balance
of the money to the seller.
2. Escrow payment - see impound account.
Executor (Executrix - feminine for
Executor)
A person named in a will to carry out its
provisions for the disposition of the estate.
Fannie Mae
See Federal National Mortgage Association.
Fair Credit Reporting Act
A consumer protection law that sets up
a procedure for correcting mistakes on one's
credit record.
Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of
Agriculture, that administers assistance
programs for purchasers of homes and farms
in small towns and rural areas.
Federal National
Mortgage Association (FNMA, Fannie
Mae)
Purchases loans from lenders, securitizes
them and sells FNMA mortgage backed securities
on wall street.
Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.
Federal Home Loan
Mortgage Corporation (FHLMC, Freddie
Mac)
Purchase loans from members of the Federal
Reserve and the Federal Home Loan Bank Systems,
securitizes them and sells FHLMC mortgage
backed securities on wall street.
Federal Housing Administration (FHA)
An agency within the U.S. Department of
Housing and Urban Development (HUD) that
administers loan programs, issues loan guarantees
to make more housing available.
Federal Reserve System
The central federal banking system that
regulates and provides services to member
commercial banks. Also has the responsibility
for conducting federal monetary policy.
Fee Simple (Fee Absolute or Fee
Simple Absolute)
Absolute ownership of real property; owner
is entitled to the entire property with unconditional
power of disposition during the owners life
and upon his death the property descends
to the owner's designated heirs.
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
($124,875), they are generous enough to handle
moderately-priced homes almost anywhere in
the country.
FHA Mortgage Insurance
Requires a small
fee (up to 3.8 percent of the loan amount)
paid at closing or a
portion of this fee added to each monthly
payment of an FHA loan to insure the loan
with FHA. On a 9.5 percent $75,000 30-year
fixed rate FHA loan, this fee would amount
to either $2,850 at closing or an extra $31
a month for the life of the loan. In addition,
FHA mortgage insurance requires an annual
fee of 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.
Fidelity Bond
An assurance, generally purchased by an
employer, to cover employees who are entrusted
with valuable property or funds.
Example : A landlord employs a clerk who
collects rents. To safeguard these funds
during the collection process, the landlord
purchases a fidelity bond the clerk.
Fiduciary
A person in a position of trust or responsibility
with specific duties to act in the best interest
of a client. A real estate broker is a fiduciary
for his/her clients.
Finance Charge
Interest charged by a lender.
Firm Commitment
A promise by
FHA to insure a mortgage loan for a specified
property and borrower. A
promise from a lender to make a mortgage
loan.
First Mortgage
A mortgage that has priority as a lien
over all other mortgages. In the case of
a foreclosure the first mortgage will be
satisfied before other mortgages. See also second mortgage.
Fixed Rate Mortgage
The mortgage
interest rate will remain the same on these
mortgages throughout the
term of the mortgage for the original borrower.
Fixture
Improvements or personal property attached
to the land so as to become a part of the
real estate. Fixtures are transferred to
the buyer upon sale of the property. To determine
whether an item is a fixture include :
- Intent (was it intended to be part
of the property)
- How is it fixed ?
- Is the fixture essential to the property
?
- Relationship - was the fixture intended
to be a part of the tenant's business
?
Example : John sells his house to Mary.
John wants to take the chandelier because
he states it is personal property. Mary
wants the chandelier to stay because she
believes it is a fixture.
Flood Insurance
An insurance policy that covers property
damage due to natural flooding. Flood insurance
may be required on properties in a flood
zone.
Forbearance
The lender's postponement of foreclosure
to give the borrower time to catch up on
overdue payments.
Foreclosure (Repossession)
A legal process by which the lender forces
a sale of a property because the borrower
has not met the terms of the mortgage.
Freddie Mac
See Federal Home Loan Mortgage Corporation.
Free and clear
A property that has no liens.
FSBO
For sale by owner. A property for sale
that is not listed with a real estate broker.
Fully Indexed Rate
The fully indexed rate = value of the index
+ margin.
General Warranty Deed
A deed in which the grantor (seller) agrees
to the protect the grantee (buyer) against
any other claim to title of the property.
See also warranty deed.
Ginnie Mae
See Government National Mortgage Association.
Good Faith Estimate
A written estimate of closing costs which
a lender must provide you within three days
of submitting an application.
Government National
Mortgage Association (GNMA)
A government agency part of HUD that buys
VA and FHA loans from lenders, securitizes
them and sells Ginnie Mae securities to investors
Grace Period
A period of time during which a loan payment
may be paid after its due date but not incur
a late penalty. Such late payments may be
reported on your credit report.
Grantee
That party in the deed who is the buyer
or recipient.
Grantor
That party who is the seller or the giver.
Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially
(with potential negative amortization) which
increase each year until the loan is fully
amortized.
Grandfather Clause
The clause in a law permitting the continuation
of a use, business, etc., which was permissible
but because of a change in the law is now
no longer permissible.
Gross Income
For qualifying purposes, the income of
the borrower before taxes or expenses are
deducted.
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.
Hazard Insurance (Fire
Insurance, Homeowners insurance)
Insurance on a property against fire and
other risks. A homeowners policy may have
additional coverage for theft, liability,
etc that a fire insurance policy may not
cover.
Homeowners Association
An association of homeowners in a particular
subdivision, planned unit development (PUD),
or condominium organized to manage the common
area of the development and to enforce the
association rules and regulations.
Homeowner's warranty
A type of insurance that covers repairs
to specified parts of a house for a specific
period of time.
Home Equity Line of Credit (HELOC)
A loan providing you with the ability to
borrow funds at the time and in the amount
you choose, up to a maximum credit limit
for which you have qualified. Repayment is
secured by the equity in your home. Simple
interest (interest-only payments on the outstanding
balance) is usually tax-deductible. Often
used for home improvements, major purchases
or expenses, and debt consolidation.
Home Equity Loan
A fixed or adjustable rate loan obtained
for a variety of purposes, secured by the
equity in your home. Interest paid is usually
tax -deductible. Often used for home improvement
or freeing of equity for investment in other
real estate or investment. Recommended by
many to replace or substitute for consumer
loans whose interest is not tax-deductible,
such as auto or boat loans, credit card debt,
medical debt, and education loans.
Homestead
Status provided to a homeowner's principal
residence in some states that protects the
home against judgments up to specified amounts.
Homestead Exemption
Available in some states - this causes
the assessed value of a principal residence
to be reduced by the amount of the exemption
for the purposes of calculating property
tax.
Example : John's principal residence is
assessed at $100,000 and the homestead exemption
is $7,000. His property taxes will be based
on $93,000.
Home Warranty Plan
Insurance that covers appliances, heating
systems, etc. Typically purchased at the
time of closing.
Housing and Urban Development
A U.S. government agency established to
implement certain federal housing and community
development programs.
Housing Code
A local government ordinance that sets
minimum standards of safety and sanitation
for existing residential buildings.
Housing Expenses to Income Ratio
The ratio, expressed as a percentage, which
results when a borrower's housing expenses
are divided by his/her net effective income
(FHA/VA loans) or gross monthly income (conventional
loans).
HUD 1
A closing document required by HUD that
outlines the settlement cost of a loan. The
closing agent prepares this document and
sends it to the buyer upon closing.
Hypothecate
To pledge a property as security without
having to give up possession of it.
Improvements
Additions to raw land such as buildings,
streets, etc that add value to the land.
Impound
Account
That portion of a borrower'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. Also known as reserves.
Income Approach
A method used by an appraiser to estimate
the value of a property based on the income
it generates.
Income Property
Real estate that generates rental income.
Examples : apartment buildings, office buildings
and shopping centers.
Index
A statistic that indicates some current
economic of financial condition. Indexes
are used to make adjustments in variable
rate loans.
Ingress and Egress
The right to go in and out over a piece
of property but not the right to park on
it. See also easement.
Installment Sale
See land contract.
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 Rate
The periodic charge, expressed as a percentage,
for use of credit.
Interest rate cap
A provision of an ARM limiting how much
interest rates my increase in a given adjustment
period. See also lifetime cap.
Investor
A money source for a lender.
Interim
Financing
A construction loam made during completion
of a building or a project. A permanent loan
usually replaces this loan after completion
Joint and Several
Liability
A creditor can demand full repayment from
any and all of those who have borrowed. Each
borrower is liable for the full debt, not
just the prorated share.
Joint Ownership Agreement
An agreement between owners defining their
rights, ownership, monetary obligations and
responsibilities. This could be between and
investor and an occupant or the occupants.
If an investor is involved, the investor
does not take depreciation deductions and
none of the occupant's payment is deemed
rent for tax purposes.
Joint Tenancy
Ownership of a property by two or more
people, each of whom has an undivided interest
with the right of survivorship.
Example : John and Mary own a house in
joint tenancy. Each owns half of the entire
(undivided) property. If John dies, Mary
will own the entire property and vice versa.
Judgment
The decision of a court of law stating
that one individual is indebted to another
and fixing the amount of indebtedness. Judgments,
when recorded, become a lien on real property
owned by the defendant.
Judgment Lien
The claim on the property of a debtor resulting
from a judgment.
Jumbo Loan
Loan size that is larger than the limit
established by Fannie Mae or Freddie Mac.
Junior Mortgage
A mortgage subordinate to another mortgage.
In the case of a foreclosure a senior mortgage
will be paid prior to a junior mortgage.
Kicker
A payment required by a mortgage in addition
to normal principal and interest. Sometimes
known as a participation loan.
Land
Contract
A real estate installment selling arrangement
whereby the buyer may use and occupy land,
but no deed is given by seller until the
sales price has been paid.
Late Charge
The penalty a borrower must pay when a
payment is made after the due date.
Lease-Purchase
Mortgage Loan
An alternative
financing option that allows low- and moderate-income
home buyers to lease
a home from a nonprofit organization with
an option to buy, and with each month's rent
payments consisting of "PITI" payments on
the first mortgage, plus an extra amount
that is earmarked for a savings account in
which money for a down payment accumulates.
Lease with Option to Purchase
A lease under which the lessee has the
right to purchase the property. The option
may run for a portion or for the full length
of the lease.
Leasehold Estate
Tenant's right of possession for a specific
period of time under a lease agreement.
Legal Description
Legally acceptable identification of real
estate by one of the following:
- the government rectangular survey
- metes and bounds
- recorded plat (lot and block number)
Lessee
A person to whom property is rented under
a lease. (Tenant)
Lessor
A person who rents property to another
under a lease. (Landlord)
Lien
A claim against the property for the payment
of a debt, judgment, mortgage or taxes.
Example : Unpaid contractors may file a
mechanic's lien.
Life Estate
An estate in real property for the life
of a living person. The estate then reverts
back to the grantor or to a third party.
Lifetime
Cap
A provision of an ARM that limits the total
increase in interest rates over the life
of the loan.
Lis Pendens
Latin for "lawsuit pending." Recorded
notice that litigation is pending on a
property.
Most lenders will require the clearance of
the Lis Pendens prior to closing.
Loan Application
A document required by a lender prior to
loan approval. The application includes detailed
information about the borrower and the property.
Loan Commitment
See Commitment (Letter).
Loan
Origination Fee or Points
Charge by a lender or broker connected
with originating a loan. This is different
from discount points which are used to buy
down the rate of interest.
Loan-to-Value Ratio (LTV)
The loan amount divided by the value of
the property.
Loan Servicing
The act of collecting loan payments, handling
property tax and insurance escrows, foreclosing
on defaulted loans and remitting payments
to the investors.
Lock or Lock In
A commitment you obtain from a lender assuring
you a particular interest rate or feature
for a definite time period. Provides protection
should interest rates rise between the time
you apply for a loan, acquire loan approval,
and, subsequently, close the loan and receive
the funds you have borrowed.
Margin
A fixed number the lender adds to the index
on an adjustable rate mortgage to establish
the adjusted interest rate.
Marketable Title
Title that is free of liens, clouds and
other legal defects and hence is readily
acceptable by a buyer.
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
The termination or due date of a note,
time, draft, acceptance, bill of exchange,
or bond. The date a time instrument or indebtedness
becomes due and payable.
Mechanics Lien
The right of an unpaid contractor or subcontractor
to file a lien against property to recover
the amount due to him/her.
Minimum Payment
The minimum
amount that you must pay, usually monthly,
on a home equity loan or line of
credit. In some plans, the minimum payment
may be "interest only," (simple interest).
In other plans, the minimum payment may include
principal and interest (amortized).
Mortgage
A written instrument that creates a lien
upon real estate as security for the payment
of a specified debt.
Mortgage Backed Security (MBS)
A bond or other financial obligation secured
by a pool of mortgage loans.
Mortgage Banker
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