CHFA Mortgage Programs
Glossary Of Homeownership Mortgage Terms
The
Connecticut Housing Finance Authority (CHFA) has compiled
this glossary of terms that you may encounter as you apply
for a mortgage and purchase a home.
A
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.
acceptance
An offeree’s consent to enter into a contract and be bound
by the terms of the offer.
additional principal payment
A payment by a borrower of more than the scheduled principal
amount due in order to reduce the remaining balance on the
loan.
adjustable-rate mortgage (ARM)
A mortgage that permits the lender to adjust its interest
rate periodically on the basis of changes in a specified
index.
affordability analysis
A detailed
analysis of your ability to afford the purchase of a home.
An affordability analysis takes into consideration your
income, liabilities, and available funds, along with the
type of mortgage you plan to use, the area where you want to
purchase a home, and the closing costs that you might expect
to pay.
amenity
A feature of real
property that enhances its attractiveness and increases the
occupant’s or user’s satisfaction although the feature is
not essential to the property’s use. Natural amenities
include a pleasant or desirable location near water, scenic
views of the surrounding area, etc. Human-made amenities
include swimming pools, tennis courts, community buildings,
and other recreational facilities.
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.
amortize
To repay a
mortgage with regular payments that cover both principal and
interest.
annual mortgagor statement
A report sent to the mortgagor each year. The report shows
how much was paid in taxes and interest during the year, as
well as the remaining mortgage loan balance at the end of
the year.
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).
annuity
An amount paid yearly or at other regular intervals, often
on a guaranteed dollar basis.
application
A form used to apply for a mortgage loan and to record
pertinent information concerning a prospective mortgagor and
the proposed security.
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 property for the strict
purpose of taxation. May also refer to a levy against
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.
asset
Anything of monetary value that is owned by a person. Assets
include real property, personal property, and enforceable
claims against others (including bank accounts, stocks,
mutual funds, and so on).
assignment
The transfer of a mortgage from one person to another.
assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer
when a home is sold.
assumption
The transfer of
the seller’s existing mortgage to the buyer. See assumable
mortgage.
assumption clause
A provision in an
assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan
does not need to be paid in full by the original borrower
upon sale or transfer of the property.
assumption fee
The fee paid to a lender (usually by the purchaser of real
property) resulting from the assumption of an existing
mortgage.
attorney-in-fact
One who holds a power of attorney from another to execute
documents on behalf of the grantor of the power.
B
bankrupt
A person, firm, or corporation that, through a court
proceeding, is relieved from the payment of all debts after
the surrender of all assets to a court-appointed trustee.
bankruptcy
A proceeding in a federal court in which a debtor who owes
more than his or her assets can relieve the debts by
transferring his or her assets to a trustee.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust,
estate, or a deed of trust.
bequeath
To transfer personal property through a will.
betterment
An improvement that increases property value as
distinguished from repairs or replacements that simply
maintain value.
bill of sale
A written document that transfers title to personal
property.
binder
A preliminary agreement, secured by the payment of an
earnest money deposit, under which a buyer offers to
purchase real estate.
blanket insurance policy
A single policy that covers more than one piece of property
(or more than one person).
bona fide
In good faith, without fraud.
bond
An interest-bearing certificate of debt with a maturity
date. An obligation of a government or business corporation.
A real estate bond is a written obligation usually secured
by a mortgage or a deed of trust.
breach
A violation of any legal obligation.
broker
A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between them.
See mortgage broker.
budget
A detailed plan of income and expenses expected over a
certain period of time. A budget can provide guidelines for
managing future investments and expenses.
budget category
A category of income or expense data that you can use in a
budget. You can also define your own budget categories and
add them to some or all of the budgets you create. "Rent" is
an example of an expense category. "Salary" is a typical
income category.
building code
Local regulations that control design, construction, and
materials used in construction. Building codes are based on
safety and health standards.
buydown account
An account in which funds are held so that they can be
applied as part of the monthly mortgage payment as each
payment comes due during the period that an interest rate
buydown plan is in effect.
buydown mortgage
A temporary buydown is a mortgage on which an initial lump
sum payment is made by any party to reduce a borrower’s
monthly payments during the first few years of a mortgage. A
permanent buydown reduces the interest rate over the entire
life of a mortgage.
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.
capital
(1) Money used to create income, either as an investment in
a business or an income property. (2) The money or property
comprising the wealth owned or used by a person or business
enterprise. (3) The accumulated wealth of a person or
business. (4) The net worth of a business represented by the
amount by which its assets exceed liabilities.
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 financing
When the principal amount of a new mortgage involved in
refinancing is greater than the principal amout outstanding
of the existing mortgage being refinanced, and all or a
portion of the equity is converted to cash.
certificate of deposit
A document written by a bank or other financial institution
that is evidence of a deposit, with the issuer’s promise to
return the deposit plus earnings at a specified interest
rate within a specified time period.
Certificate of Eligibility
A document issued by the federal government certifying a
veteran’s eligibility for a Department of Veterans Affairs
(VA) mortgage.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA)
that establishes the maximum value and loan amount for a VA
mortgage.
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.
clear title
A title that is free of liens or legal questions as to
ownership of the property.
closing
A meeting at which a sale of a property is finalized by the
buyer signing the mortgage documents and paying closing
costs. Also called "settlement."
closing cost item
A fee or amount that a home buyer must pay at closing for a
single service, tax, or product. Closing costs are made up
of individual closing cost items such as origination fees
and attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
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
costs percentage will vary according to the area of the
country; lenders or realtors® often provide
estimates of closing costs to prospective homebuyers.
closing statement
See HUD-1 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.
coinsurance
A sharing of insurance risk between the insurer and the
insured. Coinsurance depends on the relationship between the
amount of the policy and a specified percentage of the
actual value of the property insured at the time of the
loss.
coinsurance clause
A provision in a hazard insurance policy that states the
amount of coverage that must be maintained -- as a
percentage of the total value of the property -- for the
insured to collect the full amount of a loss.
collateral
An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the asset if
the loan is not repaid according to the terms of the loan
contract.
collection
The efforts used to bring a delinquent mortgage current and
to file the necessary notices to proceed with foreclosure
when necessary.
co-signor
A person who signs a promissory note along with the
borrower. A co-signor's signature guarantees that the loan
will be repaid, because the borrower and the co-signor are
equally responsible for the repayment. See endorser.
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. Also known as a "loan
commitment."
common area assessments (also called "homeowners association
fees")
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.
common law
An unwritten body of law based on general custom in
England
and used to an extent in the
United States.
community property
In some western and southwestern states, a form of ownership
under which property acquired during a marriage is presumed
to be owned jointly unless acquired as separate property of
either spouse.
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 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.
consumer reporting agency (or bureau)
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.
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.
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.
cooperative corporation
A business trust entity that holds title to a cooperative
project and grants occupancy rights to particular apartments
or units to shareholders through proprietary leases or
similar arrangements.
cooperative mortgages
Mortgages related to a cooperative project. This usually
refers to the multifamily mortgage covering the entire
project but occasionally describes the share loans on the
individual units.
cooperative project
A residential or mixed-use building wherein a corporation or
trust holds title to the property and sells shares of stock
representing the value of a single apartment unit to
individuals who, in turn, receive a proprietary lease as
evidence of title.
corporate relocation
Arrangements under which an employer moves an employee to
another area as part of the employer's normal course of
business or under which it transfers a substantial part or
all of its operations and employees to another area because
it is relocating its headquarters or expanding its office
capacity.
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. See adjustable-rate
mortgage (ARM).
covenant
A clause in a mortgage that obligates or restricts the
borrower and that, if violated, can result in foreclosure.
credit
An agreement in which a borrower receives something of value
in exchange for a promise to repay the lender at a later
date.
credit history
A record of an individual's open and fully repaid debts. A
credit history helps a lender to determine whether a
potential borrower has a history of repaying debts in a
timely manner.
credit life insurance
A type of insurance often bought by mortgagors because it
will pay off the mortgage debt if the mortgagor dies while
the policy is in force.
creditor
A person to whom money is owed.
credit report
A report of an individual's credit history prepared by a
credit bureau and used by a lender in determining a loan
applicant's creditworthiness. See merged credit report.
credit repository
An organization that gathers, records, updates, and stores
financial and public records information about the payment
records of individuals who are being considered for credit.
debt
An amount owed to another. See installment loan and
revolving liability.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a
debt and avoid foreclosure. Also called a "voluntary
conveyance."
deed of trust
The document used in some states instead of a mortgage;
title is conveyed to a trustee.
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.
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 earnest money deposit.
depreciation
A decline in the value of property; the opposite of
appreciation.
discount points
See point.
dower
The rights of a widow in the property of her husband at his
death.
down payment
The part of the purchase price of a property that the buyer
pays in cash and does not finance with a mortgage.
due-on-sale provision
A provision in a mortgage that allows the lender to demand
repayment in full if the borrower sells the property that
serves as security for the mortgage.
due-on-transfer provision
This terminology is usually used for second mortgages. See
due-on-sale provision.
E
earnest money deposit
A deposit made by the potential home buyer to show that he
or she is serious about buying the house.
easement
A right of way giving persons other than the owner access to
or over a property.
effective age
An appraiser’s estimate of the physical condition of a
building. The actual age of a building may be shorter or
longer than its effective age.
effective gross income
Normal annual income including overtime that is regular or
guaranteed. The income may be from more than one source.
Salary is generally the principal source, but other income
may qualify if it is significant and stable.
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.
Employer-assisted housing
A special Fannie Mae housing initiative that offers several
different ways for employers to work with local lenders to
develop plans to assist their employees in purchasing homes.
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.
endorser
A person who signs ownership interest over to another party.
Contrast with co-maker.
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
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.
escrow analysis
The periodic examination of escrow accounts to determine if
current monthly deposits will provide sufficient funds to
pay taxes, insurance, and other bills when due.
escrow collections
Funds collected by the servicer and set aside in an escrow
account to pay the borrower’s property taxes, mortgage
insurance, and hazard insurance.
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses
as they become due.
escrow payment
The portion of a mortgagor’s monthly payment that is held by
the servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become
due. Known as "impounds" or "reserves" in some states.
estate
The ownership interest of an individual in real property.
The sum total of all the real property and personal property
owned by an individual at time of death.
eviction
The lawful expulsion of an occupant from real property.
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,
but reserving the owner’s right to sell the property alone
without the payment of a commission.
executor
A person named in a will to administer an estate. The court
will appoint an administrator if no executor is named.
"Executrix" is the feminine form
F
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of
consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting mistakes
on one's credit record.
fair market value
The highest price that a buyer, willing but not compelled to
buy, would pay, and the lowest a seller, willing but not
compelled to sell, would accept.
Fannie Mae
A New York Stock Exchange company and the largest non-bank
financial services company in the world. It operates
pursuant to a federal charter and is the nation's largest
source of financing for home mortgages.
Over the
past 30 years, Fannie Mae has provided nearly $2.5 trillion
of mortgage financing for over 30 million families.
Fannie Mae's Community Home Buyer's ProgramSM
An income-based community lending model, under which
mortgage insurers and Fannie Mae offer flexible underwriting
guidelines to increase a low- or moderate-income family's
buying power and to decrease the total amount of cash needed
to purchase a home. Borrowers who participate in this model
are required to attend pre-purchase home-buyer education
sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban
Development (HUD). Its main activity is the insuring of
residential mortgage loans made by private lenders. The FHA
sets standards for construction and underwriting but does
not lend money or plan or construct housing.
fee simple
The greatest possible interest a person can have in real
estate.
FHA mortgage
A mortgage that is insured by the Federal Housing
Administration (FHA). Also known as a government mortgage.
finder's fee
A fee or commission paid to a mortgage broker for finding a
mortgage loan for a prospective borrower.
firm commitment
A lender’s agreement to make a loan to a specific borrower
on a specific property.
first mortgage
A mortgage that is the primary lien against a property.
fixed installment
The monthly payment due on a mortgage loan. The fixed
installment includes payment of both principal and interest.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during
the entire term of the loan.
fixture
Personal property that becomes real property when attached
in a permanent manner to real estate.
flood insurance
Insurance that compensates for physical property damage
resulting from flooding. It is required for properties
located in federally designated flood areas.
foreclosure
The legal process by which a borrower in default under a
mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the
property at public auction with the proceeds of the sale
being applied to the mrotgage debt.
forfeiture
The loss of money, property, rights, or privileges due to a
breach of legal obligation.
G
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.
Government National Mortgage Association
A government-owned corporation within the U.S. Department of
Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility
for the special assistance loan program formerly
administered by Fannie Mae. Popularly known as Ginnie Mae.
grantee
The person to whom an interest in real property is conveyed.
grantor
The person conveying an interest in real property.
guarantee mortgage
A mortgage that is guaranteed by a third party.
guaranteed loan
Also known as a government mortgage
H
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.
homeowners' association
A non-profit 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.
homeowner's insurance
An insurance policy that combines personal liability
insurance and hazard insurance coverage for a dwelling and
its contents.
homeowner's warranty (HOW)
A type of insurance that covers repairs to specified parts
of a house for a specific period of time. It is provided by
the builder or property seller as a condition of the sale.
housing expense ratio
The percentage of gross monthly income that goes toward
paying housing expenses.
HUD median income
Median family income for a particular county or metropolitan
statistical area (MSA), as estimated by the Department of
Housing and Urban Development (HUD).
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."
I
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.
in-file credit report
An objective account, normally computer-generated, of credit
and legal information obtained from a credit repository.
inflation
An increase in the amount of money or credit available in
relation to the amount of goods or services available, which
causes an increase in the general price level of goods and
services. Over time, inflation reduces the purchasing power
of a dollar, making it worth less.
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."
installment
The regular periodic payment that a borrower agrees to make
to a lender.
installment loan
Borrowed money that is repaid in equal payments, known as
installments. A furniture loan is often paid for as an
installment loan.
insurable title
A property title that a title insurance company agrees to
insure against defects and disputes.
insurance
A contract that provides compensation for specific losses in
exchange for a periodic payment. An individual contract is
known as an insurance policy, and the periodic payment is
known as an insurance premium.
insurance binder
A document that states that insurance is temporarily in
effect. Because the coverage will expire by a specified
date, a permanent policy must be obtained before the
expiration date.
insured mortgage
A mortgage that is protected by the Federal Housing
Administration (FHA) or by private mortgage insurance (PMI).
If the borrower defaults on the loan, the insurer must pay
the lender the lesser of the loss incurred or the insured
amount.
interest
The fee charged for borrowing money.
interest accrual rate
The percentage rate at which interest accrues on the
mortgage. In most cases, it is also the rate used to
calculate the monthly payments, although it is not used for
an adjustable-rate mortgage (ARM) with payment change
limitations.
interest rate
The rate of interest in effect for the monthly payment due.
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.
J
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.
judicial foreclosure
A type of foreclosure proceeding used in some states that is
handled as a civil lawsuit and conducted entirely under the
auspices of a court.
K
K
No entries for this letter.
L
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
A written agreement between the property owner and a tenant
that stipulates the conditions under which the tenant may
possess the real estate for a specified period of time and
rent.
legal description
A property description, recognized by law, that is
sufficient to locate and identify the property without oral
testimony.
liabilities
A person's financial obligations. Liabilities include
long-term and short-term debt, as well as any other amounts
that are owed to others.
liability insurance
Insurance coverage that offers protection against claims
alleging that a property owner's negligence or inappropriate
action resulted in bodily injury or property damage to
another party.
lien
A legal claim against a property that must be paid off when
the property is sold.
line of credit
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a
certain time to a specified borrower. See home equity line
of credit.
liquid asset
A cash asset or an asset that is easily converted into cash.
loan
A sum of borrowed money (principal) that is generally repaid
with interest.
loan commitment
See commitment letter.
loan origination
The process by which a mortgage lender brings into existence
a mortgage secured by real property.
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. See lock-in.
M
margin
For an adjustable-rate mortgage (ARM), the amount that is
added to the index to establish the interest rate on each
adjustment date, subject to any limitations on the interest
rate change.
master association
A homeowners' association in a large condominium or planned
unit development (PUD) project that is made up of
representatives from associations covering specific areas
within the project. In effect, it is a "second-level"
association that handles matters affecting the entire
development, while the "first-level" associations handle
matters affecting their particular portions of the project.
maturity
The date on which the principal balance of a loan, bond, or
other financial instrument becomes due and payable.
maximum financing
A mortgage amount that is within 5 percent of the highest
loan-to-value (LTV) percentage allowed for a specific
product. Thus, maximum financing on a fixed-rate mortgage
would be 90 percent or higher, because 95 percent is the
maximum allowable LTV percentage for that product.
merged credit report
A credit report that contains information from three credit
repositories. When the report is created, the information is
compared for duplicate entries. Any duplicates are combined
to provide a summary of a your credit.
modification
The act of changing any of the terms of the mortgage.
monthly fixed installment
That portion of the total monthly payment that is applied
toward principal and interest. When a mortgage negatively
amortizes, the monthly fixed installment does not include
any amount for principal reduction.
monthly payment mortgage
A mortgage that requires payments to reduce the debt once a
month.
mortgage
A legal document that pledges a property to the lender as
security for payment of a debt.
mortgage banker
A company that originates mortgages exclusively for resale
in the secondary mortgage market.
mortgage broker
An individual or company that brings borrowers and lenders
together for the purpose of loan origination. Mortgage
brokers typically require a fee or a commission for their
services.
mortgagee
The lender in a mortgage agreement.
mortgage insurance
A contract that insures the lender against loss caused by a
mortgagor's default on a government mortgage or conventional
mortgage. Mortgage insurance can be issued by a private
company or by a government agency such as the Federal
Housing Administration (FHA). Depending on the type of
mortgage insurance, the insurance may cover a percentage of
or virtually all of the mortgage loan. See private mortgage
insurance (MI).
mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance,
either to a government agency such as the Federal Housing
Administration (FHA) or to a private mortgage insurance (MI)
company.
mortgage life insurance
A type of term life insurance often bought by mortgagors.
The amount of coverage decreases as the principal balance
declines. In the event that the borrower dies while the
policy is in force, the debt is automatically satisfied by
insurance proceeds.
mortgagor
The borrower in a mortgage agreement.
multifamily mortgage
A residential mortgage on a dwelling that is designed to
house more than four families, such as a high-rise apartment
complex.
N
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 cash flow
The income that remains for an investment property after the
monthly operating income is reduced by the monthly housing
expense, which includes principal, interest, taxes, and
insurance (PITI) for the mortgage, homeowners' association
dues, leasehold payments, and subordinate financing
payments.
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).
nonliquid asset
An asset that cannot easily be converted into cash.
note
A legal document that obligates a borrower to repay a
mortgage loan at a stated interest rate during a specified
period of time.
note rate
The interest rate stated on a mortgage note.
notice of default
A formal written notice to a borrower that a default has
occurred and that legal action may be taken.
O
original principal balance
The total amount of principal owed on a mortgage before any
payments are made.
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.
owner financing
A property purchase transaction in which the property seller
provides all or part of the financing.
P
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.
personal property
Any property that is not real property.
PITI
See principal, interest, taxes, and insurance (PITI).
PITI reserves
A cash amount that a borrower must have on hand after making
a down payment and paying all closing costs for the purchase
of a home. The principal, interest, taxes, and insurance
(PITI) reserves must equal the amount that the borrower
would have to pay for PITI for a predefined number of
months.
planned unit development
See PUD.
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.
prearranged refinancing agreement
A formal or informal arrangement between a lender and a
borrower wherein the lender agrees to offer special terms
(such as a reduction in the costs) for a future refinancing
of a mortgage being originated as an inducement for the
borrower to enter into the original mortgage transaction.
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.
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.
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.
principal balance
The outstanding balance of principal on a mortgage. The
principal balance does not include interest or any other
charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
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 mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage
insurance company to protect lenders against loss if a
borrower defaults. Most lenders generally require MI for a
loan with a loan-to-value (LTV) percentage in excess of 80
percent.
promissory note
A written promise to repay a specified amount over a
specified period of time.
public auction
A meeting in an announced public location to sell property
to repay a mortgage that is in default.
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.
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.
purchase money transaction
The acquisition of property through the payment of money or
its equivalent.
Q
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.
R
radon
A radioactive gas found in some homes that in sufficient
concentrations can cause health problems.
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. See lock-in.
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.
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.
rehabilitation mortgage
A mortgage created to cover the costs of repairing,
improving, and sometimes acquiring an existing property.
remaining balance
The amount of principal that has not yet been repaid. See
principal balance.
remaining term
The original amortization term minus the number of payments
that have been applied.
rent loss insurance
Insurance that protects a landlord against loss of rent or
rental value due to fire or other casualty that renders the
leased premises unavailable for use and as a result of which
the tenant is excused from paying rent.
rent with option to buy
See lease-purchase mortgage loan.
repayment plan
An arrangement made to repay delinquent installments or
advances. Lenders' formal repayment plans are called "relief
provisions."
replacement reserve fund
A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly
that which has a short life expectancy, such as carpeting,
furniture, etc.
revolving liability
A credit arrangement, such as a credit card, that allows a
customer to borrow against a preapproved line of credit when
purchasing goods and services. The borrower is billed for
the amount that is actually borrowed plus any interest due.
right of first refusal
A provision in an agreement that requires the owner of a
property to give another party the first opportunity to
purchase or lease the property before he or she offers it
for sale or lease to others.
right of survivorship
In joint tenancy, the right of survivors to acquire the
interest of a deceased joint tenant.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which
operates principally under the Consolidated Farm and Rural
Development Act of 1921 and Title V of the Housing Act of
1949. This agency provides financing to farmers and other
qualified borrowers buying property in rural areas who are
unable to obtain loans elsewhere. Funds are borrowed from
the U.S. Treasury.
S
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.
seller take-back
An agreement in which the owner of a property provides
financing, often in combination with an assumable mortgage.
See owner financing.
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.
servicing
The collection of mortgage payments from borrowers and
related responsibilities of a loan servicer.
settlement
See closing.
settlement sheet
See HUD-1 statement.
special deposit account
An account that is established for rehabilitation mortgages
to hold the funds needed for the rehabilitation work so they
can be disbursed from time to time as particular portions of
the work are completed.
standard payment calculation
The method used to determine the monthly payment required to
repay the remaining balance of a mortgage in substantially
equal installments over the remaining term of the mortgage
at the current interest rate.
subdivision
A housing development that is created by dividing a tract of
land into individual lots for sale or lease.
subordinate financing
Any mortgage or other lien that has a priority that is lower
than that of the first mortgage.
subordination of Loan
The act of carrying over a loan balance when a refinance
occurs.
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.
sweat equity
Contribution to the construction or rehabilitation of a
property in the form of labor or services rather than cash.
T
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.
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. See mortgage broker.
title
A legal document evidencing a person's right to or ownership
of a property.
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.
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.
total expense ratio
Total obligations as a percentage of gross monthly income.
The total expense ratio includes monthly housing expenses
plus other monthly debts.
trade equity
Equity that results from a property purchaser giving his or
her existing property (or an asset other than real estate)
as trade as all or part of the down payment for the property
that is being purchased.
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.
transfer tax
State or local tax payable when title passes from one owner
to 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.
trustee
A fiduciary who holds or controls property for the benefit
of another.
U
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.
V
VA mortgage
A mortgage that is guaranteed by the Department of Veterans
Affairs (VA). Also known as a government mortgage.
vested
Having the right to use a portion of a fund such as an
individual retirement fund. For example, individuals who are
100 percent vested can withdraw all of the funds that are
set aside for them in a retirement fund. However, taxes may
be due on any funds that are actually withdrawn.
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.
W
what-if analysis
An affordability
analysis that is based on a what-if scenario. A what-if
analysis is useful if you do not have complete data or if
you want to explore the effect of various changes to your
income, liabilities, or available funds or to the qualifying
ratios or down payment expenses that are used in the
analysis.
what-if scenario
A change in the amounts that is used as the basis of an
affordability analysis. A what-if scenario can include
changes to monthly income, debts, or down payment funds or
to the qualifying ratios or down payment expenses that are
used in the analysis. You can use a what-if scenario to
explore different ways to improve your ability to afford a
house.
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