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The Loan Signing Experts
Glossary

Real Estate & Mortgage Terms

 

A

Acceleration - The right of the lender to demand the immediate repayment of the mortgage loan balance upon the default of the borrower.

Acknowledgement - A declaration by a party executing an instrument that it is his act and deed. It is usually made before a Notary Public or Attorney.

ADJUSTABLE RATE MORTGAGE (ARM)- Also known as a Variable Rate Mortgage, a loan secured against land, which has an interest rate that changes according to some outside index -- such as the federal prime rate or the interest rate paid on government bonds -- over the term of the mortgage. The change in interest rate will result in a change in the periodic payments due under the mortgage.

AFFIANT - One who swears an affidavit.

AFFIDAVIT - A sworn statement setting out facts, which the affiant states, are true. Sworn before a Commissioner for swearing Oaths, Notary Public or other public official.

Agreement for Sale - A document in which the purchaser agrees to buy certain property and the seller agrees to sell under stated terms and conditions. Also called sales contract, binder or earnest money contract.

Amortization - Gradual debt reduction. Typically, the reduction is made according to a pre-determined schedule for installment payments.

Annual Percentage Rate (APR) - A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees. 

Appraisal - A written report by a qualified appraiser estimating the value of a property.

Appraised Value - An opinion of a property's fair market value, based on an appraiser's inspection and analysis of the property.

Appraiser - A person qualified by education, training and experience to estimate the value of real property.

Appreciation - An increase in value of the property (the opposite of depreciation).

Assessed Valuation - The value that a taxing authority places upon personal property for the purposes of taxation.

Assumption - The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

B

Borrower - Someone who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Broker - One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them.

Building Code - The local regulations that control design, construction and materials used in construction. Building codes are based on safety and health standards.

Buy-Down - A method of lowering the buyer's monthly payment for a short period of time.  The borrower or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.

C

Cash-Out - Cashing out means refinancing a loan where the borrower will take out money on their own home. If a home is appraised at $150,000 and the borrower's outstanding mortgage loan is $90,000, it is possible to enter into an 80% cash-out refinance transaction for a loan of $120,000 (80% of $150,000). The new mortgage of $120,000 will pay off the $90,000 loan and leave $30,000 cash-out to the borrowers.

Certificate of Occupancy - Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited.

Closing - The conclusion of a transaction.

Closing Costs - All of the costs to the buyer and seller individually that are associated with the purchase, sale or financing of real property.

Closing Statement - A financial disclosure giving an account of all funds received and expected at the closing.

Collateral - Property pledged as security for a debt, such as real estate as security for a mortgage.

Condominium - A real estate project in which each unit owner has title to a unit in the project, and sometimes an undivided interest in the common areas.

Consumer Confidence Index - An index that combines the current and expected levels of consumer confidence. This index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two components - expectations and current conditions.

Consumer Price Index - Also known as the cost-of-living index, this is a government index that measures changes in the price of typical consumer goods. The corresponding index for wholesale prices is the Producer Price Index.

Contingency - A condition that must be met before a contract is binding.

Contract of Sale - A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.

Credit Rating - A rating given to a person to establish willingness to pay obligations based upon one's past history of timely payment.

Credit Report - A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

D

Debt-to-Income Ratio - Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage loans, typically setting a maximum debt-to-income ratio of 36%.

Deed of Trust - In many states, this document is used in place of a mortgage to secure the payment of a note.

Department of Veteran Affairs (VA) - An independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss.

Discount Fee - In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give the borrower a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Down Payment - When you borrow money for a home, any lender will ask you to contribute some of your own money to the purchase of the house.

Due-on-Sale Clause - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

E

Earnest Money - A sum of money given to bind a sale of real estate; a deposit.

Equity - The home owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property.

Escrow - Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.

F

Fair Market Value - The price at which property is transferred between a willing buyer and a willing seller, each of who has reasonable knowledge of all pertinent facts and neither being under and compulsion to buy or sell.

Fannie Mae - See FNMA.

Federal Reserve System - The Federal Reserve System is America's independent central bank. Established in 1913 many decades after Andrew Jackson closed down the last previous central bank, the system is governed by the Federal Reserve Board, whose seven members are appointed to stagger 14-year terms.

FHA (FEDERAL HOUSING ADMINISTRATION) - A division of the Department of Housing and Urban Development. It's main activity is the insuring of residential mortgage loans made by private lenders.

FHA Loan - A loan insured by the Federal Housing Administration open to all qualified home purchasers.

FHLMC (FEDERAL HOME LOAN MORTGAGE CORPORATION) - A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans, their principle and interest guaranteed by the federal government through the FHLMC. Popularly known as the Freddie Mac.

FNMA (FEDERAL NATIONAL MORTGAGE ASSOCIATION) - A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage-backed securities backed by pools of conventional loans. Payment of principle and interest on these securities is backed by the US Government. Popularly known as Fannie Mae.

Freddie Mac - See FHLMC.

Foreclosure - The right of a lender to put the home on the market for sale to recover money owed to the lender in the event that the borrower fails to pay back the loan through mortgage payments.

G

Good Faith Estimate - A written estimate of closing costs, which a lender must provide a borrower with within three (3) days of submitting an application.

Government National Mortgage Association (GNMA) - Also known as Ginnie Mae.

Gross Monthly Income - The amount of consistent and stable income that an individual receives each month, averaged over a period of time.

H

Hazard Insurance - A contract that pays for loss on a home from certain hazards, such as fire.

Homeowners Association - An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Housing Starts And Building Permits - A measure of the number of residential housing activity in which units construction is begun on a monthly basis. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates.

I

Impound - 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).

Index - The measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.

Inflation Risk - The risk that our money will not be worth as much in the future. That's because the cost of the things we need to buy, such as like housing, clothing and medical care all increase. Guaranteed investments like bank accounts do not keep pace with inflation.

Interest - Money paid for the use of money -- that is, money paid for a loan.

Investor - A money source for a lender.

L

Lender - Any person or institution that provides money to a borrower.

Lien - A claim on the property of another as security against the payment of a just debt.

Loan - An amount of money a borrower will take out from a lender to pay for a purchase.

Loan-to-Value Ratio - The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $90,000 on a home that costs $100,000, the loan-to value ratio is 90%.

Lock-In Rate - A commitment from a lender to make a loan at a pre-set interest rate at some future date.

M

Margin - The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value - The highest price that a willing buyer would pay and the lowest a willing seller would accept.

Mortgage - An interest in real property given as security for the payment of an obligation.

Mortgage-Backed Security (MBS) - A security backed by mortgage debt. Mortgage loans are collected into groups called pools. Pooling mortgage loans improves the liquidity and reduces the risk associated with trading mortgages individually. As with other types of investments mortgage securities are bought and sold depending on economic conditions, and this creates demand and supply.

Mortgage Insurance: Insurance purchased by a borrower to insure the lender or the government against loss should a loan become default.

Mortgage Interest Rates and the Bond Market - The mortgage backed securities market, not the bond market as commonly believed, directly determines interest rates for mortgages. Bond market movements are often similar to movements that occur in the mortgage backed securities market so consumers tend to watch the bond market movement to determine mortgage interest rate movement. While most times the securities move in the same direction, at times the interest rates charged to consumers can actually move in the opposite direction of the bond market because of differing supply and demand within the two markets.

Mortgage Investor - Any person or institution that invests in mortgages. By buying mortgage loans from lenders, the mortgage investor gives the lender funds that can be used for more lending.

Mortgage Life Insurance - A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagee - A lender to whom property is conveyed as security for a loan.

Mortgagor - One who borrows money, giving as security a mortgage or deed of trust on real property.

N

Negative Amortization - Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principle balance.

O

Origination Fee - The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect and sometimes appraise a property (lenders profit is also included).

P

PITI - Principal, Interest, Taxes and Insurance are the components of a mortgage payment.

Point - A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.

Power of Attorney - A legal document authorizing one person to act on behalf of another.

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

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

Prepayment penalty - Money charged for an early repayment of debt.

Pre-qualification - Qualifying a borrower for a loan amount before looking for a home.

Prime Rate - The interest charged by banks to their most creditworthy customers.  (Click here for historical information.)

Principle - The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.

Purchasing - Obtaining a mortgage loan for the acquisition of a property, usually a home.

R

Rate - A percentage of the monthly mortgage payment paid to the lender.

Realtor A member of the National Association of Realtors.

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

RESPA (Real Estate Settlement Procedures Act). RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Retail Sales Index - A government index that measures the total receipts of retail stores. The changes in retail sales are widely followed as a timely indicator of broad consumer spending patterns.

S

Servicer - After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments.

Settlement - The closing of a mortgage loan.

T

Teaser Rate - Your initial interest rate.  It is an attractive, low interest rate that most adjustable mortgage rates start with.

Title - The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.

Title Insurance - A policy that insures a home buyer against errors in the title search (Owners Title Insurance). The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests (Lenders Title Insurance).

U

Underwriter - Someone who performs the analysis of the risk involved in making a loan to a potential home buyer based on credit, employment, assets, and other factors; and the matching of this risk to an appropriate rate and term or loan amount.

Unsecured Note - A loan that is not backed by collateral (property).

V

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

W

Walk-through - A final inspection of the home before closing to inspect the premises for any damage that needs to be corrected before closing.

Wraparound Mortgage - Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking their share.

Y

Yield - The yield on a given investment based on its current price. A stock that pays a $1 in dividends per quarter, or $4 per year, and that trades at $100, has a current yield of 4 percent. If the stock goes to $133 and the dividend remains unchanged, the current yield would be 3 percent.

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