Glossary

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A

Abstract of Title: A summarized history of the title of real property listing rights andliabilities such as easements, mortgages, liens, and transfers of title. The abstract reports the status of the chain of title and whether or not the title is clear; Includes documents recording the ownership of property throughout time.

Acceleration Clause: A clause in a mortgage that provides, at the option of the lender, that the entire unpaid balance of the note is due immediately upon failure to make a required payment or upon the sale of the property. In the latter case, it is known as a “due-on-sale acceleration clause.” Acceleration includes the right of the lender to demand payment on the outstanding balance of a loan.

Acceptance: The written approval of the buyer’s offer by the seller.

Accretion: The rights and principles the law uses to deal with changes in the size and shape of land due to natural causes.

Accrued Interest: Accumulated interest earned or due but not yet paid.

Acknowledgment: Legal declaration before a notary or duly authorized officer of a jurisdictionthat the one signing an instrument is who he or she claims to be.

Acre: A quantity of land equal to 43,560 square feet. (for example, a square 208.7′ times 208.7′ or a rectangle 100′ times 435.6′.)

Ad Valorem: A measure of worth based on the value of something. For example, real property taxes calculated on the market value of the property.

Addendum (or rider): An attachment to a real estate contract, signed by both parties, that spells out extra items and agreements not covered in the preprinted contract.

Additional Principal Payment: Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Adjustable-Rate Mortgage (ARM): A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. All ARMs are tied to indexes; also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

Adjusted Cost Basis: For accounting purposes, the original cost plus improvements minus depreciation or cost recovery taken.

Adjustment Date: The actual date that the interest rate is changed for an ARM.

Adjustment Index: The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

Adjustment Interval: The time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.

Adverse Possession: Acquisition of title to real estate by means of wrongful occupancy of a certain period of time established by state law.

Affidavit: A signed, sworn statement made by the buyer or seller regarding the truth of information provided.

After-Tax Cash Flow: Effective gross income minus operating expenses and debt service plus or minus any tax savings or tax liability. (also known as net spendable income.)

Agency: A legal relationship of trust and confidentiality whereby one party, the principal, entrusts another party, the broker or agent, to act on his or her behalf and to represent him or her in doing business with other parties (known as a fiduciary relationship).

Alligator: A property that has a substantial and continuing negative cash flow (i.e., it “eats” cash).

All-Inclusive Trust Deed: The borrower obtains a new mortgage which is structured to include the old mortgage. The borrower makes payments on the new mortgage directly to the lender, who makes payments on the old first mortgage. (also known as a wraparound mortgage.)

“A” Loan or “A” Paper: A credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.

Amenity: A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

American Society of Home Inspectors (ASHI): The American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744

Amortization Schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Amortization: A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

Amortized Loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Annual Mortgagor Statement: Yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.

Annual Percentage Rate (APR): This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan. APR is a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

Annuity: A payment of equal installments paid periodically for a given number of periods.

Application Fee: A fee charged by lenders to process a loan application.

Application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal Fee: Fee charged by an appraiser to estimate the market value of a property.

Appraisal: A document from a professional that gives an estimate of a property’s fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. It is an estimation of the value of real property as of the present or past date (not future). Any of three methods are used where applicable: cost approach, income approach, or market data approach.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appraiser: A licensed and/or certified [qualified] individual who, for a fee, evaluates a property using his or her experience and knowledge and gives an opinion of its value in order to prepare an appraisal estimate.

Appreciation: An increase in property value growth.

Appurtenance: Anything attached to the land which becomes a part of the property. A fence would be an example.

Arbitration: A legal method of resolving a dispute without going to court.

Arrears: The payment of money after the fact. Interest or taxes paid in arrears would represent money paid for a period of time gone by.

As-is Condition: The purchase or sale of a property in its existing condition without repairs.

Asking Price: The price for which a property is being offered for sale on the market.

Assessed Value: The value placed on a property by the taxing body of a county. This value is then used as a basis for computing taxes.

Assessed Value: The value that a public official has placed on any asset (used to determine taxes).

Assessment of Real Estate: The value of a property, established by an assessor for ad valorem taxation. (taxed according to value.)

Assessments: The method of placing value on an asset for taxation purposes.

Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation.

Asset: Any item of measurable economic value.

Assign: To transfer one’s rights in a bond, mortgage, lease, or other legal instrument to another person.

Assumable Mortgage: When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home, it is a mortgage loan that allows a purchaser to undertake the obligation of the loan with no change in loan terms.

Assumption Clause: A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

Assumption: The term applied when a buyer assumes the seller’s mortgage.

Attorney (or attorney at law): A person licensed to practice law.

Automated Underwriting: Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Average Price: Determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.

B

Back-End Ratio (debt ratio): A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

Back-to-Back Escrow: Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

Balance Sheet: A financial statement that shows the assets, liabilities and net worth of an individual or company.

Balloon Payment: A large final payment due on a note, usually after partial amortization of the debt through installment payments.

Balloon Mortgage: A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Bankruptcy: A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Bill of Sale: A document used to transfer title to personal property (also known as chattel).

Birddog (or networker): A person who is on the lookout for properties that are for sale.

Biweekly Payment Mortgage: A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

Blanket Mortgage: One mortgage that covers several different parcels of real property.

Blended Interest Rate: The weighted value of two or more interest rates.

“B” Loan or “B” Paper: FICO scores from 620 – 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.

Boilerplate: The preprinted routine terms and conditions of a contract.

Bond Market: Usually refers to the daily buying and selling of 30-year Treasury Bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the treasury bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Bounds: Boundaries that are natural (lakes, trees, rocks, etc.) or artificial (roads, railroads, etc.).

Bridge Loan: Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.

Broker: A licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.

Budget: A detailed record of all income earned and spent during a specific period of time.

Building Code: Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Buydown: Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Buyer’s Broker or Agent: A broker or agent who represents the buyer in a transaction. 

C

Callable Debt: A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

Cap Rate: Capitalization rate – rate of return used to derive the capital value of an income stream, divide annual income by net operating income.

Cap: Adjustable rate mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six-month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some arms, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

Capacity: The ability to make mortgage payments on time, dependent on assets and the amount of income each month after paying housing costs, debts and other obligations.

Capital Gain: The profit received based on the difference of the original purchase price and the total sale price.

Capital Improvements: Property improvements that either will enhance the property value or will increase the useful life of the property.

Capital or Cash Reserves: An individual’s savings, investments, or assets.

Capital: Money used for investing purposes.

Cash Flow: Effective gross income minus operating expenses and debt service. (also known as cash throw-off.)

Cash Reserves: A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Cash-out Refinance: When a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

Cash-out Refinance: When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”

Casualty Protection: Property insurance that covers any damage to the home and personal property either inside or outside the home.

Caveat Emptor: Let the buyer beware. This statement does not apply where the buyer and seller are using a broker or agent.

Certificate of Eligibility: A document issued by the Veteran’s Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV): Once the appraisal has been performed on a property being bought with a VA loan, the veterans administration issues a CRV.

Certificate of Title: A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Chain of Title: A recorded history of all events that affect the title to a specific parcel of real estate.

Chapter 13 Bankruptcy: This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments per the court’s terms within a three-to-five-year period.

Chapter 7 Bankruptcy: A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

Charge-Off: The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Chattel Mortgage: A mortgage on personal property.

Chattel: Personal property.

Clear Title: A property title that has no defects. Properties with clear titles are marketable for sale; a title that is free of liens or legal questions as to ownership of the property.

“C” Loan or “C” Paper: FICO scores typically from 580 to 619. Factors include three to four 30 day late mortgage payments and four to six 30 day late installment loan payments or two to four 60 day late payments. Should be one to two years since bankruptcy. Also referred to as Sub-Prime.

Closing Costs: Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer’s closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller’s closing costs is 3 to 9 percent.

Closing Date: A predetermined date, agreed to by the buyer and the seller, that the transaction of buying/selling property will take place.

Closing: The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.

Cloud on the Title: Any condition which affects the clear title to real property.

Co-Borrower: An additional person that is responsible for loan repayment and is listed on the title.

Collateral: Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Collection Account: An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower’s credit report.

Collection: When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Commission: An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.

Common Law: Law that is not codified; developed from common usage and custom.

Common Stock: A security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid. This is the most common stock held within a company.

Comparative Market Analysis (COMPS): A property evaluation that determines property value by comparing similar properties sold within the last year.

Compensating Factors: Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.

Competent Party: A person legally able to contract; being of legal age and sound mind.

Concessions: During negotiations, these are the items that each party is willing to give up in order to get the items each party really wants.

Condemnation: The process by which property of a private owner is taken, with or without consent, for public use. Fair compensation must be paid.

Condominium Conversion: Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Conforming Loan: Is a loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Consideration: A thing of value (usually money) given as an inducement to enter a contract..

Construction Loan: A short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub- contractor pours the foundation and it is approved by inspectors the lender will pay for their service.

Consumer Price Index (CPI): A measure of the average change in price, over time, of basic goods and services compiled and reported by the bureau of labor statistics of the department of labor.

Contingency: A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

Contract for Deed: A contract for the sale of real property wherein the seller is obligated to provide a merchantable title (a title free of liens and capable of being transferred) after the buyer has paid for the property, usually in installments.

Contract for Purchase and Sale: An agreement between buyer and seller of real property to transfer title to that property at a future time for a specific sum of money. (also called a sales contract.)

Contract: A legal agreement entered into by two or more parties that creates an agreement to do or not to do something.

Conventional Loan: A private sector loan, one that is not guaranteed or insured by the U.S. government.

Conventional Mortgage: Refers to home loans other than government loans (VA and FHA).

Conversion Clause: A provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.

Convertible Arm: An adjustable-rate mortgage that allows the borrower to change the arm to a fixed-rate mortgage within a specific time.

Conveyance: An instrument (deed) legally sufficient to transfer title to real property.

Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan; a form of ownership in which a corporation usually owns the building and land. The individual residents own the stock of the corporation and have a proprietary lease in a given unit or apartment.

Correspondent Lender: A Correspondent Lender is a mortgage lender that originates and funds home loans in their own name. Shortly after the loan closes, they sell these loans to larger mortgage lenders who service the loans and may also sell them to the secondary market.

Co-Signed Account: An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

Co-Signer: A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

Cost Basis: The original purchase price plus the cost of any improvements to the property, less depreciation.

Cost of Funds Index (COFI): An index used to determine interest rate changes for some adjustable-rate mortgages.

Cost Recovery: Also known as depreciation. A provision of the tax law that allows the owner of real and personal property to recover the cost of that property over a period of time specified by law.

Counter Offer: A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract, includes a simultaneous substitutable offer

Covenants: Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.

Credit Bureau: A local company that purchases data from a credit repository and makes it available to individuals and businesses.

Credit Counseling: Education on how to improve bad credit and how to avoid having more debt than can be repaid.

Credit Enhancement: A method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.

Credit Grantor: The lender that provides a loan or credit.

Credit History: A record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit Limit: Generally found when dealing with credit cards, this is the maximum amount the card holder may charge to that account.

Credit Loss Ratio: The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit Rating: An evaluation of a person’s debt repayment history.

Credit Related Expenses: Foreclosed property expenses plus the provision for losses. Credit Related Losses: foreclosed property expenses combined with charge-offs.

Credit Repair Companies: Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

Credit Report: A report generated by the credit bureau that contains the borrower’s credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit Repository: An agency that compiles data provided by creditors on the credit histories of individuals and distributes reports to potential creditors upon request.

Credit Risk: A term used to describe the possibility of default on a loan by a borrower.

Credit Score: A score calculated by using a person’s credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 – 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.

Credit Union: A non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you must become a member to use the available services.

Credit: An agreement that a person will borrow money and repay it to the lender over time.

Credit Bureau: An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.

Creditor: The lender. The entity to whom the debt is owed.

Creditworthiness: The way a lender measures the ability of a person to qualify and repay a loan.

Cure Date: The last day given for bringing mortgage payments current at the beginning of the foreclosure process.

Curtailment: A curtailment is a limitation and/or reduction of a warehouse line of credit imposed by the issuer due to contract triggers. In some cases, curtailments are triggered by exceeding a certain duration of time to sell mortgages on the secondary market. Typical durations that loans are held on the warehouse line, called dwell time, range based on the speed at which investors review mortgage loans for purchase after their submission by mortgage banks. In practice, this length of time is generally between 10-20 days. Warehouse facilities typically limit the amount of dwell time a loan can be on the warehouse line. For loans going over dwell, mortgage bankers are often forced to buy these notes off the line with their own cash in anticipation of a potential problem with the note.

D

Dead Asset: An asset that an investor does not want. In the investor’s eyes, it has limited value.

Debt Consolidation: A process where all monthly debt payments are combined into one single debt and payment (that is, auto loan, furniture loan, etc.).

Debt Security: A security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.

Debt Service: The sum of the annual principal and interest payments made on a loan.

Debt-to-Income Ratio: The ratio between the monthly payments on all debt to the gross monthly income.

Debtor: The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.

Debt-to-Income Ratio: A comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deductible: The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called “out-of-pocket expenses.” For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.

Deed of Trust: An instrument by which a borrower transfers title to a third party (trustee) as security for a debt. The beneficiary of the trust is the lender.

Deed: A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner’s signature. Also known as the title.

Deed-in-Lieu: Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Default: The inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings

Deficiency Judgment: A judgment rendered in court for the difference in the amount realized at a foreclosure sale and the amount owed by the mortgagor, if the foreclosure fails to completely liquidate or satisfy the debt plus all expenses of the foreclosure.

Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.

Deposit (Earnest Money): Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency, period the money may be returned to the buyer if the contingencies are not met to the buyer’s satisfaction.

Depreciation: A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.

Derivative: A contract between two or more parties where the security is dependent on the price of another investment.

Devise: Disposition of land or real property by will.

Disclosures: The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. “Full disclosure” usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.

Discount Fee: The percentage of the original balance of the loan that is charged to the borrower, usually in exchange for a lower interest rate.

Discount Point: Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you 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.

Discount: The difference between the agreed upon payoff amount of a mortgage and the actual amount owed.

Discounting a Note: Offering a promissory note for less than its face value to enhance its marketability.

Distressed Property: A bargain property that is priced substantially below its present value or projected value when renovated.

Document Recording: After closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner’s and mortgage company’s names.

Dower: The legal rights of a widow in her husband’s estate. These rights have been abolished in many states.

Down Payment: The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.

Dual Agency: A transaction wherein an agent represents both buyer and seller.

Due on Sale Clause: A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.

Duplex: A two-unit home where the units share a common wall and are situated side by side.

Duration: The number of years it will take to receive the present value of all future payments on a security to include both principal and interest.

E

Earnest Money (Deposit): Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency, period the money may be returned to the buyer if the contingencies are not met to the buyer’s satisfaction.

Earnest Money: A deposit of money given by a party to bind the contract, usually credited toward the sales price.

Earnings Per Share (EPS): A corporation’s profit that is divided among each share of common stock. It is determined by taking the net earnings divided by the number of outstanding common stocks held. This is a way that a company reports profitability.

Easements: The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.

EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

Effective Gross Income (EGI): Estimated annual gross income and other income less a vacancy allowance.

Effective Interest Rate: The interest rate the borrower actually pays as opposed to the nominal interest rate. The effective interest rate is made higher than the nominal rate by addition of points or discounting a loan.

Eminent Domain: The power of the government, and some public utilities, to take private property for public use in return for fair compensation. This power is exercised through the legal process called “condemnation.”

Encroachments: A structure that extends over the legal property line on to another individual’s property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

Encumbrance: A limitation on the title to real property. A mortgage or an easement are examples of encumbrances.

Equal Credit Opportunity Act (ECOA): A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity of Redemption: The right of a mortgagor (borrower) to buy back a property after a foreclosure sale. While equity of redemption does not exist in some states, in others it extends up to two years.

Equity: An owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property; the fair market value of an asset less all lien amounts (debts) outstanding against it.

Escape Clause: A provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.

Escheat: The process whereby property reverts to the county or state when an owner dies and has no heirs and no will.

Escrow Account: Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow: Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.

Estate by the Entireties: Ownership by husband and wife with the right of survivorship.

Estate: The ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.

Estimated Annual Gross Income: An estimate of the total amount of income one will receive in a period of one year.

Estoppel letter: A letter certifying the exact balance of a mortgage or other loan at a given time.

Et Al: And others.

Et Ux: And wife.

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.

Exchange: The trading of a business property you own for another property that is of like kind. No taxes are due in such an exchange under a given set of circumstances.

Exclusive Agency: A relationship between an agent and his or her principal wherein the agent is entitled to a commission on a sale only if it is made by the agent or any other agent.

Exclusive Listing: A written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.

Exclusive Right to Sell: A relationship between an agent and his or her principal wherein the agent gets a commission regardless of who sells the property.

Exculpatory Clause: A clause in a contract relieving one of the parties of personal responsibility or liability. In a lease, the landlord is relieved of any responsibility for injury to tenants leasing his or her property. In a mortgage, the mortgagor (borrower) is relieved of any personal liability or deficiency judgment if a deficit occurs at a foreclosure sale.

Executor: The administrator of an estate; one who is specified in the will.

Expenses: The costs of maintenance, repairs, insurance, taxes, and other rental costs.

Extension Clause: A clause in a contract that lists the terms under which an agreement can be extended.

F

Face Value: In reference to a note, the face value is the full amount for which the note has been written.

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 Housing Act: A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Familial Status: HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.

Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored

Enterprise (GSE).

Farm: Cultivate a given geographic area by looking for property and flexible sellers..

Fee Simple: The highest estate in real property; the ownership of real property without reservation or restriction.

FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person’s credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

Fico: Fair Isaac Corporation developed a computerized scoring system that predicts the possible occurrence of your default based on many factors. Most of the factors are common knowledge, but Fair Isaac Corporation considers their scoring system to be proprietary (their property) and therefore has not made their formula and its elements available to the public.

Fiduciary: A broker or agent in the position of confidence to his principal. Also, a relationship of trust and confidence imposed by law.

Financial Analysis: An investor’s determination of the value of a property based on income and expenses.

Financial Leverage: The use of other peoples’ money (opm) for investment purposes.

Financing: The way in which an investor obtains the capital to purchase a property.

First Deed of Trust: A deed of trust recorded first. Equivalent to a first mortgage.

First Mortgage: The mortgage with first priority if the loan is not paid. Fixed Expenses: payments that do not vary from month to month.

Fixed-Rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Fixture: Personal property attached permanently to real estate and thus becoming part of it. A built-in oven is an example.

Flexible Seller: A seller who is willing to sell property in a nontraditional manner. This person may be flexible in terms, price, or both.

Flipping: The rapid turnover of property. An investor buys a property and immediately sells it for a profit.

Float: The act of allowing an interest rate and discount points to fluctuate with changes in the market.

Flood Insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Forbearance: A lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.

Forced Sale: The sale of a property used as security for a loan in order to repay creditor(s) in the event of a default on the loan.

Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.

Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).

Front-End Ratio: A percentage comparing a borrower’s total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.

Front Foot: The width of a lot at the front, usually given as the first measurement (a lot 225′ times 175′ would have 225 front feet).

FSBO (For Sale by Owner): A home that is offered for sale by the owner without the benefit of a real estate professional.

Functional Obsolescence: Design features that diminish a property’s utility and consequently, its value.

G

General Partnership: A form of business where two or more persons enter into an agreement to conduct business. Profits and losses are shared in a predetermined fashion and all partners are jointly and individually liable for debts of the general partnership. Title is taken in the name of the partnership.

Global Debt Facility: Designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.

Good Faith Estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Government Loan (Mortgage): A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran’s Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

Graduated Payment Mortgages: Mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.

Grandfather Clause: Properties that do not conform to current ordinances, codes, or regulations, but are allowed to continue to be occupied because the properties predate the institution of the ordinances, codes, and regulations.

Grantee: A person obtaining title to real property by deed. The purchaser to whom the grant is made; an individual to whom an interest in real property is conveyed.

Grantor: An individual conveying an interest in real property who conveys title to property by deed

Gross Income Multiplier: That number which, when multiplied times the gross income, would give an indication of property value. It is strictly a guide and frequently abused.

Gross Income: Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits; the total income from a property before the deduction of expenses, monthly or otherwise measured in terms of time

GSE: Abbreviation for government sponsored enterprises: a collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Examples include Fannie Mae and Freddie Mac.

Guaranty Fee: Payment to Fannie Mae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.

H

Hazard Insurance: Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

HECM (Reverse Mortgage): The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

HELP: Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

Home Equity Conversion Mortgage (HECM): Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home Equity Line of Credit: A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home Equity Loan: A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Home Inspection: An examination by a professional of the structure and mechanical systems to determine a home’s quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance; coverage extends over a specific time period and does not cover the home’s structure.

Homeowner’s Association: A nonprofit association that manages the common areas of a Planned Unit Development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner’s Insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner’s Warranty: A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

Homeowner’s Insurance: An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone’s injury or property damage. Most lenders require homeowner’s insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

Homeownership Education Classes: Classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.

Homestead Credit: Property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.

Homestead Exemption: Protection extended by law preventing the forced sale of an owner-occupied dwelling by certain creditors.

Homestead Tax Exemption: The credit against taxes given, in some states, to a person who owns and occupies a dwelling and to certain other individuals including disabled veterans, those over age 65, widowed, or handicapped.

Housing Counseling Agency: Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

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: The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 Statement: Also known as the “settlement sheet,” or “closing statement” it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

HVAC: Heating, Ventilation and Air Conditioning; a home’s heating and cooling system.

I

Improvements: Buildings or other structures built on undeveloped land or that enhance an existing structure

Indemnification: To secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.

Indenture: A contract.

Index: The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Inflation Coverage: Endorsement to a homeowner’s policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home’s value. This type of coverage does not adjust for increases in the home’s value due to improvements.

Inflation: The number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar’s value.

Inquiry: A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

Installment Contract: A way to sell a property in which the total sale price, or a specified portion of the sale price, is paid before a deed is transferred. (also known as agreement for deed, contract for deed, or land contract.)

Installment Loan: A loan that must be repaid in two or more payments. A loan of six months or greater is preferable when establishing credit.

Installment Note: A note which specifies how mortgage payments will be made, when they will be due, and for what amount.

Installment Sales: The sale of real estate or other property where the price is paid over a period of time as opposed to a lump sum payment at the closing.

Instant Equity: The difference between the property’s value and what you paid for it at the time of purchase.

Insurance: Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

Interest Rate Swap: A transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period of time, generally based on a notional principal amount.

Interest Rate: An amount that a borrower must repay in addition to the full amount of the loan. This is the premium the lender receives for the use of the money, plus compensation for the risk the lender takes in lending money.

Interest: A fee charged for the use of borrowing money.

Intermediate Term Mortgage: A mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.

Intermediate Theory: Classification of mortgage interests that do not fit squarely in either lien or title theory.

Intestate: A person who has died without leaving a valid will.

Investment Profile: The combined attributes of an investment property that you have identified as being right for you (e.g., single family homes, three bedrooms, within the northwest quadrant of the city).

Involuntary Lien: A lien, like real property tax liens, which are recorded against a property without consent of the owner.

J

Joint Tenancy (with Rights of Survivorship): Two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

Joint Venture: An agreement between two or more parties who invest in a single business or property.

Jointly and Severally: A legal term indicating that a contract has been entered into by two parties and the two parties are not only liable together but individually as well.

Judgment: The verdict of a court on a matter presented to it. A money judgment dictates that a party must make payment to another to settle a claim. The verdict could include property or other items of value in order to rectify the settlement situation.

Judicial Foreclosure: A foreclosure ordered by a court of jurisdiction.

Jumbo Loan: A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Junior Lien: A mortgage or other encumbrance with a secondary interest. A lien junior to another mortgage or lien.

Junior Mortgage: A mortgage with a secondary interest. A mortgage that is junior to another mortgage or lien.

K

K: – No terms at this time

L

Land Contract: A contract for the sale of real property wherein the seller is obligated to provide a transferable title after the buyer has paid for the property, usually in installments. (also called an agreement for deed.)

Land Trust: A form of ownership whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person, called the beneficiary. Title is taken in the name of the land trust.

Late Payment Charges: The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lease Option: An agreement between two parties in which the party who owns the property sells to the second party the right to purchase the property at a future date. The second party lives in or subleases the property until the lease option expires.

Lease Purchase (Lease Option): Assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lease: A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.

Leasehold: The estate or interest held by the lessee in the property of another.

Legal Description: The means to identify the exact boundaries of a property. A surveyor will use the recorded plats method, metes and bounds method, or the government survey method to describe real property.

Lender Option Commitments: An agreement giving a lender the option to deliver loans or securities by a certain date at agreed upon terms.

Lender: A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”

Lessee: One who contracts to hold occupancy rights in the real property of another (also known as tenant).

Lessor: One who rents property under a lease (also known as landlord).

Letter of Credit: Letter, usually from a financial institution, guaranteeing (collateralizing) a debt incurred by a third party.

Letter of Intent: A letter stating a buyer’s intent to make an offer to acquire a certain property. It is not a binding contract.

Leverage: The use of borrowed money to finance investments.

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. The term “liability” is also used to describe, in business finance terms, something that owed or is of economic cost to an organization, both on paper or physical in nature.

Liability Insurance: Insurance coverage that protects against claims alleging a property owner’s negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner’s insurance policies.

Lien Theory: States that allow the lender to collect the debt owed by selling the property in the event of a default.

Lien Waiver: A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.

Lien: A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic’s lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Life Cap: A limit on the range interest rates can increase or decrease over the life of an adjustable- rate mortgage (ARM).

Limited Liability Company: A limited liability company (LLC) is a hybrid state-registered entity that has the limited liability characteristics of a corporation, yet allows for pass-through taxation like a partnership

Limited Partnership: A partnership composed of a limited partner(s) and a general partner(s). The limited partner(s) contributes capital but is not liable for any debts of the partnership, nor can he or she manage or control the partnership. Title is taken in the name of the partnership.

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.

Liquid Asset: A cash asset or an asset that is easily converted into cash.

Liquidated Damages: Damages, usually monetary, spelled out in a contract which would be available, in the event of a default, to the party not in default.

Lis Pendens (notice of): A notice given to the public warning them that legal action is being taken that will affect title or possession of a specific property.

Listing Agreement: A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Listing Broker: A broker who has contracted with the seller to offer the property for sale at a specified price in exchange for a commission or some other consideration.

Loan Acceleration: An acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Loan Fraud: Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan Officer: Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

Loan Origination Fee: A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Origination: How a lender refers to the process of obtaining new loans.

Loan Servicer: The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.

Loan Servicing: After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan to Value (LTV) Ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Loan: A sum of borrowed money (principal) that is generally repaid with interest.

Loan-To-Value (LTV): The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

Lock-in Period: The length of time that the lender has guaranteed a specific interest rate to a borrower.

Lock-In: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time; an agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Loss Mitigation: A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

M

Mandatory Delivery Commitment: An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

Margin: The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

Market Value: The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Marketable Title: A title free and clear of liens and encumbrances that might be objectionable. (also known as merchantable title.)

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Median Price: The price of the house that falls in the middle of the total number of homes for sale in that area.

Mechanics Lien: A lien right existing in favor of mechanics, suppliers, or other persons who have supplied materials or performed work in connection with the construction or repair of a building or other improvement.

Medium Term Notes: Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.

Merged Credit Report: Raw data pulled from two or more of the major credit-reporting firms.

Mitigation: Term usually used to refer to various changes or improvements made in a home; for instance, to reduce the average level of radon.

Metes and Bounds: A measure of land which describes the boundaries using metes and bounds. For example, “then going north 233′ to the right of way of oak street.”

Metes: Measures such as inches, feet, yards, or miles.

Modification: When a lender agrees to modify the terms of a mortgage without refinancing the loan.

Moratorium on Interest: A time within the term of a loan during which it is permitted to delay payment of interest, or even not pay the interest at all.

Mortgage Acceleration Clause: A clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.

Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.

Mortgage Broker: A firm that originates and processes loans for a number of lenders.

Mortgage Constant: The sum of 12 monthly payments on a mortgage as a percent of the principal loan amount.

Mortgage Insurance (Conventional/Conforming): A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).

Mortgage Insurance Premium (MIP): A monthly payment -usually part of the mortgage payment – paid by a borrower for mortgage insurance.

Mortgage Interest Deduction: The interest cost of a mortgage, which is a tax – deductible expense. The interest reduces the taxable income of taxpayers.

Mortgage Life and Disability Insurance: Term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.

Mortgage Modification: A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.

Mortgage Qualifying Ratio: Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28:36.

Mortgage Score: A score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower’s ability to repay a mortgage loan and manage credit.

Mortgage: A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage-Backed Security (MBS): A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement, usually the owner, who pledges his or her property to assure performance in repaying the loan.

Multifamily Housing: A building with more than four residential rental units.

Multiple Listing Service (MLS): Within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors®. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.

Multiple Offers: Usually conveyed through a letter of intent putting forth three or four different scenarios, any one of which would be an acceptable way to purchase a seller’s property.

National Credit Repositories: Currently, there are three companies that maintain national credit – reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.

Negative Amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Negative Cash Flow: When rental and other income is insufficient to cover all the costs of ownership.

Net Income Approach: A method used to value income properties based on the net income they produce.

Net Income: Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

Net Offer: An offer in which the purchaser agrees to pay 100 percent of closing costs, thereby netting an amount to the seller that is the same as the seller’s equity.

Net Operating Income (NOI): The balance of cash remaining after deducting the operating expenses of a property from the gross income generated by the property. (expenses excluded are mortgage principal, interest payments, and depreciation deductions.)

Net Spendable Income: Amount remaining after expenses and debt service and any taxes due have been deducted from gross income. It is also known as after tax cash flow.

Net Worth: Assets less liabilities.

Networker: A person who is on the lookout for properties that are for sale. (also known as a “birddog.”)

No-Cash-Out Refinance: A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a “rate and term refinance.”

No-Cost Loan: There are many variations of a no cost loan. Generally, it is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process however no cost loans have a higher interest rate.

NODOC Loan: Loan where the borrower is not required to present any documentation to secure a loan.

Nominal Interest Rate: The interest rate, usually below market, stated on the note.

Non-Conforming Loan: Is a loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits.

Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Nonperforming Asset: An asset such as a mortgage that is not currently accruing interest or which interest is not being paid.

NOO (Non- Owner Occupied Loan): A classification used in mortgage origination, risk-based pricing and housing statistics for one to four-unit investment properties. The property is not occupied by the owner. The term non-owner occupied is typically used for multi-family rental properties, such as apartment buildings. A mortgage on a non-owner-occupied property might have a slightly higher interest rate than an owner-occupied mortgage, as non-owner-occupied mortgages are more likely to default. Because of the higher interest rate, some unscrupulous borrowers will try to classify a non-owner-occupied mortgage as an owner-occupied mortgage to try and save money.

Notarize: To have a document signed by a notary public.

Notary Public: A person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.

Note Rate: The interest rate stated on a mortgage note.

Note: A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time; legal evidence of debt

Notice of Default: A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

Notional Principal Amount: The proposed amount which interest rate swap payments are based but generally not paid or received by either party.

O

Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

One-Time Mortgage Insurance Premium (OTMIP): A refund of a portion of the insurance premiums that have been paid over the years with a 1984 or later mortgage where the mortgage insurance premiums were paid up front.

Open Listing: A brokerage contract that entitles a broker to a commission only if his activities are the procuring cause of a sale.

Option: An instrument giving the right to a party to lease or purchase the property over a specified time period for a specified consideration. It is binding for the optionor (seller) but not the optionee (buyer).

Optionee: The person who has the legal right to purchase or not to purchase (through a contract) a specific property in the future.

Optionor: The seller of a property who extends an option to a potential buyer. If the optionee exercises the option, the optionor is legally bound to sell. However, if the option is not exercised, then the optionor is released from any obligation.

Original Principal Balance: The total principal owed on a mortgage prior to any payments being made.

Origination Fee: The charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.

Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Overdraft Protection: A pre-approved line of credit with your bank that may be used by the bank to cover any checks that exceed the balance of your checking account.

Overlay (Bank Overlay): The word “overlay” in the context of home loans refers to the mortgage approval standards that lenders and their investors place above the guidelines set by Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing, acting as the lender

Owners of Record: All owners that are listed on a deed that is recorded in the county courthouse.

Owner’s Policy: The insurance policy that protects the buyer from title defects.

Ownership: Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

P

Package Mortgage: A mortgage which, in addition to encumbering real property, also includes personal property such as a refrigerator, dishwasher, or oven unit.

Partial Claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

Partial Payment: A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Partnership: Two or more people associated for the purposes of carrying on business activities.

Pass Through: Income and losses from an enterprise that pass through the business structure to the individual partners or members and is included on their personal income tax returns.

Pay Down: To reduce the amount of principle on a loan.

Payment Cap: A limit on how much an ARM’s payment may increase, regardless of how much the interest rate increases.

Payment Change Date: The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Payment Due Date: Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

Payoff Letter: A letter stipulating the exact unpaid balance including interest through the date of closing, as of a given date (also called an estoppel letter).

Perils: For homeowner’s insurance, an event that can damage the property. Homeowner’s insurance may cover the property for a wide variety of perils caused by accidents, nature, or people.

Personal Property: Any property that is not real property or attached to real property. For example, furniture is not attached however a new light fixture would be considered attached and part of the real property.

PITI: Principal, Interest, Taxes, and Insurance: The four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

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 (PUD): A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner’s or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.

Points: Ab point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Positive Cash Flow: Effective gross income minus operating expenses and debt service. (also known as cash throw off or spendable cash.)

Power of Attorney: A legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.

Pre-Approval: A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification

Predatory Lending: Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.

Predictive Variables: The variables that are part of the formula comprising elements of a credit- scoring model. These variables are used to predict a borrower’s future credit performance.

Preferred Stock: Stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.

Pre-foreclosure Sale: A procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower’s debt.

Preliminary Title Search: The initial review of all previously recorded documents regarding a specific property.

Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment Penalty Mortgage (PPM): A type of mortgage that requires the borrower to pay a penalty for prepayment, partial payment of principal or for repaying the entire loan within a certain time period. A partial payment is generally defined as an amount exceeding 20% of the original principal balance.

Prepayment Penalty: A fee charged to a homeowner who pays one or more monthly payments, including the loan in full, before the due date. It can also apply to principal reduction payments.

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: Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

Prequalification: This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Pre-Qualify: A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.

Price Range: The high and low amount a buyer is willing to pay for a home.

Prime Rate: The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.

Principal Amortization: The reduction of the amount of a loan through periodic installment payments.

Principal: The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Private Mortgage Insurance (PMI): Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 Percent of the outstanding amount of the loan is paid or for a set period of time, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).

Private Mortgage Insurance: A policy insuring a lender against a default on a mortgage loan issued by anyone other than the federal government.

Pro Forma: The form you expect income and expenses to take.

Pro Rata: Distribution of proceeds or expenses made in proportion to the fractional interest held by each Distributee.

Proforma Statement: A financial statement based on anticipated, not actual, income and expenses.

Promissory Note: A written promise to repay a specified amount over a specified period of time.

Promulgated Rate: A formally and publicly stated rate.

Property (Fixture and Non-Fixture): In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.

Property Exchange: The exchange of real estate for other real estate between two or more parties.

Property Tax Deduction: The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from there total income.

Property Tax: A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

Proration Credits: An amount credited at a real estate closing for any expenses that will be billed in the future (for example, sellers give a credit for their share of tax bills that will be billed in the future).

Public Auction: A meeting in an announced public location to sell property to repay a mortgage that is in default.

Public Record Information: Court records of events that are a matter of public interest such as credit, bankruptcy, foreclosure and tax liens. The presence of public record information on a credit report is regarded negatively by creditors.

Punch List: A list of items that have not been completed at the time of the final walk through of a newly constructed home.

Punitive Damages: Damages awarded by the court as punishment for committing a wrong.

Punitive damages are over and above actual damages incurred.

Purchase Agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Money Mortgage: A mortgage given to the seller as part or all of the consideration for the purchase of property. In effect, it is money loaned by the seller to the purchaser.

Purchase Offer: A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, sometimes called the Sales Contract.

Q

Qualifying Ratios: Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

Quit Claim Deed: A deed transferring whatever interest in the property, if any, the grantor may have. They are usually used to clear title.

R

Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Rate Cap: A limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.

Rate Lock: A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.

Real Estate Agent: An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Real Estate Mortgage Investment Conduit (REMIC): A security representing an interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash payments structured differently from the payments on the underlying mortgages.

Real Estate Owned (REO): A property that a financial institution owns as a result of a foreclosure action.

Real Estate Property Tax Deduction: A tax deductible expense reducing a taxpayer’s taxable income.

Real Estate Settlement Procedures Act (RESPA): A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

Real Estate Settlement Procedures Act (RESPA): Consumer protection law that requires

lenders to give borrowers advance notice of closing costs.

Real Estate Tax Lien: A lien that is the result of a real estate tax or special assessment payment default and is always in a position before all other liens.

Real Property: Land or building, and other improvements permanently attached to the land.

Realtor: A real estate broker or agent who is a member of the National Association of Realtors (NAR), as well as state and local real estate boards. (all brokers are real estate agents, but not all real estate agents are brokers.)

Record: The act of entering, in the public record, any instrument affecting title to real property.

Recorder: The public official who keeps records of transactions concerning real property. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

Recording Fees: Charges for recording a deed with the appropriate government agency.

Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Recording: The recording in a registrar’s office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.

Redemption: Paying off the entire mortgage prior to the issuance of a judicial deed to extinguish a mortgage and mortgage foreclosure action.

Rehabilitation Mortgage: A mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages – like the FHA’s 203(k) – allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Reinstatement Period: A phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.

Reinstatement: Returning a loan to a current status by paying off the delinquency, plus penalties and expenses, and extinguishing any pending foreclosure action.

Release Clause: A statement in a blanket mortgage that allows a specifically described parcel to be released from under the blanket lien after a sum of money is repaid.

Remaining Balance: The amount of principal that has not yet been repaid.

Remaining Term: The original amortization term minus the number of payments that have been applied.

Rent Control: The regulation or restrictions set by government agencies on the amount of rent that landlords may charge.

Rent Roll: A listing of tenants and the rent that they pay.

Repayment Plan: An agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.

Repositioning: A technique used to increase the value of an asset through improvement of the asset.

RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

Restrictive Covenant: A clause in a deed in which there is an agreement between buyer and seller stating certain restraints as to the use of the property.

Return on Average Common Equity: Net income available to common stockholders, as a percentage of average common stockholder equity.

Reverse Mortgage (HECM): The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

Right of First Refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of Ingress or Egress: The right to enter or leave designated premises.

Right of Survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Right of Way: An easement on land whereby an owner grants or gives to another the right of passage over his or her land.

Riparian Rights: The rights of a landowner to the body of water adjacent to his or her land. In some cases, these rights include the land under the water.

Risk-Based Capital: An amount of capital needed to offset losses during a ten-year period with adverse circumstances.

Risk-Based Pricing: Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history.

Risk Scoring: An automated way to analyze a credit report verses a manual review. It takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner.

S

S Corporation: Corporation that has elected to be taxed as a partnership.

Sale Leaseback: When a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.

Sales Contract: An agreement between buyer and seller of real property to transfer title to that property at a future time for a specific sum of money (also called a contract for purchase or sale).

Sandwich Lease Option: Using a lease option, then subleasing the property.

Satisfaction of Mortgage: An instrument filed in the public records that acknowledges payment of an indebtedness secured by a mortgage.

Seasoning: As used in the mortgage industry, the requirement of ownership for a specified period of time.

Second Mortgage: An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are riskier for the lender and usually carry a higher interest rate.

Secondary Market: The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.

Secondary Mortgage Market: The buying and selling of mortgage loans. Investors purchase residential mortgages originated by lenders, which in turn provides the lenders with capital for additional lending.

Secured Loan: A loan backed by collateral such as property.

Security Deposit: An amount of money paid by a tenant before moving into the premises to cover any possible damage incurred while living there, or to protect the landlord in the event that the tenant leaves without being current on rent payments. If the tenant is current and the unit only has a normal amount of wear and tear, then the deposit is generally refunded (also known as an indemnification deposit).

Security: The property that will be pledged as collateral for a loan.

Seller Carry-Back: An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Seller Take Back: An agreement where the owner of a property provides second mortgage financing. These are often combined with an assumed mortgage instead of a portion of the seller’s equity.

Serious Delinquency: A mortgage that is 90 days or more past due.

Servicer: A business that collects mortgage payments from borrowers and manages the borrower’s escrow accounts.

Servicing the Debt: The act of paying the periodic principal and interest payments on an outstanding obligation.

Servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Setback: The distance between a property line and the area where building can take place.

Setbacks are used to assure space between buildings and from roads for a many of purposes including drainage and utilities.

Settlement Statement: A document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is called the HUD 1 Settlement Statement.

Settlement: Another name for closing.

Special Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Specific Performance: A court order requiring a person to act or do a specific thing that he or she had agreed to do.

Spendable Cash Flow: Effective gross income minus operating expenses and loan principal and interest payments. (also known as positive cash flow.)

Statutory Right of Redemption: The right given by statute to a mortgagor to redeem the property after the foreclosure sale.

Stipulation: An agreed upon point or condition in a contract.

Stockholders’ Equity: The sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.

Stripped MBS (SMBS): Securities created by “stripping” or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.

Subdivision: A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Sublease: The leasing of a leased property by the lessee to another person.

Subordinate: To lower the rank of a mortgage. For example, to put what is now a first mortgage in the second mortgage position.

Subordinated Interest: Secondary interest that is paid off after other investors have been paid.

Sub-Prime Loan: “B” Loan or “B” paper with FICO scores from 620 – 659. “C” Loan or “C” Paper with FICO scores typically from 580 to 619. An industry term to used to describe loans with less stringent lending and underwriting terms and conditions. Due to the higher risk, sub-prime loans charge higher interest rates and fees.

Substitution of Collateral: A clause in a mortgage that permits the mortgagor (borrower) to substitute property of equal or greater value for the property originally pledged as collateral.

Survey: A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.

Sweat Equity: Using labor to build or improve a property as part of the down payment

T

Tax Deductible: Not subject to taxation. An expense that is deductible from income in determining one’s taxable income.

Tax Deed: Usually a special warranty deed prepared by the county treasurer and given to the tax purchaser who has complied with statutory requirements.

Tax Liability: The amount of money one owes to the government for taxation purposes.

Tax Lien Certificates: Certificates sold by government bodies, usually through a tax sale

proceeding, that gives the buyer the right to interest and fees paid if the taxes are redeemed, or the right to obtain a tax deed if the sold taxes are not redeemed.

Tax Lien: A lien imposed against real property for the nonpayment of taxes, both real estate and income taxes.

Tax Shelter: A provision in the internal revenue tax code that treats certain income preferentially.

Tenant: A person having the temporary use and occupancy of real property owned by another.

Tenants-in-Common: The ownership of an interest in property by two or more persons. Their ownership interest may be equal or unequal and there is no right of survivorship as with joint tenancy. Upon the death of one of the owners, the ownership share of the deceased owner is inherited by the party designated in the deceased owner’s will or as prescribed by statute in the absence of a will.

Tender: An offer to pay or perform.

Terms: The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan.

Testate: One who dies leaving a will.

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.

Timeshare: A form of property ownership under which a property is held by a number of people, each with the right of possession for a specified time interval.

Title 1: An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don’t require a property lien.

Title Company: A company that specializes in examining and insuring titles to real estate.

Title Defect: An outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.

Title Insurance Company: A business that researches and reports on the status of the title on a specific property and whether or not the property has any liens against it. The title company will also insure the status of the title based on the coverage specified in the policy.

Title Insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner’s policy and requires an additional charge.

Title Search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Title Theory: States that allow the lender to become the legal may be used. Owner at the time of making the loan. The borrower only has possession.

Title: A legal document establishing the rights, and acts as evidence of ownership and is recorded to make it part of the public record; also known as a Deed.

Township: A unit of measure used in the government survey method of land description equal to 36 sections (36 square miles).

Trade Line: A reporting credit card, installment loan, or mortgage.

Transfer Agent: A bank or trust company charged with keeping a record of a company’s stockholders and canceling and issuing certificates as shares are bought and sold.

Transfer of Ownership: Any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract or any other land trust device.

Transfer Tax: State or local tax payable when title passes from one owner to another.

Transfer Taxes: State and local taxes charged for the transfer of real estate. Usually equal to a percentage of the sales price.

Treasury Index: Can be used as the basis for adjustable rate mortgages (ARMs) It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Triple Net: A situation in which the tenant pays real estate taxes, insurance, and all maintenance costs for the property.

Trustee: A fiduciary/person who holds or controls property for the benefit of another.

Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees,

terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan, including the annual percentage rate (APR) and other charges.

Two-Step Mortgage: An adjustable-rate mortgage (arm) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Two-to-Four Family Property: A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

U

Underwriting: The process of analyzing a loan application to determine the amount of risk

involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

Unilateral Contract: A contract in which one party is bound by another to do something. If the second party chooses to exercise the contract, the first party must perform any contractual obligations that party may have. However, if the second party chooses not to exercise the contract, the first party is released from any contractual obligations.

Unsecured Line of Credit: An extension of credit to a borrower that does not require collateral.

Up-Front Charges: The fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker’s fees, insurance, and other charges.

Usury: State usury laws dictate the highest annual interest rate that can legally be charged.

V

VA (Department of Veterans Affairs): A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Vacancy Rate: The percentage of all units that are not rented by particular property or area (apartment building versus single family homes).

Value, Assessed: See “assessed value.”

Value, Book: The value of a property carried on a company’s books. It is usually the cost less depreciation or cost recovery plus capital additions.

Value, Market: The highest price estimated in terms of money which a property will bring if exposed for sale in the open market. The price according to supply and demand.

Variable Expenses: Costs or payments that may vary from month to month, for example, gasoline or food.

Variance: A special exemption of a zoning law to allow the property to be used in a manner different from an existing law.

Vendee: A buyer.

Vendor: A seller of goods or services.

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.

Veterans Administration (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

Walk Through: The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

Warehouse Line of Credit: A warehouse line of credit is a credit line used by mortgage bankers. It is a short-term revolving credit facility extended by a financial institution to a mortgage loan originator for the funding of mortgage loans.

Warrant: To guarantee something to be as represented.

Warranty Deed: A legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property; a deed that conveys title that the seller warrants to be free and clear of liens and encumbrances (e.g., claims against the property).

Wraparound Mortgage: A mortgage held by the seller (mortgagee). The buyer (mortgagor) pays the seller (mortgagee) the debt service on the wraparound mortgage and the seller (mortgagee) continues to pay the debt service on the underlying or original mortgage.

X

X: – No terms at this time 

Y

Y: – No terms at this time

Z

Zoning: Local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of non-residential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building. Zoning is a legal mechanism for local government to regulate the use of privately owned real property to prevent conflicting land uses and to promote orderly development.

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