Abstract of Title
A summary of recorded transactions concerning a particular property.
Acceleration Clause
Condition in a mortgage that gives the lender the right to require immediate
repayment of the loan balance if regular mortgage payments are not made or for
breach of other conditions of the mortgage.
Accrued Interest
Interest earned but not yet paid.
Adjustable Rate
An interest rate that changes periodically according to an index.
Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a
preselected index. Thus, interest rate and payments rise and fall with the
market.
Adjustment Interval
The time between changes in the interest rate and monthly payments on an ARM.
Agent
One that acts for or represents another.
Agreement of Sale
A written document in which a purchaser agrees to buy property under certain
given conditions, and the seller agrees to sell under certain given conditions.
Also known as a 'Sales Contract'
Alternative Documentation
A method of documenting a loan file that relies on information the borrower is
likely to be able to provide instead of waiting on verification sent to third
parties for confirmation of statements made in the application.
Amortization
A monthly repayment schedule in which a loan is repaid in fixed payments of
principal and interest.
Annual Percentage Rate (APR)
The annual cost of a loan, expressed as a yearly rate. APR takes into account
interest, points, origination fees, and mortgage insurance, so it will be
slightly higher than the interest rate on the loan.
Application
An initial statement of personal and financial information required to approve
your loan. Often referred to as a 1003.
Application Fee
Fees charged by a lender to cover initial costs of processing a loan
application, often including charges for property appraisal and a credit
report.
Appraisal
A written estimate of a property's current market value, based on recent sales
information for similar properties, the current condition of the property, and
how the neighborhood might affect future property value.
Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market
value as of a specific date.
APR
See Annual Percentage Rate.
ARM
See Adjustable-Rate Mortgage.
ARM Assumbility
Most ARM products feature "assumability" to a qualified applicant. The
assumability of an ARM loan may make it more attractive to an applicant who
envisions selling their home at a later date. By incorporating an assumable
mortgage product, they may be able to make their home more attractive to
potential buyers.
ARM Disclosure
An additional disclosure specific to Adjustable Rate Mortgages that must be
prepared and presented to the consumer within three days of application
whenever an Adjustable Rate Mortgage transaction is contemplated (Note: Home
Equity Lines have their own unique disclosure).
ARM Handbook
The Consumer Handbook to Adjustable Rate Mortgages ("CHARM" booklet) must be
presented to the consumer within three days of application whenever an ARM loan
is contemplated (in addition to the ARM disclosure referenced above).
Amortization Re-Cast Period
Pre-determined period of time (expressed either in a number of months and/or %
of increase from original principal balance) after which any/all accumulated
"negative amortization" (aka "deferred interest") is accounted for in a
re-amortization of the loan balance over the remaining term of the mortgage at
the then prevailing rate of interest. Typically, any payment cap that would
otherwise factor in is disregarded in the event of re-casting.
Amortization Re-Cast Limitation
Amortization is most often "capped" at 110% or 125% of the original principal
balance. Re-amortization typically occurs every 60 months and/or at such time
as the balance reaches the pre-determined "cap."
Assessment
A local tax levied against properties that have benefited from civil
improvements such as road or sidewalk construction, a sewer, or street lights.
Asset
Anything of monetary value that is owned by a person. Assets include real
property, personal property, and enforceable claims against others (including
bank accounts, stocks, mutual funds, and so on).
Assignment
The transfer of property rights from one person to another.
Assumability
A feature of a loan which allows it to be transferred to the new purchaser of a
home. Assumable mortgages can help attract buyers because assumption of a loan
requires lower fees and/or qualifying standards than a new loan.
Assumption
Agreement between buyer and seller for the buyer to take over the payments on
an existing mortgage.
Balance Sheet
A document showing the financial situation-assets, liabilities, and net
worth-of a company at a specific point in time.
Balloon Mortgage
A short-term fixed-rate loan with low payments for a set number of years and
one large final balloon payment of the remainder of the principal.
Bank Check
See cashier's check.
Bankruptcy
Proclamation by a court of an individual's (or organization's) state of
insolvency, or inability, to pay debts. Petition may be brought by an
individual or his creditors, with a goal of orderly and equitable settlement of
obligations.
Basis Point
A unit of measure: 1/100th of one percent. For example, the difference between
a 9.0% loan and a 9.5% loan is 50 basis points.
Bearer
The legal owner of a piece of property.
Bequest
A gift of personal property by will.
Bill of Sale
A document by which one transfers ownership of goods to another.
Biweekly Mortgage
A payment plan under which one pays one-half of a monthly payment every two
weeks, saving substantially over the life of the loan.
Blanket Mortgage
A mortgage covering at least two pieces of real estate, both of which serve as
collateral for the loan.
Bona Fide
In good faith.
Bond
A document representing a right to certain payments on underlying collateral.
Borrower (Mortgagor)
An individual who applies for and receives a loan in the form of a mortgage
with the intention of repaying the loan in full.
Bridge loan (Swing loan)
A form of second trust that is collateralized by the borrower's present home
(which is usually for sale) in a manner that allows the proceeds to be used for
closing on a new house before the present home is sold.
Broker
An individual who assists in arranging funding or negotiating contracts for a
client but does not loan money himself.
Buy-Down
A situation in which the seller contributes money that allows the lender to
give the buyer a lower rate and payment, usually in exchange for an increase in
sales price.
Buyer's Broker
An agent hired by a buyer to locate a property for purchase and to represent
the buyer in negotiations with the seller's broker for the best possible deal
for the buyer.
Buyer's Market
Market conditions that favor buyers. With more sellers than buyers in the
market, buyers have ample choice of properties and can negotiate lower prices.
Call Option
A provision in the mortgage that gives the mortgagee the right to call the
mortgage due and payable at the end of a specified period for whatever reason.
Caps
Limits on changes in ARM interest rates or monthly payments, either in an
adjustment period or over the life of the loan.
Caps (Payment)
Consumer safeguards may limit the amount monthly payments on an adjustable-rate
mortgage may change. Because they do not limit the amount of interest the
lender is earning, they may cause negative amortization.
Cash Out
A refinance for more than the balance of the original mortgage, so that money
is taken out of the equity built up in the house.
Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is
drawn on the bank's account instead of the customer's.
CC&Rs
See Covenants, Conditions, and Restrictions.
Ceiling
The maximum allowable interest rate of an adjustable-rate mortgage.
Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans that
entitles them to VA guaranteed loans. Obtainable through local VA office by
submitting form DD-214 (Separation Paper) and VA form 1880 (request for
Certificate of Eligibility).
Certificate of Occupancy
Document issued by local government agency stating that a property meets the
requirements of health and building codes.
Certificate of Reasonable Value (CRV)
A property appraisal performed by a VA-approved appraiser that establishes the
limit on the principal of the VA loan.
Certificate of Title
Written opinion of the status of title to a property, given by an attorney or
title company. This certificate does not offer the protection given by title
insurance.
Certificate of Veteran Status
Document given to veterans or reservists who have served 90 days of continuous
active duty (including training time) which enables them to obtain lower down
payments on certain FHA-insured loans. Obtainable through local VA office by
submitting form DD 214 (Separation Paper) with form 26-8261a (request for
Certificate of Veteran Status).
Certified Check
A check drawn on the issuer's account for funds that have been segregated by
the bank, guaranteeing payment.
Chain of Title
The chronological order of conveyance of a property from the original owner to
the present owner.
Clear Title
A marketable title, free of clouds and disputes.
Closing (or Settlement)
Meeting between the buyer, seller, and lender or their agents at which property
and funds legally change hands.
Closing Costs
Fees incurred in a real estate or mortgage transaction and paid by borrower
and/or seller during the closing of the mortgage loan. These typically include
a loan origination fee, discount points, attorney's fees, title insurance,
appraisal, survey, and any items that must be prepaid, such as taxes and
insurance escrow payments. The cost of closing is usually about 3 percent to 6
percent of the mortgage amount.
Closing Statement
Financial disclosure statement that lists the funds received and expected at
the closing.
Cloud on Title
An outstanding claim or encumbrance that, if valid, would affect or impair the
owner's title.
CLTV
See Combined Loan-to-Value.
COFI
See Cost of Funds Index.
Collateral
Assets that back a mortgage loan.
Combined Loan-to-Value (CLTV)
the ratio of the total mortgage liens against the subject property to the
lesser of either the appraised value or the sales price.
Commission
Money paid to a real estate agent or broker by the seller (usually 6 to 7% of
the sale price of the house).
Commitment
A formal offer by a lender to make a loan under certain terms or conditions to
a borrower.
Condominium
A form of property ownership in which the homeowner holds title to an
individual dwelling unit and an interest in common areas and facilities of a
multi-unit project.
Conforming Loan
A mortgage loan under the maximum amount of loans FNMA and FHLMC are legally
allowed to buy (up to $333,700 for a one-unit property).
Construction Loan
A short-term interim loan to fund the construction of buildings or homes, which
usually advances the money to the builder as work progresses. After completion
a permanent loan is used to pay off the construction loan.
Contingency
A condition that must be satisfied before a contract is legally binding-before
a sale can close.
Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and
conditions of a sale.
Conventional Loan
A mortgage not insured by the FHA or guaranteed by the VA.
Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan,
usually after the first adjustment period. The new fixed rate will be set at
current rates, and there may be a charge for the conversion feature.
Conversion Option
Many "short-term" ARM products feature a conversion option. This option allows
a consumer, subject to certain restrictions, to convert the loan from an
adjustable to a fixed rate mortgage. This option typically is not in effect
until the end of the fifth year
Convertible ARMs
ARMs with the option of conversion to a fixed loan during a given time period.
Conveyance
The transfer of a deed or possibly a lease or mortgage.
Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for
sources of funds, usually by members of the 11th Federal Home Loan Bank
District.
Covenants, Conditions, and Restrictions (CC&Rs)
A document that defines the use, requirements, and restrictions of a property.
Credit Report
A report detailing the credit history of a prospective borrower, used to help
determine creditworthiness.
Credit Risk
The possibility that the borrower may default on financial obligations to the
investor.
Debt-to-Income Ratio
The ratio, expressed as a percentage, that results when a borrower's monthly
payment obligation on long-term debts is divided by his or her gross monthly
income.
Deed
Legal document by which title to a property is transferred from one owner to
another. The deed contains a description of the property, and is signed,
witnessed, and delivered to the buyer at closing.
Deed of Trust
Agreement to pledge property as security for a loan, used in many states in
place of a mortgage. In such an arrangement, the borrower transfers legal title
to a trustee who holds the property in trust as security for the repayment of
the debt. The deed of trust becomes void if the debt is repaid, but if the
borrower defaults on the loan, the trustee may sell the property to pay the
debt.
Default
Failure to meet legal obligations in a contract, including failure to make
payments on a loan. A mortgage is generally considered to be in default when a
payment is 30 days past due.
Deferred Interest
Interest added to the balance of a loan when monthly payments are not
sufficient to cover it. (See Negative Amortization.)
Delinquency
Failure to make payments on time.
Deposit
Cash paid to the seller when a formal sales contract is signed.
Depreciation
When the value of property declines.
Discount Points (or Points)
Money paid to a lender at closing in exchange for lower interest rates. Each
point is equal to 1% of the loan amount.
Documentary Stamps
A state tax, in the forms of stamps, required on deeds and mortgages when real
estate title passes from one owner to another.
Document Review
Fee charged by a lender for review of documents necessary to fund a loan.
Down Payment
Money paid for a house from one's own funds at closing. The down payment will
be in the amount of the difference between the purchase price and mortgage
amount.
Due-on-Sale Clause
Provision in a mortgage or deed of trust allowing the lender to demand
immediate payment of the loan balance upon sale of the property.
Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith when
the purchase agreement is signed.
ECOA
See Equal Credit Opportunity Act.
Effective Interest Rate
The cost of a mortgage expressed as a yearly rate, usually higher than the
interest rate on the mortgage because this figure includes up-front costs of
acquiring the loan.
Encumbrance
A legal right or interest in a property that affects title and lessens the
property value. Encumbrances can take the form of claims, liens, unpaid taxes,
and so on. These will usually have to be taken care of before a buyer will want
to purchase the property.
Equal Credit Opportunity Act (ECOA)
Federal law requiring creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age, sex,
marital status, or receipt of income from public assistance programs.
Equity
The percentage of property value held by the owner; the difference between the
current market value of a property and the outstanding mortgage balance.
Equity Loan
A loan based on the borrower's equity in his or her home.
Escrow The neutral third party that holds money and/or documents until the
escrow instructions are fulfilled and escrow can be a title company or an
attorney depending on the state regulations.
Escrow Account
Account held by a lender containing funds collected as part of mortgage
payments for annual expenses such as taxes and insurance, so that the homeowner
does not have to collect a large sum when these fall due.
Escrow Waiver
When a buyer borrows less than 80% of the cost of the house, he may pay a
one-time fee and elect not to open an escrow account, but to pay the hazard
insurance and property taxes himself.
Fannie Mae
See Federal National Mortgage Association.
Farmer's Home Administration (FMHA)
An agency, within the U.S. Department of Agriculture, that provides financing
for purchasers of homes and farms in small towns and rural areas.
FDIC-See Federal Deposit Insurance Corporation.
Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability
and public confidence in the nation's banking system.
Federal Home Loan Bank Board (FHLBB)
Former name for the regulatory and supervisory agency for federally chartered
savings institutions, now called the Office of Thrift Supervision.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
Quasi-governmental agency that purchases conventional mortgages from insured
depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
Government agency, division of the Department of Housing and Urban Development,
that insures residential mortgage loans made by private lenders and sets
standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA or Fannie Mae)
Corporation created by Congress that buys and sells residential mortgages,
providing funds for one in seven mortgages.
Federal Reserve
Central bank of the United States and major regulatory agency for many
commercial banks.
Fee Simple
Absolute ownership of real property.
FHA
See Federal Housing Administration.
FHA Loan
Loan insured by the FHA open to all qualified home purchasers.
FHLBB
See Federal Home Loan Bank Board.
FHLMC
See Federal Home Loan Mortgage Corporation.
FIAR
Fully Indexed Accrual Rate. Index + Margin.
First Mortgage
A mortgage that is in first lien position, taking priority over all other
liens. In the case of a foreclosure, the first mortgage will be repaid before
any other mortgages.
Fixed Rate
An interest rate that is fixed for the term of the loan.
Fixed-Rate Mortgage
A mortgage whose interest rate does not change for the life of the loan.
Payments are also fixed.
Flood Insurance
A form of hazard insurance required by lenders to cover properties in flood
zones.
Floor
The minimum rate of interest payable on an adjustable-rate mortgage.
Floor (Interest - ARM)
Pre-determined amount that establishes the minimum interest rate life of loan.
This can be expressed as a percentage below the start rate, as a rate of
interest independent of the start rate, or, quite typically, the "Floor" may be
established as being equal to the Margin.
FMHA
See Farmer's using Administration.
FNMA
See Federal National Mortgage Association.
Forbearance
Grace period given when a lender postpones foreclosure to give the borrower
time to catch up on overdue payments.
Foreclosure (or Repossession)
Legal process by which the lender forces the sale of a property because the
borrower has not met the mortgage terms.
Freddie Mac
See Federal Home Loan Mortgage Corporation.
Ginnie Mae
See Government National Mortgage Association.
GNMA
See Government National Mortgage Association.
Good Faith Estimate
Written estimate of costs the borrower will have to pay at closing, provided by
a lender within three days of a loan application.
Government National Mortgage Association (GNMA or Ginnie Mae)
Government agency that provides funds for VA and FHA loans.
GPM
See Graduated Payment Mortgage.
Graduated Payment Mortgage (GPM)
Mortgage in which initial low payments (with potential negative amortization)
increase regularly for several years and then level off.
Grace Period
Period of time during which a loan payment may be made after its due date
without incurring a late penalty.
Gross
Before taxes.
Gross Income-Total income before taxes or expenses are
deducted.
Gross Monthly Income
The total amount earned by the borrower each month.
Growing Equity Mortgage
A fixed-rate loan in which payments increase by some predetermined amount each
year, which reduces the outstanding balance of the loan. This accelerated
payment plan allows repayment of a 30-year loan in 15 to 20 years.
Guarantee
To assume liability for another's debts in the event of his default.
Guaranty
A promise by one party to pay a debt or perform an obligation contracted by
another in case of that person's default.
Hazard Insurance
Protects the insured against loss due to fire or other natural disaster in
exchange for a premium paid to the insurer.
Home Equity Loan
A loan secured by the equity in your home. These are sought for a variety of
purposes, including home improvements, major purchases or expenses, and debt
consolidation. Interest paid is usually tax-deductible.
Homeowners Warranty
A type of insurance that covers repairs to specified parts of a house for a
specific period of time.
Housing and Urban Development (HUD)
A U.S. government agency established to implement federal housing and community
development programs; oversees the Federal Housing Administration.
Housing Code
Local government ordinance that sets minimum standards of safety and sanitation
for existing residential buildings.
Housing Expense-to-Income Ratio
The ratio, expressed as a percentage, that results when a borrower's housing
expenses are divided by his/her gross monthly income.
HUD
See Housing and Urban Development.
HUD-I Settlement Statement
A form that itemizes the closing costs associated with purchasing a home.
Impound (or Reserves)
Portion of a borrower's monthly payments held by the lender to pay for taxes,
insurance, and other items as they become due.
Impound Account
Savings account for accumulating that portion of a borrowers monthly payments
designated for future payments of taxes and insurance. (Required by certain
lenders or with certain types of financing.)
Index
A published rate used by lenders to calculate interest adjustments on ARMs
(Index + Margin = Interest Rate). Some indexes are more volatile than others.
Index(ARM)
Established at loan origination, the Index is a financial indicator, widely
published, which, when combined with the Margin, works to establish the
effective rate of an adjustable rate mortgage ("Index + Margin = Rate").
Initial Rate
The rate charged during the first interval of an ARM.
Insolvency
Condition of a person who is unable to pay his debts as they fall due.
Interest
Charge paid for borrowing money, calculated as a percentage of the amount
borrowed.
Interest Rate
The periodic charge, expressed as a percentage, for use of credit.
Interest Rate Cap
A safeguard built into ARMs to prevent drastic changes in interest rates.
Interest Rate Change Date
Those dates upon which the rate of interest is subject to change. Initial
change date and subsequent change dates may feature different terms.
Joint Liability
Liability shared among two or more people, each of whom is liable for the full
debt.
Joint Tenancy
The ownership of property by two or more persons with the survivor taking the
share of the deceased.
Jumbo Loan
A mortgage larger than the limits set by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, currently more than
$333,700. Because jumbo loans cannot be funded by these two agencies, they
usually carry a higher interest rate.
Junior Mortgage
A mortgage subordinate or secondary to another mortgage. In the case of a
foreclosure a senior mortgage will be paid first.
Late Charge
Penalty paid by a borrower when a payment is made after the due date.
Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income homebuyers
to lease a home from a nonprofit organization with an option to buy. Monthly
rental payments cover mortgage payments, and also include an additional amount
that is saved toward a down payment.
Lender
The bank, mortgage company, or mortgage broker offering the loan.
LIBOR (London Interbank Offered Rate)
The interest rate charged among banks for short-term Eurodollar loans, and a
common index for ARMs.
Lien
A claim by one person on the property of another for payment of a debt.
Life Cap (Interest)
Pre-determined amount that establishes the maximum interest rate life of loan.
This can be expressed as a percentage above the start rate or expressed as a
rate of interest independent of the start rate.
Loan Administration (or Loan Servicing)
The collection of mortgage payments from borrowers and related responsibilities
(such as handling escrows for property tax and insurance, foreclosing on
defaulted loans and remitting payments to investors).
Loan Application
Document required by lenders prior to loan approval containing detailed
information about the borrower and property.
Loan Application Fee
Fee paid by prospective buyer to lender when applying for a mortgage.
Loan Origination Fee
Fee charged by a lender for processing a mortgage, usually expressed as a
percentage of the loan (or points), which pays for the work in evaluating and
processing the loan.
Loan Servicing (or Loan Administration)
The collection of mortgage payments from borrowers and related responsibilities
(such as handling escrows for property tax and insurance, foreclosing on
defaulted loans and remitting payments to investors).
Loan to Value Ratio (LTV)
The percentage of the property value borrowed. (Loan amount/property value=LTV)
Lock or Lock In
A lender's guarantee of an interest rate for a set period of time, usually
between loan application and loan closing; protects borrower against rate
increases during that time.
Margin
The number of percentage points added to an index to calculate the interest
rate on an ARM at each adjustment.
Margin(ARM)
A pre-determined "spread" or amount, when added to the Index, establishes a new
rate of interest (Note: Rate increases or decreases may be impacted by "caps").
Marketable Title
A title that is free and clear of liens, clouds or other defects that would
prevent the sale of the property.
Market Rate
The average rate charged by lenders for conventional, fixed-rate loans.
Market Value
The highest price that a buyer would pay for a property and the lowest price a
seller would accept.
Monthly Housing Expense
Total monthly expense of principal, interest, taxes and insurance.
Mortgage
Document creating a lien on a property as security for the payment of a debt.
Mortgage Banker
Originates and services mortgage loans, funding them with their own money.
Mortgage Broker
Arranges financing for borrowers, but places loans with lenders rather than
funding them with their own money.
Mortgagee
The lender in a mortgage loan transaction.
Mortgage Insurance
Insurance purchased by a buyer to cover the lender's risk when a down payment
is less than 20 percent of the purchase price.
MIP (Mortgage Insurance Premium)
Insurance purchased by borrower to insure against default on government (FHA or
VA) loans.
Mortgage Loan
A loan for which real estate serves as collateral to provide for repayment in
case of default.
Mortgage Note
Legal document obligating a borrower to repay a loan at a stated interest rate
during a specified period of time. The agreement is secured by a mortgage.
Mortgagor
The borrower in a mortgage loan transaction.
Negative Amortization
Increase in principal balance that occurs when monthly payments are not large
enough to pay all interest due on a loan, usually caused when payment caps
prevent sufficient payment increases. Unpaid deferred interest is added to the
loan balance, which means that the borrower ends up owing more than the
original amount of the loan.
Negative Armortization(ARM)
Aka "Potential Deferred Interest", negative amortization occurs when the
minimum required monthly payment as restricted by a Payment Cap is insufficient
to meet the full amount of interest due and payable.
Net
After taxes.
Net Effective Income
Gross income minus federal income tax.
Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by
another borrower without the prior approval of the lender.
Non-Conforming Loan
Loan that does not comply with Fannie Mae or Freddie Mac guidelines, but is
larger than $240,000.
Non-dischargeable Debt
Debt, such as taxes, that cannot be forgiven in a bankruptcy liquidation.
Note
Legal document stating the terms of a debt and a promise to repay it.
Notice of Default
Written notice to a borrower that a default has occurred and that legal action
may be taken.
Office of Comptroller Currency
The oldest federal financial regulatory body, which oversees the nation's
federally chartered banks.
Office of Thrift Supervision
Regulatory and supervisory agency for federally chartered savings institutions.
Origination Fee
Fee charged by a lender for processing a mortgage, usually expressed as a
percentage of the loan (or points), which pays for the work in evaluating and
processing the loan.
Owner Financing
A purchase in which the seller provides all or part of the financing.
Payment Cap
Limit on the amount by which a borrower's ARM payments may increase, regardless
of rise in interest rates; may result in negative amortization.
Payment Cap (ARM)
Pre-determined amount that establishes the maximum by which the payment can
increase, irrespective of increases to the interest rate.
Payment Change Date
Those dates upon which the payment amount is subject to change. Products
featuring "negative amortization" typically will include a payment change date
which differs from the interest rate change date in frequency.
Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which
closing takes place, you will have to pay interest from the date of closing to
the end of the month. Your first mortgage payment will probably be due the
first of the following month.)
Periodic Interest Cap
Interest "Caps" that work to restrict the degree to which adjustable rate
mortgages may increase and/or decrease at pre-determined change dates.
Permanent Loan
A long-term mortgage of 10 years or more.
PITI
Abbreviation for Principal, Interest, Taxes and Insurance, the components of a
monthly mortgage payment; also called monthly housing expenses.
Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest
is gradually used to reduce mortgage payments.
PMI
See Private Mortgage Insurance.
Points (or Discount Points)
Interest prepaid to the lender at closing. Each point is equal to 1% of the
loan amount. Paying more points at closing generally reduces the interest rate
(and therefore monthly payments) on a loan.
Power of Attorney
Legal document authorizing one person to act on behalf of another.
Prepaid Expenses
Taxes, insurance, and assessments paid in advance of their due dates, including
at closing.
Prepaid Interest
Charged to a borrower at closing to cover interest on the loan between closing
and the first payment.
Prepayment
Full or partial payment of the principal before the due date. This might occur
if the borrower makes extra payments, sells the property, or refinances the
existing loan.
Prepayment Penalty
Fee charged by a lender for early payment of debt.
Pre-payment Penalty
Many ARM loans contain a provision against pre-payment without penalty. Terms
of pre-payment penalty clauses vary from product to product, investor to
investor, and state to state. Many states and even local municipalities have,
or are contemplating, enacting legislation against pre-payment penalties
associated with "high cost" loans.
Prequalification
The process of determining how much money a prospective homebuyer will be
eligible to borrow prior to application for a loan.
Primary Mortgage Market
Includes banks, savings and loans, credit unions, and mortgage bankers who make
mortgage loans directly to borrowers. These lenders sometimes sell their
mortgages to lenders such as FNMA in the secondary mortgage market.
Prime Rate
Lowest commercial interest rate charged by a bank on short-term loans to its
most credit-worthy customers.
Principal
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
Insurance purchased by a buyer when a down payment is less than 20% of the
purchase price to protect the lender against default.
Profit and Loss Statement
Financial statement showing sales, expenses, and profits over a period of time.
Property Tax
A government tax based on the market value of a property.
Purchase Agreement-Contract signed by buyer and seller stating
the terms and conditions under which a property will be sold.
Qualifying Rate
Adjustable Rate Mortgages quite often employ a "Qualifying Rate" that differs
from the "Start Rate." The Qualifying Rate might be a pre-determined % of
interest (i.e. "8 percent"), might be expressed as the "highest possible rate
of interest at the beginning of the 2nd year", could be based on the Start Rate
(i.e. "Start Rate + 2%), and might also be expressed as the "Fully Indexed
Accrual Rate" ("FIAR") or some other amount related or unrelated to any of the
above.
Qualifying Ratio
Comparison of a borrower's expenses (housing or total debt) to his income.
Real Estate Broker
An agent who represents a buyer or seller in a real estate transaction.
Real Estate Settlement Procedures Act
Law requiring lenders to give borrowers advance notice of closing costs.
Real Property
Land and everything that is permanently affixed to it.
Realtor
Real estate professional who is a member of the National Association of
Realtors.
Rescission
The cancellation of a contract, permitted by law within three days of signing a
mortgage not used to purchase a home.
Reclamation
The right of the person with title to a property to recover it from the debtor
in case of a bankruptcy.
Reconveyance
The transfer of property back to the owner when a mortgage is fully repaid.
Recording
The act of entering documents concerning title to a property into the public
records.
Recording Fee
Money paid to an agent for entering the sale of a property into the public
records.
Refinancing
The process of paying off one loan with the proceeds from a new loan secured by
the same property.
Rent with Option to Buy
See Lease-Purchase Mortgage Loan.
Repossession (or Foreclosure)
Legal process by which the lender forces the sale of a property because the
borrower has not met the mortgage terms.
Reserves
See Impound.
RESPA
See Real Estate Settlement Procedures Act.
Reverse Annuity Mortgage (RAM)
Mortgage used by the elderly in which the lender makes periodic payments to the
borrower using the borrower's equity in the home.
Sale Agreement
Contract signed by buyer and seller stating the terms and conditions under
which a property will be sold.
SAM
See Shared Appreciation Mortgage.
Satisfaction
The payment of a debt that satisfies an obligation.
Secondary Mortgage Market
The market into which primary mortgage lenders sell the mortgages they make to
obtain funds to originate more new loans; includes investors such as Fannie Mae
and Freddie Mac.
Second Mortgage
A subordinate mortgage made in addition to a first mortgage.
Seller's Broker
An agent hired by a seller to represent the seller in negotiations with the
Buyer's Broker for the best possible deal for the seller.
Seller's Market
Market conditions that favor sellers. With more buyers than sellers in the
market, sellers have the negotiating power as demand exceeds supply.
Servicing (or Loan Administration)
The collection of mortgage payments from borrowers and related responsibilities
(such as handling escrows for property tax and insurance, foreclosing on
defaulted loans, and remitting payments to investors).
Settlement (or Closing)
Meeting between the buyer, seller, and lender or their agents at which property
and funds legally change hands.
Settlement Cost (HUD Guide)
Booklet that provides an overview of the lending process, given to consumers
after completing loan application.
Settlement Costs
See Closing Costs.
Settlement Sheet
The computation of costs payable at closing which determines the seller's net
proceeds and the buyer's net payment.
Shared Appreciation Mortgage (SAM)
Loan in which the borrower is given a below-market interest rate and the lender
receives a portion of the future appreciation of the property value.
Simple Interest
Interest that is computed only on the principal balance.
Start Rate
Pre-determined rate of interest that will be applied to the loan until the date
of the first interest rate change.
Subsidized Second Mortgage
Alternative financing op
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