Housing Resources Guide
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   Glossary of housing-related terms

acceleration clause ­ A clause in a mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

adjustable-rate mortgage (ARM) ­ A mortgage where the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

adjustment date ­ The date the interest rate changes on an adjustable-rate mortgage

amortization ­ The loan payment consists of a portion that will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the time frame.

amortization schedule ­ A table that shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan.

annual percentage rate (APR) ­ This is not the note rate on a loan. It is a value created according to a government formula intended to reflect the true cost of borrowing, as a percentage.

application ­ The form used to apply for a mortgage loan.

appraisal ­ A written reason a price is paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

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.

assessed value ­ The valuation placed on property by a public tax assessor for purposes of taxation.

assessment ­ The assigning of value on property for the purpose of taxation.

assessor ­ A public official who establishes the value of a property for tax purposes.

asset ­ Items of value owned by someone. Assets that can be quickly converted into cash are considered "liquid assets."

assignment ­ When ownership of a mortgage is transferred from one company or individual to another, it is called an assignment.

assumable mortgage ­ A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

assumption ­ The term applied when a buyer assumes the seller's mortgage.

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.

balloon payment ­ The final lump sum payment that is due at the termination of a balloon mortgage.

bankruptcy ­ By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy that relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

bill of sale ­ A written document that transfers title to personal property. For example, when selling an automobile to acquire funds that will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

bond market ­ Usually refers to the daily buying and selling of thirty 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.

broker ­ Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working for themselves or under another broker. Broker in the mortgage business usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors.

call option ­ Similar to the acceleration clause.

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."

certificate of deposit ­ A time deposit held in a bank that pays a certain amount of interest to the depositor.

Certificate of eligibility ­ A document issued by the Veterans 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.

chain of title ­ An analysis of the transfers of title to a piece of property over the years.

clear title ­ A title that is free of liens or legal questions as to ownership of the property.

closing ­ This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

closing costs ­ Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items that are paid just once as a result of buying the property or obtaining a loan. Pre-paid are items that recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate, which they must issue to the borrower within three days of receiving a home loan application. 

collateral ­ In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

construction loan ­ A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

contingency ­ A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

contract ­ An oral or written agreement to do or not to do a certain thing.

conventional mortgage ­ Refers to home loans other than government loans (VA and FHA).

convertible ARM ­ An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

credit ­ An agreement where a borrower receives something of value in exchange for a promise to repay the lender at a later date.

credit history ­ A record of an individual's payment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

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 ­ Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

delinquency ­ Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

deposit ­ A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."

depreciation ­ A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term that shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.

discount points ­ This term is usually used in reference to FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.

down payment ­ The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

earnest money deposit ­ A deposit made by the potential home buyer to show that he or she is serious about buying the house.

easement ­ A right of way giving persons other than the owner access to or over a property.

eminent domain ­ The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

encroachment ­ An improvement that intrudes illegally on another's property.

equity ­ A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

escrow ­ An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

escrow account ­ Once a purchase transaction is closed, this kind of account may be set up with the lender.

escrow analysis ­ Once each year a lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

escrow disbursements ­ The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Fair Credit Reporting Act ­ A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

fair market value ­ The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA) ­ The Federal National Mortgage Association, that is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Fannie Mae's Community Home Buyer's Program ­ An income-based community lending model, under that mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Federal Housing Administration (FHA) ­ An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

fee simple ­ The greatest possible interest a person can have in real estate.

fee simple estate ­ An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA mortgage ­ A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

firm commitment ­ A lender's agreement to make a loan to a specific borrower on a specific property.

first mortgage ­ The mortgage that is in first place among any loans recorded against a property. Usually refers to the date where loans are recorded, but there are exceptions.

fixed-rate mortgage ­ A mortgage where the interest rate does not change during the entire term of the loan.

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

foreclosure ­ The legal process by that a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

401(k)/403(b) ­ An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

government loan (mortgage) ­ A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). 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 in 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)

hazard insurance ­ Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

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 the borrower. 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 inspection ­ A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

homeowners' 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.

lease ­ A written agreement between the property owner and a tenant that stipulates the payment and conditions under that the tenant may possess the real estate for a specified period of time.

leasehold estate ­ A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

lender ­ A term that 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."

liabilities ­ A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

liability insurance ­ Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

lien ­ A legal claim against a property that must be paid off when the property is sold.

life cap ­ For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

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.

loan origination ­ How a lender refers to the process of obtaining new loans.

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

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 that moves up and down.

maturity ­ The date that the principal balance of a loan, bond, or other financial instrument becomes due and payable.

merged credit report ­ A credit report that reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

mortgage ­ A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

mortgage banker ­ For a more complete discussion of mortgage banker, see "Types of Lenders." A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.

mortgage broker ­ A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

mortgagee ­ The lender in a mortgage agreement.

mortgage insurance ­ Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

negative amortization ­ Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

no cash-out refinance ­ A refinance transaction that is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."

no-cost loan ­ Many lenders offer loans that the borrower can obtain at "no cost." The borrower should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs the borrower would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs that may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if the borrower obtains a loan that has costs associated with it.

note ­ A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

note rate ­ The interest rate stated on a mortgage note.

no-cost loan ­ Almost all lenders offer loans at "no points." The interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where one would pay one point.

notice of default ­ A formal written notice to a borrower that a default has occurred and that legal action may be taken.

original principal balance ­ The total amount of principal owed on a mortgage before any payments are made.

origination fee ­ On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged that are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

owner financing ­ A property purchase transaction where the property seller provides all or part of the financing.

quitclaim deed ­ A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made. 

real estate agent ­ A person licensed to negotiate and transact the sale of real estate.

real property ­ Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. 

Realtor ­ A real estate agent, broker, or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

recording ­ The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, there by making it a part of the public record.

refinance transaction ­ The process of paying off one loan with the proceeds from a new loan using the same property as security.

remaining balance ­ The amount of principal that has not yet been repaid. See principal balance. 

remaining term ­ The original amortization term minus the number of payments that have been applied.  

rent loss insurance ­ Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of that the tenant is excused from paying rent.

repayment plan ­ An arrangement made to repay delinquent installments or advances.   

revolving debt ­ A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.   

sale-leaseback ­ A technique where a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

second mortgage ­ A mortgage that has a lien position subordinate to the first mortgage. 

secondary market ­ The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.

secured loan ­ A loan that is backed by collateral. 

survey ­ A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.  

title ­ A legal document evidencing a person's right to or ownership of a property. 

title company ­ A company that specializes in examining and insuring titles to real estate. 

title insurance ­ Insurance that protects the lender or the buyer against loss arising from disputes over ownership of a property. 

title search ­ A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. 

transfer of ownership ­ Property changing hands. This includes: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. 

Truth in lending ­ A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.  

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

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.