Acceleration – The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due On Sale Clause.
Adjustable Rate Mortgage – A loan in which the interest rate is periodically increased or decreased to reflect changes in the cost of money; commonly called an ARM.
Alimony Received – Can be counted on to qualify if it is received on a regular basis and will continue for another 3 years.
Amortized Loan – A loan structured to require regular, level payments, each including a portion for principal and a portion for interest. The loan is fully amortized if the payments will pay off the debt in full by the end of the loan term; it is partially amortized if a balloon payment of the remaining principal balance will be required at the end of the term.
Annual Percentage Rate (APR) – Under the Truth In Lending Act, the relationship between a loan’s total finance charge and the total amount financed, expressed as an annual percentage. The total finance charge includes interest, any discount points paid by the borrower, the loan origination fee, and mortgage insurance costs.
Appraisal – An expert’s estimate of the value of a piece of real estate as of a particular date, based on a documented analysis of the property’s features; also called a valuation.
Appreciation – An increase in a property’s value; the opposite of depreciation.
Arm’s Length Transaction – Any transaction in which there is no pre-existing family or business relationship between the parties.
Assessment – A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Asset – Anything of value that a person owns. When completing your loan application, you will have to provide the following information regarding your assets: complete information on all bank and money market accounts, two months of current bank statements, current values of stocks, bonds, mutual funds, and other investments, vested interest in retirement funds, face amount and cash value of life insurance, information on any cars and real estate you own; and the value of any significant personal property you own.
Assets, Liquid – Cash or other assets that can be readily turned into cash (liquidated), such as stock.
Assumption – The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.
Balloon Mortgage – A mortgage loan which requires the borrower to make a balloon payment.
Balloon Payment – The payment of the remaining principal balance due at the end of the term of a partially amortized or interest only loan; so called because it is much larger than the regular payments made during the loan term; or, any loan payment that is larger than the regular payments.
Bi-Weekly Loan – A fixed-rate loan that requires a payment every two weeks instead of once a month, so that the borrower makes 26 half payments per year, the equivalent of 13 monthly payments.
Bill of Sale – A document used to transfer title to personal property from one person to another.
Blanket Mortgage – A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bonus – Ongoing bonus payments received. You will need to provide signed income tax returns/W-2’s to verify income.
Borrower (Mortgagor) – One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Broker – An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Brokerage Fee – The commission and other compensation charged for a real estate broker services.
Buydown – When the seller or a third party pays the lender a lump sum at closing to lower the interest rate charged to the buyer, either for the life of the loan (permanent buydown) or only during the first years of the loan term (temporary buydown).
Cap – A limit on the amount the interest rate or monthly payment can increase in an Adjustable Rate Mortgage (ARM).
Capitalization – A method of appraising real property by converting the anticipated net income from the property into the present value. Also called the income approach to value.
Cash Flow – The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).
Certificate of Eligibility – A document issued by the Veterans Administration, indicating a veteran’s eligibility for a VA-guaranteed loan.
Certificate of Reasonable Value – A document issued by the Veterans Administration, setting forth a property’s current market value, based on a VA-approved appraisal.
Chattel Mortgage – An instrument that makes personal property (chattels) security for a loan. In states that have adopted the Uniform Commercial Code, the chattel mortgage has been replaced by the security agreement.
Child Support – Can be counted on to qualify if it is received on a regular basis and will continue for another 3 years.
Closing – The final stage in a real estate transaction, when the loan funds are disbursed, the seller is paid the purchase price, and the buyer receives the deed; also called settlement.
Closing Costs – Expenses incurred in the transfer of real estate, aside from the purchase price; for example, the appraisal fee, title insurance premiums, brokerage fee, and transfer taxes. Also called settlement costs.
Co-Borrower – Someone (often a member of the borrower’s family) who accepts responsibility for repayment of a mortgage loan, along with the primary borrower, to help the borrower qualify for the loan. Also called a co-mortgagor.
COFI – Adjustable Rate Mortgage with rate that adjusts based on a Cost Of Funds Index, often the 11th District Cost of Funds.
Collateral – Property (personal or real) accepted by a lender as security for a loan, which can be sold if the borrower fails to repay as agreed.
Commission – The compensation paid to a real estate broker for services in connection with a real estate transaction.
Commitment – A lender’s promise to make a loan. A loan commitment may be either firm or conditional. If it is conditional, the loan will not be made unless certain conditions are fulfilled.
Comparables – In a sales comparison appraisal, properties similar to the subject property that have recently been sold; the appraiser uses the sales price of the comparables as an indication of the value of the subject property.
Competitive Market Analysis (CMA) – A real estate agent’s estimate of the value of a listed home, based on the sales prices or listing prices of comparable homes.
Condition – A provision in an agreement that makes the parties’ rights and obligations depend on the occurrence (or nonoccurrence) of a particular event. Also called a contingency clause.
Condominium – A condominium is a unit of a multi-unit housing structure with a proportional interest in the common areas.
Conforming Loan – A loan made in accordance with the standardized underwriting criteria of the major secondary market agencies, Fannie Mae and Freddie Mac, and which therefore can be sold to those agencies. A loan that does not meet the Fannie Mae/Freddie Mac standards is called a nonconforming loan.
Consideration – Something of value given to induce another to enter into a contract. An agreement is not a legally binding contract unless the parties exchange consideration.
Construction Loan – A loan to finance the cost of constructing a building, usually providing that the loan funds will be advanced in installments as the work progresses. Also called an interim loan, because it remains in force only until construction is completed. At that point, the construction loan is replaced with a take-out loan.
Consumer Price Index – An index that tracks changes in the cost of goods and services for a typical consumer. Formerly called the cost of living index.
Conventional Loan – An institutional loan that is not insured or guaranteed by a government agency.
Convertible ARM – An adjustable rate mortgage that gives the borrower the option of converting to a fixed interest rate at certain times during the first years of the loan term.
Cost Approach to Value – One of the three main methods of appraisal (along with the income approach and the sales comparison approach), in which an estimate of the subject property’s value is arrived at by estimating the cost of replacing the improvements, then deducting the estimated accrued depreciation and adding the estimated market value of the land.
Credit Report – A report prepared by a credit rating bureau that outlines the credit history of an individual or a business, showing the amount of debt, a record of repayment, and related information.
Debt Service – The amount of money required to make the periodic payments of principal and interest on an amortized debt, such as a mortgage.
Debt To Income Ratio – The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long term debts is divided by his or her gross monthly income. See Housing Expenses To Income Ratio.
Deduction – An amount a taxpayer is allowed to subtract from his or her income before the tax on the income is calculated.
Deed In Lieu Of Foreclosure – A deed given by a borrower to a lender, transferring title to the security property to the lender to satisfy the debt and avoid foreclosure.
Deed Of Reconveyance – A document which acknowledges that a deed of trust has been paid in full, releasing the security property from the lien.
Deed Of Trust – In many states, this document is used in place of a mortgage to secure the payment of a note.
Default – Failure to fulfill an obligation, duty, or promise, as when a borrower fails to make payments or a tenant fails to pay rent.
Deferred Interest – When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.
Deferred Maintenance – Depreciation resulting from physical wear and tear.
Deficiency Judgment – A court judgment ordering a debtor to pay the creditor the difference between the amount of the debt and the proceeds of a judicial foreclosure sale.
Delinquency – Failure to make payments on time. this can lead to foreclosure.
Department Of Veterans Affairs (VA) – An independent agency of the federal government which guarantees long term, low or no down payment mortgages to eligible veterans.
Depreciation – A loss in value due to any cause.
Direct Endorser – A lender authorized to underwrite its own FHA loan applications, rather than having to submit them to the FHA for approval.
Discount Points – A percentage of the loan amount used to buy down an interest rate (buyer) or cover costs (seller).
Dividends – Ongoing dividends received. You will need to provide signed income tax returns to verify dividend income.
Down Payment – Money paid to make up the difference between the purchase price and the mortgage amount.
Due On Sale Clause – A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Duplex – Any building containing exactly two dwelling units; most commonly refers to units which are side by side with a common wall and roof.
Earnest Money – A deposit that a prospective buyer gives the seller when the purchase and sale agreement is signed, as evidence of his or her good faith intention to complete the transaction.
Economic Life – The period during which improved property yields a return over and above the rent due to the land itself; also called the useful life. Compare: Physical Life.
Encumber – To place a lien or other encumbrance against the title to a property.
Entitlement – The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.
Equal Credit Opportunity Act (ECOA) – Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity – The difference between the fair market value and current indebtedness, also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.
Equity Exchange – When a buyer gives a seller real or personal property in addition to or instead of cash for the purchase price.
Escalation Clause – A clause in a contract or mortgage that provides for payment or interest increases if specified events occur, such as a change in the property taxes or in the prime interest rate. Also called an escalator clause.
Escrow – A system in which things of value (such as money or documents) are held on behalf of the parties to a transaction by a disinterested third party (the escrow agent) until specified conditions have been fulfilled.
Escrow Account – An account held by the lender into which the home buyer pays money as tax or insurance payments. It is also where deposits are held pending a loan closing.
Fannie Mae (FNMA) – The Federal National Mortgage Association (FNMA), a private corporation supervised by HUD; one of the three major secondary market agencies, along with Freddie Mac and Ginnie Mae.
Farmers Home Administration (FmHA) – A federal agency within the Department of Agriculture, which makes loans in rural areas to people who are unable to obtain financing from private sources, and also insures loans made by private lenders. The loans may be used to purchase or develop farms, build or rehabilitate farm homes and other farm buildings, or develop rural housing for the elderly.
Federal Home Loan Mortgage Corporation (FHLMC) – Also called “Freddie Mac”, is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA) – An agency within the Department of Housing and Urban Development that provides mortgage insurance to encourage lenders to make more affordable home loans.
Federal Reserve – The government body that regulates commercial banks, and that implements monetary policy in an attempt to control the national economy.
FHA-Insured Loan – A loan made by an institutional lender with mortgage insurance provided by the Federal Housing Administration, protecting the lender against losses due to borrower default.
FHLMC – The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as “Freddie Mac”.
Financial Statement – A summary of facts showing the financial condition of an individual or a business, including a detailed list of assets and liabilities. Also called a balance sheet.
First Lien Position – The position of lien priority held by a mortgage or deed of trust that has higher priority than any other mortgage or deed of trust against the property.
First Mortgage – The mortgage (or deed of trust) against a property that has first lien position; the one with higher lien priority than any other mortgage against that property.
Fiscal Year – Any twelve month period used as a business year for accounting, tax, and other financial purposes, as opposed to a calendar year.
Fixed Rate Mortgage – A home loan with an interest rate that will remain the same rate for the life of the loan.
Foreclosure – A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has failed to meet the terms of the mortgage.
Fourplex – Any building containing exactly four dwelling units.
Functional Obsolescence – Depreciation resulting from functional inadequacies, such as those caused by poor or outmoded design.
Funding Fee – A charge, paid by a VA borrower at closing, which the lender submits to the VA.
Gift Funds – Money given to a buyer, by a relative or approved non-profit organization, for the purpose of covering the costs to purchase a property.
Gift Letter – A document in which a donor states that money given to a prospective borrower is not a loan and does not have to be repaid.
Ginnie Mae – Also known as “GNMA” (Government National Mortgage Association), provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Good Faith Estimate – An estimate from an institutional lender that outlines the costs a borrower will incur during the process of buying a home.
Graduated Payment Mortgage (GPM) – A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Gross Monthly Income – An individual’s income before income taxes have been deducted.
Gross Rent Multiplier (GRM) – A figure used to estimate the value of residential rental property, determined by dividing the sales price by the monthly rental income.
Growing Equity Mortgage (GEM) – A fixed rate loan with annual payment increases that are used to reduce the principal balance, so that the loan is paid off much more quickly than it would be with ordinary level payments.
Hazard Insurance – Insurance against damage to real property caused by fire, flood, or other mishaps. Also called casualty insurance.
Highest and Best Use – The use which, at the time of appraisal, is most likely to produce the greatest net return from the property over a given period of time.
Home Equity Loan – A loan secured by the borrower’s equity in property he or she already owns.
Homeowners Association – A nonprofit association made up of homeowners in a subdivision, responsible for enforcing the restrictive covenants and managing other community affairs.
Housing Expenses To Income Ratio – The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. See Debt To Income Ratio .
HUD – The Department of Housing and Urban Development, a cabinet level department of the federal government.
Impound Account – An escrow account maintained by a lender for paying property taxes and insurance premiums for the security property; the lender requires the borrower to make regular deposits, and pays the expenses out of the account when they come due. Also called a reserve account.
Income Property – Property that generates rent or other income for the owner, such as an apartment building.
Index – A published statistical report that indicates changes in the cost of money (market interest rates), used as the basis for interest rate adjustments in an ARM.
Installment – An Installment loan, such as a student loan or car loan, is a debt that is regularly reported for a specific amount and for a specific term.
Interest – A periodic charge a lender requires a borrower to pay in exchange for the loan, usually expressed as a percentage of the principal.
Interest Only Loan – A loan that calls for payments of only the interest due during the loan term, so that the entire principal amount is due in one lump sum at the end of the term.
Interest Rate Cap – A provision in an ARM that limits the amount that the interest rate may be increased (and in some cases, decreased).
Interim Financing – A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Investment/Rental Property – Property that you do not occupy which is rented, leased or used for other investment purposes.
Jumbo Loan – A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Junior Mortgage – A mortgage that has lower lien priority than another mortgage against the same property. Sometimes called a second mortgage or secondary mortgage.
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Lease – A contract in which one party (the tenant) pays the other (the landlord) rent in exchange for the possession of real estate.
Lease/Option – A lease that includes an option to purchase the leased property during the term of the lease.
Lease/Purchase Contract – A variation on the lease/option, in which the parties sign a purchase contract (instead of an option) and the prospective buyer leases the property for an extended period before closing.
Liability – A debt or obligation; legal responsibility.
Lien – A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Listing – A contract between a real estate broker and a property seller, by which the seller makes the broker his or her agent in order to put the property up for sale.
Loan Origination Fee – The fee charged by a lender to prepare all the documents associated with your mortgage.
Loan-to-Value Ratio (LTV) – The relationship between the loan amount and either the sales price or the appraised value of the property (whichever is less), expressed as a percentage.
Lock-In – When a lender guarantees a loan applicant a particular interest rate if the transaction closes within a specified period.
Margin – The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value – The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
MIP – Mortgage Insurance Premium. Most often used to refer to the fee charged for FHA insurance coverage. The initial FHA premium is referred to as the OTMIP (one-time MIP) or the UFMIP (up-front MIP).
Mobile/Manufactured – Homes which are not truly mobile but are constructed in the same manner as trailers, as opposed to conventional on-site construction.
Mortgage Broker – An intermediary who brings real estate lenders and borrowers together and negotiates loan agreements between them.
Mortgage Company – A type of real estate lender that originates and services loans on behalf of large investors (acting as a mortgage banker) or for immediate resale on the secondary market; not a depository financial institution.
Mortgage Insurance – Insurance against losses resulting from mortgage default; if the borrower defaults and the lender takes a loss, the insurer will reimburse the lender for all or part of the loss.
Mortgage Loan – A loan secured by a mortgage or a deed of trust.
Mortgagee – The one who receives a mortgage from the mortgagor; the lender.
Negative Amortization – Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Worth – An individual’s personal financial assets, minus his or her total personal liabilities.
Nonconforming Loan – A loan that does not meet the underwriting guidelines set by Fannie Mae and Freddie Mac, and therefore can’t be sold to those agencies, except by special arrangement.
Note Rate – The interest rate specified in the loan’s promissory note; also called the coupon rate or the contract rate.
Notice of Default – A notice sent by a lender (mortgagee or deed of trust beneficiary) to the borrower, informing the borrower that he or she has breached the terms of the loan agreement and warning that the lender is going to begin the foreclosure process.
One Year Adjustable – Mortgage whose interest rate changes annually. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender, and restricted by periodic caps.
Open End Loan – A loan that permits the borrower to re-borrow the money he or she has repaid on the principal, usually up to the original loan amount, without executing a new loan agreement; similar to a line of credit.
Option – A contract that gives one party the right to do something (such as purchase a piece of property), without obligating him or her to do it.
Option Money – The consideration paid a buyer/optionee that makes an option to purchase binding on the seller/optionor.
Option to Purchase – An option giving the optionee the right to buy property owned by the optionor at an agreed price during a specified period.
Origination Fee – The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Other Debt – Other debt includes, but is not limited to, alimony, child support, maintenance, day care, current housing expense and investment housing expense.
Other Income – Other income includes dividends/interest and second jobs. Second jobs only applies if continuous for 2 years and there is a likelihood that it will continue.
Over-improvement – An improvement that is more expensive than the value of the land justifies.
Overtime – Indicate overtime pay if it has been continuous for a long period of time and if it will continue.
Payee – In a promissory note, the party who is entitled to be paid; the creditor or lender.
Payment Cap – A limit on the amount an ARM’s payment can be increased, either during a given year, or over the entire life of the loan.
Personal Property – Any property that is not real property; movable property not affixed to land.
Physical Life – An estimate of the time a building will remain structurally sound and capable of being used. Compare: Economic Life.
PITI – Principal, Interest, Taxes and Insurance.
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 – Private mortgage insurance, used to insure high LTV conventional loans; it’s provided by a private insurance company instead of a government agency.
PMI Requirements – Under federal law, PrivateMI on most loans originated on or after July 29, 1999, will terminate automatically once the mortgage has amortized to 78 percent of the original value of the house. The borrower must be current on all mortgage payments. The lender must tell the borrower at closing when the mortgage will hit that 78 percent mark.
Point – One point is one percent of the loan amount.
Portfolio – The collection of mortgages and other loans that a lender holds on to until they are repaid, rather than selling them on the secondary market.
Power of Attorney – A legal document authorizing one person to act on behalf of another.
Pre-Approval – This means that we have determined that your credit report and application have been approved, and granted you the money for your loan.
Pre-Qualifying – Determining the maximum mortgage payment and loan amount that prospective buyers are likely to qualify for, based on information provided by the buyer.
Prepaid Expenses – Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment – Paying off part or all of a loan before payment is due.
Prepayment Penalty – A penalty some lenders charge a borrower who prepays a loan, to compensate for the lost interest that the lender would have received if the borrower had continued paying off the loan over its entire term.
Primary Residence – Primary residence is a property that you physically occupy and is your home.
Prime Rate – The interest rate a bank charges its largest and most desirable customers.
Principal – The amount of debt, not counting interest, left on a loan.
Proration – The process of dividing or allocating something (especially a sum of money or an expense) proportionately, according to time, interest, or benefit.
Purchase and Sale Agreement – A contract in which a seller promises to convey title of real property to a buyer, in exchange for the purchase price. Also called an earnest money agreement, deposit receipt, sales contract, purchase contract, or contract of sale.
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Rate Adjustment Period – The minimum interval between adjustments of an ARM’s interest rate.
Re-amortize – To recalculate level payments for a loan, either because the loan term has been changed or because the loan balance has increased (due to negative amortization).
Real Estate Investment Trust (REIT) – A real estate investment business with at least 100 investors, organized as a trust and receiving tax benefits in exchange for compliance with certain rules.
Realtor – A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Recission – The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees – Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Redlining – When a lender refuses to make loans secured by property in a certain neighborhood because of the racial or ethnic composition of the neighborhood, in violation of fair lending laws.
Refinance – Obtaining a new mortgage loan on a property already owned; often to replace existing loans on the property.
Regulation Z – The Federal Reserve Board’s regulation that implements the Truth In Lending Act.
Reinstatement – When a defaulting borrower is allowed to prevent foreclosure by curing the default, the loan is reinstated and repayment resumes.
Rent – Compensation paid by a tenant to a landlord in exchange for the possession and use of the leased property.
Rent Credit Provision – A provision in a lease/option or lease/purchase contract that allows part of the rent paid by the tenant to be applied to the purchase of the property.
Rental Income – Input the gross rents received. The vacancy factor will be applied automatically.
Residual Income – The amount of income that an applicant for a VA loan has left over after taxes, recurring obligations, and the proposed housing expense have been deducted from his or her gross monthly income.
RESPA – The Real Estate Settlement Procedures Act, a federal law that requires lenders to disclose certain information about closing costs to loan applicants.
Reverse Equity Mortgage – An arrangement in which a homeowner mortgages the home to a lender in exchange for a monthly check from the lender.
Revolving – The term Revolving refers to a debt that generally has a fixed limit, but the outstanding balance and monthly payment may vary from month to month. The best examples of revolving debt are credit cards and gas cards.
Satisfaction of Mortgage – The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage.”
Seasoned Loan – A loan with an established record of timely payment by the borrower.
Second / Vacation Home – Second home/vacation home is a property that is not your primary residence and that you occupy less than six months a year.
Second Mortgage – A mortgage that does not have first lien position; a junior mortgage. A mortgage made subsequent to a first mortgage and subordinate to the first one.
Secondary Financing – Money borrowed to pay part of the required down payment or closing costs for a first loan, when the second loan is secured by the same property that secures the first loan.
Secondary Market – The market in which investors (including Fannie Mae, Freddie Mac, and Ginnie Mae) purchase real estate loans from lenders; also called the national market.
Securities – Investment instruments, such as stocks and bonds.
Securities, Mortgage-Backed – Investment instruments that have pools of real estate loans as collateral; issued and sold to investors by the major secondary market agencies (Fannie Mae, Freddie Mac, and Ginnie Mae) and other companies.
Seller Financing – When a seller extends credit to a buyer to finance the purchase of the property; as opposed to having the buyer obtain a loan from a third party, such as an institutional lender.
Servicing – The process of collecting loan payments, keeping the records associated with loans, and handling defaults.
Settlement – Closing, the final stage in a real estate transaction.
Settlement Statement – A document that presents a final, detailed accounting for a real estate transaction, listing each party’s debits and credits, and the amount each will receive or be required to pay at closing. Also called a closing statement.
Shared Appreciation Mortgage (SAM) – A mortgage in which the borrower receives a lower interest rate on the mortgage loan in exchange for agreeing to pay the lender some of the profits when the property is sold.
Sheriff’s Deed – The deed that is given to someone who purchases property at a foreclosure sale, after the statutory redemption period has expired.
Simple Interest – Interest which is computed only on the principal balance.
Single Family Residence – A single family residence is a free-standing housing structure or single unit that does not share walls with any other homes. A house designed for use by one family.
Stable Monthly Income – Gross monthly income (from primary and secondary sources) that meets the lender’s tests of quality and durability.
Subordination – When a mortgagee or trust deed beneficiary agrees to accept lower lien priority than he or she is entitled to, allowing a lender with a lien recorded later to have higher priority.
Subordination Clause – A provision in a mortgage or deed of trust that permits a later security instrument to have higher lien priority than the one in which the clause appears.
Sweat Equity – Equity created by a purchaser performing work on a property being purchased.
Take-Out Loan – Long term financing used to replace a construction loan (an interim loan) when construction has been completed. Also called a permanent loan.
Title – The document that outlines proof of ownership of a property.
Title Insurance – A policy which insures you against errors in the title search (to determine legal ownership), essentially guaranteeing you and your lender’s financial interest in the property.
Title Search – An examination of municipal records to determine the legal ownership of the property. Usually is performed by a title company.
Total Finance Charge – Under the Truth In Lending Act, the total finance charge on a loan includes the interest, any discount points paid by the borrower, the loan origination fee, and mortgage insurance costs. See also: Annual Percentage Rate.
Townhouse – A townhouse is a row house on a small lot that shares walls with other similar units.
Treasury Bills – Securities issued by the Treasury department that have the full backing of the U.S. Government.
Treasury Index – An index used to determine interest rate changes for adjustable rate mortgages (ARMs).
Triplex – Any building containing exactly three dwelling units.
Trust Account – A bank account in which funds held in trust on behalf of another person are kept separate from the holder’s own money.
Trustee – In a deed of trust transaction, a neutral third party appointed by the lender to handle non-judicial foreclosure (if necessary) or reconveyance after the loan has been re-paid.
Trustee’s Sale – A non-judicial foreclosure sale pursuant to the power of sale clause in a deed of trust.
Truth In Lending Act (TILA) – A federal law that requires lenders and credit arrangers to make disclosures concerning loan costs (including the total finance charge and the annual percentage rate) to consumer loan applicants.
Underwriter – The employee of an institutional lender who evaluates loan applications, deciding which loans to approve.
Underwriting – The process of evaluating the financial status of a loan applicant and the value of the property he or she hopes to buy, to determine the risk of default and the risk of loss in the event of default and foreclosure. Also called risk analysis or qualifying.
Usury – Interest charged in excess of the legal rate established by law.
VA – Veterans Administration.
VA Entitlement – The VA guaranty amount that a particular veteran is entitled to.
VA Guaranty – The portion of a VA loan guaranteed by the Veterans Administration; the maximum amount that the VA will pay the lender for a loss resulting from the borrower’s default.
VA Loan – A long term, low or no down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
Verification of Deposit – A form a lender sends to a financial institution for confirmation that a loan applicant has the funds on deposit that he or she claims to have.
Verification of Employment – A form a lender sends to a loan applicant’s employer, for confirmation that the applicant is actually employed as claimed, and to verify the amount of the applicant’s salary.
Wraparound Financing – A seller financing arrangement in which the seller uses part of the buyer’s payments to make the payments on an existing loan (called the underlying loan). The buyer takes title, subject to the underlying loan, but does not assume it.
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Yield – A lender’s or investor’s rate of return on a loan or investment, expressed as a percentage of the amount loaned or invested.
Zero Down – Loans for which you don’t need money for a down payment, but that you still need money for the additional costs like prepaids and closing costs.