Earnest money.
A deposit given to the seller to show that a prospective buyer is serious
about buying the property.
Easement. A right of way giving persons other
than the owner access to or over a property.
Equal Credit Opportunity Act (ECOA). A federal
law that prohibits lenders from denying mortgages on the basis of the
borrower's race, color, religion, national origin, age, sex, marital status,
or receipt of income from public assistance programs.
Equity. The difference between the market value
of a property and the homeowner's outstanding mortgage balance.
Equity loan. A loan based on the borrower's
equity in his or her home.
Escrow. The
holding of documents and money by a neutral third party prior to closing;
also, an account held by the lender into which a homeowner pays money for
taxes and insurance.
Fair Credit Reporting Act. A consumer
protection law that sets up a procedure for correcting mistakes on one's
credit record.
FHA loan. A mortgage that is insured by the
Federal Housing Administration.
First mortgage. The mortgage that has first
claim in the event of default.
Fixed rate mortgage. A mortgage in which the
interest rate does not change during the entire term of the loan.
Flood insurance. Insurance required for
properties in federally designated flood areas.
Forbearance. The lender's postponement of
foreclosure to give the borrower time to catch up on overdue payments.
Foreclosure. The process by which a mortgaged
property may be sold when a mortgage is in default.
Graduated payment mortgage. A mortgage that
starts with low monthly payments that increase at a predetermined rate.
Hazard insurance. Insurance to protect the
homeowner and the lender against physical damage to a property from fire,
wind, vandalism, or other hazards.
Homeowners insurance. An insurance policy that
combines liability coverage and hazard insurance.
Homeowners warranty. A type of insurance that
covers repairs to specified parts of a house for a specific period of time.
Impound account. Also called Tax and Insurance
Reserve (TIR). Accounts required if lender will pay the property taxes,
mortgage insurance, and hazard insurance.
Interest. The fee charged for borrowing money.
Interest rate cap. A provision of an ARM
limiting how much interest rates may increase per adjustment period. See
also Lifetime cap.
Joint tenancy. A form of co-ownership giving
each tenant equal interest and equal rights in the property, including the
right of survivorship.
Late charge. The penalty a borrower must pay
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, and with each
month's rent payments consisting of PITI payments on the first mortgage,
plus an extra amount that is earmarked for a savings account in which money
for a down payment accumulates.
Lien. A legal
claim against a property that must be paid when the property is sold.
Lifetime cap. A provision of an ARM that limits
the total increase in interest rates over the life of the loan.
Loan commitment. See Commitment letter.
Loan servicing. The collection of mortgage
payments from borrowers and related responsibilities of a loan servicer.
Loan-to-value ratio (LTV). The relationship
between the amount of a mortgage and the total value of the property.
Lock-in. A written agreement guaranteeing the
homebuyer a specified interest rate provided the loan is closed within a set
period of time. The lock-in also usually specifies the number of points to
be paid at closing.
Margin. The set percentage the lender adds to
the index rate to determine the interest rate of an ARM.
Mortgage. A
legal document that pledges a property to the lender as security for
payment of a debt.
Mortgage banker. A company that originates
mortgages exclusively for resale in the secondary market.
Mortgage broker. A company that for a fee
matches borrowers with lenders.
Mortgage insurance. See Private mortgage
insurance.
Mortgage insurance premium (MIP). The fee paid
by a borrower to the FHA or a private insurer for mortgage insurance.
Mortgage note. A 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.
Mortgagee. The lender in a mortgage agreement.
Mortgagor. The borrower in a mortgage
agreement.
Negative amortization. Payment terms under
which the borrower's monthly payments do not cover the interest due; as a
result, the loan balance increases.
Notice of default. A formal written notice to a
borrower that a default has occurred and that legal action may be taken.
Origination fee. A fee paid to a loan broker
for processing a loan application to offset overhead costs; it is stated as
a percentage of the mortgage amount, or points.
Owner financing. A purchase in which the seller
provides all or part of the financing.
Payment cap. A provision of some ARMs limiting
how much a borrower's payments may increase regardless of how much the
interest rate increases; may result in negative
amortization.
PITI. Stands for principal, interest, taxes,
and insurance -- the components of a monthly mortgage payment.
Points. A
one-time charge by the lender to increase the yield of the loan to the
investor; a point is one percent of the amount of the mortgage. Paying
points reduces the rate of the mortgage.
Prepayment penalty. A fee charged to a borrower
who pays off a loan before it is due.
Pre-qualification. The process of determining
how much money a prospective homebuyer will be eligible to borrow before a
loan is applied for.
Principal. The amount borrowed or remaining
unpaid; also, that part of the monthly payment that reduces the outstanding
balance of a mortgage.
Private mortgage insurance (PMI). Insurance
provided by non-government insurers that protects lenders against loss if a
borrower defaults.
Purchase and sale agreement. A written contract
signed by the buyer and seller stating the terms and conditions under which
a property will be sold.
Qualifying ratios. Guidelines applied by
lenders to determine how large a loan to grant a homebuyer.
Radon. A radioactive gas found in some homes
that in sufficient concentrations can cause health problems.
Rate lock. See Lock-in.
Real estate agent. A person licensed to
negotiate and transact the sale of real estate on behalf of the owner.
Real Estate Settlement Procedures Act. A
consumer protection law that requires lenders to give borrowers advance
notice of closing costs.
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.
Second mortgage. A mortgage that has rights
that are subordinate to the rights of the first mortgage holder.
Secondary mortgage market. The buying and
selling of existing mortgages.
Seller carryback. An agreement in which the
owner of a property provides financing, often in combination with an assumed
mortgage.
Settlement. See Closing.
Settlement sheet. The computation of costs
payable at closing which determines the seller's net proceeds and the
buyer's net payment.
Subsidized second mortgage. An alternative
financing option for low- and moderate-income households that also includes
a down payment and a first mortgage, with funds for the second mortgage
provided by city, county, or state housing agencies, foundations, or
nonprofit corporations. Payment on the second mortgage is often deferred,
carries no or low interest rates, and part of the debt may be forgiven for
each year the family remains in the home.
Survey. A drawing showing the legal boundaries
of a property.
Tax and Insurance Reserve (TIR). See Impound
account.
Tenancy by entirety. A type of joint ownership
of property available only to a husband and wife.
Tenancy in common. A type of joint ownership in
a property without right of survivorship.
Three/two (3/2) option. An alternative
financing plan that enables households whose earnings are no more than 100
percent of the median income in their regional area to make a 3 percent down
payment with their own funds, coupled with a 2 percent gift from a relative
or a 2 percent grant or unsecured loan from a nonprofit or state or local
government program.
Title. A legal
document establishing the right of ownership.
Title company. A company that specialized in
insuring title to property.
Title insurance. Insurance to protect the
lender (lender's policy) or the buyer (owner's policy) 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 tax. State or local tax payable when
title passes from one owner to another.
Truth-in-Lending Act. A federal law that
requires lenders to fully disclose, in writing, the terms and conditions of
a mortgage, including the APR and other charges.
Underwriting. The process of evaluating a loan
application to determine the risk involved for the lender.
VA loan. A loan that is guaranteed by the
Veterans Administration.
Yield Spread Premium. The fee or bonus
expressed in terms of points or percentage of the loan principal that is
paid by the national mortgage company to the local loan broker.
