Abstract (Of Title) Back to top
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause Back to top
Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
Adjustable-Rate Mortgage (ARM) Back to top
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an i
ndex rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
Adjustment Period Back to top
This is the length of time for which the interest rate is fixed on an adjustable rate mortgage. After that period it will be adjusted. Typically once or twice a year depending on the index
Sale Back to top
Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.
A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.
Annual Percentage Rate (APR) Back to top
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.
Appraisal Back to top
An expert judgment or estimate of the quality or value of real estate as of a given date.
A figure in dollars determined for tax purposes by an assessor which reflects a property's worth and which, unless exempt, is used to compute a tax dollar obligation by multiplying it by a tax rate.
Assessing Unit Back to top
A city, county, town or village with the authority to value real property for purposes of taxation.
Associability Back to top
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.
Assumption Back to top
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. The lender has to be notified and agree to the assumption. Assuming a loan can usually save a money since the buyer isn't required to pay most of the closing costs.
Assumption of Mortgage Back to top
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Attached Home Back to top
A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes.
Balloon Mortgage Back to top
A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the entire amount of the outstanding principal. Usually they have terms of 3, 5, and 7 years.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Biweekly Mortgage Back to top
A mortgage which requires a payment for half the monthly amount every two weeks. As a result the loan amortizes much faster than a loan with normal monthly payments. For example, a 30 year fixed rate loan will be paid off in approximately 19 years.
Blanket Mortgage Back to top
A mortgage covering at least two pieces of real estate as security for the same mortgage.
An interim loan is made to finance a buyers new residence if the buyer is unable to sell his/her current residence but needs money to close the transaction.
Broker Back to top
See real estate bro
Building Line or Setback Back to top
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Buy down Back to top
With a buy down, the seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period in an ARM. The seller may increase the sales price to cover the cost of the buy down. Buy downs can occur in all types of mortgages, not just ARMs.
Caps Back to top
A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage. Most ARMs have an interest rate caps to protect you from enormous increases in monthly payments.
A lifetime cap limits the interest rate increase over the life of the loan. Lifetime caps can vary by lender, but most ARMs have caps of 5% or 6%. A periodic or adjustment cap limits how much your interest rate can rise at one time. Generally, a 6 month ARM will have a cap of 1% while a 1 year ARM will have a 2% cap.
Periodic and lifetime caps are quoted as two numbers as in 2/6 which would mean that periodic cap is 2% and the lifetime cap is 6%. Examples:
1. If the initial interest rate is 4.5%, the index is 7%, and the margin is 3%,
then the new interest rate = 7% + 3% = 10%.
If the lifetime cap is 5% then
the actual new interest rate will be 4.5% + 5% = 9.5%.
2. The initial interest rate is 6%, the index is 5%, and the margin is 3%,
then the new interest rate = 5% + 3% = 8%.
If the periodic cap is 1% then
the actual new interest rate will be 6% + 1% = 7%.
ARMs which have an initial fixed period -- 30/3/1, 30/5/1, 30/7/1 and 30/10/1 -- can alsohave first adjustment cap. It limits the interest rate you will pay the first time your rate is adjusted. These ARMs are quoted as three numbers as in 5/2/5 which would mean that the first adjustment cap is 5%, adjustment cap thereafter is 2%, and the lifetime cap is 5%.
Two-Step loans -- 5/25 and 7/23 -- have only one adjustment after the first five or seven years of its term. They are quoted with a single first adjustment cap.
Profit earned from the sale of real estate. The new tax code does not tax the profits from the sale of a home if the proceeds are used to buy another house costing at least as much as the sales price of the old one.
Certificate of Eligibility Back to top
The document issued by the U.S. Department of Veterans Affairs. It is required when applying for VA loans.
Certificate of Occupancy
Document issued by a local governmental agency that states a property meets the local building standards for occupancy.
Certificate of Reasonable Value
An appraisal issued by the VA approved appraiser which establishes the property's current market value.
Certificate of Title Back to top
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Clear Title Back to top
Is a title that is free of clouds and disputed interests.
Closing Costs Back to top
The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list:
BUYER'S EXPENSES SELLER'S EXPENSES
Documentary Stamps on Notes Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.
Closing Day Back to top
The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.
Cloud (On Title) Back to top
An outstanding claim or encumbrance which adversely affects the marketability of title.
Commission Back to top
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price--6 to 7 percent on houses, 10 percent on land.
Commitment Back to top
A written agreement between a lender and a borrower to loan money on specific terms or conditions.
Condemnation Back to top
The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
Condominium Back to top
Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.
Construction loan Back to top
A short term loan to pay for the construction of buildings or homes. These loans usually provide periodic disbursements to the builder as each stage of the building is completed. Generally followed by long term financing called a "take out" loan issued upon completion of construction.
Contingency Back to top
A condition put on an offer to buy a home such as the perspective buyer making an offer contingent on his or her sale of a present home.
Contract of Purchase Back to top
See Agreement of Sale
Contractor Back to top
In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.
Conventional Mortgage Back to top
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)
Conversion Option Back to top
Some ARMs come with options to convert them to a fixed rate mortgage during a given time period without having to go through a refinancing, which could cost up to 5 percent or 6 percent of the loan amount. For example popular conversion options for 1 year treasury-indexed ARMs include:
1. Option to convert on the third, fourth, or fifth adjustment date, i.e. during the 37th, 49th and 61st months of the loan.
2. Option to convert during the first five years on the adjustment date, i.e. during the 13th, 25th, 37th, 49th and 61st months of the loan.
The interest rate or points may be somewhat higher for a convertible ARM. Also, a convertible ARM may require a small fee at the time of conversion.
Conveyance Back to top
The transfer of title to the property from one party to another.
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
Credit Report Back to top
A report documenting the history of how you paid back the companies you have borrowed money from, or how you have met other financial obligations.
Deed Back to top
A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also Deed of Trust
, General Warranty Deed
, Quitclaim Deed
, and Special Warranty Deed
Deed of Trust Back to top
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.
Default Back to top
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.
Deferred interest Back to top
When the monthly payments do not cover all of the interest cost, the unpaid interest is deferred by adding it to the loan balance. A typical feature of pay option ARMs.
Deficiency Judgment Back to top
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages.
Depreciation Back to top
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Discount Back to top
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
Documentary Stamps Back to top
A State tax in the forms of stamps attached to certain documents to show that the tax has been paid. Documentary stamps are required on all deeds or transactions of deeds that money or consideration is involved, including deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
Down payment Back to top
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.
Due-on-Sale Clause Back to top
A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.
Earnest Money Back to top
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.
Easement Rights Back to top
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
Encumbrance Back to top
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
Equal Credit Opportunity Act Back to top
Prohibits discrimination in any aspect of a credit transaction on the basis of race, religion, age, color, national origin, receipt of public assistance funds, sex, or marital status.
Equity Back to top
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.
Escrow Back to top
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments. See also Escrow Account
Fair Housing Act Back to top
Prohibits discrimination in housing sales or loans on the basis of race, religion, color, national origin, sex, familial status, or handicap.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) Back to top
A stockholder-owned corporation chartered by Congress to create a continuous flow of funds to mortgage lenders in support of home ownership and rental housing. Freddie Mac
purchases single-family and multifamily residential mortgages from lenders and packages them into securities that are sold to investors.
Federal Housing Administration (FHA) Back to top
A part of the U.S. Department of Housing and Urban Development (HUD). FHA assists first-time home buyers and others who might not be able to meet down payment requirements for conventional loans by providing mortgage insurance to private lenders. It also insures loans for home improvements and buying manufactured (mobile) homes. These programs operate through FHA approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved.
Federal National Mortgage Association (FNMA, Fannie Mae) Back to top
A stockholder-owned federally chartered corporation. Fannie Mae
purchases residential home loans from mortgage lending institutions, packages the mortgages into securities and sells the securities to investors. The largest source of residential mortgage funds in the United States.
FHA Loan Back to top
A loan insured by the Federal Housing Administration open to all qualified home purchasers. Interest rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans. FHA loans cannot exceed the statutory limit.
Firm Commitment Back to top
A lender’s agreement to make a loan to a specific borrower on a specific property.
First Mortgage Back to top
A mortgage that has priority as a lien over all other mortgages.
Fixed Installment Back to top
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
Flood Insurance Back to top
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure Back to top
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession.
FSBO Back to top
For sale by owner.
General Warranty Deed Back to top
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Government National Mortgage Association (GNMA, Ginnie Mae) Back to top
A wholly-owned government corporation within the U.S. Dept. of Housing and Urban Development helping to finance government-assisted housing programs. Ginnie Mae guarantees securities backed by pools of mortgages. The mortgages are insured by the Federal Housing Administration (FHA), or guaranteed by the Veterans Administration (VA) or by the Rural Housing Service (RHS). Ginnie Mae securities are bought and sold through financial institutions that trade government securities.
Graduated Payment Mortgage Back to top
A type of a mortgage that has lower payments initially and then payments increase each year until the loan is fully amortized.
Grantee Back to top
That party in the deed who is the buyer or recipient.
Grantor Back to top
That party in the deed who is the seller or giver.
Hazard Insurance Back to top
Protects against damages caused to property by fire, windstorms, and other common hazards.
Homestead Exemption Back to top
The assessed value of a owner-occupied residential property may be reduced by the amount of the exemption for the purposes of calculating property tax. Available in some states.
HUD Back to top
U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.
HUD-1 Settlement Statement Back to top
A standard form that shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA
allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement.
Impound Back to top
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
Index Back to top
A published measure of economic conditions usually relative to other financial instruments such as Treasury notes or Treasury bills. The lender uses a particular index to calculate the interest rate on an adjustable rate mortgage (ARM) by adding a fixed margin to the index. The most common indexes are:
- Constant Maturity Treasury (CMT)
- Treasury Bill (T-Bill)
- 12-Month Treasury Average (MTA)
- 11th District Cost of Funds Index (COFI)
- London Inter Bank Offering Rates (LIBOR)
- Certificates of Deposit (CD) Indexes
- Prime Rate