Glossary: Mortgage & Finance

1031 Exchange

refers to Section 1031 of the Internal Revenue Code, which authorizes investors to 'exchange' one investment property for another. This offers the invester some great tax advantages.

abstract (of title)

A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title.See also: title

acceleration clause

A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time. For example, let's say we have Bob who has a house mortgaged through BigMoneyBank. Bob buys a new house and moves. When trying to sell the old house a buyer, whom we'll call Tom, convinces Bob to do owner finacing on the house. Bob and Tom draw up a contract and Tom starts making monthly payments to Bob. Bob continues making payments to BigMoneyBank as though he still resided in the home. BigMoneyBank, through some random action, discovers that the title to the property has been transferred to Tom. BigMoneyBank then notifies Bob that they are enforcing the acceleration clause in their agreement and are calling the loan, since the loan documents that BigMoneyBank and Bob signed state that the loan is to be paid in full on the sale of the property. Bob now must come up with the full amount owed to BigMoneyBank or they can forclose on the home.See also: seller take-back, wraparound mortgage

acceptance

A buyers or seller's agreement to enter into a contract and be bound by the terms of the offer.

account termination fee

A fee that is often charged if you pay in full and terminate your home equity line of credit during the first five years. Payment down to a zero balance usually does not count as termination. See also definition of prepayment penalty.

accretion

The addition to land through natural forces like wind or water.

acknowledgment

Formal declaration before a Notary Public or other public official that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust.

acre

43,560 square feet of land.

additional principal payment

A payment made by a borrower of more than the scheduled principal amount due, in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

adjustable rate mortgage

Mortgage where the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly. The note rate equals the rate at the beginning of the loan. The contract rate is determined by adding the interest rate and the margin at specified adjustment periods. Lenders generally charge lower initial interest rates, (note rate) for ARMs than for fixed-rate mortgages. This makes the ARM easier on the borrower's pocketbook at first than a fixed-rate mortgage of the same amount. It also means that the borrower might qualify for a larger loan because lenders sometimes make this decision on the basis of the borrower's current income and the first year's payments. Moreover, an ARM could be less expensive over a long period than a fixed-rate mortgage. For example, if interest rates remain steady or decrease. Against these advantages, the borrower must weigh the risk that an increase in interest rates would lend to higher monthly payments in the future. There is a trade off - the borrower gets a lower rate with an ARM mortgage in exchange for assuming more risk.See also: ARM, fully indexed rate, payment change date, periodic payment cap, periodic rate cap, rollover loan, treasury index, variable rate mortgage

adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

adjustment period

The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM), typically 6 months or 1 year.

affordability analysis

A preliminary analysis of a borrower's ability to afford the purchase of a home. An affordability analysis takes into consideration factors such as income, liabilities, and available funds, along with the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs.

agreement of sale

Also known as contract of purchase, offer and acceptance, earnest money contract, or sales agreement.See also: purchase agreement

amenity

A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views, etc. Man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

amortization

The gradual repayment of a home loan by periodic installments.

amortization schedule

A timetable for payment of a home loan. An amortization schedule shows the amount of each payment applied to interest and principal and the remaining balance after each payment is made.

amortization term

The amount of time it takes to pay off the loan. The amortization term is expressed as a number of months. For example, for a 30 year fixed rate loan, the amortization term is 360 months.

amortize

To repay a loan with regular payments that cover both principal and interest.

annual maintenance fee

An amount that is charged each year for having a line of credit. It is charged regardless of whether or not the credit line is used. For some programs and in some states, an annual fee is not charged. The fee is usually waived the first year of the loan.

annual percentage rate

A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Since all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides borrowers with a good basis for comparing the cost of loans, including mortgage plans. The APR is similar to the Unit Price used by supermarkets to give borrowers a benchmark by which they can compare similar products. IT MUST BE DISCLOSED ON ALL FIRST MORTGAGES WITHIN 3 DAYS OF THE DATE THE APPLICATION IS TAKEN. Calculated as: * Using the present value of the loan amount, the term of the loan (# of monthly payments over life) and interest rates, solve for monthly payments of principle and interest. * Now, take loan amount, and subtract all pre-paid finance charges1 to determine a New Present Value (loan amount - all prepaid finance charges = New Present Value). * Next, using the same principle and interest payments figured earlier and the same term of the loan (# of Monthly Payments over life) originally used, solve for a new interest rate. * The new interest rate is the APR. APPLICATION An application has been made on a First Mortgage when this information is collected from a borrower: 1. The approximate loan amount 2. The approximate income of the borrower 3. The approximate purchase price of the home or 4. The Loan to Value ratio. 5. The borrower's approximate long term debts 6. The borrower's taxes 7. The borrower's insurance payments See also: Truth-in-Lending

application

A form to be completed by a home loan applicant with the lender's assistance to provide pertinent information about a prospective borrower's employment, income, assets, debts and other financial information, about the purpose of the home loan, and about the property securing the home loan. Lenders also sometimes call it a 1003 (ten o three) the form number of Fannie Mae's standard application form.

application fee

A fee usually paid at the time an application is given to a lender for helping to complete and review an application. Some lenders collect fees for a property appraisal and a credit report, instead of an application fee, at the time of application.

appraisal

A written analysis or opinion of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.See also: CRV, home inspection

appraised value

The dollar figure for a property's estimated fair market value, based on an appraiser's knowledge, experience, and analysis of the property and comparable properties near by.

appraiser

A person qualified by education, training, experience, and state licensure to estimate the value of real property.

appreciation

An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.

ARM

See also: adjustable rate mortgage

arm's length transaction

A transaction where all parties involved acts in his or her own best interest. Most deals between family members, especailly parents and children, are not arms length. This is because people have been know to cut family members a break in price.

assessed value

The value used to determine property taxes, based on a public tax assessor's opinion. Contrast with appraised value.

assessment

The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowner's association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

assessment rolls

A public record of the assessed value of property in the taxing jurisdiction.

assessor

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

asset

(1) Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). (2) Anything that produces a regular positive cash flow.

assignment

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

assumability

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 the borrower pay the entire balance that is due when the some is sold. Assumability can help the seller attract buyers when he/she sells his/her home.See also: due on sale

assumable loan

A home loan that allows a new purchaser of the home to take over ("assume") the loan obligations of the seller when a home is sold.

assumption

The buyer's acceptance of liability for the seller's existing home loan.

assumption clause

A provision in an assumable loan that allows a buyer to assume responsibility for the home loan from the seller. The loan does not need to be paid in full by the original borrower (seller) upon sale or transfer of the property.

assumption fee

The fee paid to a lender (usually by the buyer) for the lender's agreement to start collecting payment from the buyer instead of the original borrower (seller).

attorney in fact

One who is authorized to act for another under a power of attorney which may be general or limited in scope. For example: Bob is in the process of selling his house when his job requires him to be out of state during the week of the closing. So Bob authorizes George to sign the grant deed to sell the property to the buyer. With the proper paperwork completed, George becomes Bob's Attorney In Fact.

balance sheet

A financial statement that shows an individual's assets, liabilities, and net worth as of a specific date.

balloon loan

A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).See also: balloon payment

balloon payment

The final lump sum payment that is made at the end of the shorter term for a balloon loan and pays the loan in full.See also: balloon loan

bankrupt

A person, firm, or corporation that is financially unable to pay debts when due. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.

bankruptcy

A proceeding in a federal court in which a debtor who is financially unable to pay debts when due seeks relief to work out a payment schedule or erase debts.

basis point

A basis point is equal to one one-hundredth of one percent (1/100 x .01%) or one one-hundredth of one point. For example: 5.76% is one basis point higher than 5.75%.See also: bps

before-tax income

Income before taxes are deducted.

beneficiary

The person who receives or is to receive the benefits resulting from certain acts. For example: if Bob takes out insurance on his house that he just purchased, the lender or lienholder will be labeled as beneficiary on the policy. Thus, if the house burns down, the money will go to whomever the beneficiary is. In this case, it would be the lender.

bill of sale

A written document that transfers title to personal property from seller to buyer.

binder

A binder is the written commitment of a company to insure something subject to the conditions and exclusions shown on the binder. An example of this would be a title company issuing a binder on the title concerning it's being free from liens or encumbrances. Another example would be a hazard insurance binder stating that, under certain conditions, the home would be covered in case of destruction.See also: insurance binder, title insurance

biweekly mortgage

See also: biweekly payment loan

biweekly payment loan

A loan that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30 year fixed rate loan, and they are usually drafted from the borrower's bank account. The result for the borrower is faster amortization leading to substantial interest savings from faster principal reduction.See also: biweekly mortgage

blanket mortgage

A mortgage covering more than one piece of property. Usually done by developers or investors. Pro: single closing thus less fees to pay. Con: can't sell property as individual pieces unless the loan is paid off or some sort of negotiation is done with the lender.

bond

1. A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is the 30 yr treasury bond issued by the U.S. government. 2. A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond.

borrower

One who borrows money or, in hopes of borrowing money, applies for a loan.

bps

See also: basis point

breach

A violation of terms of any legal obligation.

break even point

Point at which total income equals total expenses.

bridge loan

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. See also "swing loan."

broker

A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction or negotiating the terms of a home loan. See mortgage broker.

budget

A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

building code

Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based on safety and health standards.

business inventories and sales

These figures measure the inventories and sales of manufacturing, wholesalers, and retail establishments. These figures are released monthly by the Bureau of Census. In most cases, an increase in these numbers indicates an expanding economy which could be inflationary. In this situation the bond market usually moves down in price.

buydown

A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

buydown account

An account in which funds are held so that they can be applied as part of the monthly loan payment as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer's monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer's monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

buyers agent

An agent hired by a buyer to locate a property for purchase. The agent represents the buyer and negotiates with the sellers agent for the best possible deal for the buyer.

buyers market

Market conditions that favor buyers i.e. there are more sellers than buyers in the market. As a result buyers have ample choice of properties and may negotiate lower prices. Buyers markets may be caused by an economic slump or overbuilding.

Bylaws

A set of regulations by which an organization conducts its business. Example: A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies.

call option

A provision in a loan that gives the lender the right to accelerate the debt, and require for full payment of the loan immediately, at the end of a specified period or for specified reason.

cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.See also: interest rate caps, lifetime rate cap, periodic payment cap, periodic rate cap

capacity utilization

The capacity utilization rate measures the percent of industrial output currently in use. A change in the rate indicates a change in the direction of economic activity. As the percentage rate moves closer to 90% the industrial output is practically at full capacity and is inflationary. A number closer to 70% is recessionary. A higher percentage indicates a stronger manufacturing sector and an expanding economy which can be inflationary. This will usually cause the bond market to move down in price.

capital

(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

capital expenditure

The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

capital gains

Profit earned from the sale of real estate.

capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

cash available for closing

Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.

cash flow

The flow, or direction of your money. Cash coming in is income and cash going out is expense. Individual items are classified as an income, expense, asset or liability based on the direction the cash flows.

cash-out refinance

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home equity.

CC&R

CC&R's (Covenants, conditions, and restrictions) are basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners.

ceiling

The maximum interest rate that can accrue on a variable rate loan or adjustable rate mortgage. See also: lifetime rate cap

Certificate of Eligibility

The document issued by the Veterans Administration to those that qualify for a VA loan. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Occupancy

A document issued by a local governmental agency stating a property meets the local building standards for occupancy, public health, and building codes. Some lenders require this documentation prior to closing a loan on a residential property.

certificate of reasonable value

abr. CRV A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

Certificate of Title

A document provided by an attorney or licensed closing agent giving the status of title to a property, according to the public records. This certificate does not provide the same level of protection as title insurance. Some times, title companies will issue both certificate of title and title insurance.See also: title, title company, title insurance

chain of title

The chronological order of conveyance of a parcel of land from the original owner (usually the US government) to the present owner. Many times, lenders will require a 6 or 12 month chain. In such a case the lender is looking to see that the same person has owned the property for the entire time.

clear title

A marketable title, free of liens, clouds and disputed interests. Most lenders require a clear title prior to closing. Title insurance guarantee a clear title, otherwise the insurance policy will cover any costs involved in clearing the title up to repaying owner for costs involved in purchasing the property.See also: cloud on title, title company, title insurance

closing

A meeting at which all documents are signed and all expenses are paid to transfer ownership of property. Also called "settlement."See also: settlement

closing cost item

A fee or amount that a home buyer must pay at closing for a particular service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 settlement statement.See also: closing costs

closing costs

Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country. Lenders or real estate professionals often provide estimates of closing costs to prospective homebuyers even before the HUD-1 settlement statement is delivered.See also: closing cost item

closing statement

An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.

cloud on title

An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a quitclaim deed, release, or court action. Lenders usually require clouds to be fixed before closing.See also: clear title

co-op

Co-op, or cooperative, is an apartment building or a group of dwellings owned by a corporation whose stockholders 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.

co-signer

A person who signs a promissory note along with the borrower. A co-maker's signature helps to assure that the loan will be repaid. The borrower and the co-maker are jointly responsible for the repayment of the loan.

coinsurance

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

coinsurance clause

A provision in a hazard insurance policy stating the minimum amount of coverage that must be maintained - as a percentage of the total value of the property - in order for the insured to collect the full amount of a loss.

collateral

An asset (such as a car or a home) that is pledged as security for the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract or promissory note.

collection

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

combined loan to value

abr. CLTV The ratio of the total amount borrowed on all mortgages against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage and a $10,000 2nd mortgage on a home with an appraised value of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 = 90%).See also: loan-to-value

commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan (such as 3%, 5%, or 6%).

commitment letter

A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which lender agrees make the loan. Also known as a "loan commitment."See also: loan commitment

common area assessments

Payments required of individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

common areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

community property

In some Western and Southwestern states, the law specifies that property acquired during a marriage is presumed to be owned jointly by the husband and wife unless acquired as separate property of one spouse or the other.

community seconds

An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part or all of the second mortgage debt may be forgiven depending on how long the buyer remains in the home.

comparables

abr. comps An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property. Syn: comps, comparable properties

compound interest

Interest paid on the principal balance and on the accrued and unpaid interest.See also: compounding

compounding

Process of recharging each interest payment to earn more interest. Compounding is based on the idea that interest itself becomes principle and therefore also earns interest in subsequent periods.See also: compound interest

condemnation

(1) Declaration that a building is unfit for use or is dangerous and must be destroyed; (2) taking of private property for a public use (such as a park, street or school) through an exercise of the right of eminent domain.

conditional commitment

A written document provided by a lender agreeing to loan money provided certain conditions are met prior to closing.

condominium

A real estate project in which each unit owner has title to a unit in a multi-unit building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

condominium conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

condominium hotel

A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. Sometimes referred to as a condotel.

conforming loan

A home loan with a maximum loan amount that is eligible for purchase by FNMA and FHLMC.

consideration

Anything of value given to induce another to enter into a contract. For example, earnest money deposited on a sales contract would be consideration.

consolidation

1: combining into a solid mass 2: the act of combining into an integral wholeSee also: consolidation loan

consolidation loan

A consolidation loan combines several student loans into one bigger loan from a single lender. The consolidation loan is used to pay off the balances on the other loans.See also: consolidation, refinance transaction

construction loan

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

consumer price index

abr. CPI The consumer price index is an indicator of the general level of prices. Components include energy, food and beverages, housing, apparel, transportation, medical care, and entertainment. When the consumer price index goes up, it is a sign of an inflationary environment. Consumers have to pay more for the same amount of goods and services. This will usually cause the bond market to move down in price. Syn: â–ºCPI

consumer reporting agency

An organization that prepares reports that lenders use to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from creditors such as mortgage lenders, credit card companies, department stores, etc. Syn: consumer reporting bureau

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.

contingency

Some event that's future occuance is dependent on some other event's occuence. For example, many lenders will agree to fund a loan contingent to the buyer agreeing to use part of the money received to pay off some debts. Contingencies must be delt with, often times before the lender will fund a loan.

contract

An oral or written agreement to do or not do something.

contract rate

The rate of interest charged on the re-payment of a loan during the duration of the re-payment.See also: note rate

conventional loan

A home loan that is not insured or guaranteed by the federal government. Contrast with government loan. Can be for conforming or non-conforming loan amounts.

conversion

The borrower's agreement with the lender can have a clause that lets the borrower convert an ARM to a Fixed Rate Mortgage at designated times. When converted, the new rate is generally set at the current market rate for Fixed Rate Mortgages.See also: conversion clause

conversion clause

A provision in some ARMs that allows the borrower to change the ARM to a fixed rate loan at some point during the term. Usually, conversion is allowed at the end of the first adjustment period. At the time of the conversion, the now fixed rate is generally set at one of the rates then prevailing for Fixed Rate Mortgages. The conversion feature may be available at an extra cost.See also: conversion

convertibility clause

A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate loan at specified times during the life of the loan.

convertible ARM

An adjustable rate mortgage (ARM) that can be converted to a fixed rate loan under specified conditions.

convertible ARM

Some ARMs come with options to convert them to a fixed rate loan based on a pre-determined formula, during a given time period. The time frame where coversion is an option will be spelled out in the contract. For example, if dealing with a 2/28 ARM with a 3 year convertible clause, you would have to wait until after you've had the loan 36 months before you could convert it to a fixed rate.

conveyance

The transfer of title of real property from one party to another.

cooperative

abr. co-op A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

corporate relocation

Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

cost of funds index

abbr. COFI An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. Syn: â–ºCOFI

covenant

A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.

credit

An agreement in which a borrower receives money or something of value in exchange for a promise to repay the lender on specified terms at a later time.

credit history

An evaluation of an individual's capacity and history of debt repayment. A credit history helps a lender to determine whether a potential borrower is likely to repay a loan in a timely manner.

credit life insurance

A type of insurance that pays off a loan if one of the borrowers dies while the policy is in force.See also: mortgage life insurance

credit limit

The maximum amount that can be borrowed under the home equity line of credit.

credit rating

An expression of creditworthiness based upon present financial condition and past credit history.

credit report

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.See also: merged credit report

credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. Syn: credit bureau

credit scoring

Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae—one of the major investors in home loans, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan. To get a copy of your credit score, check out the services offered by myFICO.com at http://service.bfast.com/bfast/click?bfmid=37925169&siteid=40934900&bfpage=120x60.

creditor

A person to whom money is owed.

CRV

a CRV (Certificate of Reasonable Value) is just an appraisal that's performed by an appraiser who is VA approved. Similar to a regular appraisal, it establishes the property's current market value and thus the maximum VA mortgage loan amount.See also: appraisal

cumulative interest

Total interest accrued.

curtailment

A payment that reduces the principal balance of a loan.

debt

An amount owed to another.

deed

The legal document conveying title to a property.See also: general warranty deed

deed of trust

The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.See also: general warranty deed

deed restriction

A clause in a deed that limits the use of the property. Common deed restrictions are things such as, no house can be build, no businesses, or even something like, a road cannot be built on the land.

deed-in-lieu

A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance." Syn: â–ºvoluntary conveyance

default

Failure to make loan payments on a timely basis or to comply with other requirements of a mortgage.

defective title

Any recorded instrument (liens or encumbrances) that would prevent a grantor/seller from giving a clear title.

deficiency judgment

Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.

delinquency

Failure to make mortgage payments when due.

Department of Veterans Affairs

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.

deposit

A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See also: earnest money deposit

depreciation

A decline in the value of property because of physical or economic changes such as wear and tear; the opposite of appreciation.

discount

Some lenders offer initial rates on ARMs and Fixed Rate Mortgages that are lower than other current rates. Such rates, called Discounted Rates, are often combined with large initial loan fees (Discount Points). These discounted rates are also known as buy downs. See also: â–º rate buy downsSee also: discount points

discount points

Amounts paid to the lender at origination to lower the rate on the face of the note.See also: discount, permanent buydown, point

documentary tax stamps

Stamps affixed to a deed showing the amount of transfer tax paid upon the last conveyance.

dower

The rights of a widow or child to part of a deceased husband's or father's property.

down payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a home loan.

dragnet clause

A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

draw period

The time period in which the borrower may access and use a line of credit.

due on sale

See also: assumability, due-on-transfer provision

due-on-sale provision

A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.See also: due-on-transfer provision

due-on-transfer provision

This terminology is usually used for second mortgages.See also: due on sale, due-on-sale provision

durable goods orders

This gives a reading on the country's future manufacturing activity. Durable goods include those manufactured items with a normal life expectancy of three years or longer. An increase in the amount of durable goods orders may indicate an expansion in the economy and, if inflationary, the Federal Reserve could choose to tighten money by raising interest rates. The bond market usually moves down in price when there is an increase.

earnest money

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 to persons other than the owner to access to or over a property.See also: egress, ingress

Effect Of Economic Indicators On Fixed Income Investments

Market participants look to U.S. Government economic releases as an indication of the economy's strength and general direction. Overall, economic indicators reflect the rate of economic growth and inflation which, in turn, affects interest rates. There is an inverse relationship between interest rates and bond prices. If the economic indicators indicate that the rate of inflation is on the rise, it will most likely result in higher interest rates and lower bond prices. Conversely, if these indicators indicate the rate of inflation is falling this will result in lower interest rates and higher bond prices. Many of the indicators are defined in this glossary and their effects on the bond market briefly explained.

effective age

An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

effective gross income

A borrowers normal annual income, including overtime that is regular or guaranteed.Salary is usually the principal source, but other income may qualify if it is significant and stable.

egress

the act of coming (or going) out of a propertySee also: easement, ingress

eminent domain

The right of a government to take private property for public use upon payment of fair compensation to the owner. Eminent domain is the basis for condemnation proceedings.

employer-assisted housing

A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

encroachment

An improvement on one's property that physically intrudes or trespasses on another's property.

encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.

endorser

A person who signs a check or promissory note over to another party. Contrast with co-signer.

Equal Credit Opportunity Act

abbr. ECOA 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

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 any home loans or liens against the property.

equity sharing

Equity sharing is where the occupant and the investor share an insterest in a property. This is usually done for tax advantages available to both parties. Upon sale of the property the owners split, or share, the profits based on the percentage ownership they hold.

escheat

Escheat is the reversion of property back to the state in cases where the owner dies without leaving a will or legal heirs.

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 deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow account

The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes or homeowners insurance. Syn: impound account

escrow analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

escrow collections

Funds collected by the loan servicer and set aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowners insurance.

escrow disbursements

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

escrow payment

The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

estate

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.See also: executor

eviction

A legal proceeding by a landlord to recover possession of real property from the tenant.

examination of title

The report on the title of a property from the public records or an abstract of the title.

exclusive listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.

executor

An executor, or executrix for the ladies, is a person named in a will to carry out the provisions of said will.See also: estate

factory orders

Manufacturer's shipments, inventories, and orders. Factory orders include shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the economy and could be an inflationary factor. This usually causes the bond market to move down in price.

Farmer's Home Administration

Farmer's Home Administration (FmHA) is an agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

FED Is Easing

Exactly the opposite of Fed tightening. The Federal Reserve feels that the economy is not growing at the desired level and eases credit conditions by lowering interest rates to help stimulate the economy. This usually causes the bond market to move up in price.

FED Is Tightening

This term refers to efforts by the Federal Reserve to curb excessive growth in the money supply. This can be accomplished by raising the discount rate and/or increasing the federal funds rate. This usually causes the bond market to move down in price.

Federal Home Loan Bank Board

The Federal Home Loan Bank Board (FHLBB) is a regulatory and supervisory agency for federally chartered savings institutions.

Federal Home Loan Mortgage Corporation

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) is a corporation authorized by Congress to provide a secondary market for residential mortgages. In addition, Freddie Mac also works with mortgage lenders to help people get lower housing costs and better access to home financing.

Federal Housing Administration

The Federal Housing Administration (FHA) is the federal agency in the Department of Housing and Urban Development that insures residential mortgages in an effort to provide affordable mortgages everyone.See also: Government National Mortgage Association, HUD

Federal National Mortgage Association

The Federal National Mortgage Association (FNMA, Fannie Mae) is a federally chartered corporation that purchases mortgage loans from lenders.

Federal Reserve System

What is the Federal Reserve System? The Fed, as the system is often called, was established in 1913 by the U.S. government to regulate the economy by monetary policy. he Federal Reserve System (also the Federal Reserve; informally The Fed) is the privately-operated central banking system of the United States. The Federal Reserve System is composed of a central Board of Governors in Washington, D.C. and twelve regional Federal Reserve Banks located in major cities throughout the nation. Alan Greenspan currently serves as the Chairman of the Board of Governors of Federal Reserve. For more information see: http://en.wikipedia.org/wiki/Federal_Reserve http://landru.i-link-2.net/monques/moneyfacts.html

fee simple

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs. As opposed to leasehold.See also: leasehold estate

fidelity bond

It is a business insurance policy that protects the employer in case of any loss of money or property due to employee dishonesty.

fiduciary

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A stock broker or mortgage broker is a fiduciary for his clients.

finance charge

A fee charged (interest) by the issuer of a lender or credit card company. The fee for borrowing money.See also: interest, interest rate

first mortgage

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages.

fixture

Improvements or personal property attached to the land so as to become a part of the real estate. Fixtures are transferred to the buyer upon sale of the property. When in doubt if something is a fixture, make sure to clarify it in the sales contract.

flood insurance

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone. Be advised that most standard home insurace policies don't include flood coverage.See also: hazard insurance

foreclosure

A legal process by which the lender takes possession of a property because the borrower has not met the terms of the loan agreement. Houses are usually then auctioned off.

FSBO

A property that is "for sale by owner". Many people sell their houses this way to keep from having to pay a real estate agent commissions.

fully indexed rate

Value of the index + the margin.See also: adjustable rate mortgage, index

general warranty deed

A deed that not only conveys all of the grantor's interests in the property, but also warrants that if the title is defective or has a cloud (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it), the grantee may hold the grantor liable. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed. See also: deed, deed of trust

government loan

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

Government National Mortgage Association

The Government National Mortgage Association (also known as GNMA and Ginnie Mae) is an owned government association. Its purpose was - and is - to serve low-to moderate-income home buyers. Ginnie Mae helps to ensure mortgage funds are available throughout the United States including rural and urban areas in which it has been harder to borrow money to buy a home. Ginnie Mae is a guarantor. It does not issue, sell, or buy mortgage-backed securities, or purchase mortgage loans. What Ginnie Mae does is guarantee investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the FHA or guaranteed by the VA. Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture's Rural Housing Service (RHS) and the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH). Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government.See also: Federal Housing Administration, mortgage backed security, pass through certificates, VA mortgage

graduated payment mortgage

A GPM is a mortgage that has lower payments initially which increase each year until the loan is fully amortized. GPM's sometimes have a negative amortization at the beginning until the payment rises.

grandfather clause

An exemption based on circumstances existing prior to the adoption of some policy. In the mortgage arena this is usually dealt with in the area of city zoning, where an containing houses is zoned commercial or industrial. The city doesn't force the residents to leave, they grandfather them in. However, if the houses were to be destroyed, the current zoning law would take affect and reconstruction would not be allowed.

grantee

The person to whom an interest in real property is conveyed (e.g. the buyer).

grantor

The person who conveys an interest in real property (e.g. the seller).

gross monthly income

Normal annual income including overtime that is regular or guaranteed. The before taxes income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Gross National Product

abbr. GNP The Gross National Product is the broadest measure of the nation's production. It measures the market value of all newly produced goods and services in the United States. When GNP is down, it shows a slowing down in the economy. To counteract this, the Federal Reserve may loosen money by lowering interest rates which will usually cause the bond market to move up in price.

ground rent

The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

group home

A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.

hazard insurance

Hazard Insurance, also known as fire insurance or homeowners insurance, is insurance on a property against fire and other risks. The policy will usually have additional coverage for theft, liability, etc that a fire insurance policy may not cover. Note, that these policies rarely, if ever, cover flood damage.See also: flood insurance

home equity line of credit

abbr. HELOC A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.See also: line amount, line of credit, margin, open end mortgage

home inspection

A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.See also: appraisal

homeowner's warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time. It may be provided by the builder or property seller as a condition of the sale but homeowners can also purchase it.

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. See also master association. See also: planned unit development

homestead

1) the home and adjacent grounds occupied by a family 2) land acquired from the United States public lands by filing a record and living on and cultivating it under the homestead law 3) dwelling that is usually a farmhouse and adjoining land 4) a legal classification of a house used to protect ones home from creditors (may not be available in all states).

homestead exemption

Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax.

housing code

A set of local government ordinances that set minimum standards of safety and sanitation for existing residential buildings.

housing expense ratio

The percentage of gross monthly income that goes toward paying housing expenses.

HUD

Department of Housing and Urban Development is the United States federal department that administers federal programs dealing with better housing and urban renewal. FHA is part of HUD.See also: Federal Housing Administration

HUD median income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 settlement statement

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."See also: settlement sheet

hypothecate

to pledge without delivery or title of possession

impound account

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. Also known as reserves.

improvements

Additions to raw land such as buildings, streets, etc. that add value to the land.

in-file credit report

An objective account, normally computer-generated, of credit and other financial information obtained from a credit reporting agency.

income approach

A method used by an appraiser to estimate the value of a property based on the income it generates.

income property

Real estate developed, purchased, or improved for the purpose of producing income.

income property

Real estate that generates rental income. This includes everything from a rental house to a shopping center.

index

A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. Some lenders provide caps that limit how much the interest rate or loan payments may increase or decrease. Lenders base ARM rates on a variety of indexes. Among the most common are the rates on one, three, and five year Treasury Securities. Another common index is the National or Regional average cost of funds (or COFI) to savings and loan associations. A few lenders use their own cost of funds, over which, unlike other indexes, they have some control. The borrower should ask what index will be used and how often it changes. Also, they should ask how it has behaved in the past and where it is published.See also: fully indexed rate, treasury index

industrial production index

The industrial production index measures the monthly level of the physical output of the manufacturing, mining, and gas and electric utility industries. When industrial production is down, it indicates a slowing of economic growth and, therefore, the Federal Reserve is inclined to allow interest rates to drop to stimulate the economy which, in turn, usually drive the prices of the bond market up.

inflation

An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

ingress

the act of entering a propertySee also: easement, egress

initial draw amount

The amount of the home equity line of credit that the borrower is requesting at closing (up to, but never exceeding, the credit line amount).

initial interest rate

The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. At the end of the effective period for the initial rate, the interest rate adjusts periodically during the life of the loan based on changes in a specified financial index. Sometimes known as "start rate," "intro rate" or "teaser rate."See also: introductory rate, start rate

installment loan

Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

insurable title

A property title that a title insurance company agrees to insure against defects and disputes.

insurance

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

insurance binder

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.See also: binder

insured mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

interest

The fee charged for borrowing money.See also: finance charge

interest accrual rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

interest payment

The portion of a monthly payment that goes to interest based on the amortization schedule.

interest rate

The percentage rate of return charged for use of a sum of money. This percentage rate is specified in the mortgage note. See note rate.See also: finance charge

interest rate buydown

A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

interest rate caps

An Interest Rate Cap places a limit on the amount your interest rate can increase. Interest caps come in two versions: * Periodic Caps - which limit the interest rate increase from one adjustment period to the next. * Overall Caps - which limit the interest rate increase over the life of the loan. By law, virtually all ARMs must have an Overall Cap. Many have a Periodic Interest Rate Cap.See also: cap

introductory rate

The starting rate for a home equity loan, line of credit or adjustable-rate mortgage, usually a discounted rate, for a short period of time.See also: initial interest rate

investment property

A property that is not occupied by the owner and is generally rented to a tenant to produce income.

joint and several liability

A type of liability shared by two or more people, which is divisible. A creditor can demand full repayment from any and/or all of those who share in the liability. Each borrower is individually liable for the full debt, not just the prorated share. Joint and several liability has been the subject of much legal reform. Check state laws before entering this sort of agreement.

joint tenancy

A form of co-ownership that gives each tenant equal undivided interest and rights in the property, including the right of survivorship. Contrast with tenancy in common, tenancy by the entirety.See also: tenancy in common

judgment

A decree by a court of law that one person, a debtor, is indebted to another, a creditor, in a specified amount. The court may place a lien against the debtor's real property as collateral for payment of the judgment to the creditor.

judgment lien

A lien on the property of a debtor resulting from a judgment.

judicial foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit where the court confirms the sales price for the property and the distribution of the sale proceeds.

jumbo loan

A loan that exceeds Fannie Mae's legislated mortgage amount limits of $300,700. Also called a nonconforming loan.See also: non-conforming loan

kicker

A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

land contract

A real estate contract that allows the buyer to use and occupy the property, but no deed is given by seller until the sales price has been paid in full.

late charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 10-15) after the due date.

leading economic indicators

This index is a composite of 11 statistics designed to foretell economic activity 6 to 9 months hence, (i.e. building permits, new orders for consumer goods and materials, the average workweek, index of consumer expectations).

lease

A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may use the real estate for a specified period of time and the amount of rent to be paid.

lease with option to purchase

A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease. It's usually best to include items such as sales price and downpayment amount in the lease at the time of signing.

leasehold estate

A tenant's interest in or right to hold possession of a property.See also: fee simple

legal description

A property description, recognized by law, using a government rectangular survey, metes and bounds, or a plat map to sufficiently locate and identify a property.

lender's fees

Fees paid to the lender to cover costs associated with processing, underwriting and closing of the loan.

lessee

A person who leases a property.

lessor

A person whom others lease property from.

liabilities

A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

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. See also homeowners insurance.

lien

A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money to purchase or refinance a home loan or and with obtain a home equity loan.See also: mechanic's lien, tax lien

lifetime rate 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 loan.See also: cap

line amount

The entire HELOC or Fixed Rate Second mortgage loan amount.See also: home equity line of credit

line of credit

An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application.See also: home equity line of credit

liquid asset

A cash asset or an asset that is easily converted into cash.

Lis Pendens

Latin (lis 'pendenz) meaning lawsuit pending. Lis Pendens is a recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.

loan amount

A sum of borrowed money (principal) that is generally repaid over time with interest.

loan commitment

A lender's agreement to advance money on specified terms after specified conditions are met.See also: commitment letter

loan origination

The process by which a mortgage lender makes a home loan and records a mortgage against the borrower's real property as security for repayment of the loan.

loan-to-value

abbr. LTV The ratio of the total amount borrowed on a mortgage against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).See also: combined loan to value, private mortgage insurance

lock-in

A written agreement in which the lender guarantees a specified loan program interest rate and points if a mortgage goes to closing within a set period of time.See also: lock-in period, rate lock

lock-in period

The time period during which the lender has guaranteed an interest rate to a borrower.See also: lock-in

margin

For an adjustable-rate mortgage (ARM) or home equity line of credit, the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change. The margin is static and will not change during the life of the loan.See also: home equity line of credit

market value

The highest price that a buyer would pay and the lowest price a seller would accept on a property.

master association

A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.

maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. At the maturity of a 30-year loan the principal balance will be paid in full.

maximum financing

The maximum amount a lender will lend on a specific loan program.

mechanic's lien

The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount owed.See also: lien

merchandise trade balance

Released monthly, this figure measures the difference between imports and exports. When exports are higher than imports, there is a surplus in the balance of trade. When imports are higher than exports, there is a deficit. The import-export differential is referred to as the trade gap.

merged credit report

A credit report that contains information from more than one credit reporting agency. When the report is created, the information is compared for inconsistencies and duplicate entries. Any duplicates are combined to provide a summary of a your credit.See also: credit report

minimum payment

The minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum payment is principal and interest.

modification

The act of changing any of the terms of the mortgage.

money market account

A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

money market fund

A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

money supply

The amount of money in circulation. M1 = cash + regular demand deposits + other check-type deposits. M2 = M1 + savings and small denomination time-deposits. When the money supply figure is up, it is an inflationary factor and, therefore, generates concern that the Federal Reserve will tighten money growth by allowing short-term interest rates to rise which will usually cause the bond market to move down in price.

monthly debt

A borrower's monthly expenses including credit cards, installment loans, student loan payments, alimony and child support and housing payment expense.

monthly mortgage insurance payment

Portion of monthly payment that covers the cost of Private Mortgage Insurance.

monthly payment

Payments to reduce the principal balance of a home loan made once a month.See also: total monthly payment

monthly principal and interest payment

Portion of monthly payment that covers the principal and interest due on the loan.See also: total monthly payment

monthly taxes and insurance payment

Portion of monthly payment that funds the escrow or impound account for taxes and insurance.See also: total monthly payment

mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

mortgage backed security

A bond or other financial obligation secured by a pool of mortgage loans is called a Mortgage Backed Security (MBS).See also: Government National Mortgage Association

mortgage banker

A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market.

mortgage broker

A company that originates but does not sell or service mortgages.See also: third-party origination

mortgage insurance

A contract that insures the lender against loss caused by a borrower's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See also: private mortgage insurance

mortgage insurance premium

abr. MIP The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

mortgage life insurance

A type of term life insurance sometimes bought by borrowers. The amount of coverage decreases as the loan's principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.See also: credit life insurance

mortgagee

The lender in a mortgage agreement.

mortgagor

The borrower in a mortgage agreement.

multi-dwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage. Typically a 2-4 unit property.See also: two- to four-family property

negative amortization

An increase in the outstanding balance of a mortgage that occurs when the monthly payment is not large enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

net cash flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

net effective income

The borrowers gross income minus taxes.

net worth

The value of all of a person's assets, including cash, minus all liabilities.

no closing cost loan

A loan in which the fees the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

no out of pocket cost loan

A loan in which the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

non-conforming loan

See also: jumbo loan

non-farm payroll

The non-farm payroll figure is a component of total civilian employment and measures the number of people employed in all activities except agriculture.

non-liquid asset

An asset that cannot easily be converted into cash.

notary public

one who is legally empowered to witness signatures, certify a document's validity, and to take depositions

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.See also: contract rate

notice of default

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

offer

An expression of willingness to purchase a property at a specified price.

Office of Comptroller Currency

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks. Headquartered in Washington, D.C., the OCC has four district offices plus an office in London to supervise the international activities of national banks. The OCC was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller, who is appointed by the President, with the advice and consent of the Senate, for a five-year term. The Comptroller also serves as a director of the Federal Deposit Insurance Corporation (FDIC) and a director of the Neighborhood Reinvestment Corporation.

Office of Thrift Supervision

The Office of Thrift Supervision (OTS) is the primary regulator of all federally chartered and many state-chartered thrift institutions, which include savings banks and savings and loan associations. OTS was established as a bureau of the U.S. Department of the Treasury on August 9, 1989, and has four regional offices located in Jersey City, Atlanta, Dallas, and San Francisco. OTS is funded by assessments and fees levied on the institutions it regulates.

open end mortgage

A type of mortgage that allows the homeowner to borrow additional money under the same mortgage, with certain conditions.See also: home equity line of credit

open house

A method of showing a home for sale where potiental buyers are allowed to enter and freely explore the home.

original principal balance

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

origination fee

A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points (usually 1 to 5 points). See also: points

owner financing

A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.See also: seller take-back, wraparound mortgage

owner occupant

A person who lives in a home he/she owns.

owner of record

The individual named on a deed that has been recorded at the county recorders office.

partial payment

A payment that is not sufficient to cover the scheduled monthly principal and interest payment on a mortgage loan.

participation mortgage

A mortgage in which the lender participates in the income of the mortgaged venture beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.

pass through certificates

Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by Ginnie Mae. Investopedia Says... Mortgage-backed certificates are the most common type of pass-through, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.See also: Government National Mortgage Association

payment change date

The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date and the borrower is notified 30 days prior as to the new rate.See also: adjustable rate mortgage

payoff

To pay the outstanding balance of a loan in full.

periodic payment cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period.See also: adjustable rate mortgage, cap

periodic rate cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period.See also: adjustable rate mortgage, cap

permanent buydown

The borrower pays a loan fee or a seller Buy down to make a lower rate and lower payments for the duration of the loan.See also: discount points

permanent loan

Used when discussing construction loans. The permanent loan pays off the temp loan the was taken out to build the structure.

personal property

Any property that is not real property or is not permanently fixed to land. Cash, furniture, and cars are all examples of personal property.

piggyback mortgage

A combination of two loans. Example: A loan is made for 100%% of the home price. 80%% of the purchase price is supplied by a 1st mortgage and 20%% by a 2nd mortgage. The 2nd mortgage is piggybacked since it's originated and closed at the same time as the 1st mortgage.

PITI

See also: principal, interest, taxes, and insurance

PITI reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development

a.k.a. PUD. A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

point

A point is 1%% of the amount of the mortgage loan amount (e.g., 1,000 on a $100,000 loan). See also Front Point, Back Point, Discount Points.See also: discount points

portfolio loan

A loan that is held as an investment by a bank or savings and loan instead of being sold on the secondary market to investors.

power of attorney

A legal document authorizing one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

pre-approval

A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer. Sometimes a lender calls this an Upfront Approval or Approved Homebuyer Certificate and makes it subject to satisfactory property review and no change in financial condition. If you want the comfort of knowing that an underwriter has reviewed your file, a lender can usually go a step further than a pre-qualification by issuing your pre-approval. The lender will ask for written documentation of your information, which can normally be provided via fax or by mail. With pre-approval, you know your file has been reviewed by an underwriter and that you're approved (subject to satisfactory appraisal and no change in financial condition). Either way, you can shop with assurance, because you'll know up-front how large a loan you could qualify for.

pre-paid interest

Mortgage interest that is paid in advance of when it is due.

pre-paid items

Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.

pre-qualification

The process of determining how much money a prospective home buyer might be eligible to borrow before he or she applies for a loan. When you pre-qualify, we ask you for information about your credit, assets and debts. Based on the information you provide and the loan type you want, the lender will calculate how large a loan you could qualify for. Please note that a pre-qualification is neither pre-approval nor a commitment to lend and requires you to submit additional information for review and approval.

prearranged refinancing agreement

A formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (such as a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.

preforeclosure sale

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property, typically for less than the amount that is owed to the lender.

prepayment

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

prepayment penalty

A fee that may be charged to a borrower who pays off a loan before it is due. Generally, a prepayment penalty is added to a loan in exchange for a lower interest rate.

primary residence

The place someone lives most of the time, as opposed to a 2nd or vacation home.See also: second home

prime rate

The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

principal balance

The outstanding balance on a mortgage. The principal balance does not include interest or any other charges. See remaining balance. See also: remaining balance

principal payment

Portion of your monthly payment that reduces the remaining balance of a home loan.

principal, interest, taxes, and insurance

Four potential components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that may be paid into an escrow account each month for property taxes and mortgage and hazard insurance.See also: PITI

private mortgage insurance

a.k.a. PMI. Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80%%.See also: loan-to-value, mortgage insurance

probate

Court process to establish the validity of the will of a deceased person.

producer price index

a.k.a. PPI. The monthly producer price index measures the level of prices for all goods produced and imported for sale in the primary marketplace. Increase in the PPI tends to lead other measures of inflation which could cause the bond market to move down in price.

promissory note

A written promise to repay a specified amount over a specified period of time.

property tax

A tax based on the assessed value of a property. Tax rate is set on a county basis.

public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.See also: agreement of sale

purchase money transaction

A loan used in part as payment for a purchase. A loan that is used to buy a home is called a purchase money mortgage.

purchase price

The total amount paid for a home.

qualifying ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

quiet title

A legal action to resolve a dispute over title

quitclaim deed

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

rate lock

A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time. See also: lock-in

rate reduction option

A fixed-rate mortgage that includes a provision that gives the borrower an option to reduce the interest rate (without refinancing) at a later date. It is similar to a prearranged refinancing agreement, except that it does not require re-qualifying.

real estate agent

A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction.

Real Estate Investment Trusts

An investment trust that owns and manages a pool of commercial properties and mortgages and other real estate assets; shares can be bought and sold in the stock market.

Real Estate Settlement Procedures Act

Commonly known as RESPA, it is a consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.See also: recision

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

recision

The cancellation of a contract. When refinancing a mortgage on a principal residence RESPA gives the homeowner three days to cancel the mortgage contract.See also: Real Estate Settlement Procedures Act

reconveyance

A reconveyance or deed of full reconveyance removes the lien that the lender placed against the property when the loan was originally taken out. Thus, the lender conveys the property back to the owner.

recorder

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

recording

The noting in a book of public record of the terms of a legal document affecting