adjustable-rate mortgage (ARM)
A mortgage that changes interest rate periodically based upon the changes
in a specified index.
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).
amortization
The repayment of a mortgage loan by installments with regular payments to
cover the principal and interest.
amortization term
The amount of time required to amortize the mortgage loan. The amortization
term is expressed as a number of months. For example, for a 30-year fixed-rate
mortgage, the amortization term is 360 months.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points).
application
A form, commonly referred to as a 1003 form, used to apply for a mortgage
and to provide information regarding a prospective mortgagor and the proposed
security.
appraisal
A written analysis of the estimated value of a property prepared by a qualified
appraiser.
appraiser (return to top)
A person qualified by education, training, and experience to estimate the
value of real property and personal property.
appreciation
An increase in the value of a property due to changes in market conditions
or other causes. The opposite of depreciation.
asset
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).
assignment
The transfer of a mortgage from one person to another.
assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when
a home is sold.
assumption
The transfer of the seller's existing mortgage to the buyer.
assumption clause
A provision in an assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller. The loan does not need
to be paid in full by the original borrower upon sale or transfer of the
property.
assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting
from the assumption of an existing mortgage.
balance sheet (return to top)
A financial statement that shows assets, liabilities, and net worth as of
a specific date.
balloon mortgage
A mortgage that has level monthly payments that will amortize it over a
stated term but that provides for a lump sum payment to be due at the end
of an earlier specified term.
balloon payment
The final lump sum payment that is made at the maturity date of a balloon
mortgage.
bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved
from the payment of all debts after the surrender of all assets to a
court-appointed trustee.
bankruptcy
A proceeding in a federal court in which a debtor who owes more than his
or her assets can relieve the debts by transferring his or her assets to
a trustee.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust, estate, or a deed
of trust.
binder
A preliminary agreement, secured by the payment of an earnest money deposit,
under which a buyer offers to purchase real estate.
biweekly payment mortgage
A mortgage 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 mortgage, and they
are usually drafted from the borrower's bank account. The result for the
borrower is a substantial savings in interest.
blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the
share loans on individual units within the project.
bond
An interest-bearing certificate of debt with a maturity date. An obligation
of a government or business corporation. A real estate bond is a written
obligation usually secured by a mortgage or a deed of trust.
breach
A violation of any legal obligation.
bridge loan
A form of second trust that is collateralized by the borrower's present
home (which is usually for sale) in a manner that allows the proceeds to
be used for closing on a new house before the present home is sold. Also
known as "swing loan."
broker
A person who, for a commission or a fee, brings parties together and assists
in negotiating contracts between them.
buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is
made by any party to reduce a borrower's monthly payments during the first
few years of a mortgage. A permanent buydown reduces the interest rate over
the entire life of a mortgage.
call option (return to top)
A provision in the mortgage that gives the mortgagee the right to call the
mortgage due and payable at the end of a specified period for whatever reason.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the
interest rate or mortgage payments may increase or decrease.
capital improvement
Any structure or component erected as a permanent improvement to real property
that adds to its value and useful life.
cash-out refinance
A refinance transaction in which the amount of money received from the new
loan exceeds the total of the money needed to repay the existing first mortgage,
closing costs, points, and the amount required to satisfy any outstanding
subordinate mortgage liens. In other words, a refinance transaction in which
the borrower receives additional cash that can be used for any purpose.
Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility
for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes
the maximum value and loan amount for a VA mortgage.
certificate of title
A statement provided by an abstract company, title company, or attorney
stating that the title to real estate is legally held by the current owner.
chain of title
The history of all of the documents that transfer title to a parcel of real
property, starting with the earliest existing document and ending with the
most recent.
change frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
clear title
A title that is free of liens or legal questions as to ownership of the
property.
closing
A meeting at which a sale of a property is finalized by the buyer signing
the mortgage documents and paying closing costs.
Also called "settlement."
closing cost item (return to top)
A fee or amount that a home buyer must pay at closing for a single 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 statement.
closing costs
Expenses (over and above the price of the property) incurred by buyers and
sellers in transferring ownership of a property. Closing costs normally
include an origination fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance and a survey. Closing
costs percentage will vary according to the area of the country.
closing statement
Also referred to as the HUD1. The final statement of costs incurred to close
on a loan or to purchase a home.
cloud on title
Any conditions revealed by a title search that adversely affect the title
to real estate. Usually clouds on title cannot be removed except by a quitclaim
deed, release, or court action.
collateral
An asset (such as a car or a home) that guarantees 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.
collection
The efforts used to bring a delinquent mortgage current and to file the
necessary notices to proceed with foreclosure when necessary.
co-maker
A person who signs a promissory note along with the borrower. A co-maker's
signature guarantees that the loan will be repaid, because the borrower
and the co-maker are equally responsible for the repayment. See endorser.
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.
commitment letter
A formal offer by a lender stating the terms under which it agrees to lend
money to a home buyer. Also known as a "loan commitment."
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 Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home
buyers to obtain 95 percent financing for the purchase and improvement of
a home in need of modest repairs. The repair work can account for as much
as 30 percent of the appraised value.
community property (return to top)
In some western and southwestern states, a form of ownership under which
property acquired during a marriage is presumed to be owned jointly unless
acquired as separate property of either spouse.
comparables
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.
condominium
A real estate project in which each unit owner has title to a unit in a
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.
construction loan
A short-term, interim loan for financing the cost of construction. The lender
makes payments to the builder at periodic intervals as the work progresses.
consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine
a potential borrower's credit history. The agency obtains data for these
reports from a credit repository as well as from other sources.
contingency
A condition that must be met before a contract is legally binding. For example,
home purchasers often include a contingency that specifies that the contract
is not binding until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower
to change the ARM to a fixed-rate mortgage at specified timeframes after
loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate
mortgage under specified conditions.
cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit 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 (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.
covenant
A clause in a mortgage that obligates or restricts the borrower and that,
if violated, can result in foreclosure.
credit
An agreement in which a borrower receives something of value in exchange
for a promise to repay the lender at a later date.
credit history (return to top)
A record of an individual's open and fully repaid debts. A credit history
helps a lender to determine whether a potential borrower has a history of
repaying debts in a timely manner.
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 creditworthiness. See
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.
debt (return to top)
An amount owed to another.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid
foreclosure.
deed of trust
The document used in some states instead of a mortgage; title is conveyed
to a trustee.
default
Failure to make mortgage payments on a timely basis or to comply with other
requirements of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments are due.
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.
depreciation
A decline in the value of property; the opposite of appreciation.
down payment
The part of the purchase price of a property that the buyer pays in cash
and does not finance with a mortgage.
due-on-sale provision (return to top)
A provision in a mortgage that allows the lender to demand repayment in
full if the borrower sells the property that serves as security for the
mortgage.
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