Real Estate Glossary of Housing Terms
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A
acceleration clause
A provision in a mortgage
that gives the lender the right to demand payment of the entire
principal balance if a monthly payment is missed.
acceptance
An offeree’s consent to enter into a contract and be bound by the terms of the offer.
additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
adjustable-rate mortgage (ARM)
A mortgage that permits
the lender to adjust the mortgage's interest rate periodically on the
basis of changes in a specified index. Interest rates may move up or
down, as market conditions change.
adjusted basis
The original cost of a
property plus the value of any capital expenditures for improvements to
the property minus any depreciation taken.
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).
administrator
A person appointed by a probate court to administer the estate of a person who died intestate.
affordability analysis
A detailed analysis of
your ability to afford the purchase of a home. An affordability
analysis takes into consideration your income, liabilities and
available funds, along with the type of mortgage you plan to use, the
area where you want to purchase a home and the closing costs that you
might expect to pay.
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 of the surrounding area, etc.
Human-made amenities include swimming pools, tennis courts, community
buildings and other recreational facilities.
amortization
The gradual repayment of a mortgage loan by installments.
amortization schedule
A timetable for payment
of a mortgage loan. An amortization schedule shows the amount of each
payment applied to interest and principal and shows the remaining
balance after each payment is made.
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.
amortize
To repay a mortgage with regular payments that cover both principal and interest.
annual mortgagor statement
A report sent to the
mortgagor (the borrower) each year. The report shows how much was paid
in taxes and interest during the year, as well as the remaining
mortgage loan balance at the end of the year.
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).
annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.
application
A form used to apply for
a mortgage loan and to record pertinent information concerning a
prospective mortgagor and the proposed security. Lenders use the
information on the loan application to evaluate whether or not they can
give the loan, and if so, the amount of money they can lend.
appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.
appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience and analysis of the property.
appraiser
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.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.
assessment
The process of placing a
value on property for the strict purpose of taxation. May also refer to
a levy against property for a special purpose, such as a sewer
assessment.
assessment rolls
The public record of taxable property.
assessor
A public official who establishes the value of a property for taxation purposes.
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. See assumable mortgage.
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.
attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.
B
balance sheet
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. The principal and interest on the loan are amortized
over a longer period than the actual term of the mortgage.
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.
bequeath
To transfer personal property through a will.
betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
bill of sale
A written document that transfers title to personal property.
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 insurance policy
A single policy that covers more than one piece of property (or more than one person).
blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
bona fide
In good faith, without fraud.
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.
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.
budget category
A category of income or
expense data that you can use in a budget. You can also define your own
budget categories and add them to some or all of the budgets you
create. "Rent" is an example of an expense category. "Salary" is a
typical income category.
building code
Local regulations that
control design, construction and materials used in construction.
Building codes are based on safety and health standards.
buydown account
An account in which funds
are held so that they can be applied as part of the monthly mortgage
payment as each payment comes due during the period that an interest
rate buydown plan is in effect.
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.
C
call option
A provision in the
mortgage that gives the mortgagee (the lender) 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. See lifetime payment
cap, lifetime rate cap, periodic payment cap and periodic rate cap.
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.
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 deposit
A document written by a
bank or other financial institution that is evidence of a deposit, with
the issuer's promise to return the deposit plus earnings at a specified
interest rate within a specified time period. See adjustable rate
mortgage (ARM).
certificate of deposit index
An index that is used to
determine interest rate changes for certain adjustable-rate mortgage
(ARM) plans. It represents the weekly average of secondary market
interest rates on six-month negotiable certificates of deposit. See
adjustable-rate mortgage.
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).
chattel
Another name for personal property.
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." At this meeting,
ownership of the property is transferred from the seller to the buyer.
closing cost item
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; lenders or
REALTORS® often provide estimates of closing costs to prospective
homebuyers.
closing statement
See HUD-1 statement.
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.
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 that states the amount of coverage that must be
maintained -- as a percentage of the total value of the property -- for
the insured to collect the full amount of a loss.
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 area assessments
Levies against 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.
common law
An unwritten body of law based on general custom in England and used to an extent in the United States.
Community Land Trust Mortgage Option
An alternative financing
option that enables low- and moderate-income home buyers to purchase
housing that has been improved by a nonprofit Community Land Trust and
to lease the land on which the property stands.
community property
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.
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 of the debt may be forgiven
incrementally for each year the buyer remains in the home.
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.
compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
condemnation
The determination that a
building is not fit for use or is dangerous and must be destroyed; the
taking of private property for a public purpose through an exercise of
the right of eminent domain.
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.
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.
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.
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. Contrast with government mortgage.
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.
cooperative corporation
A business trust entity
that holds title to a cooperative project and grants occupancy rights
to particular apartments or units to shareholders through proprietary
leases or similar arrangements.
cooperative mortgages
Mortgages related to a
cooperative project. This usually refers to the multifamily mortgage
covering the entire project but occasionally describes the share loans
on the individual units.
cooperative project
A residential or
mixed-use building wherein a corporation or trust holds title to the
property and sells shares of stock representing the value of a single
apartment unit to individuals who, in turn, receive a proprietary lease
as evidence of title.
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. See adjustable-rate mortgage (ARM).
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
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 life insurance
A type of insurance often
bought by mortgagors because it will pay off the mortgage debt if the
mortgagor dies while the policy is in force.
creditor
A person to whom money is owed.
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.
credit 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.
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.
D
debt
An amount owed to another. See installment loan and revolving liability.
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. Also called a "voluntary conveyance."
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. See earnest money
deposit.
depreciation
A decline in the value of property; the opposite of appreciation.
discount points
See point.
dower
The rights of a widow in the property of her husband at his death.
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
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.
due-on-transfer provision
This terminology is usually used for second mortgages. See due-on-sale provision.
E
earnest money deposit
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 persons other than the owner access to or over a property.
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
Normal annual income
including overtime that is regular or guaranteed. The 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.
eminent domain
The right of a government
to take private property for public use upon payment of its fair market
value. Eminent domain is the basis for condemnation proceedings.
employer-assisted housing
A special 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 that intrudes illegally on another’s property.
encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements or restrictions.
endorser
A person who signs ownership interest over to another party. Contrast with co-maker.
Equal Credit Opportunity Act (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 its mortgage.
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 mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
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
servicer and set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance and hazard insurance.
escrow disbursements
The use of escrow funds
to pay real estate taxes, hazard insurance, mortgage insurance and
other property expenses as they become due.
escrow payment
The portion of a
mortgagor’s monthly payment that is held by the servicer to pay for
taxes, hazard 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.
eviction
The lawful expulsion of an occupant from real property.
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
A person named in a will
to administer an estate. The court will appoint an administrator if no
executor is named. "Executrix" is the feminine form.
F
Fair Credit Reporting Act
A consumer protection law
that regulates the disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one's credit record.
fair market value
The highest price that a
buyer, willing but not compelled to buy, would pay and the lowest a
seller, willing but not compelled to sell, would accept.
Fannie Mae
A New York Stock Exchange
company and the largest non-bank financial services company in the
world. It operates pursuant to a federal charter and is the nation's
largest source of financing for home mortgages.
Fannie Mae Properties
Fannie Mae owns, manages
and has available for sale, single-family detached homes, two- to
four-unit properties, condominiums and townhouses in a variety of
neighborhoods. The number, type and sales price may vary substantially.
The homes vary in age and may require repairs. Fannie Mae homes are
sold through local real estate brokers whose contact information is
provided in the Fannie Mae Properties for Sale search results on homepath.com.
Fannie Mae's Community Home Buyer's ProgramSM
An income-based community
lending model, under which mortgage insurers and Fannie Mae offer
flexible underwriting guidelines to increase a low- or moderate-income
family's buying power and to decrease the total amount of cash needed
to purchase a home. Borrowers who participate in this model are
required to attend pre-purchase home-buyer education sessions.
Fannie 97®
A financing option for a
fixed-rate mortgage that offers home buyers a 3 percent down payment
loan with a term between 15 and 30 years. The mortgage features a
loan-to-value (LTV) percentage of 97 percent, and is designed to expand
homeownership opportunities for people with modest incomes. Borrowers
must take a pre-purchase home-buyer education session to qualify for a
Fannie 97 mortgage.
Federal Housing Administration (FHA)
An agency of the U.S.
Department of Housing and Urban Development (HUD). Its main activity is
the insuring of residential mortgage loans made by private lenders. The
FHA sets standards for construction and underwriting but does not lend
money or plan or construct housing.
fee simple
The greatest possible interest a person can have in real estate.
fee simple estate
An unconditional,
unlimited estate of inheritance that represents the greatest estate and
most extensive interest in land that can be enjoyed. It is of perpetual
duration. When the real estate is in a condominium project, the unit
owner is the exclusive owner only of the air space within his or her
portion of the building (the unit) and is an owner in common with
respect to the land and other common portions of the property.
FHA coinsured mortgage
A mortgage (under FHA
Section 244) for which the Federal Housing Administration (FHA) and the
originating lender share the risk of loss in the event of the
mortgagor's default.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.
first mortgage
A mortgage that is the primary lien against a property.
fixed installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
fixture
Personal property that becomes real property when attached in a permanent manner to real estate.
flood insurance
Insurance that
compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
foreclosure
The legal process by
which a borrower in default under a mortgage is deprived of his or her
interest in the mortgaged property. This usually involves a forced sale
of the property at public auction with the proceeds of the sale being
applied to the mortgage debt.
forfeiture
The loss of money, property, rights or privileges due to a breach of legal obligation.
401(k)/403(b)
An employer-sponsored
investment plan that allows individuals to set aside tax-deferred
income for retirement or emergency purposes. 401(k) plans are provided
by employers that are private corporations. 403(b) plans are provided
by employers that are not for profit organizations.
401(k)/403(b) loan
Some administrators of
401(k)/403(b) plans allow for loans against the monies you have
accumulated in these plans -- monies must be repaid to avoid serious
penalty charges.
fully amortized ARM
An adjustable-rate
mortgage (ARM) with a monthly payment that is sufficient to amortize
the remaining balance, at the interest accrual rate, over the
amortization term.
G
government mortgage
A mortgage 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 mortage.
Government National Mortgage Association
A government-owned
corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress on Sept. 1, 1968, GNMA assumed
responsibility for the special assistance loan program formerly
administered by Fannie Mae. Popularly known as Ginnie Mae.
grantee
The person to whom an interest in real property is conveyed.
grantor
The person conveying an interest in real property.
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.
growing-equity mortgage (GEM)
A fixed-rate mortgage
that provides scheduled payment increases over an established period of
time, with the increased amount of the monthly payment applied directly
toward reducing the remaining balance of the mortgage.
guarantee mortgage
A mortgage that is guaranteed by a third party.
guaranteed loan
Also known as a government mortgage.
H
hazard insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
A special type of
mortgage that enables older home owners to convert the equity they have
in their homes into cash, using a variety of payment options to address
their specific financial needs. Unlike traditional home equity loans, a
borrower does not qualify on the basis of income but on the value of
his or her home. In addition, the loan does not have to be repaid until
the borrower no longer occupies the property. Sometimes called a
reverse mortgage.
home equity line of credit
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.
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.
HomeKeeperSM
Fannie Mae's
adjustable-rate conventional reverse mortgage, which allows older
homeowners to borrow against the value of their homes and receive the
proceeds according to the payment option they select. The amount
available is based on the number of borrowers and their ages and the
adjusted property value. Anyone 62 years or older who either owns his
or her own home free and clear or has very low mortgage debt is
eligible.
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.
homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty (HOW)
A type of insurance that
covers repairs to specified parts of a house for a specific period of
time. It is provided by the builder or property seller as a condition
of the sale.
HomeStyle® Mortgage Loan
A mortgage that enables
eligible borrowers to obtain financing to remodel, repair and upgrade
their existing homes or homes that they are purchasing. See also
HomeStyle Standard Mortgage, HomeStyle Remodeler, HomeStyle Community
Mortgage and HomeStyle Consumer Energy Loan.
housing expense ratio
The percentage of gross monthly income that goes toward paying housing expenses.
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 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."
I
income property
Real estate developed or improved to produce income.
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.
This interest rate is subject to any caps that are associated with the
mortgage.
in-file credit report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
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.
initial interest rate
The original interest
rate of the mortgage at the time of closing. This rate changes for an
adjustable-rate mortgage (ARM). Sometimes known as "start rate" or
"teaser."
installment
The regular periodic payment that a borrower agrees to make to a lender.
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.
insured mortgage
A mortgage that is
protected by the Federal Housing Administration (FHA) or by private
mortgage insurance (MI). 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.
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, although it is not used
for an adjustable-rate mortgage (ARM) with payment change limitations.
interest rate
The rate of interest in effect for the monthly payment due.
interest rate buydown plan
An arrangement wherein
the property seller (or any other party) deposits money to an account
so that it can be released each month to reduce the mortgagor's monthly
payments during the early years of a mortgage. During the specified
period, the mortgagor's effective interest rate is "bought down" below
the actual interest rate.
interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
investment property
A property that is not occupied by the owner.
IRA (Individual Retirement Account)
A retirement account that
allows individuals to make tax-deferred contributions to a personal
retirement fund. Individuals can place IRA funds in bank accounts or in
other forms of investment such as stocks, bonds or mutual funds.
J
joint tenancy
A form of co-ownership
that gives each tenant equal interest and equal rights in the property,
including the right of survivorship.
judgment
A decision made by a
court of law. In judgments that require the repayment of a debt, the
court may place a lien against the debtor's real property as collateral
for the judgment's creditor.
judgment lien
A lien on the property of a debtor resulting from the decree of a court.
judicial foreclosure
A type of foreclosure
proceeding used in some states that is handled as a civil lawsuit and
conducted entirely under the auspices of a court.
jumbo loan
A loan that exceeds Fannie Mae’s mortgage amount limits. Also called a nonconforming loan.
L
late charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
lease
A written agreement
between the property owner and a tenant that stipulates the conditions
under which the tenant may possess the real estate for a specified
period of time and rent.
leasehold estate
A way of holding title to
a property wherein the mortgagor does not actually own the property but
rather has a recorded long-term lease on it.
lease-purchase mortgage loan
An alternative financing
option that allows low- and moderate-income home buyers to lease a home
from a nonprofit organization with an option to buy. Each month's rent
payment consists of principal, interest, taxes and insurance (PITI)
payments on the first mortgage plus an extra amount that is earmarked
for deposit to a savings account in which money for a downpayment will
accumulate.
legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
liabilities
A person's financial
obligations. Liabilities include long-term and short-term debt, as well
as any other amounts that are owed to others.
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.
lien
A legal claim against a property that must be paid off when the property is sold.
lifetime payment cap
For an adjustable-rate
mortgage (ARM), a limit on the amount that payments can increase or
decrease over the life of the mortgage. See cap.
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 cap, interest rate
ceiling and interest rate floor.
line of credit
An agreement by a
commercial bank or other financial institution to extend credit up to a
certain amount for a certain time to a specified borrower. See home
equity line of credit.
liquid asset
A cash asset or an asset that is easily converted into cash.
loan
A sum of borrowed money (principal) that is generally repaid with interest.
loan commitment
See commitment letter.
loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.
loan-to-value (LTV) percentage
The relationship between
the principal balance of the mortgage and the appraised value (or sales
price if it is lower) of the property. For example, a $100,000 home
with an $80,000 mortgage has a LTV percentage of 80 percent.
lock-in
A written agreement in
which the lender guarantees a specified interest rate if a mortgage
goes to closing within a set period of time. The lock-in also usually
specifies the number of points to be paid at closing.
lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.
M]
margin
For an adjustable-rate
mortgage (ARM), 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.
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.
maximum financing
A mortgage amount that is
within 5 percent of the highest loan-to-value (LTV) percentage allowed
for a specific product. Thus, maximum financing on a fixed-rate
mortgage would be 90 percent or higher, because 95 percent is the
maximum allowable LTV percentage for that product.
merged credit report
A credit report that
contains information from three credit repositories. When the report is
created, the information is compared for duplicate entries. Any
duplicates are combined to provide a summary of a your credit.
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.
monthly fixed installment
That portion of the total
monthly payment that is applied toward principal and interest. When a
mortgage negatively amortizes, the monthly fixed installment does not
include any amount for principal reduction.
monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
mortgage banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
mortgage broker
An individual or company
that brings borrowers and lenders together for the purpose of loan
origination. Mortgage brokers typically require a fee or a commission
for their services.
mortgagee
The lender in a mortgage agreement.
mortgage insurance
A contract that insures
the lender against loss caused by a mortgagor'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 private mortgage insurance.
mortgage insurance premium (MIP)
The amount paid by a
mortgagor 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 often bought by mortgagors. The amount of coverage decreases
as the principal balance declines. In the event that the borrower dies
while the policy is in force, the debt is automatically satisfied by
insurance proceeds.
mortgagor
The borrower in a mortgage agreement.
multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
multifamily properties
Fannie Mae provides
financing for multifamily (buildings with five or more units) rental
properties through a nationwide network of mortgage lenders.
N
negative amortization
A gradual increase in
mortgage debt that occurs when the monthly payment is not large enough
to cover the entire principal and 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 worth
The value of all of a person's assets, including cash, minus all liabilities.
no cash-out refinance
A refinance transaction
in which the new mortgage amount is limited to the sum of the remaining
balance of the existing first mortgage, closing costs (including
prepaid items), points, the amount required to satisfy any mortgage
liens that are more than one year old (if the borrower chooses to
satisfy them) and other funds for the borrower's use (as long as the
amount does not exceed 1 percent of the principal amount of the new
mortgage).
nonliquid asset
An asset that cannot easily be converted into cash.
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.
notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
O
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. The origination fee is stated in the
form of points. One point is 1 percent of the mortgage amount.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
P
partial payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
payment change date
The date when a new
monthly payment amount takes effect on an adjustable-rate mortgage
(ARM) or a graduated-payment adjustable-rate mortgage (GPARM).
Generally, the payment change date occurs in the month immediately
after the adjustment date.
periodic payment cap
For an adjustable-rate
mortgage (ARM), a limit on the amount that payments can increase or
decrease during any one adjustment period.
periodic rate cap
For an adjustable-rate
mortgage (ARM), a limit on the amount that the interest rate can
increase or decrease during any one adjustment period, regardless of
how high or low the index might be.
personal property
Any property that is not real property.
PITI
See principal, interest, taxes and insurance (PITI) below.
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
See PUD below.
point
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.
power of attorney
A legal document that
authorizes another person to act on one’s behalf. A power of attorney
can grant complete authority or can be limited to certain acts and/or
certain periods of time.
prearranged refinancing agreement
A formal or informal
arrangement between a lender and a borrower wherein the lender agrees
to offer special terms (such as a reduction in the costs) for a future
refinancing of a mortgage being originated 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 for less than the amount that is owed to the investor.
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.
pre-qualification
The process of
determining how much money a prospective home buyer will be eligible to
borrow before he or she applies for a loan.
prime rate
The interest rate that
banks charge to their preferred 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. More
principal balance
The outstanding balance
of principal on a mortgage. The principal balance does not include
interest or any other charges. See remaining balance.
principal, interest, taxes and insurance (PITI)
The four 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 are paid into an escrow account each month for property
taxes and mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgage insurance that
is provided by a private mortgage insurance company to protect lenders
against loss if a borrower defaults. Most lenders generally require MI
for a loan with a loan-to-value (LTV) percentage in excess of 80
percent.
promissory note
A written promise to repay a specified amount over a specified period of time.
public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
PUD (Planned Unit Development)
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.
purchase and sale agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
purchase money transaction
The acquisition of property through the payment of money or its equivalent.
Q
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.
quitclaim deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
R
radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
rate-improvement mortgage
A fixed-rate mortgage
that includes a provision that gives the borrower a one-time option to
reduce the interest rate (without refinancing) during the early years
of the mortgage term.
rate lock
A commitment issued by a
lender to a borrower or other mortgage originator guaranteeing a
specified interest rate for a specified period of time. See lock-in.
real estate agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
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
an associate who holds active membership in a local real estate board
that is affiliated with the NATIONAL ASSOCIATION of REALTORS®.
recission
The cancellation or
annulment of a transaction or contract by the operation of a law or by
mutual consent. Borrowers usually have the option to cancel a refinance
transaction within three business days after it has closed.
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 the
registrar’s office of the details of a properly executed legal
document, such as a deed, a mortgage note, a satisfaction of mortgage
or an extension of mortgage, thereby making it a part of the public
record.
refinance transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.
rehabilitation mortgage
A mortgage created to cover the costs of repairing, improving and sometimes acquiring an existing property.
remaining balance
The amount of principal that has not yet been repaid. See principal balance.
remaining term
The original amortization term minus the number of payments that have been applied.
rent loss insurance
Insurance that protects a
landlord against loss of rent or rental value due to fire or other
casualty that renders the leased premises unavailable for use and as a
result of which the tenant is excused from paying rent.
rent with option to buy
See lease-purchase mortgage loan.
repayment plan
An arrangement made to
repay delinquent installments or advances. Lenders' formal repayment
plans are called "relief provisions."
replacement reserve fund
A fund set aside for
replacement of common property in a condominium, PUD, or cooperative
project -- particularly that which has a short life expectancy, such as
carpeting, furniture, etc.
revolving liability
A credit arrangement,
such as a credit card, that allows a customer to borrow against a
preapproved line of credit when purchasing goods and services. The
borrower is billed for the amount that is actually borrowed plus any
interest due.
right of first refusal
A provision in an
agreement that requires the owner of a property to give another party
the first opportunity to purchase or lease the property before he or
she offers it for sale or lease to others.
right of ingress or egress
The right to enter or leave designated premises.
right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Rural Housing Service (RHS)
An agency within the
Department of Agriculture, which operates principally under the
Consolidated Farm and Rural Development Act of 1921 and Title V of the
Housing Act of 1949. This agency provides financing to farmers and
other qualified borrowers buying property in rural areas who are unable
to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
S
sale-leaseback
A technique in which a
seller deeds property to a buyer for a consideration, and the buyer
simultaneously leases the property back to the seller.
second mortgage
A mortgage that has a lien position subordinate to the first mortgage.
secondary mortgage market
The buying and selling of existing mortgages.
secured loan
A loan that is backed by collateral.
security
The property that will be pledged as collateral for a loan.
seller take-back
An agreement in which the
owner of a property provides financing, often in combination with an
assumable mortgage. See owner financing.
servicer
An organization that
collects principal and interest payments from borrowers and manages
borrowers’ escrow accounts. The servicer often services mortgages that
have been purchased by an investor in the secondary mortgage market.
servicing
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
settlement
See closing.
settlement sheet
See HUD-1 statement.
single-family properties
One- to four-unit properties including detached homes, townhomes, condominiums and cooperatives.
special deposit account
An account that is
established for rehabilitation mortgages to hold the funds needed for
the rehabilitation work so they can be disbursed from time to time as
particular portions of the work are completed.
standard payment calculation
The method used to
determine the monthly payment required to repay the remaining balance
of a mortgage in substantially equal installments over the remaining
term of the mortgage at the current interest rate.
step-rate mortgage
A mortgage that allows
for the interest rate to increase according to a specified schedule
(i.e., seven years), resulting in increased payments as well. At the
end of the specified period, the rate and payments will remain constant
for the remainder of the loan.
subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
subordinate financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
subsidized second mortgage
An alternative financing
option known as the Community Seconds® mortgage for low- and
moderate-income households. 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 corporation. Payment on the second mortgage is often deferred
and carries a very low interest rate (or no interest rate). Part of the
debt may be forgiven incrementally for each year the buyer remains in
the home.
survey
A drawing or map showing
the precise legal boundaries of a property, the location of
improvements, easements, rights of way, encroachments and other
physical features.
sweat equity
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
T
tenancy by the entirety
A type of joint tenancy
of property that provides right of survivorship and is available only
to a husband and wife. Contrast with tenancy in common.
tenancy in common
A type of joint tenancy
in a property without right of survivorship. Contrast with tenancy by
the entirety and with joint tenancy.
tenant-stockholder
The obligee for a
cooperative share loan, who is both a stockholder in a cooperative
corporation and a tenant of the unit under a proprietary lease or
occupancy agreement.
third-party origination
A rocess by which a
lender uses another party to completely or partially originate,
process, underwrite, close, fund or package the mortgages it plans to
deliver to the secondary mortgage market. See mortgage broker.
title
A legal document evidencing a person's right to or ownership of a property.
title company
A company that specializes in examining and insuring titles to real estate.
title insurance
Insurance that protects
the lender (lender's policy) or the buyer (owner's policy) against loss
arising from disputes over ownership of a property.
title search
A check of the title
records to ensure that the seller is the legal owner of the property
and that there are no liens or other claims outstanding.
total expense ratio
Total obligations as a
percentage of gross monthly income. The total expense ratio includes
monthly housing expenses plus other monthly debts.
trade equity
Equity that results from
a property purchaser giving his or her existing property (or an asset
other than real estate) as trade as all or part of the down payment for
the property that is being purchased.
transfer of ownership
Any means by which the
ownership of a property changes hands. Lenders consider all of the
following situations to be a transfer of ownership: the purchase of a
property "subject to" the mortgage, the assumption of the mortgage debt
by the property purchaser and any exchange of possession of the
property under a land sales contract or any other land trust device. In
cases in which an inter vivos revocable trust is the borrower, lenders
also consider any transfer of a beneficial interest in the trust to be
a transfer of ownership.
transfer tax
State or local tax payable when title passes from one owner to another.
Treasury index
An index that is used to
determine interest rate changes for certain adjustable-rate mortgage
(ARM) plans. It is based on the results of auctions that the U.S.
Treasury holds for its Treasury bills and securities or is derived from
the U.S. Treasury's daily yield curve, which is based on the closing
market bid yields on actively traded Treasury securities in the
over-the-counter market. See adjustable-rate mortgage (ARM).
Truth-in-Lending
A federal law that
requires lenders to fully disclose, in writing, the terms and
conditions of a mortgage, including the annual percentage rate (APR)
and other charges.
two-step mortgage
An adjustable-rate
mortgage (ARM) that has one interest rate for the first five or seven
years of its mortgage term and a different interest rate for the
remainder of the amortization term.
two- to four-family property
A property that consists
of a structure that provides living space (dwelling units) for two to
four families, although ownership of the structure is evidenced by a
single deed.
trustee
A fiduciary who holds or controls property for the benefit of another.
U
underwriting
The process of evaluating
a loan application to determine the risk involved for the lender.
Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
unsecured loan
A loan that is not backed by collateral.
V
VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
vested
Having the right to use a
portion of a fund such as an individual retirement fund. For example,
individuals who are 100 percent vested can withdraw all of the funds
that are set aside for them in a retirement fund. However, taxes may be
due on any funds that are actually withdrawn.
Department of Veterans Affairs (VA)
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.
W
what-if analysis
An affordability analysis
that is based on a what-if scenario. A what-if analysis is useful if
you do not have complete data or if you want to explore the effect of
various changes to your income, liabilities, or available funds or to
the qualifying ratios or down payment expenses that are used in the
analysis.
what-if scenario
A change in the amounts
that is used as the basis of an affordability analysis. A what-if
scenario can include changes to monthly income, debts, or down payment
funds or to the qualifying ratios or down payment expenses that are
used in the analysis. You can use a what-if scenario to explore
different ways to improve your ability to afford a house.
wraparound mortgage
A mortgage that includes
the remaining balance on an existing first mortgage plus an additional
amount requested by the mortgagor. Full payments on both mortgages are
made to the wraparound mortgagee, who then forwards the payments on the
first mortgage to the first mortgagee.
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