A clause in your mortgage which allows the lender to demand payment of the outstanding
loan balance for various reasons. The most common reasons for accelerating a loan are if
the borrower defaults on the loan or transfers title to another individual without
informing the lender.
The loan payment consists of a portion which will be applied to pay the accruing interest
on a loan, with the remainder being applied to the principal. Over time, the interest
portion decreases as the loan balance decreases, and the amount applied to principal
increases so that the loan is paid off (amortized) in the specified time.
A table which shows how much of each payment will be applied toward principal and how much
toward interest over the life of the loan. It also shows the gradual decrease of the loan
balance until it reaches zero.
This is not the note rate on your loan. It is a value created according to a government
formula intended to reflect the true annual cost of borrowing, expressed as a percentage.
It works sort of like this, but not exactly, so only use this as a guideline: deduct the
closing costs from your loan amount, then using your actual loan payment, calculate what
the interest rate would be on this amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you are using the same payment on a
smaller amount, the APR is always higher than the actual note rate on your loan.
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property. Since an appraisal is based primarily on
comparable sales, and the most recent sale is the one on the property in question, the
appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience to estimate the value of
real property and personal property. Although some appraisers work directly for mortgage
lenders, most are independent.
Items of value owned by an individual. Assets that can be quickly converted into cash are
considered "liquid assets." These include bank accounts, stocks, bonds, mutual
funds, and so on. Other assets include real estate, personal property, and debts owed to
an individual by others.
A mortgage loan that requires the remaining principal balance be paid at a specific point
in time. For example, a loan may be amortized as if it would be paid over a thirty year
period, but requires that at the end of the tenth year the entire remaining balance must
be paid.
By filing in federal bankruptcy court, an individual or individuals can restructure or
relieve themselves of debts and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which
relieves the borrower of most types of debts. A borrower cannot usually qualify for an
"A" paper loan for a period of two years after the bankruptcy has been
discharged and requires the re-establishment of an ability to repay debt.
A written document that transfers title to personal property. For example, when selling an
automobile to acquire funds which will be used as a source of down payment or for closing
costs, the lender will usually require the bill of sale (in addition to other items) to
help document this source of funds.
A mortgage in which you make payments every two weeks instead of once a month. The basic
result is that instead of making twelve monthly payments during the year, you make
thirteen. The extra payment reduces the principal, substantially reducing the time it
takes to pay off a thirty year mortgage. Note: there are independent
companies that encourage you to set up bi-weekly payment schedules with them on your
thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your
funds are deposited into a trust account from which your monthly payment is then made, and
the excess funds then remain in the trust account until enough has accrued to make the
additional payment which will then be paid to reduce your principle. You could save money
by doing the same thing yourself, plus you have to have faith that once you transfer money
to them that they will actually transfer your funds to your lender.
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders
follow this market intensely because as the yields of bonds go up and down, fixed rate
mortgages do approximately the same thing. The same factors that affect the Treasury Bond
market also affect mortgage rates at the same time. That is why rates change daily, and in
a volatile market can and do change during the day as well.
Not used much anymore, bridge loans are obtained by those who have not yet sold their
previous property, but must close on a purchase property. The bridge loan becomes the
source of their funds for the down payment. One reason for their fall from favor is that
there are more and more second mortgage lenders now that will lend at a high loan to
value. In addition, sellers often prefer to accept offers from buyers who have already
sold their property.
Broker has several meanings in different situations. Most Realtors are "agents"
who work under a "broker." Some agents are brokers as well, either working form
themselves or under another broker. In the mortgage industry, broker usually refers to a
company or individual that does not lend the money for the loans themselves, but broker
loans to larger lenders or investors. (See the Home Loan Library that discusses the
different types of lenders). As a normal definition, a broker is anyone who acts as an
agent, bringing two parties together for any type of transaction and earns a fee for doing
so.
Usually refers to a fixed rate mortgage where the interest rate is "bought down"
for a temporary period, usually one to three years. After that time and for the remainder
of the term, the borrower's payment is calculated at the note rate. In order to buy
down the initial rate for the temporary payment, a lump sum is paid and held in an account
used to supplement the borrower's monthly payment. These funds usually come from the
seller (or some other source) as a financial incentive to induce someone to buy their
property. A "lender funded buydown" is when the lender pays the initial lump
sum. They can accomplish this because the note rate on the loan (after the buydown
adjustments) will be higher than the current market rate. One reason for doing this is
because the borrower may get to "qualify" at the start rate and can qualify for
a higher loan amount. Another reason is that a borrower may expect his earnings to go up
substantially in the near future, but wants a lower payment right now.
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are
usually limited to a certain amount. Those limitations may apply to how much the loan may
adjust over a six month period, an annual period, and over the life of the loan, and are
referred to as "caps." Some ARMs, although they may have a life cap, allow the
interest rate to fluctuate freely, but require a certain minimum payment which can change
once a year. There is a limit on how much that payment can change each year, and that
limit is also referred to as a cap.
When a borrower refinances his mortgage at a higher amount than the current loan balance
with the intention of pulling out money for personal use, it is referred to as a
"cash out refinance." (top)
One of the indexes used for determining interest rate changes on some adjustable rate
mortgages. It is an average of what banks are paying on certificates of deposit. (top)
This has different meanings in different states. In some states a real estate transaction
is not consider "closed" until the documents record at the local recorders
office. In others, the "closing" is a meeting where all of the documents are
signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing costs"
and "pre-paid items." Non-recurring closing costs are any items which are paid
just once as a result of buying the property or obtaining a loan. "Pre-paids"
are items which recur over time, such as property taxes and homeowners insurance. A lender
makes an attempt to estimate the amount of non-recurring closing costs and prepaid items
on the Good Faith Estimate which they must issue to the borrower within three days of
receiving a home loan application.
Any conditions revealed by a title search that adversely affect the title to real estate.
Usually clouds on title cannot be removed except by deed, release, or court action.
In a home loan, the property is the collateral. The borrower risks losing the property if
the loan is not repaid according to the terms of the mortgage or deed of trust.
When a borrower falls behind, the lender contacts them in an effort to bring the loan
current. The loan goes to "collection." As part of the collection effort, the
lender must mail and record certain documents in case they are eventually required to
foreclose on the property.
Most salespeople earn commissions for the work that they do and there are many sales
professionals involved in each transaction, including Realtors, loan officers, title
representatives, attorneys, escrow representative, and representatives for pest companies,
home warranty companies, home inspection companies, insurance agents, and more. The
commissions are paid out of the charges paid by the seller or buyer in the purchase
transaction. Realtors generally earn the largest commissions, followed by lenders, then
the others.(top)
In some areas they are called Homeowners Association Fees. They are charges paid to the
Homeowners Association by the owners of the individual units in a condominium or planned
unit development (PUD) and are generally used to maintain the property and common areas. (top)
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.
In some states, especially the southwest, property acquired by a married couple during
their marriage is considered to be owned jointly, except under special circumstances. This
is an outgrowth of the Spanish and Mexican heritage of the area.
A type of ownership in real property where all of the owners own the property, common
areas and buildings together, with the exception of the interior of the unit to which they
have title. Often mistakenly referred to as a type of construction or development, it
actually refers to the type of ownership.
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. These are often found in resort areas
like Hawaii.
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.
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.
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.
One of the indexes that is used to determine interest rate changes for certain
adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings,
and advances of the financial institutions such as banks and savings & loans, in the
11th District of the Federal Home Loan Bank.
A record of an individual's repayment of debt. Credit histories are reviewed my mortgage
lenders as one of the underwriting criteria in determining credit risk.
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.
Short for "deed in lieu of foreclosure," this conveys title to the lender when
the borrower is in default and wants to avoid foreclosure. The lender may or may not cease
foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether
the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most
likely show on a credit history. What a deed-in-lieu may prevent is having the documents
preparatory to a foreclosure being recorded and become a matter of public record.
Failure to make the mortgage payment within a specified period of time. For first
mortgages or first trust deeds, if a payment has still not been made within 30 days of the
due date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments are due. For most mortgages,
payments are due on the first day of the month. Even though they may not charge a
"late fee" for a number of days, the payment is still considered to be late and
the loan delinquent. When a loan payment is more than 30 days late, most lenders report
the late payment to one or more credit bureaus.
A decline in the value of property; the opposite of appreciation. Depreciation is also an
accounting term which shows the declining monetary value of an asset and is used as an
expense to reduce taxable income. Since this is not a true expense where money is actually
paid, lenders will add back depreciation expense for self-employed borrowers and count it
as income.
In the mortgage industry, this term is usually used in only in reference to government
loans, meaning FHA and VA loans. Discount points refer to any "points" paid in
addition to the one percent loan origination fee. A "point" is one percent of
the loan amount.
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.
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.
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.
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 and other liens.
An item of value, money, or documents deposited with a third party to be delivered upon
the fulfillment of a condition. For example, the earnest money deposit is put into escrow
until delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have an escrow account or impound
account with your lender. This means the amount you pay each month includes an amount
above what would be required if you were only paying your principal and interest. The
extra money is held in your impound account (escrow account) for the payment of items like
property taxes and homeowner's insurance when they come due. The lender pays them
with your money instead of you paying them yourself.
Once each year your lender will perform an "escrow analysis" to make sure they
are collecting the correct amount of money for the anticipated expenditures.
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.
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. (top)
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.
The Federal National Mortgage Association, which is a congressionally chartered,
shareholder-owned company that is the nation's largest supplier of home mortgage funds.
For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA),
see the Library.
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.
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. (top)
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.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA
loans, an FHA loan will often be referred to as a government loan.
The mortgage that is in first place among any loans recorded against a property. Usually
refers to the date in which loans are recorded, but there are exceptions.
Insurance that compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
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.
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.
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have
accumulated in these plans. Loans against 401K plans are an acceptable source of down
payment for most types of loans.
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). Mortgages that
are not government loans are classified as conventional loans.
A government-owned corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae
and Freddie Mac in providing funds to lenders for making home loans. The difference is
that Ginnie Mae provides funds for government loans (FHA and VA)
