Cap - A provision of an ARM limiting how much the interest
rate or mortgage payments may increase.
Cash Reserve - A requirement of some lenders that buyers have
sufficient cash remaining after closing to make the first two mortgage payments.
Clear Title - A title that is free of liens and legal questions
as to ownership of the property.
Closing - The occasion where a sale is finalized: the buyer
signs the mortgage, and closing costs are paid. Also called "settlement."
Closing Costs - Expenses over- and above the price of the property
incurred by buyers and sellers in transferring ownership of a property. Also
called "settlement costs."
Commitment Letter - A formal offer by a lender stating the
terms under which it agrees to loan money to a home buyer.
Community Home Buyers Program - An alternative financing option
that allows households of modest means to qualify for mortgages using nontraditional
credit histories. Thirty-three percent housing-to-income and 38-percent debt-to-income
ratios, and the waiver of the usual two-payment cash reserves at closing.
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.
Community Land Trust Mortgage Loan - 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.
Condominium - A form of property ownership in which the home
owner holds title to an individual dwelling unit plus an interest in common
areas of a multi-unit project.
Contingency - A condition that must be met before a contract
is legally binding.
Conventional Mortgage - Any mortgage that is not insured or
guaranteed by the federal government.
Convertible ARM - An adjustable-rate mortgage that can be converted
to a fixed-rate mortgage under specific conditions.
Cooperative - A form of common property ownership in which
the residents of an apartment building do not own their own units, but rather
own shares in the corporation that owns the property.
Covenant - A clause in a mortgage that obligates or restricts
the borrower and which, if violated, can result in foreclosure.
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.
Deed - The legal document conveying title to a property.
Deed of Trust - The document used in some states instead of
a mortgage; title is conveyed to a trustee rather than to the borrower.
Default - Failure to make mortgage payments on a timely basis
or to comply with other conditions of a mortgage.
Delinquency - A loan in which a payment is overdue but not
yet in default.
Deposit - Cash paid to the seller when a formal sales contract
is signed.
Depreciation - A decline in the value of property; the opposite
of "appreciation."
Discount Points - See Points.
Down Payment - The part of the purchase price which the buyer
pays in cash and does not finance with a mortgage.
Due-on-sale Clause - A provision in a mortgage allowing the
lender to demand repayment in full if the borrower sells the property securing
the mortgage.
Earnest Money - A deposit given to the seller to show that
a prospective buyer is serious about buying the house.
Easement - A right of way giving persons other than the owner
access to or over a property.
Equal Credit Opportunity Act (ECOA) - A federal law that prohibits
lenders from denying mortgages on the basis of the borrower's race, color, religion,
national origin, age, sex, marital status or receipt of income from public assistance
programs.
Equity - The difference between the market value of a property
and the home owner's outstanding mortgage balance.
Equity Loan - A loan based on the borrower's equity in his
or her home.
Escrow - The holding of documents and money by a neutral third
party prior to closing, also, an account held by the lender into which a home
owner pays money for taxes and insurance.
Fair Credit Reporting Act - A consumer protection law that
sets up a procedure for correcting mistakes on one's credit record.
FHA Loan - A mortgage that is insured by the Federal Housing
Administration.
First Mortgage - The mortgage that has first claim in the event
of default.
Fixed-Rate Mortgage - A mortgage in which the interest rate
does not change during the entire term of the loan.
Forebearance - The lender's postponement of foreclosure to
give the borrower time to catch up on overdue payments.
Foreclosure - The process by which a mortgaged property may
be sold when a mortgage is in default.
Graduated Payment Mortgage - A mortgage that starts with low
monthly payments that increase at a predetermined scale
.
Hazard Insurance - Insurance to protect the home owner and
the lender against physical damage to a property from fire, wind, vandalism
or other hazards.
Homeowners Insurance - An insurance policy that combines liability
coverage and hazard insurance.
Home Owners Warranty - A type of insurance that covers repairs
to specified parts of a house for a specific period of time
.
Interest - The fee charged for borrowing money.
Interest Rate Cap - A provision of an ARM limiting how much
interest rates may increase per adjustment period. See also Lifetime Cap.
Joint Tenancy - A form of co-ownership giving each tenant equal
interest and equal rights in the property, including the right of survivorship.
Late Charge - The penalty a borrower must pay when a payment
is made after the due date.
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, and with each month's rent payments consisting
of P.I.T.I. payments on the first mortgage, plus an extra amount that is earmarked
for a savings account in which money for a down payment accumulates.
Lien - A legal claim against a property that must be paid when
the property is sold.
Lifetime Cap - A provision of an ARM that limits the total
increase in interest rates over the life of the loan.
Loan Commitment - See Commitment Letter.
Loan Servicing - The collection of mortgage payments from borrowers
and related responsibilities of a loan servicer.
Loan-to-value Ratio (LTV) - The relationship between the amount
of a mortgage and the total value of the property.
Lock-in - A written agreement guaranteeing the home buyer a
specified interest rate provided the loan is closed within a set period of time.
The lock-in also usually specifies the number of points to be paid at closing.
Margin - The set percentage the lender adds to the index rate
to determine the interest rate of an ARM.
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 market.
Mortgage Broker - A company that matches borrowers with lenders
.
Mortgage Insurance - See Private Mortgage Insurance.
Mortgage Insurance Premium (MIP) - The fee paid by a borrower
to FHA or a private insurer for mortgage insurance.
Mortgage Note - A legal document obligating a borrower to repay
a loan at a stated interest rate during a specified period of time; the agreement
is secured by a mortgage.
Mortgagee - The lender in a mortgage agreement.
Mortgagor - The borrower in a mortgage agreement.
Negative Amortization - Payment terms under which the borrower's
monthly payments do not cover the interest due; as a result, the loan balance
increases.
Notice of Default - A formal written notice to a borrower that
a default has occurred and that legal action may be taken.
Origination Fee - A fee paid to a lender for processing a loan
application; it is stated as a percentage of the mortgage amount, or points.
Owner Financing - A purchase in which the seller provides all
or part of the financing.
Payment Cap - A provision of some ARMs limiting how much a
borrower's payment may increase regardless of how much the interest rate increases;
may result in negative amortization.
P.I.T.I. - Stands for principal, interest, taxes and insurance
- the components of a monthly mortgage payment.
Points - A one-time charge by the lender to increase the yield
of the loan; a point is 1 percent of the amount of the mortgage.
Pre-payment Penalty - A fee 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 a loan is applied
for.
Principal - The amount borrowed or remaining unpaid; also,
that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance (PMI) - Insurance provided by non
governmental issuers that protects lenders against loss if a borrower defaults.
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.
Qualifying Ratios - Guidelines applied by lenders to determine
how large a loan to grant a home buyer.
Rate Lock - See Lock-in.
Real Estate Settlement Procedures Act - A consumer protection
law that requires lenders to give borrowers advance notice of closing costs.
Refinancing - The process of paying off one loan with the proceeds
from a new loan secured for the same property.
Second Mortgage - A mortgage that has rights that are subordinate
to the rights of the first mortgage holder.
Secondary Mortgage Market - The buying and selling of existing
mortgages.
Seller Take-back - An agreement in which the owner of a property
provides financing, often in combination with an assumed mortgage.
Settlement - See Closing.
Settlement Sheet - The computation of costs payable at closing
which determines the seller's net proceeds and the buyer's net payment.
Subsidized Second Mortgage - An alternative financing option
for low- and moderate-income households that also includes a down payment and
a first mortgage, with funds for the second mortgage provided by city, county
or state housing agencies, foundations or nonprofit corporations. Payment on
the second mortgage is often deferred, carries no or low interest rates and
part of the debt may be forgiven for each year the family remains in the home.
Survey - A drawing showing the legal boundaries of a property.
Tenancy by Entirety - A type of joint ownership of property
available only to a husband and wife.
Title - A legal document establishing the right of ownership
.
Title Company - A company that specializes in insuring title
to property.
Title Insurance - Insurance to protect the lender (lender's
policy).
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.
Transfer Tax - State or local tax payable when title passes
from one owner to another.
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.
Underwriting - The process of evaluating a loan application
to determine the risk involved for the lender.
VA Loan - A loan that is guaranteed by the Veterans Administration.