Vocab Flashcards
acceleration clause
acceleration clause
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.
adjustable-rate mortgage (ARM)
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to indexes.
adjustment date
adjustment date
The date the interest rate changes on an adjustable-rate mortgage
amortization
amortization
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.
amortization schedule
amortization schedule
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.
annual percentage rate (APR)
annual percentage rate (APR)
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 not rate on your loan.
application
application
The form used to apply for a mortgage loan, containing information about a
borrower’s income, savings, assets, debts, and more.
appraisal
appraisal
A written justification of the price paid for a property, primarily based on an
analysis of comparable sales of similar homes nearby.
appraised value
appraised value
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.
appraiser
appraiser
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.
appreciation
appreciation
The increase in the value of a property due to changes in market conditions,
inflation, or other causes.
assessed value
assessed value
The valuation placed on property by a public tax assessor for purposes of
taxation.
assessment
assessment
The placing of a value on property for the purpose of taxation.
assessor
assessor
A public official who establishes the value of a property for taxation purposes.
asset
asset
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.
assignment
assignment
When ownership of your mortgage is transferred from one company or individual
to another, it is called an assignment.
assumable mortgage
assumable mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the
borrower must “qualify” in order to assume the loan.
assumption
assumption
The term applied when a buyer assumes the seller’s mortgage.
balloon mortgage
balloon mortgage
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.
balloon payment
balloon payment
The final lump sum payment that is due at the termination of a balloon mortgage.
bankruptcy
bankruptcy
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.
bill of sale
bill of sale
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.
biweekly mortgage
biweekly mortgage
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.
bond market
bond market
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.
bridge loan
bridge loan
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
broker
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.
buydown
buydown
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.
call option
call option
Similar to the acceleration clause.
cap
cap
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.
cash-out refinance
cash-out refinance
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.”
certificate of deposit
certificate of deposit
A time deposit held in a bank which pays a certain amount of interest to the
depositor.
certificate of deposit index
certificate of deposit index
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.
Certificate of Eligibility
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s
eligibility for a VA loan.
Certificate of Reasonable Value (CRV)
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA
loan, the Veterans Administration issues a CRV.
chain of title
chain of title
An analysis of the transfers of title to a piece of property over the years.
clear title
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
closing
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
closing costs
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.
closing statement
closing statement
See Settlement Statement.
cloud on title
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 deed, release, or
court action.
co-borrower
co-borrower
An additional individual who is both obligated on the loan and is on title to the
property.
collateral
collateral
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.
collection
collection
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.
commission
commission
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.
common area assessments
common area assessments
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.
common areas
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
common law
An unwritten body of law based on general custom in England and used to an
extent in some states.
community property
community property
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.
comparable sales
comparable sales
Recent sales of similar properties in nearby areas and used to help determine
the market value of a property. Also referred to as “comps.”
condominium
condominium
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.
condominium conversion
condominium conversion
Changing the ownership of an existing building (usually a rental project) to the
condominium form of ownership.
condominium hotel
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.
These are often found in resort areas like Hawaii.
construction loan
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
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
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
conventional mortgage
Refers to home loans other than government loans (VA and FHA).
convertible ARM
convertible ARM
IAn adjustable-rate mortgage that allows the borrower to change the ARM to a
fixed-rate mortgage within a specific time.
cooperative (co-op)
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.
cost of funds index (COFI)
cost of funds index (COFI)
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.
credit
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
credit history
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.
creditor
creditor
A person to whom money is owed.
credit report
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 repository
credit repository
An organization that gathers, records, updates, and stores financial and public
records information about the payment records of individuals who are being
considered for credit.
debt
debt
An amount owed to another.
deed
deed
The legal document conveying title to a property.
deed-in-lieu
deed-in-lieu
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-inlieu may prevent is having the documents preparatory to a foreclosure being
recorded and become a matter of public record.
deed of trust
deed of trust
Some states, like California, do not record mortgages. Instead, they record a
deed of trust which is essentially the same thing.
default
default
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.
delinquency
delinquency
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.
deposit
deposit
A sum of money given in advance of a larger amount being expected in the
future. Often called in real estate as an “earnest money deposit.”
depreciation
depreciation
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.
discount points
discount points
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.
down payment
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
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.
earnest money deposit
earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious
about buying the house.
easement
easement
A right of way giving persons other than the owner access to or over a property.
effective age
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.
eminent domain
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.
encroachment
encroachment
An improvement that intrudes illegally on another’s property.
encumbrance
encumbrance
Anything that affects or limits the fee simple title to a property, such as
mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
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
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
and other liens.
escrow
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 earnest money
deposit is put into escrow until delivered to the seller when the transaction is
closed.
escrow account
escrow account
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.
escrow analysis
escrow analysis
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.
escrow disbursements
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due.
estate
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
eviction
The lawful expulsion of an occupant from real property.
examination of title
examination of title
The report on the title of a property from the public records or an abstract of the
title.
exclusive listing
exclusive listing
A written contract that gives a licensed real estate agent the exclusive right to sell
a property for a specified time.
executor
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.
Fair Credit Reporting Act
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
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 (FNMA)
Fannie Mae (FNMA)
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.
