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Glossary I - Z
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joint tenancy
A form of ownership
or taking title to property which means each party owns the whole property and
that ownership is not separate. In the event of the death of one party, the
survivor owns the property in its entirety.
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. Alternative spelling is "judgement."
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.
Other states use non-judicial foreclosure.
jumbo loan
A loan that exceeds Fannie Mae's and Freddie
Mac's loan limits. Also called a nonconforming loan.
Freddie Mac and Fannie Mae loans are referred to as conforming loans.
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lease
A
written agreement between the property owner and a tenant that stipulates the
payment and conditions under which the tenant may possess the real estate for a
specified period of time.
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 option
An alternative financing option that allows
home buyers to lease a home with an option to buy. Each month's rent payment may
consist of not only the rent, but an additional amount which can be applied
toward the down payment on an already specified price.
legal description
A property description, recognized by
law, that is sufficient to locate and identify the property without oral
testimony.
lender
A term which can refer to the institution
making the loan or to the individual representing the firm. For example, loan
officers are often referred to as "lenders."
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. It is usually part of a
homeowners insurance policy.
lien
A legal claim against a
property that must be paid off when the property is sold. A mortgage or first
trust deed is considered a lien.
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.
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
officer
Also referred to by a variety of other terms, such as lender,
loan representative, loan "rep," account executive, and others. The
loan officer serves several functions and has various responsibilities: they
solicit loans, they are the representative of the lending institution, and they
represent the borrower to the lending institution.
loan origination
How
a lender refers to the process of obtaining new loans.
loan
servicing
After you obtain a loan, the company you make the payments to
is "servicing" your loan. They process payments, send statements,
manage the escrow/impound account, provide collection efforts on delinquent
loans, ensure that insurance and property taxes are made on the property, handle
pay-offs and assumptions, and provide a variety of other services.
loan-to-value
(LTV)
The percentage relationship between the amount of the loan and the
appraised value or sales price (whichever is lower).
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margin
The
difference between the interest rate and the index on an adjustable rate
mortgage. The margin remains stable over the life of the loan. It is the index
which moves up and down.
maturity
The date on which the
principal balance of a loan, bond, or other financial instrument becomes due and
payable.
mortgage
A legal document that pledges a property
to the lender as security for payment of a debt. Instead of mortgages, some
states use First Trust Deeds.
mortgage banker
For a more
complete discussion of mortgage banker, see "Types of Lenders." A
mortgage banker is generally assumed to originate and fund their own loans,
which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac,
or Ginnie Mae. However, firms rather loosely apply this term to themselves,
whether they are true mortgage bankers or simply mortgage brokers or
correspondents.
mortgage broker
A mortgage company that
originates loans, then places those loans with a variety of other lending
institutions with whom they usually have pre-established relationships.
mortgagee
The
lender in a mortgage agreement.
mortgage insurance (MI)
Insurance
that covers the lender against some of the losses incurred as a result of a
default on a home loan. Often mistakenly referred to as PMI, which is actually
the name of one of the larger mortgage insurers. Mortgage insurance is usually
required in one form or another on all loans that have a loan-to-value higher
than eighty percent. Mortgages above 80% LTV that call themselves "No MI"
are usually a made at a higher interest rate. Instead of the borrower paying the
mortgage insurance premiums directly, they pay a higher interest rate to the
lender, which then pays the mortgage insurance themselves. Also, FHA loans and
certain first-time homebuyer programs require mortgage insurance regardless of
the loan-to-value.
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.
mortgagor
The borrower in a
mortgage agreement.
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negative amortization
Some adjustable
rate mortgages allow the interest rate to fluctuate independently of a required
minimum payment. If a borrower makes the minimum payment it may not cover all of
the interest that would normally be due at the current interest rate. In
essence, the borrower is deferring the interest payment, which is why this is
called "deferred interest." The deferred interest is added to the
balance of the loan and the loan balance grows larger instead of smaller, which
is called negative amortization.
no cash-out refinance
A
refinance transaction which is not intended to put cash in the hand of the
borrower. Instead, the new balance is calculated to cover the balance due on the
current loan and any costs associated with obtaining the new mortgage. Often
referred to as a "rate and term refinance."
note
A
legal document that obligates a borrower to repay a mortgage loan at a stated
interest rate during a specified period of time
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original principal
balance
The total amount of principal owed on a mortgage before any
payments are made.
origination fee
On a government loan the
loan origination fee is one percent of the loan amount, but additional points
may be charged which are called "discount points." One point equals
one percent of the loan amount. On a conventional loan, the loan origination fee
refers to the total number of points a borrower pays.
owner
financing
A property purchase transaction in which the property seller
provides all or part of the financing.
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partial payment
A
payment that is not sufficient to cover the scheduled monthly payment on a
mortgage loan. Normally, a lender will not accept a partial payment, but in
times of hardship you can make this request of the loan servicing collection
department.
payment change date
The date when a new
monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a
graduated-payment mortgage (GPM). Generally, the payment change date occurs in
the month immediately after the interest rate adjustment date.
personal property
Any property that is not real property.
PITI
This
stands for principal, interest, taxes and insurance. If you have an "impounded"
loan, then your monthly payment to the lender includes all of these and probably
includes mortgage insurance as well. If you do not have an impounded account,
then the lender still calculates this amount and uses it as part of determining
your debt-to-income ratio.
planned unit development (PUD)
A
type of ownership where individuals actually own the building or unit they live
in, but common areas are owned jointly with the other members of the development
or association. Contrast with condominium, where an individual actually owns the
airspace of his unit, but the buildings and common areas are owned jointly with
the others in the development or association.
power of attorney
A legal document that authorizes another
person to act on ones behalf. A power of attorney can grant complete authority
or can be limited to certain acts and/or certain periods of time.
pre-approval
A
loosely used term which is generally taken to mean that a borrower has completed
a loan application and provided debt, income, and savings documentation which an
underwriter has reviewed and approved. A pre-approval is usually done at a
certain loan amount and making assumptions about what the interest rate will
actually be at the time the loan is actually made, as well as estimates for the
amount that will be paid for property taxes, insurance and others. A
pre-approval applies only to the borrower. Once a property is chosen, it must
also meet the underwriting guidelines of the lender. Contrast with
pre-qualification.
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
This
usually refers to the loan officers written opinion of the ability of a borrower
to qualify for a home loan, after the loan officer has made inquiries about
debt, income, and savings. The information provided to the loan officer may have
been presented verbally or in the form of documentation, and the loan officer
may or may not have reviewed a credit report on the borrower.
prime
rate
The interest rate that banks charge to their preferred customers.
Changes in the prime rate are widely publicized in the news media and are used
as the indexes in some adjustable rate mortgages, especially home equity lines
of credit. Changes in the prime rate do not directly affect other types of
mortgages, but the same factors that influence the prime rate also affect the
interest rates of mortgage loans.
principal
The amount
borrowed or remaining unpaid. The part of the monthly payment that reduces the
remaining balance of a mortgage.
principal balance
The
outstanding balance of principal on a mortgage. The principal balance does not
include interest or any other charges. See remaining balance.
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.
Planned
Unit Development (PUD)
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
agreement
A written contract signed by the buyer and seller stating the
terms and conditions under which a property will be sold.
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qualifying
ratios
Calculations that are used in determining whether a borrower can
qualify for a mortgage. There are two ratios. The "top" or "front"
ratio is a calculation of the borrowers monthly housing costs (principle, taxes,
insurance, mortgage insurance, homeowners association fees) as a percentage of
monthly income. The "back" or "bottom" ratio includes
housing costs as will as all other monthly debt.
quitclaim deed
A
deed that transfers without warranty whatever interest or title a grantor may
have at the time the conveyance is made.
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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 at a
specific cost.
real estate agent
A person licensed to
negotiate and transact the sale of real estate.
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.
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 registrars 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.
remaining
balance
The amount of principal that has not yet been repaid. See
principal balance.
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.
revolving debt
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.
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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
market
The buying and selling of existing mortgages, usually as part of
a "pool" of mortgages.
secured loan
A loan that is backed by collateral.
security
The
property that will be pledged as collateral for a loan.
subdivision
A
housing development that is created by dividing a tract of land into individual
lots for sale or lease.
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.
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tenancy in
common
As opposed to joint tenancy, when there are two or more
individuals on title to a piece of property, this type of ownership does not
pass ownership to the others in the event of death.
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.
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.
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.
trustee
A
fiduciary who holds or controls property for the benefit of another.
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VA mortgage
A mortgage that is guaranteed by the Department of Veterans
Affairs (VA).
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.
Veterans Administration (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.
Get started today and apply online! It's fast and easy, with no obligation.
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MORTGAGE 101
I - Z
