Key Terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

-A-

Abstract (Of Title)

A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause

Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

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 Mortgage Loan

Any mortgage that does not have a fixed interest rate and a fixed payment for the term of the loan, or does not amortize to zero at the end of the set term, when required payments are made on time.

Adjustable Rate Mortgage

A mortgage in which the interest rate is adjusted periodically according to the movement in a pre-selected index.

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 Interval

For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

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.

Agreement of Sale

Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

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

A payment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal.

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.

Amortize

Reduce a debt by regular payments of both principal and interest.

Amortization Schedule 

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual Percentage Rate (APR) 

The total yearly cost of a mortgage stated as a percentage of the loan amount: includes the base interest rate, primary 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.

Application Fee

The fee charged by the lender to the borrower for applying for a loan.

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.

Appraisal 

A professional opinion of the market value of a property.

Appreciation 

An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value 

The valuation placed upon 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.

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 Loan

These loans may be passed on from a seller of a home to the buyer. The buyer "assumes" all outstanding payments.

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.

Assumption of Mortgage

An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.

Attorney-in-fact

One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

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- B -

Balance sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

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.

Basis Point

One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage-backed securities.

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.

Bill of sale

A written document that transfers title to personal property.

Binder or "Offer to Purchase"

A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)

Blanket insurance policy

A single policy that covers more than one piece of property (or more than one person).

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.

Borrower 

One who receives funds with the expressed or implied intention of repaying the loan in full.

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.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Building code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Building Line or Setback

Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy down 

Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.

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- C -

Call option

A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

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.

Cap

A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Out

A loan transaction in which the borrower receives funds at the time of closing.

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.

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. 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 Occupancy

Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited.

Certificate of Title

A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

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.

Claim

An amount requested of an insurer, by a policyholder or a claimant, for an insured loss.

Clear title

A title that is free of liens or 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."

Closing cost item

A fee or amount that a homebuyer must pay at closing for a single service, tax, or product.

Closing Day 

The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Cloud (On Title)

An outstanding claim or encumbrance, which adversely affects the marketability of title.

Co-Borrower

An additional borrower on a loan. A co-borrower's obligation on a loan are the same as all other borrowers.

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.

Combined LTV (CLTV)

The way a lender calculates the (C)LTV on a home equity loan; it is based on the sum of the debts on both mortgages, compared to the fair market value of your home.

Commission

Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

Commitment Letter

A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

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 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.

Comparables

A abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating 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 taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium

Individual ownership of a dwelling unit and an individual interest in the common areas and facilities, which serve the multi-unit project.

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.

Conforming Loans

Conforming loans follow relatively strict guidelines for eligibility as to loan size, credit score, credit history, income and residence stability, savings and reserves habits etc. A conforming loan is generally insured through Fannie Mae or Freddie Mac and offers the buyer, typically, the best rates. These loans may be a fixed rate, an ARM, a balloon or a buydown.

Construction Loan

A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Consumer 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.

Contingency

A condition that must be met before a contract is legally binding.

Contract

An oral or written agreement to do or not to do a certain thing.

Contractor

In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional Mortgage

Any mortgage that is not insured or guaranteed by the federal government.

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 time.

Convertible Arm

An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Convey

The act of transferring title to real property from one party to another.

Coverage

The amount of protection, usually expressed in a percentage of the total claim amount, an insured receives under a certificate.

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 Housing

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation, which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cooperative mortgages

Mortgages related to a cooperative project.

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.

Covenant

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Commitment

A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

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 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.

Cure

A loan that is removed from a delinquency status with no loss to the insurer.

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-D-  

 

Debt Consolidation

Paying off, with the proceeds from a refinance or home equity loan, all or most of your higher-interest debts, such as credit cards, auto loans, finance company loans. Often a Debt Consolidation Loan can save hundreds of dollars per month for homeowners and the interest from these loans may be completely tax deductible. These loans are typically between $30,000 and $50,000. Monthly family budget relief may fall in the $300 to $700 range or more.

Debt Service

The combined principal and interest you pay on loans each month.

Debt-to-income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). If 35% or more of your gross monthly income is going out in bill paying, you may be a prime candidate for a bill consolidation loan.

Deed

A written document by which the ownership of land is transferred from one party to another.

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

Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

Default

Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Deficiency Judgment

A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.

Delinquency 

A loan in which a payment is overdue but not yet in default.

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.

Depreciation

A decline in the value of property; the opposite of "appreciation."

Discount Points

See Points.

Documentary Stamps

A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Dower  

The rights of a widow in the property of her husband at his death.

Down Payment

The part of the purchase price, which 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.

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- E -

Earnest Money

The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement Rights

A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

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 Fannie Mae 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 obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance

A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

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

The difference between the market value of a property and the homeowner's outstanding mortgage balance.

Equity Loan

A loan based on the borrower's equity in his or her home. Prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

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. 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

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- 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.

FDIC

(Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).

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

(Federal Housing Administration). A division of the Department of Housing and Urban Development. The FHA's main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing.

FHA Loan

Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

FHFB

(Federal Housing Finance Board). It oversees the credit functions of the twelve regional Federal Home Loan Banks.

FHLBB

(Federal Home Loan Bank Board). A regulatory and supervisory agency for federally charted savings institutions, which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)

FHLMC

(Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.

Finance Charge

The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Finder's fee

A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRE

(Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system.

Firm commitment

A lender’s agreement to make a loan to a specific borrower on a specific property. 

First Mortgage

The mortgage that has first claim in the event of default.

Fixed installment

The monthly payment due on a mortgage loan.

Fixed-Rate Mortgage

(FRM) A mortgage in which the interest rate does not change during the entire term of the loan.

FNMA

(Federal National Mortgage Association, Fannie Mae). A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.

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.

Forfeiture

The loss of money, property, rights, or privileges due to a breach of legal obligation.

Foreclosure

The process by which a mortgage property may be sold when a mortgage is in default.

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.

Full Recasting

Setting the P&I payments to the level that will fully amortize the loan's outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point.

Fully Indexed Accrual Rate

The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender's full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%).

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- G -

General Warranty Deed

A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Good Faith Estimate

An estimate of charges, which a borrower is likely to incur in connection with a loan closing.

Graduated Payment Mortgage

(GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term.

Grantee

That party in the deed who is the buyer or recipient.

Grantor

That party in the deed who is the seller or giver.

Gross Monthly Income

The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Growing Equity Mortgage

(GEM) A fixed rate, graduated payment mortgage with small initial payments that increase each year so that the loan pays off in a shortened term, usually 15 years.

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- H -

Hazard Insurance

Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Insurance

An insurance policy that combines liability coverage and hazard insurance.

Homeowner's Warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Ratio

The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

HUD

(Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.

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Income property

Real estate developed or improved to produce income.

Index

(Also called "Rate Index"). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates.

Initial Borrower Interest Rate

The rate on which the borrower's first payment is calculated.

Initial Borrower Payment Rate

The annual interest rate used to calculate the borrower's initial cash payment.

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.

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 percentage of an amount of money, which is paid for its use for a specified time.

Interest Rate Cap

A provision of an ARM limiting how much interest rates may increase per adjustment period.

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.

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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 Loans

Jumbo, or non-conforming, is a term used to describe a loan that does not conform to Fannie Mae or Freddie Mac guidelines. The typical Jumbo loan exceeds the maximum loan amounts described above.

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