Glossary
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Acceleration clause: A mortgage contract provision giving the lender the right to demand full payment of the entire outstanding balance of the loan the time the borrower has put the security (property) in jeopardy, as prescribed by the note. Example, failure to make monthly payment as prescribe by the NOTE selling the property (Due-on-sale clause) without disclosure to the lender, or otherwise put the property in a situation (some sort of building modification) that would harm the lender as specified by the terms of the NOTE.
Adjustable-rate mortgage (ARM) a mortgage whose interest rate, monthly payments vary throughout its life. ARMs typically start with an unusually low interest rate (see teaser rate). If the overall level of interest rates drops, as measured by a variety of different indexes (see index), the interest rate of an ARM generally follows suit. Similarly, if interest rates rise, so does a mortgage’s interest rate and monthly payment. Caps as prescribed by the NOTE, (see periodic caps and life caps) limit the amount that the interest fluctuation.
Adjustment period or adjustment frequency: How often the interest rate for an adjustable-rate mortgage changes. Some adjustable-rate mortgages change every month, but one or two adjustments per year is more typical. Please note the initial interest rate "AKA" the start rate.
Alienation Clause: A clause in a note or trust deed permitting the payee or beneficiary certain rights to declare the entire unpaid balance immediately due and payable in the event of a sale or transfer of mortgaged property. Please note this term is also known as a “due-on-sale‿ clause.
ALTA Owners Policy: An owner’s extended coverage title insurance policy that provides buyers the same protection the ALTA policy gives to lenders.
ALTA Title Policy (American Land Title Association): A type of title insurance policy issued by title insurance companies, which expands the risks normally, insured against under the standard type policy (CLTA). This type of policy to include unrecorded mechanic’s liens, unrecorded physical easements facts a survey which shows, water and mineral rights and rights of parties in possession such as tenants and buyers under unrecorded instruments.
Amortization: The process of gradually paying down a debt, usually by making monthly payments as described within the NOTE. In the early years of a mortgage, most of the monthly payment goes toward interest. These "interest, principal" ratios revivers at the approximate mid point of the loan.
Annual percentage rate (APR): includes the base interest rate, points, and any other loan costs. As a result, the APR is invariably higher than the rate of interest that the NOTE shows. This figure is a result of Truth-in-Lending Act and Regulations Z (RESPA) legislation.
Appraisal Report: A professional opinion about the market value of real property. The value will include pertinent information regarding the neighborhood, specific site, structure and comparative properties to show value and marketability.
Appraiser: An individual who is qualified (should be licensed by the State) by education, training and experience who is hired to estimate the value of real property based on experience, judgement, facts and use of the formal appraisal process.
Appreciation: The increase of a property’s value.
ARM indexes: See certificates of deposit, Treasury Bills, the 11th District Cost of Funds Index (COFI), and the London Interbank Offered Rate Index (LIBOR).
Assessed Value: The value of property (according to the local county tax assessor) for determining property taxes.
Assumable Mortgage: Allows the original borrower to transfer over the remaining loan balance and terms of a mortgage to another party with the approval of the lender. Most assumable loans are adjustable-rate mortgages – assumable, fixed-rate mortgages are extinct.
Assumption fee: A charge by the lender to the new borrower for transferring through recordation of the note and deed of trust by the new borrower replacing the old borrower.
Balloon Loans: Loans that the amortized term is greater than the due date of the loan. For example, 30 years amortized all due in 10 years. The payment is based on 30 years.
Beneficiary: the lender is designated as the beneficiary and obtains the benefit of the security. (Party to d deed or trust deed)
Blanket Mortgage: A single mortgage covering more than one piece of real property.
Bridge Loan: the use of equity from one property to secure the funds to obtain interest in another property.
Cap Rate: One of two different types of limits for adjustable-rate mortgages. The Life cap limits the highest or lowest interest rate that is allowed over the entire life of a mortgage. The periodic cap limits the amount that an interest rate can change in any one-adjustment period.
Cash Reserve: a liquid asset that covers the full mortgage payment including P.I.T.I for 2 to 6 months depending on the lender’s requirements.
Certificates of deposit (CDs): An interest-bearing bank savings account that locks an interest rate for a specific time.
Certificate of Reasonable Value (CRV): The reasonable value of the property established by the VA appraisal.
Closing Costs: Costs that generally cover the following: points (loan fee), appraisal, credit report, pre-paid mortgage interest (interest covering time of loan funding through the first payment), home owners insurance premium, title insurance, pro-rated property tax, recording and transferring charges.
Closing Statement: An accounting of the debits and credits of the buyer and seller to real estate transaction for the financial settlement of the transaction. Required by law to be made at the completion of every real estate transaction. (Also, know as a Disclosure Statement)
Commitment: A pledge, promise or firm agreement to do something in the future, such as a lender giving a written commitment with specific terms of the mortgage loan it will provide.
Community Property: Property acquired by a husband or wife, or both, during marriage when not acquired as sole and separate property. Property of a married person in Nevada is either separate property or community property.
Comparison Approach: compares a given property with similar surrounding properties. (Also called market comparison)
Comparative Market Analysis: The process of compiling and analyzing data influencing the value of a specific property. In appraisal, a similar process is called the market data or sales comparison method based upon the economic principle of substitution.
Condominiums: The legal interest of the space that begins from the inter walls of the unit (living area). The common area is that portion of the property that is equally owned by all owners of the project including but not limited to: pool, recreation, parking, walks ways and driveways, Etc.
Conforming Conventional loans: Mortgages that fall within the FNMA and FHLMC loan limits and property guidelines.
Construction loan: A loan to provide money for the construction or improvement of real property. Funds are usually dispersed in increments, referred to as draws or vouchers, as the construction progresses.
Contingencies: Conditions that must be satisfied prior to completion of the sale of the property by either buyer or seller, as subject to the sales contract. Things such as buyer obtaining a purchase money loan, property passing a physical inspection by a licensed contractor, clear title report, Etc.
Contract of Sale: Seller retains where the purchase price is paid in installments over an agreed period of time, title and upon default by buyer (vendee), the payments may be forfeited and property physically reverts to seller. Also known as, “installment sales contract‿ or “land sales contract‿.
Conventional Loan: mortgage loan, which is not insured, guaranteed, or made by the federal or state government.
Convertible adjustable-rate mortgages: an adjustable-rate mortgage changing to a fixed-rate mortgage during a specific time as termed in the NOTE by the action of the borrower. Typically, the period is after the 13th month and before the 60th month.
Convey to transfer title to property from one party to another.
Conveyance: written instrument used to transfer (convey) title to property, or an interest therein.
Cooperatives (co-op): a corporation whose shareholders live in the apartment as owners of the specific apartment and common area owners of the common area owns an apartment building that.
Cosigner: a signer of a NOTE as a guarantee for the repayment along with the primary signer of the NOTE. The co-signer generally has no intent of taking procession of the property.
Credit Report: a document showing the payment history from all credit used by the named party on the report. This information is compiled and then through a sophisticated formula a credit score is derived FICO.
Debt-to-income ratio (DTI): The gross income is divided by the housing payment of Principal, Interest, Taxes and Insurance. This gives the “Front End Ratio‿. Taking the Gross Income and dividing this number by the total of all expenses including housing and installment and revolving the “Back End Ratio‿ is calculated. Acceptable ratio would be 36 / 40 subject to the lending policies of the specific lender. (Also, see Income Ratio)
Deed of Trust: This document holds title to real property.
Default: Violation of the mortgage contract, where in, two or more payments are late, the property was sold with out properly notifying the lender (due-on-sale clause) or the taxes were not paid.
Delinquency: Mortgage payment is not received in a timely manner per the terms of the NOTE.
Department of Housing and Urban Development (HUD): The federal agency responsible for the implementation and administration of government housing and urban development programs.
Depreciation: Decrease in property value.
Disclosure Statement: This document sets forth the details of the loan transaction, including all finance charges. This document is required by The Truth-in-Lending Act. (Also, see Closing Statement)
Discount Point: The amount paid by seller or buyer to the lender to achieve a specific interest rate. A point equals 1% of the loan amount.
Discount Rate: The difference in the percentage points between the initial interest rate and the fully indexed rate (index rate plus margin).
Disintermediation: The relatively sudden withdrawal of substantial sums of money savers have deposited with savings and loans associations, commercial banks, and mutual savings banks. Essentially, financial intermediaries losing billions of dollars in a short period, as owners of funds exercise their prerogative of taking them out of the hands of these financial institutions.
Disposable Income: The after tax income that a household has to spend on personal consumption.
Documentary transfer tax: State granted authority for the allowing of a tax on all properties transferred from one entity to another. Notice of payment is entered on the face of the deed or on a separate paper filed with the deed.
Down Payment: Those moneys from the buyer to the seller along with the mortgage money to satisfy the purchase price.
Due-on-sale clause: Part of the terms of the NOTE for the mortgage, where in, the borrower agrees not to sell the property until proper notification has been given to the lender and the lender agrees to the sale at which time the lender may or may not choose to require the loan to be paid in full.
11th District Cost of Funds Index (COFI): The weighted average cost of savings, borrowings, and advances for Federal Home Loan Bank Board member banks located in California, Arizona, and Nevada (11th District).
Earnest Money: The deposit given by a buyer to a seller to show the buyer is serious about purchasing the home. It is generally refundable to the buyer in the event a contingency of the sales contract cannot be met.
Economic Life: The period over which a property will yield a sufficient return on the investment to justify maintaining it.
Encumbrance: A right or interest someone else holds in a homeowner’s property that affects its title or limits its use.
Equity: The difference between the market value of the property and the encumbrance on the property.
Escrow: third party holder of important documents and money related to the purchase/sale of real estate by a neutral third party prior to the close of the transaction.
Escrow Agent: The neutral third party who acts as the agent for the principals in an escrow transaction.
Fannie Mae: Federal National Mortgage Association (FNMA).
Fair Market Value: The highest price estimated in terms of money, which a property will bring on the open market for a reasonable period where neither the buyer nor seller is under any pressure to buy or sell.
Farmers Home Administration (FmHA): An agency of the Department of Agriculture. Primary responsibility is to provide financial assistance for farmers and others living in rural areas where financing is not available on reasonable terms from private sources.
Federal Deposit Insurance Corporation (FDIC): Agency of the federal government, which insures deposits at commercial banks and savings banks.
Federal Home Loan Bank: A district bank of the Federal Home Loan bank System that lends only to member financial institutions such as savings and loan associations.
Federal Home Loan Bank Board (FHLBB): The administrative agency that charters federal savings and loan associations and exercises regulatory authority over member of the Federal Home Loan Bank System.
Federal Home Loan Bank System: The Federal Home Loan Bank Board and the network of Federal Home Loan Banks and member financial institutions.
Federal Home Loan Mortgage Corporation (FHLMC): quasi-governmental organization that participates in the Secondary Mortgage Market – buying and selling mortgage loans from banks and other mortgage lending institutions.
Federal Housing Administration mortgage (FHA): Quasi-governmental agency whose prime doctrine is to satisfy the “American Dream‿ of home ownership. The government does not lend the money, but rather insures the top portion of the loan to cover any loss by the property going into foreclosure.
Federal National Mortgage Association (FNMA): quasi-governmental organization that participates in the Secondary Mortgage Market – buying and selling mortgage loans from banks and other mortgage lending institutions.
Federal Reserve Bank System: Has a central bank in each of twelve geographical districts with board powers in controlling credit and the amount of money in circulation.
Fiduciary: One who holds a thing in trust for another person or acts in a trust capacity.
Financing Process: The systematic five-step procedure followed by major institutional lenders in analyzing a proposed loan. Procedure includes: 1) filing of loan application by a borrower, 2) lender’s analysis of borrower and property, 3) processing of loan documentation, 4) closing the loan, and 5) servicing (collection and record keeping).
Fixed-rate mortgage: This loan’s rate of interest is fixed for the term of the loan.
Flood insurance: The Federal government has established certain areas that are prone to flooding in a given time period (100 years). Lenders will insist on getting flood insurance that off set any loss due to flooding. Private insurance offers flood insurance agencies qualified or appointed Federal guidelines.
Foreclosure: The legal process by which a lender takes possession and sells the property that a mortgage or deed of trust is scuring a note in favor of the lender.
Freddie Mac: See Federal Home Loan Mortgage Corporation.
Fully Indexed Note Rate: As used in adjustable rate mortgages, this is the index value at the time of application plus the gross margin stated in the note.
Funding fee: The Omnibus Budget Reconciliation Act of 1982 requires the Veterans Administration to collect a funding fee on the loan amount for VA guaranteed loans.
Funding the Loan: See Loan Closing.
General Plan: Comprehensive plans covering the local government’s entire planning area.
Ginnie Mae: Acronymic nickname for Government National mortgage Association (GNMA).
Government National Mortgage Association (GNMA): An agency of HUD, which functions in the secondary mortgage market, primarily in special housing programs.
Graduated-payment mortgage: A loan that starts at a low payment and gradually increases to meet the market and off set the loss of interest at the beginning of the loan term. This loan is not used at this time.
Grant: To convey or transfer interest from one entity to another.
Grant Deed: The instrument that conveys or transfers interest.
Home equity: The market value of a home minus any debt against it.
Home Equity loan: Generally a second mortgage that is scurried by the equity of the property.
Hazard (Homeowners) Insurance: A policy that protects the property from fire or other types of deserters as determined by the statements within the policy.
Homeowner’s Warranty: A policy that covers certain repairs such as the plumbing or heating system of a newly purchased home for a certain period.
Housing Financial Discrimination Act of 1977 (Holden Act): Designed to eliminate discrimination in lending practices based upon the character of the neighborhood in which real property is located. (Redlining)
Impound Account: A trust type of account maintained by lenders for the accumulation of borrowers funds to meet periodic payment of taxes, private mortgage insurance premiums, FHA mortgage insurance premiums, or future insurance policy premiums, required to protect their security. Impounds are usually collected with the note payment.
Income Ratio: “Top or Front end ratio‿ for loan qualifying purposes, compares the borrower’s gross monthly income to the monthly loan payment, which would include principal, interest, taxes, MIP/PMI, and insurance.
Index: A nationally recognized interest indicator, which is used by lenders to establish rates for adjustable-rate loans.
Inheritance: Property passing at the owner’s death to the heirs. Those entitled by law to succeed to the estate.
Initial Note Rate: As to an adjustable-rate mortgage, the rate paid at the beginning of the term of the contract. Also, known as “Start Rate‿.
Initial Discount Rate: as applied to adjustable-rate mortgages, the index value at the time of loan application plus the margin less the initial note rate.
Installment Note: A note, which provides for a series of periodic payments of principal and interest, until the amount borrowed, is paid in full. This periodic reduction of principal amortizes the loan.
Institutional Lender: Financial intermediary or depository, such as a savings and loan association, commercial bank, mutual savings bank or life insurance company, which pools money of its depositors and then invests funds in various ways, including real estate loans.
Interest rate: Is that number which calculates the charge on the loan. Interest is the money charged by the lender to the borrower for the use of the money lent.
Internal Note rate: As related to adjustable rate mortgages, the index rate plus the margin is the true underlying rate, which the adjustable rate will try to reach.
Internal Rate of return (IRR): A formula where the real estate investor can determine how much can be earned on an investment.
Intestate: A person who dies who has not made a will, or one, which is defective in form. The intestate laws provide that the estate descends to the heirs at law or to the nest of kin.
Joint Tenancy: Undivided ownership of a property interest by two or more persons each of whom has a right to an equal share in the interest and a right of survivorship. The right to share equally with other surviving joint tenants in the interest of a deceased joint tenant.
Jumbo loans: mortgage loans that exceed the dollar amount as established for FNMA and/or FHLMC guidelines.
Late charge: a fee charged for paying the loan beyond the due date and grace period.
Leverage: the use of debt financing of an investment to maximize the return per dollar of equity invested.
Lien: a legal claim against a property for the purpose of securing payment for money owned by the property owner. This could involve services preformed or money lent.
Lien Date: recording of the document in the public records.
Life cap: the maximum limit that has been set per the note for the interest rate to reach during the time of the loan.
Loan Closing: all loan conditions have been met, the loan officer authorizes the recording of the trust deed of mortgage. The disbursal procedure of funds is similar to the closing of a real estate sales escrow. This process is also referred to as “funding‿ the loan. (Also known as “funding‿)
Loan-to-Value (LTV): is the percentage of a property’s value that a lender can or may loan to a borrower.
Lock-in: this written commitment by the lender guarantees a specific rate to the borrower provided the loan closes on or prior to a specific date.
London Interbank Offered Rate Index (LIBOR): this international interest index is used as a benchmark for establishing adjustable-rate mortgages.
Margin: is the difference between Index and the final rate of the adjustable-rate mortgage.
Market Data Approach: is the most commonly used in appraising residential properties of three methods in the appraisal process to evaluate real property. Recent sales and listings of similar type properties in the nearby area are analyzed to form an opinion of value.
Maturity: when a loan becomes due and payable.
Mortgage: a two party agreement that conveys an interest in the property to the lender during the time of the debt from the legal.
Mortgage Banker: originate, finance and close first mortgage loans secured by real estate and sell the loans to institutional investors and service the loans on a contractual basis.
Mortgage Broker: a professional agent who originates mortgage loans and whose client is the borrower. The Broker then presents the loan file to a lender for underwriting and approval and funding.
Mortgagee: the one who obtains the benefit of the mortgage; the lender or creditor.
Mortgagor: the party who executes a mortgage; the borrower.
Negative Amortization: occurs when the balance of the loan exceeds the original principal. This happens when the borrower pays only the minimum payment and not the full principal and interest payment as reflected in the rate and term of the note.
Non-conforming loans: See jumbo loans.
Non-recourse mortgage: a loan in which a lender can only use the value of the home as security for repayment of the mortgage in the event of a loan default.
Origination: the act of the loan officer/originator in that, soliciting the borrower, interviewing the borrower, preparing the loan submission to the lender and finally helping the closing of the loan.
Origination fee: See points.
Periodic cap: the maximum limit per rate adjustment during the pre-determined periods of adjustment during the life of the loan.
Points: the fee charged in relationship to the rate charged for the loan. There is also the fee charged for originating the loan. The “point‿ is equal to 1% of the loan amount.
Prepayment: the amount paid that is greater than the agreed upon monthly payment.
Prepayment penalty: this payment is charged when the loan is paid off earlier than originally agreed upon by borrower and lender.
Pre-qualification: this situation can be achieved when a lender reviews initial credit and income information provided by the potential borrower. This is ONLY and opinion and is subject to full documentation of all salient facts.
Pre-approval: this situation is achieved when a more through examination of the borrower’s credit and income are conducted. The property will influence the final approval.
Principal: denotes the full amount originally borrowed.
Private Mortgage Insurance (PMI): private insurance company insuring the top 20 to 25 percent of the mortgage as an incentive for the lender to exceed certain established prudent guidelines.
Pro-ration: adjustments of interest, taxes etc. on a pro rata basis as of the closing of the transaction or other agreed upon date. Usually done in escrow-by-escrow holder.
Property Tax: a tax levied by a governing body over real property.
Recording: the process of placing a document on file with a designated public official for public notice. This public official is usually a county officer known as the County Recorder who designates the fact that a document has been presented for recording by placing a recording stamp upon it indicating the time of day ad the date when it was officially placed n file.
Real Property: legal term describing the land and buildings upon it.
Refinance: borrowing against the equity of the real property.
Second Mortgage: this term denotes the recordation of the lien as to prior lien recordation.
Supplemental Security Income (SSI): a federal government program providing monthly cash benefits to low-income persons aged 65 and over, blind or dialed.
Take-Out Loan: the loan that refinances a construction loan. Generally used for new home purchase buyers.
Tenancy in Common: co-ownership of property by two or more persons who hold undivided interest, without right of survivorship, and interests need not be equal.
Tax Deductible: payments that you are allowed to deduct from federal and state taxable income.
Teaser rate: the initial rate that most adjustable-rate mortgages start.
Term: the time that the mortgage will run.
Title Insurance: privately owned insurance companies who offer the guarantee title with all discoveries as to recorded and non-recorded items against the real property.
Treasury bills (T-bills): Untied States government offers bonds at auction periodically. These bonds determine the rate at which the secondary market buys mortgages.
Trustee: one who holds property in trust for another to secure the performance of an obligation. Third party under a Deed of Trust.
Trustor: one who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until Trustor has performed the obligation to the lender under terms of a deed of trust.
Underwriting: process of evaluating a loan application to determine if it meets lender standards.
Usury: interest charged that exceed permitted by law.
VA Guaranty: a loan made to qualified veterans for the purchase of real property and the Veteran’s Administration guarantees a portion of the loan against default.
Voluntary Lien: is created when a debtor accepts the responsibility for a debt such as a mortgage secured by the debtor’s property.
Yield: the interest earned by a lending institution or investor on an investment.
Zoning: carries out a general plan’s land use proposals.
Announcements
Reacting to today's economic cost issues - Mortgage Trainers of North America have reduced our hourly fees. Check our the new pricing for OnDemand and Live Classes.Read Linda's article, "How & Why to Stay in Front of Legislation," in the March issue of the Scotsman Guide, page 31.
Economic Stimulus Act of 2008
Read more of HUD's News Press Release Freddie Mac New Jumbo Offering Fannie Mae New Jumbo Offering
