earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious
about buying the house.
easement
A right of way giving persons other than the owner access to or over a property.
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.
encumbrance
Anything that affects or limits the fee simple title to a property, such
as mortgages, leases, easements, or restrictions.
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
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.
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 deposit
by a borrower with the lender of funds to pay taxes and insurance premiums
when they become due, or the deposit of funds or documents with an attorney
or escrow agent to be disbursed upon the closing of a sale of real estate.
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 (return to top)
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. Known as "impounds" or "reserves"
in some states.
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.
Fair Credit Reporting Act (return to top)
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.
Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation's
largest supplier of home mortgage funds.
Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers and
Fannie Mae offer flexible underwriting guidelines to increase a low- or
moderate-income family's buying power and to decrease the total amount of
cash needed to purchase a home. Borrowers who participate in this model
are required to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD).
Its main activity is the insuring of residential mortgage loans made by
private lenders. The FHA sets standards for construction and underwriting
but does not lend money or plan or construct housing.
fee simple
The greatest possible interest a person can have in real estate.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA).
Also known as a government mortgage.
finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan
for a prospective borrower.
first mortgage
A mortgage that is the primary lien against a property.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire
term of the loan.
flood insurance
Insurance that compensates for physical property damage resulting from flooding.
It is required for properties located in federally designated flood areas.
foreclosure (return to top)
The legal process by which a borrower in default under a mortgage is deprived
of his or her interest in the mortgaged property. This usually involves
a forced sale of the property at public auction with the proceeds of the
sale being applied to the mrotgage debt.
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.
good faith estimate
An estimate
of charges which a borrower is likely to incur in connection with a settlement.
hazard insurance (return to top)
Insurance protecting against loss to real estate caused
by fire, some natural causes, vandalism, etc., depending upon the terms
of the policy.
housing ratio
The ratio of the monthly housing
payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided
by the gross monthly income. This ratio is sometimes referred to as the
top ratio or front end ratio.
HUD
The U.S. Department of Housing
and Urban Development.
index (return to top)
A published interest rate to which the interest rate on
an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indeces include
the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds
(COFI).
lien (return to top)
An encumbrance against property for money due, either voluntary
or involuntary.
lifetime cap
A provision of an ARM that limits
the highest rate that can occur over the life of the loan.
loan to value ratio (LTV)
The ratio of the amount
of your loan to the appraised value of the home. The LTV will affect programs
available to the borrower and generally, the lower the LTV the more favorable
the terms of the programs offered by lenders.
lock-in
A written agreement guaranteeing
the home buyer a specified interest rate provided the loan is closed within
a set period of time. The lock-in also usually specifies the number of points
to be paid at closing.
margin (return to top)
The number of percentage points a lender adds to the index
value to calculate the ARM interest rate at each adjustment period. A representative
margin would be 2.75%.
mortgage
A legal document that pledges a property
to the lender as security for payment of a debt
mortgage disability insurance
A disability insurance
policy which will pay the monthly mortgage payment in the event of a covered
disability of an insured borrower for a specified period of time.
mortgage insurance (MI)
Insurance written by an
independent mortgage insurance company protecting the mortgage lender against
loss incurred by a mortgage default. Usually required for loans with an
LTV of 80.01% or higher.
mortgagee
The person or company who receives the
mortgage as a pledge for repayment of the loan. The mortgage lender.
mortgagor
The mortgage borrower
who gives the mortgage as a pledge to repay.
non-conforming loan (return to top)
Also called a jumbo loan. Conventional home mortgages not
eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac
(FHLMC) because of various reasons, including loan amount, loan characteristics
or underwriting guidelines. Non-conforming loans usually incur a rate and
origination fee premium.The current non-conforming loan limit is ,601
and above.
note
A written agreement containing
a promise of the signer to pay to a named person, or order, or bearer, a
definite sum of money at a specified date or on demand.
origination fee
A fee imposed by a lender to cover
certain processing expenses in connection with making a real estate loan.
Usually a percentage of the amount loaned, such as one percent.
owner financing (return
to top)
A property purchase transaction
in which the property seller provides all or part of the financing.
Planned Unit Developments (PUD)
A subdivision of
five or more individually owned lots with one or more other parcels owned
in common or with reciprocal rights in one or more other parcels.
PITI
Principal, interest, taxes and insurance--the
components of a monthly mortgage payment.
points
Charges levied by the mortgage lender and
usually payable at closing. One point represents 1% of the face value of
the mortgage loan.
prepaids
Those expenses of property which are paid
in advance of their due date and will usually be prorated upon sale, such
as taxes, insurance, rent, etc.
prepayment penalty
A charge imposed by a mortgage
lender on a borrower who wants to pay off part or all of a mortgage loan
in advance of schedule.
principal
Amount of debt, not including interest.
The face value of a note or mortgage.
private mortgage insurance (PMI)
Insurance
provided by nongovernment insurers that protects lenders against loss if
a borrower defaults. Fannie Mae generally requires private mortgage insurance
for loans with loan-to-value (LTV) percentages greater than 80%.
qualifying ratios
The ratio of
your fixed monthly expenses to your gross monthly income, used to determine
how much you can afford to borrow. The fixed monthly expenses would include
PITI along with other obligations such as student loans, car loans, or credit
card payments.
rate cap
A limit on how much the interest rate
can change, either at each adjustment period or over the life of the loan.
rate lock-in (return to top)
A written agreement in which the lender guarantees the borrower
a specified interest rate, provided the loan closes within a set period
of time.
rebate
Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).
refinancing
The process of paying off one loan
with the proceeds from a new loan using the same property as security.
residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information
from at least two of the three national credit bureaus and information provided
on your loan application.
seller carry back (return to top)
An agreement in which the owner of a property provides financing,
often in combination with an assumed mortgage.
survey
A print showing the measurements
of the boundaries of a parcel of land, together with the location of all
improvements on the land and sometimes its area and topography.
tenants-in-common (return to top)
An undivided interest in property taken by two or more persons.
The interest need not be equal. Upon death of one or more persons, there
is no right of survivorship.
title
The evidence one has of right to possession
of land.
title insurance
Insurance against loss resulting
from defects of title to a specifically described parcel of real property.
title search
An investigation into the history
of ownership of a property to check for liens, unpaid claims, restrictions
or problems, to prove that the seller can transfer free and clear ownership.
total debt ratio
Monthly debt and housing payments
divided by gross monthly income. Also known as Obligations-to-Income Ratio
or Back-End Ratio.
Truth-in-Lending Act (return
to top)
A federal law requiring a disclosure
of credit terms using a standard format. This is intended to facilitate
comparisons between the lending terms of different financial institutions.
Veterans Administration (VA)
A government agency
guaranteeing mortgage loans with no down payment to qualified veterans.
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