Home  Real Estate Real Estate Terminology
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Saturday, 25 March 2006 |
Acceleration clause
A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.
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-rate mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified 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 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.
Affordability analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Assessed value
The valuation placed on 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.
Assessment rolls
The public record of taxable property.
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 mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.
Assumption
The transfer of the seller's existing mortgage to the buyer.
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.
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. See home equity line of credit.
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 commitment
See commitment letter.
Loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.
Loan-to-value (LTV) percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.
Lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.
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 loan
A loan that exceeds Fannie Mae's legislated mortgage amount limits. Also called a nonconforming loan.
Late charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
Lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
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-purchase mortgage loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.
Legal description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
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.
Lien
A legal claim against a property that must be paid off when the property is sold.
Lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.
Lifetime rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
Master association
A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.
Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.
Merged credit report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.
Modification
The act of changing any of the terms of the mortgage.
Money market account
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.
Money market fund
A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
Mortgage banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
Mortgagee
The lender in a mortgage agreement.
Mortgage insurance
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (MI).
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.
Mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
Multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
Multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
Negative amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due.
Net cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
Net worth
No cash-out refinance
A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).
Nonliquid asset
An asset that cannot easily be converted into cash.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note rate
The interest rate stated on a mortgage note.
Notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Original principal balance
The total amount of principal owed on a mortgage before any payments are made.
Origination fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
Partial payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
Payment change date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Periodic payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Personal property
Any property that is not real property.
PITI reserves
A cash amount that a borrower must have on hand after making a downpayment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
Point
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.
Power of attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Prearranged refinancing agreement
A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.
Preforeclosure sale
A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.
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
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
Prime rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
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.
Principal, interest, taxes, and insurance
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
Private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
Purchase and sale agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase money transaction
The acquisition of property through the payment of money or its equivalent.
Qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Quitclaim deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
Radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems. rate-improvement mortgageA fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.
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.
Real estate agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
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.
Realtor
A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.
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 registrar's 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.
Rehabilitation mortgage
A mortgage created to cover the costs of repairing, improving and sometimes acquiring an existing property.
Remaining balance
The amount of principal that has not yet been repaid. See principal balance.
Remaining term
The original amortization term minus the number of payments that have been applied.
Rent loss insurance
Insurance that protects a landlord against loss of rent or rental value because of 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.
Repayment plan
An arrangement made to repay delinquent installments or advances.
Revolving liability
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 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.
Rural Housing Service (RHS)
An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
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 mortgage market
The buying and selling of existing mortgages.
Secured loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a loan.
Seller take-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Special deposit account
An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.
Standard payment calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
Step-rate mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e. seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
Subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subordinate financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
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.
Tenancy by the entirety
A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrasts with tenancy in common.
Tenancy in common
A type of joint tenancy in a property without right of survivorship. Contrasts with tenancy by the entirety and with joint tenancy.
Tenant-stockholder
The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.
Third-party origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund or package the mortgages it plans to deliver to the secondary mortgage market. See mortgage broker.
Title
A legal document evidencing a person's right to or ownership of a property.
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.
Total expense ratio
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
Trade equity
Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.
Transfer tax
State or local tax payable when title passes from one owner to another.
Treasury index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).
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.
Two-step mortgage
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
Trustee
A fiduciary who holds or controls property for the benefit of another.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself. unsecured loanA loan that is not backed by collateral.
VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
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.
Department of Veterans Affairs (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.
What-if analysis
An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
What-if scenario
A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis.
Wraparound mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.
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Last Updated ( Saturday, 06 May 2006 )
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