GLOSSARY & DEFINITIONS
Insurance coverage that in the event of physical damage to a
property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity
mortgage, what makes this type of mortgage unique is that instead of
making payments to a lender, the lender makes payments to you. It
enables older home owners to convert the equity they have in their
homes into cash, usually in the form of monthly payments. Unlike
traditional home equity loans, a borrower does not qualify on the
basis of income but on the value of his or her home. In addition, the
loan does not have to be repaid until the borrower no longer occupies
home equity line of credit
A mortgage loan, usually in second
position, that allows the borrower to obtain cash drawn against the
equity of his home, up to a predetermined amount.
A thorough inspection by a professional
that evaluates the structural and mechanical condition of a property.
A satisfactory home inspection is often included as a contingency by
A nonprofit association that manages the
common areas of a planned unit development (PUD) or condominium
project. In a condominium project, it has no ownership interest in the
common elements. In a PUD project, it holds title to the common
An insurance policy that combines
personal liability insurance and hazard
insurance coverage for a dwelling and its contents.
A type of insurance often purchased by
homebuyers that will cover repairs to certain items, such as heating
or air conditioning, should they break down within the coverage
period. The buyer often requests the seller to pay for this coverage
as a condition of the sale, but either party can pay.
Median family income for a particular
county or metropolitan statistical area (MSA), as estimated by the
Department of Housing and Urban Development (HUD).
HUD-1 settlement statement
A document that provides an itemized
listing of the funds that were paid at closing. Items that appear on
the statement include real estate commissions, loan fees, points, and
initial escrow (impound) amounts. Each type of expense goes on a
specific numbered line on the sheet. The totals at the bottom of the
HUD-1 statement define the seller's net proceeds and the buyer's net
payment at closing. It is called a HUD1 because the form is printed by
the Department of Housing and Urban Development (HUD). The HUD1
statement is also known as the "closing statement" or "settlement
A form of ownership or taking title to property which means each
party owns the whole property and that ownership is not separate. In
the event of the death of one party, the survivor owns the property in
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
A type of foreclosure proceeding used in
some states that is handled as a civil lawsuit and conducted entirely
under the auspices of a court. Other states use non-judicial
A loan that exceeds Fannie Mae’s and
Freddie Mac’s loan limits, currently at $227,150. Also called a
nonconforming loan. Freddie Mac and Fannie Mae loans are referred to
as conforming loans.
The penalty a borrower must pay when a
payment is made a stated number of days. On a first trust deed or
mortgage, this is usually fifteen days.
A written agreement between the property
owner and a tenant that stipulates the payment and conditions under
which the tenant may possess the real estate for a specified period of
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.
An alternative financing option that
allows home buyers to lease a home with an option to buy. Each month's
rent payment may consist of not only the rent, but an additional
amount which can be applied toward the down payment on an already
A property description, recognized by
law, that is sufficient to locate and identify the property without
A term which can refer to the institution making the loan or to
the individual representing the firm. For example, loan officers are
often referred to as "lenders."
A person's financial obligations.
Liabilities include long-term and short-term debt, as
well as any other amounts that are owed to
Insurance coverage that offers
protection against claims alleging that a property owner's negligence
or inappropriate action resulted in bodily injury or property damage
to another party. It is usually part of a homeowner’s insurance
A legal claim against a property that
must be paid off when the property is sold. A mortgage or first trust
deed is considered a lien.
For an adjustable-rate mortgage (ARM), a
limit on the amount that the enterest rate can increase or decrease
over the life of the mortgage.
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.
A cash asset or an asset that is easily
converted into cash.
A sum of borrowed money (principal) that
is generally repaid with interest.
Also referred to by a variety of other terms, such as lender, loan
representative, loan "rep," account executive, and others. The loan
officer serves several functions and has various responsibilities:
they solicit loans, they are the representative of the lending
institution, and they represent the borrower to the lending
How a lender refers to the process of
obtaining new loans.
After you obtain a loan, the company you make the payments to is
"servicing" your loan. They process payments, send statements, manage
the escrow/impound account, provide collection efforts on delinquent
loans, ensure that insurance and property taxes are made on the
property, handle pay-offs and assumptions, and provide a variety of
The percentage relationship between the
amount of the loan and the appraised value or sales price (whichever
An agreement in which the lender
guarantees a specified interest rate for a certain amount of time at a
The time period during which the lender
has guaranteed an interest rate to a borrower.
The difference between the interest rate
and the index on an adjustable rate mortgage. The margin remains
stable over the life of the loan. It is the index which moves up and
The date on which the principal balance
of a loan, bond, or other financial instrument becomes due and
merged credit report
A credit report which reports the raw
data pulled from two or more of the major credit repositories.
Contrast with a Residential Mortgage Credit Report (RMCR) or a
standard factual credit report.
Occasionally, a lender will agree to
modify the terms of your mortgage without requiring you t refinance.
If any changes are made, it is called a modification.
A legal document that pledges a property
to the lender as security for payment of a debt. Instead of mortgages,
some states use First Trust Deeds.[
For a more complete discussion of
mortgage banker, see "Types of Lenders." A mortgage banker is
generally assumed to originate and fund their own loans, which are
then sold on the secondary market, usually to Fannie Mae, Freddie Mac,
or Ginnie Mae. However, firms rather loosely apply this term to
themselves, whether they are true mortgage bankers or simply mortgage
brokers or correspondents.
A mortgage company that originates
loans, then places those loans with a variety of other lending
institutions with whom they usually have pre-established
The lender in a mortgage agreement.
mortgage insurance (MI)
Insurance that covers the lender against
some of the losses incurred as a result of a default on a home loan.
Often mistakenly referred to as PMI, which is actually the name of one
of the larger mortgage insurers. Mortgage insurance is usually
required in one form or another on all loans that have a loan-to-value
higher than eighty percent. Mortgages above 80% LTV that call
themselves "No MI" are usually a made at a higher interest rate.
Instead of the borrower paying the mortgage insurance premiums
directly, they pay a higher interest rate to the lender, which then
pays the mortgage insurance themselves. Also, FHA loans and certain
first-time homebuyer programs require mortgage insurance regardless of
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)
mortgage life and disability insurance
A type of term life insurance often
bought by borrowers. The amount of coverage decreases as the principal
balance declines. Some policies also cover the borrower in the event
of disability. In the event that the borrower dies while the policy is
in force, the debt is automatically satisfied by insurance proceeds.
In the case of disability insurance, the insurance will make the
mortgage payment for a specified amount of time during the disability.
Be careful to read the terms of coverage, however, because often the
coverage does not start immediately upon the disability, but after a
specified period, sometime forty-five days.
The borrower in a mortgage agreement.[Top]
Properties that provide separate housing
units for more than one family, although they secure only a single
Some adjustable rate mortgages allow the
interest rate to fluctuate independently of a required minimum
payment. If a borrower makes the minimum payment it may not cover all
of the interest that would normally be due at the current interest
rate. In essence, the borrower is deferring the interest payment,
which is why this is called "deferred interest." The deferred interest
is added to the balance of the loan and the loan balance grows larger
instead of smaller, which is called negative amortization.
no cash-out refinance
A refinance transaction which is not
intended to put cash in the hand of the borrower. Instead, the new
balance is caculated to cover the balance due on the current loan and
any costs associated with obtaining the new mortgage. Often referred
to as a "rate and term refinance."
Many lenders offer loans that you can obtain at "no cost." You
should inquire whether this means there are no "lender" costs
associated with the loan, or if it also covers the other costs you
would normally have in a purchase or refinance transactions, such as
title insurance, escrow fees, settlement fees, appraisal, recording
fees, notary fees, and others. These are fees and costs which may be
associated with buying a home or obtaining a loan, but not charged
directly by the lender. Keep in mind that, like a "no-point" loan, the
interest rate will be higher than if you obtain a loan that has costs
associated with it.
A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period of time.
The interest rate stated on a mortgage
Almost all lenders offer loans at "no points." You will find the
interest rate on a "no points" loan is approximately a quarter percent
higher than on a loan where you pay one point.
notice of default
A formal written notice to a borrower that a default has occurred
and that legal action may be taken.
copyright 1998 by Terry Light and RealEstate ABC -- May not be
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