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Licensed Real Estate
Broker & Realtor
James Paradise
Washington State
Lic: 10610
509-525-1828 |
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True Assist: Glossary of Housing Terms
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The following glossary is courtesy of Fannie Mae
A
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 the mortgage's
interest rate periodically on the basis of changes in a
specified index. Interest rates may move up or down, as market
conditions change.
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.
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
The gradual repayment of a mortgage loan by installments.
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. For
example, for a 30-year fixed-rate mortgage, the amortization
term is 360 months.
amortize
To repay a mortgage with regular payments that cover both
principal and interest.
annual mortgagor statement
A report sent to the mortgagor (the borrower) each year. The
report shows how much was paid in taxes and interest during the
year, as well as the remaining mortgage loan balance at the end
of the year.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such
items as interest, 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. Lenders use the information on the loan application to
evaluate whether or not they can give the loan, and if so, the
amount of money they can lend.
appraisal
A written analysis of the estimated value of a property prepared
by a qualified appraiser. Contrast with home inspection.
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.
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. See
assumable mortgage.
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.
attorney-in-fact
One who holds a power of attorney from another to execute
documents on behalf of the grantor of the power.
B | top of page
balance sheet
A financial statement that shows assets, liabilities and net
worth as of a specific date.
balloon mortgage
A mortgage that has level monthly payments that will amortize it
over a stated term but that provides for a lump sum payment to
be due at the end of an earlier specified term. The principal
and interest on the loan are amortized over a longer period than
the actual term of the mortgage.
balloon payment
The final lump sum payment that is made at the maturity date of
a balloon mortgage.
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.
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.
bequeath
To transfer personal property through a will.
betterment
An improvement that increases property value as distinguished
from repairs or replacements that simply maintain value.
bill of sale
A written document that transfers title to personal property.
binder
A preliminary agreement, secured by the payment of an earnest
money deposit, under which a buyer offers to purchase real
estate.
biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two
weeks (instead of the standard monthly payment schedule). The 26
(or possibly 27) biweekly payments are each equal to one-half of
the monthly payment that would be required if the loan were a
standard 30-year fixed-rate mortgage, and they are usually
drafted from the borrower’s bank account. The result for the
borrower is a substantial savings in interest.
blanket insurance policy
A single policy that covers more than one piece of property (or
more than one person).
blanket mortgage
The mortgage that is secured by a cooperative project, as
opposed to the share loans on individual units within the
project.
bona fide
In good faith, without fraud.
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.
breach
A violation of any legal obligation.
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. Also known as "swing loan."
broker
A person who, for a commission or a fee, brings parties together
and assists in negotiating contracts between them.
budget
A detailed plan of income and expenses expected over a certain
period of time. A budget can provide guidelines for managing
future investments and expenses.
budget category
A category of income or expense data that you can use in a
budget. You can also define your own budget categories and add
them to some or all of the budgets you create. "Rent" is an
example of an expense category. "Salary" is a typical income
category.
building code
Local regulations that control design, construction and
materials used in construction. Building codes are based on
safety and health standards.
buydown account
An account in which funds are held so that they can be applied
as part of the monthly mortgage payment as each payment comes
due during the period that an interest rate buydown plan is in
effect.
buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum
payment is made by any party to reduce a borrower’s monthly
payments during the first few years of a mortgage. A permanent
buydown reduces the interest rate over the entire life of a
mortgage.
C
call option
A provision in the mortgage that gives the mortgagee (the
lender) the right to call the mortgage due and payable at the
end of a specified period for whatever reason.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how
much the interest rate or mortgage payments may increase or
decrease. See lifetime payment cap, lifetime rate cap, periodic
payment cap and periodic rate cap.
capital
(1) Money used to create income, either as an investment in a
business or an income property. (2) The money or property
comprising the wealth owned or used by a person or business
enterprise. (3) The accumulated wealth of a person or business.
(4) The net worth of a business represented by the amount by
which its assets exceed liabilities.
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.
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. In other words, a refinance transaction in which the
borrower receives additional cash that can be used for any
purpose.
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. See adjustable rate mortgage (ARM).
certificate of deposit index
An index that is used to determine interest rate changes for
certain adjustable-rate mortgage (ARM) plans. It represents the
weekly average of secondary market interest rates on six-month
negotiable certificates of deposit. See adjustable-rate
mortgage.
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 title
A statement provided by an abstract company, title company, or
attorney stating that the title to real estate is legally held
by the current owner.
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.
clear title
A title that is free of liens or legal questions as to ownership
of the property.
closing
A meeting at which a sale of a property is finalized by the
buyer signing the mortgage documents and paying closing costs.
Also called "settlement." At this meeting, ownership of the
property is transferred from the seller to the buyer.
closing cost item
A fee or amount that a home buyer must pay at closing for a
single service, tax, or product. Closing costs are made up of
individual closing cost items such as origination fees and
attorney's fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
closing costs
Expenses (over and above the price of the property) incurred by
buyers and sellers in transferring ownership of a property.
Closing costs normally include an origination fee, an attorney's
fee, taxes, an amount placed in escrow and charges for obtaining
title insurance and a survey. Closing costs percentage will vary
according to the area of the country; lenders or REALTORS® often
provide estimates of closing costs to prospective homebuyers.
closing statement
See HUD-1 statement.
cloud on title
Any conditions revealed by a title search that adversely affect
the title to real estate. Usually clouds on title cannot be
removed except by a quitclaim deed, release, or court action.
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. See endorser.
commission
The fee charged by a broker or agent for negotiating a real
estate or loan transaction. A commission is generally a
percentage of the price of the property or loan.
commitment letter
A formal offer by a lender stating the terms under which it
agrees to lend money to a home buyer. Also known as a "loan
commitment."
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 Land Trust Mortgage Option
An alternative financing option that enables low- and
moderate-income home buyers to purchase housing that has been
improved by a nonprofit Community Land Trust and to lease the
land on which the property stands.
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.
Community Seconds®
An alternative financing option for low- and moderate-income
households under which an investor purchases a first mortgage
that has a subsidized second mortgage behind it. The second
mortgage may be issued by a state, county or local housing
agency, foundation, or nonprofit organization. Payment on the
second mortgage is often deferred and carries a very low
interest rate (or no interest rate at all). Part of the debt may
be forgiven incrementally for each year the buyer remains in the
home.
comparables
An abbreviation for "comparable properties"; used for
comparative purposes in the appraisal process. Comparables are
properties like the property under consideration; they have
reasonably the same size, location and amenities and have
recently been sold. Comparables help the appraiser determine 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 determination that a building is not fit for use or is
dangerous and must be destroyed; the taking of private property
for a public purpose through an exercise of the right of eminent
domain.
condominium
A real estate project in which each unit owner has title to a
unit in a building, an undivided interest in the common areas of
the project and sometimes the exclusive use of certain limited
common areas.
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.
construction loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder at
periodic intervals as the work progresses.
contingency
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a
contingency that specifies that the contract is not binding
until the purchaser obtains a satisfactory home inspection
report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal
government. Contrast with government mortgage.
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 timeframes after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a
fixed-rate mortgage under specified conditions.
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 mortgages
Mortgages related to a cooperative project. This usually refers
to the multifamily mortgage covering the entire project but
occasionally describes the share loans on the individual units.
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. See adjustable-rate mortgage (ARM).
covenant
A clause in a mortgage that obligates or restricts the borrower
and that, if violated, can result in foreclosure.
credit
An agreement in which a borrower receives something of value in
exchange for a promise to repay the lender at a later date.
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 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.
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.
D
debt
An amount owed to another. See installment loan and revolving
liability.
deed
The legal document conveying title to a property.
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
The document used in some states instead of a mortgage; title is
conveyed to a trustee.
default
Failure to make mortgage payments on a timely basis or to comply
with other requirements of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments are
due.
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. See earnest money deposit.
depreciation
A decline in the value of property; the opposite of
appreciation.
discount points
See point.
dower
The rights of a widow in the property of her husband at his
death.
down payment
The part of the purchase price of a property that 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. See
due-on-sale provision.
E
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.
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 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 improvement that intrudes illegally on another’s property.
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
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.
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. The court will
appoint an administrator if no executor is named. "Executrix" is
the feminine form.
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.
Fannie Mae
A New York Stock Exchange company and the largest non-bank
financial services company in the world. It operates pursuant to
a federal charter and is the nation's largest source of
financing for home mortgages.
Fannie Mae Properties
Fannie Mae owns, manages and has available for sale,
single-family detached homes, two- to four-unit properties,
condominiums and townhouses in a variety of neighborhoods. The
number, type and sales price may vary substantially. The homes
vary in age and may require repairs. Fannie Mae homes are sold
through local real estate brokers whose contact information is
provided in the Fannie Mae Properties for Sale search results on
homepath.com.
Fannie Mae's Community Home Buyer's ProgramSM
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.
Fannie 97®
A financing option for a fixed-rate mortgage that offers home
buyers a 3 percent down payment loan with a term between 15 and
30 years. The mortgage features a loan-to-value (LTV) percentage
of 97 percent, and is designed to expand homeownership
opportunities for people with modest incomes. Borrowers must
take a pre-purchase home-buyer education session to qualify for
a Fannie 97 mortgage.
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.
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 coinsured mortgage
A mortgage (under FHA Section 244) for which the Federal Housing
Administration (FHA) and the originating lender share the risk
of loss in the event of the mortgagor's default.
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.
firm commitment
A lender’s agreement to make a loan to a specific borrower on a
specific property.
first mortgage
A mortgage that is the primary lien against a property.
fixed installment
The monthly payment due on a mortgage loan. The fixed
installment includes payment of both principal and interest.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the
entire term of the loan.
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.
foreclosure
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 mortgage debt.
forfeiture
The loss of money, property, rights or privileges due to a
breach of legal obligation.
401(k)/403(b)
An employer-sponsored investment plan that allows individuals to
set aside tax-deferred income for retirement or emergency
purposes. 401(k) plans are provided by employers that are
private corporations. 403(b) plans are provided by employers
that are not for profit organizations.
401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans
against the monies you have accumulated in these plans -- monies
must be repaid to avoid serious penalty charges.
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.
G
government mortgage
A mortgage that is insured by the Federal Housing Administration
(FHA) or guaranteed by the Department of Veterans Affairs (VA)
or the Rural Housing Service (RHS). Contrast with conventional
mortage.
Government National Mortgage Association
A government-owned corporation within the U.S. Department of
Housing and Urban Development (HUD). Created by Congress on
Sept. 1, 1968, GNMA assumed responsibility for the special
assistance loan program formerly administered by Fannie Mae.
Popularly known as Ginnie Mae.
grantee
The person to whom an interest in real property is conveyed.
grantor
The person conveying an interest in real property.
ground rent
The amount of money that is paid for the use of land when title
to a property is held as a leasehold estate rather than as a fee
simple estate.
group home
A single-family residential structure designed or adapted for
occupancy by unrelated developmentally disabled persons. The
structure provides long-term housing and support services that
are residential in nature.
growing-equity mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases
over an established period of time, with the increased amount of
the monthly payment applied directly toward reducing the
remaining balance of the mortgage.
guarantee mortgage
A mortgage that is guaranteed by a third party.
guaranteed loan
Also known as a government mortgage.
H
hazard insurance
Insurance coverage that compensates for physical damage to a
property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
A special type of mortgage that enables older home owners to
convert the equity they have in their homes into cash, using a
variety of payment options to address their specific financial
needs. 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 the property. Sometimes called a
reverse mortgage.
home equity line of credit
A mortgage loan, which is usually in a subordinate position,
that allows the borrower to obtain multiple advances of the loan
proceeds at his or her own discretion, up to an amount that
represents a specified percentage of the borrower's equity in a
property.
home inspection
A thorough inspection that evaluates the structural and
mechanical condition of a property. A satisfactory home
inspection is often included as a contingency by the purchaser.
Contrast with appraisal.
HomeKeeperSM
Fannie Mae's adjustable-rate conventional reverse mortgage,
which allows older homeowners to borrow against the value of
their homes and receive the proceeds according to the payment
option they select. The amount available is based on the number
of borrowers and their ages and the adjusted property value.
Anyone 62 years or older who either owns his or her own home
free and clear or has very low mortgage debt is eligible.
homeowners' association
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
elements.
homeowner's insurance
An insurance policy that combines personal liability insurance
and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty (HOW)
A type of insurance that covers repairs to specified parts of a
house for a specific period of time. It is provided by the
builder or property seller as a condition of the sale.
HomeStyle® Mortgage Loan
A mortgage that enables eligible borrowers to obtain financing
to remodel, repair and upgrade their existing homes or homes
that they are purchasing. See also HomeStyle Standard Mortgage,
HomeStyle Remodeler, HomeStyle Community Mortgage and HomeStyle
Consumer Energy Loan.
housing expense ratio
The percentage of gross monthly income that goes toward paying
housing expenses.
HUD median income
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 statement
A document that provides an itemized listing of the funds that
are payable at closing. Items that appear on the statement
include real estate commissions, loan fees, points and initial
escrow amounts. Each item on the statement is represented by a
separate number within a standardized numbering system. The
totals at the bottom of the HUD-1 statement define the seller's
net proceeds and the buyer's net payment at closing. The blank
form for the statement is published by the Department of Housing
and Urban Development (HUD). The HUD-1 statement is also known
as the "closing statement" or "settlement sheet."
I
income property
Real estate developed or improved to produce income.
index
A number used to compute the interest rate for an
adjustable-rate mortgage (ARM). The index is generally a
published number or percentage, such as the average interest
rate or yield on Treasury bills. A margin is added to the index
to determine the interest rate that will be charged on the ARM.
This interest rate is subject to any caps that are associated
with the mortgage.
in-file credit report
An objective account, normally computer-generated, of credit and
legal information obtained from a credit repository.
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. This rate changes for an adjustable-rate mortgage
(ARM). Sometimes known as "start rate" or "teaser."
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 rate of interest in effect for the monthly payment due.
interest rate buydown plan
An arrangement wherein the property seller (or any other party)
deposits money to an account so that it can be released each
month to reduce the mortgagor's monthly payments during the
early years of a mortgage. During the specified period, the
mortgagor's effective interest rate is "bought down" below the
actual interest rate.
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.
J
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 loan
A loan that exceeds Fannie Mae’s mortgage amount limits. Also
called a nonconforming loan.
L
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, interest rate ceiling and interest rate
floor.
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.
M]
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.
monthly fixed installment
That portion of the total monthly payment that is applied toward
principal and interest. When a mortgage negatively amortizes,
the monthly fixed installment does not include any amount for
principal reduction.
monthly payment mortgage
A mortgage that requires payments to reduce the debt once a
month.
mortgage
A legal document that pledges a property to the lender as
security for payment of a debt.
mortgage banker
A company that originates mortgages exclusively for resale in
the secondary mortgage market.
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.
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.
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.
mortgagor
The borrower in a mortgage agreement.
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.
multifamily properties
Fannie Mae provides financing for multifamily (buildings with
five or more units) rental properties through a nationwide
network of mortgage lenders.
N
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. The amount of the shortfall is added to the
remaining balance to create "negative" amortization.
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
The value of all of a person's assets, including cash, minus all
liabilities.
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.
O
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.
P
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
See principal, interest, taxes and insurance (PITI) below.
PITI reserves
A cash amount that a borrower must have on hand after making a
down payment 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.
planned unit development
See PUD below.
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. More
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 (PITI)
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.
promissory note
A written promise to repay a specified amount over a specified
period of time.
public auction
A meeting in an announced public location to sell property to
repay a mortgage that is in default.
PUD (Planned Unit Development)
A project or subdivision that includes common property that is
owned and maintained by a homeowners' association for the
benefit and use of the individual PUD unit owners.
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.
Q
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.
R
radon
A radioactive gas found in some homes that in sufficient
concentrations can cause health problems.
rate-improvement mortgage
A 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. See lock-in.
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 due to 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.
rent with option to buy
See lease-purchase mortgage loan.
repayment plan
An arrangement made to repay delinquent installments or
advances. Lenders' formal repayment plans are called "relief
provisions."
replacement reserve fund
A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly that
which has a short life expectancy, such as carpeting, furniture,
etc.
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 first refusal
A provision in an agreement that requires the owner of a
property to give another party the first opportunity to purchase
or lease the property before he or she offers it for sale or
lease to others.
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.
S
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. See
owner financing.
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.
settlement
See closing.
settlement sheet
See HUD-1 statement.
single-family properties
One- to four-unit properties including detached homes,
townhomes, condominiums and cooperatives.
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.
subsidized second mortgage
An alternative financing option known as the Community Seconds®
mortgage for low- and moderate-income households. An investor
purchases a first mortgage that has a subsidized second mortgage
behind it. The second mortgage may be issued by a state, county,
or local housing agency, foundation, or nonprofit corporation.
Payment on the second mortgage is often deferred and carries a
very low interest rate (or no interest rate). Part of the debt
may be forgiven incrementally for each year the buyer remains in
the home.
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.
T
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.
Contrast with tenancy in common.
tenancy in common
A type of joint tenancy in a property without right of
survivorship. Contrast 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 rocess 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 company
A company that specializes in examining and insuring titles to
real estate.
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 of ownership
Any means by which the ownership of a property changes hands.
Lenders consider all of the following situations to be a
transfer of ownership: the purchase of a property "subject to"
the mortgage, the assumption of the mortgage debt by the
property purchaser and any exchange of possession of the
property under a land sales contract or any other land trust
device. In cases in which an inter vivos revocable trust is the
borrower, lenders also consider any transfer of a beneficial
interest in the trust to be a transfer of ownership.
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.
two- to four-family property
A property that consists of a structure that provides living
space (dwelling units) for two to four families, although
ownership of the structure is evidenced by a single deed.
trustee
A fiduciary who holds or controls property for the benefit of
another.
U
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 loan
A loan that is not backed by collateral.
V
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.
W
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. You can use a what-if scenario to explore different
ways to improve your ability to afford a house.
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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