Mortgage
Terms Defined A-F
Basic
Terms Used for Mortgages
Terms: A-F
G-M
N-S
T-Z
Loans
may involve other terms. In the event you don't
understand some of these terms, ask for help from
your lender or attorney.
A | B
| C | D | E
| F
Abstract (of Title)
The title to the property is a synopsis
of all recorded transactions that an attorney or
title company has to analyze to find out whether
there are any unsuitable problems influencing the
title to the property. All problems are then validated
before the buyer is issued the title.
Acceleration Clause
A loan provision allowing the lender
to have credibility to render all assets owed to
the lender promptly. The renter is in infraction
of the loan provision, such as the sale of the property,
or unable to make payments on time.
Accretion
Enlarging the amount of land through
innate forces (water, wind, erosion, etc).
Example : location of new soil by
a stream.
Agreement of Sale
A written signed agreement between
the seller of a property and the purchaser in which
the purchaser agrees to buy real estate and the
seller agrees to sell upon the terms of the agreement.
Beneficiary
A person who acquires or is going
to acquire benefits from indisputable events.
Example : The beneficiary on a mortgage
loan is the lender.
Bi-weekly Mortgage
A mortgage which requires 1/2 the
normal monthly payment every two weeks. Over the
course of the year, 26 half payments are made which
is equivalent to 13 full mortgage payments. As a
result of this extra payment the loan amortizes
much faster than a loan with normal monthly payments.
Blanket Mortgage
A contract comprising of multiple
amounts of property.
Example : A man gets a blanket mortgage
for his 3 tracts of land.
Borrower
A person who receives a loan and is
responsible to make mortgage payments.
Bridge Loan
A loan used for someone who is having
trouble selling his/her current home and needs money
to buy a new home. Once the current home is sold
the loan is then paid off.
Buy Down
A lower interest rate is offered through
a point system set by the lender (buying the rate
lower). The rate may last through the life of the
loan or for only a year or so. The buy down system
is a method for someone to qualify who is not suitable
as a potential borrower. With a buy down the monthly
payments are lowered.
Buyers Broker
A buyer seeks someone, usually an
agent, to find and locate property that is for sale.
The broker, a delegate on the behalf of the buyer,
tries to deal with the sellers brokers to achieve
the best possible deal.
Buyers Market
When buyers are able to bargain with
sellers for a lower prices over property this may
be a cause known as the buyers market (more sellers
then buyers). The market is in favor of the buyers
since more property for sale is in abundance. This
type of buyers market may be seen during an economic
drop or widespread developments.
Bylaws
How an establishment/organization
handles business (set of regulations), e.g. a condo
community constructs bylaws that define the number
of people that may live in one household.
Capital Gains
The money gained from the sale of
the property. A seller can delay the taxes on the
capital gain by two years if they purchase a more
expensive home within that time.
Cash Flow
The money accumulated over a given
amount of time from an income producing property.
The amount of money coming in from the property
should be able to cover the cost of the income producing
property (mortgage, basic upkeep, etc.).
Caveat Emptor
Actual definition meaning "let
buyer beware". Pre-purchasing and examination
of the property is done at the buyers own risk.
e.g. a property can be shown/represented without
the assurance of condition or quality.
Covenants, conditions, and
restrictions - CC&Rs.
The basic rules establishing the rights
and obligations of owners of real estate in a condominium,
townhouse, PUD, subdivision or other tract of land.
An association is organized in order to maintain
the property commonly owned by the individual owners.
The association is typically made up of all of the
home owners.
Certificate of Reasonable
Value (CRV)
Appraisals given by an approved VA
(Veterans Administration) appraiser. They are to
set the maximum value on the VA mortgage loan principal.
Certificate of Occupancy
A form that must be given to the lender
prior to closing a loan. The document must state
the number of people living in one residency and
that the home meets public health and building codes.
Certificate of Title
A statement by an attorney stating
the status to the title of property. This certificate
does not give the same benefits and protection as
title insurance.
Clear Title
A retail title, clear of questionable
and controversial issues. Some lenders have a clear
title as a requirement before closing.
Closing
Changing ownership of land from the
current owner to the buyer.
Closing Costs
Expenses incurred by the buyer and
seller in a real estate or mortgage transaction.
Types of costs are recurring and non-recurring.
Non-recurring costs are one time costs
which include discount and origination points.
Lender fees - underwriting, processing,
document preparations, flood certificate, tax service,
wire transfer, courier, etc.
Title insurance fees
Escrow, attorney or closing agent
fees
Recording fees
Inspection and appraisal fees
Real estate brokerage commissions
Recurring fees are costs associated
with owning the property and they recur month after
month. These costs may include hazard insurance,
interest, property taxes, mortgage insurance (PMI),
and association fees. A pro-rated amount of these
fees may have to be paid at closing including Pre-paid
interest - interest charges from the date of closing
to the end of the month
Cloud on Title
Questionable claims that could jeopardize
the owner's title.
Commitment
A lender agreeing or committed to
specific terms, on a written document, to a contractor
or borrower.
Condemnation
1. Using private property for public
use while providing a considerable amount of compensation
(usually money) to the owner. The land in turn is
usually used for schools, streets and other community
projects.
2. A home in violation of housing
codes and consequently goes under government regulation.
Conditional Commitment
A lender making a commitment to a
loan however, certain conditions must be meet before
the closing date of the property.
Condominium
Single ownership of a property unit
with a shared interest in commonly owned areas and
facilities which appeal to everyone in the condo
community.
Construction loan
This type of loan is temporary and
used for construction of buildings and homes. A
construction loan also gives the contractor small
amounts of money over the construction period. It
is not till the job is completely finished when
a permanent loan is used to pay off the rest of
the construction.
Consideration
Anything that would entice a seller
into a contract (example: money deposits).
Contingency
Contingencies are conditions usually
set forth in the contract that must be met before
the buyer will close the purchase of the property.
E.G. if the sales contract stated the buyer has
21 days to check all necessary repairs needed to
the property and asks the seller to perform them.
If the buyer is not pleased with the repairs or
if they were not performed the buyer is then allowed
to back out of the contract. However, after the
21 days are up the buyer can not back out due to
the condition of the property.
Contract
A mutual agreement between the two
parties which are involved in buying and selling
property. E.G. an acceptable contract for sale contains:
an offer, an acceptance, competent parties, consideration,
legal purpose, written documentation, description
of the property, signatures by principals.
Contract sale or deed
An installment arrangement between
the buyer and seller stating that the buyer may
reside on the property but the seller holds the
title till sale is official and paid.
Conventional Loan
Their are two types of conventional
loans: conforming and non-conforming. This is any
type of mortgage other then VA and FHA loans.
Conveyance
The change of a real estate title
from one party to another.
Co-op - cooperative
In a cooperative, an apartment building
is owned by a corporation that holds the title to
the property or real estate. A resident however,
is able to buy stock from the corporation which
in turn allows him to live in the building unit
owned by the cooperative. The person owning the
stock does not have a title to the property but
they are allowed to remain in their unit as long
as they still hold stock.
Convertible ARMs
Certain loans are able to be converted
to a fixed loan provided it follows a set formula.
Credit Report
A detailed report showing someone's
credit history such as credit cards (revolving accounts)
and car loans (installment accounts). Some reports
will also show detailed descriptions from tax liens
and judgments.
Deed
The title of property, normally changed
from one owner to another at closing. The deed contains
information about the property and the location.
It is given to the buyer at closing.
Deed Restriction
Limiting the use of land by a clause,
e.g. not permitted to construct a new road through
the land.
Defective Title
The inability to give a clear title.
Deficiency Judgment
Personal claim made against a debtor
when the sale of a foreclosed property does not
yield sufficient proceeds to pay off mortgages,
accrued interest, legal fees, ...
Depreciation
The decreasing value of a house caused
by damages to the house or other means.
Discount Points
Decreasing an interest rate by paying
fees to a lender.
Documentary Tax Stamps
Stamps on a deed showing the total
amount of a transfer tax.
Down payment
The amount paid in advance on a property.
Earnest Money
Money showing evidence of good faith.
The money is usually kept in safe keeping with a
real estate broker or escrow company.
Easement
Using land for a specific purpose,
the easement can either be temporary or permanent.
Eminent Domain
The governments ability to take over
property (condemnation) for public use with compensation
to the property owner.
Encroachment
Anything that physically lays or touches
on the property of another.
Example: A fence being built.
Encumbrance
A legal right or interest in land/property
that affects a good or clear title, and reduces
the land/properties value. Such as zoning ordinances,
easement rights, claims, mortgages, liens, charges,
a pending legal action, unpaid taxes, or restrictive
covenants. An encumbrance will not legally prevent
the transfer of the property. A title search is
typically done to find the existence of encumbrances.
It is up to the buyer to determine whether he wants
to purchase an encumbered land/property and what
can be done to remove the encumbrance.
Equity
Equity (usually given in a percentage)
is equal to the property value minus any liens.
Escrow
A neutral third party that deals with
the financial aspects of a real estate transaction.
A deposit is put into escrow, the mortgage lender
funds the loan into escrow, escrow pays the realtor
commission, pays of any liens/loans on the property
and any property taxes and other costs associated
with the transfer. The remaining funds are then
transferred to the property seller.
Federal National Mortgage
Association (FNMA, Fannie Mae)
Purchases loans from lenders and then
sells FNMA mortgage backed securities on Wall street.
Federal Home Loan Bank Board
(FHLBB)
Financing for farmers.
Farmer's Home Administration
(FMHA)
Programs that assist people who want
to buy farms and homes in rural areas.
Federal Home Loan Mortgage
Corporation (FHLMC, Freddie Mac)
Purchases loans from members of the
Federal Reserve and the Federal Home Loan Bank Systems,
and sells FHLMC mortgage backed securities on wall
street.
Federal Housing Administration
(FHA)
An agency that issues loan guarantees
and administers loan programs which makes more housing
available.
Federal Reserve System
Provides regulation of the federal
bank and gives services to commercial banks. Also
sets the nations monetary policy as well.
Fee Simple
The owner that has absolute ownership
of the property in the case of this person's death
the property is given to their heirs.
Fiduciary
Someone who is to act in the best
interest of a client. A realtor is a fiduciary for
his/her clients.
Finance Charge
Interest charged by a lender.
First Mortgage
A mortgage with precedence over the
second mortgage. In the case of closing on property
the first mortgage will we covered before the second.
Flood Insurance
Insurance that covers the cause of
damage to a home due to flooding.
Foreclosure
Forcing the sale of property by a
default stated in a mortgage, e.g. not meeting payments
on time.
Free and clear
A property that has no liens.
FSBO
For sale by owner.
